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The Justice Department's indictment -- announced this week -- of four alleged conspirators charged with bribery and kickbacks under two contracts with the Army Corps of Engineers was praised by members of Congress, but the development could renew scrutiny of subcontractors and preferences for Alaska native corporations.
Four Northern Virginia men, two of them private contractors and two of them employees of the Army Corps of Engineers, were charged in the District of Columbia with a conspiracy involving more than $20 million in bribes and kickback payments and the planned steering of a $780 million government contract to a favored contractor.
Arrested on Oct. 4 were Kerry F. Khan, 53, of Alexandria, Va.; his son, Lee A. Khan, 30, of Fairfax, Va.; Michael A. Alexander, 55, of Woodbridge, Va.; and Harold F. Babb, 60, of Sterling, Va. The elder Khan and Alexander are federal contract officers.
Investigators said the alleged scheme, which dates back to 2007, involved funneling more than $45 million to a favored company and padding invoices with fraudulent expenses totaling some $20 million, which was split by the four defendants. According to the indictment, Babb facilitated the conspiracy using subcontractors awarded through his position as director of contracts at EyakTek, an Alaska native-owned small business headquartered in Dulles, Va.
EyakTek, whose website says it consistently has been among the top 100 federal contractors, was the prime contractor for two major Army Corps of Engineers information technology awards: the Technology for Infrastructure, Geospatial and Environmental Requirements contract and the Contingency Operations Readiness Engineering and Support contract.
The company on Tuesday announced that Babb's employment had been terminated. "EyakTek is cooperating fully with the federal government in its investigation," said Rod Worl, chief executive officer of the Eyak Corp. and president of Eyak Technology. "Eyak and its shareholders will not tolerate this type of conduct by anyone employed by or associated with an Eyak company."
The Sept. 16 indictment, which was presented to a grand jury in May and unsealed on Tuesday, was a multiagency effort, involving the U.S. Attorney for the District of Columbia, the FBI's Washington Field Office, the inspector general for the Small Business Administration, the Defense Criminal Investigative Service, the Internal Revenue Service's criminal investigations unit and the Army's Criminal Investigation Command's major procurement fraud unit.
That team's takedown also included confiscation of 29 bank accounts, three luxury vehicles and seven high-end watches, according to a Justice news release. Officials also began forfeiture proceedings for 16 properties, 14 in Virginia, one in West Virginia, and one in Florida.
If convicted, Kerry Khan and Alexander face up to 40 years in prison, Babb up to 35 years, and Lee Khan up to 25 years.
A spokesman for the Army Corps of Engineers said in a statement that the agency "takes these allegations and the integrity of the contracting process very seriously.
"We hold all of our employees to the highest standards of conduct," the statement continued. "The U.S. Army Corps of Engineers has been cooperating with the FBI and other federal investigating agencies to uncover this alleged scheme to defraud the U.S. government."
In addition, the Corps "has initiated appropriate disciplinary actions with respect to the individuals involved," the spokesman said. "Following established agency procedures, USACE is working with the U.S. Army Procurement Fraud Office of the Judge Advocate General's Office to suspend the contractors and individuals involved. We are coordinating with Department of the Army officials to ensure appropriate contracting and other safeguards are in place throughout the agency."
Sen. Claire McCaskill, D-Mo., who has conducted hearings on the contract assistance program for Alaska native corporations, said in a statement, "The criminal charges filed in connection with this brazen contract fraud are testimony to the problems with large no-bid contracts that Alaska native corporations are allowed to enjoy at the expense of American taxpayers.
"For several years I've been crusading against the large loopholes in our contracting laws that allow waste, abuse and -- as these charges show -- fraud," she said. "The Alaska native corporations should compete for these large contracts and further should not be allowed to 'front' for other corporations that are actually doing the work. Congratulations to the inspectors general who found this fraud. Government auditors are the best investment the taxpayers can make."
Rep. Sam Graves, R-Mo., chairman of the House Small Business Committee, also was effusive. "Bribery, kickbacks and pass-through contracts will not be tolerated -- crooked contractors and corrupt public officials cannot be allowed to steal $20 million from hardworking taxpayers," he said in a statement. "The integrity of the federal procurement system needs to be protected so that the public has confidence in government contracts and small businesses have every opportunity to compete. I am pleased that the system worked."
Scott Amey, general counsel for the nonprofit Project on Government Oversight, told Government Executive the indictment "certainly raises ongoing concerns about oversight of ANCs and the government's practices in overseeing and administering contracts. The focus needs to be placed on quality contracting, not only speed, to ensure that taxpayer dollars aren't lining pockets at the expense of government missions."
Stan Soloway, president and chief executive officer of the Professional Services Council, said, "if these allegations are true, it's totally inexcusable and I hope they throw the book at them." Based on what is known so far, the fact that the parent company is Alaska native-owned "doesn't seem that significant," he added. "If a small group of people is determined to rip off the taxpayers and is really intent on committing a crime, then they will find ways to get around the rules. We have a tough oversight system and shouldn't have to rethink it."