ALEXANDRIA, Va. -- A Rhode Island-based contractor's "totally inappropriate" billing practices drew suspicions of fraud just weeks into its work on a top-priority job in the reconstruction of Iraq, the chief of the project testified yesterday at the firm's trial on war-profiteering charges.
Hugh B. Tant III said he ordered an official investigation of Custer Battles LLC's accounting in November 2003 because an invoice seeking a $3.7-million profit on the work "appeared to be fraud."
Tant also testified that a Custer Battles employee confided at the time that he suspected the firm of running phony invoices through shell subsidiaries to jack up profits to several times the amount contracted.
Tant said he put investigators in touch with the employee, William D. "Pete" Baldwin, one of the whistleblowers who later brought the civil charges now on trial.
But as defense lawyers challenged Tant's testimony, he acknowledged that he had incorrectly attributed key statements to one of the cofounders of Custer Battles.
On Wednesday, Tant recalled a meeting in his Baghdad offices in October 2003 during which Michael J. Battles had "ranted" under criticism. Tant said Battles had angrily insisted that his firm's delivery of some trucks for the project complied with the terms of his contract -- no matter that most of the trucks didn't work at the time.
Yesterday, however, Tant acknowledged, "I probably had the names backwards," and it was partner Scott Custer who had made the heated statements.
It was a rare lapse in Tant's folksy self-assurance during two days on the witness stand in U.S. District Court. But it came as defense attorney Robert Rhoad sought to establish more telling errors in the testimony of the retired brigadier general, who ran a crash program to circulate a new Iraqi currency after the fall of Saddam Hussein.
Rhoad, and other defense lawyers for Custer and former Rhode Islander Battles, tried to establish throughout their cross-examination of yesterday's witnesses that the chaos of wartime Iraq made for extremely difficult business conditions -- including contracting mistakes and fast-changing demands on Custer Battles.
They also tried to show through cross-examination of the firm's former Providence lawyer that it was commonplace for such a small start-up venture to open subsidiaries in the Cayman Islands. The whistleblowers maintain that Custer Battles used several such offshore corporations as "bill mills" for the creation of the allegedly false invoices used in overcharging the government for work in Iraq.
The company, which at the time had offices in Newport and Virginia, won a $9.8-million contract in August 2003 -- later hiked to $20 million -- to build and equip camps in Baghdad, Mosul and Basra that were to be the hubs for an ambitious 90-day rush to replace the war-torn nation's entire currency system at the end of that year and the start of the next.
Tant said it was a "huge" undertaking, considered "top priority" by his boss, L. Paul Bremer III, the chief of the U.S.-led Coalition Provisional Authority -- all the bigger because of the constant danger that ambushes or roadside bombs posed to trucks loaded with tons of freshly-minted Iraqi dinars.
Tant acknowledged under questioning that he thought Custer Battles had done a good job initially setting up the camps by mid-October. But he reiterated earlier testimony that much of the equipment contracted for delivery to the camps -- especially the trucks for cash distribution -- was either defective or else arrived late.
The judge in the case prodded lawyers for the two whistleblowers -- who brought the civil suit against Custer, Battles and a former employee, Joseph Morris -- to move away from questions of shoddy performance and get closer to the allegations of faked invoices at the core of the case.
Later, Tant and the government contract officer assigned to the Custer Battles currency job testified in detail to their misgivings about invoices that the company presented to justify their claims for payment in Iraq.
One central document in the case is a spreadsheet that the whistleblowers maintain was created by Custer Battles to falsify its expenses. The defendants deny that the document is any such thing.
Under questioning, Tant testified, for example, that the spreadsheet listed $240,000 as the firm's cost for a number of 5-ton trucks and $600,000 as the amount invoiced -- for a profit of $324,000, far in excess of the contracted profit of 25 percent of the firm's cost.
At the bottom line of a spreadsheet listing many such items, the company sought a total profit of $3.7 million -- more than double the proper profit under the contract, Tant said. "The profit was huge compared to what I understood they had contracted for," he said.