Transforming Risk Into Opportunity
Well, at least they’re upfront about it.
Perhaps it was fate that Scott Custer, a former U.S. Army Ranger, and Michael Battles, a failed Republican candidate for Congress in 2002, joined together to form the "business risk consultancy" Custer Battles, LLC. (Whoever thought that putting "Custer" and "Battles" together would signify "success" was terribly misinformed.)
In July , Scott Custer and Michael Battles, two former Army Rangers in their mid-30s, found themselves in charge of a $16 million contract to guard Baghdad’s airport. Barely funded with credit cards and money borrowed from a friend, their nine-month-old company had neither guns, accountants nor guards. It had to hire Nepalese Gurkhas to staff the project.
"For us, the fear and disorder offered real promise," says Mr. Battles, 34 years old, a onetime bull rider who served three years as a Central Intelligence Agency operative. (emphasis mine)
I think that quote pretty much sums of the whole reason why I am doing this series. It’s not, "we wanted to help" or "democracy in Iraq is a good thing." No, it’s "show me the money!" Heartless bastards.
The company that became Custer Battles could hardly have sprung from shallower roots. In late 2002, it was still in search of a name. Its co-founders considered Azimuth Partners, after the name of a compass point, but instead chose to name the company after themselves. Mr. Custer, 35, a distant relation of the ill-fated Gen. George Custer, concedes they draw giggles in Iraq, where it’s often noted that Custer was defeated by the locals. "We don’t really have a comeback," he says.
Doomed from the beginning.
Two days later, the company won the contract, beating companies with long histories in the business, including Texas-based Dyncorp International, a unit of Computer Sciences Corp., and the U.K.’s Armor Group International Ltd. Custer Battles’s bid was cheaper, but more important, it promised to have 138 guards on the ground within two weeks, faster than the others.
"We got that contract because we were young and dumb and didn’t know better," says Mr. Custer, a former Army captain who studied at Oxford and Georgetown universities. "Anyone with experience would have said they’d be there in eight weeks." (emphasis mine)
So incompetence was a requirement… now that makes sense.
Frank Hatfield, the senior U.S. airport official in Iraq at the time, says speed — not cost — was the deciding factor. All he wanted, he says, was an assurance Custer Battles could handle the contract.
Custer Battles lacked more than experience. No banks would lend it money. In the end, the U.S.-led Coalition Provisional Authority lent it $2 million in $100 bills that Mr. Battles stuffed into a duffel bag and personally deposited in a bank in Lebanon.
They had only two weeks to set up the project. In mid-July last year, new hires mustered in Jordan and had to be convoyed across the desert. The company had to buy all its equipment from the U.S. with only three full-time employees in its Virginia office to help.
Less than 10 miles from the city center, Baghdad International Airport quickly emerged as perhaps the safest and best-placed real estate in Iraq. The company took full advantage. Custer Battles built kennels for 18 bomb-sniffing dogs beside the camp and has parlayed the animals into $16 million in Army contracts. It also used a terminal to house 40 Filipinos brought in to provide catering services. Frank Willis, one of several officials hired by the Coalition Provisional Authority to handle aviation issues, watched with shock and awe. As officials tried to get Custer Battles to explain the dogs and the Filipinos, the company had ready explanations. "It was always some colonel or ministry official who’d given the OK," says Mr. Willis. "These guys were absolute masters at working the chaos of a combat zone and cutting corners to make a profit."
They worry that a single calamity or mistake could topple their young operation […] (emphasis mine)
Now let’s see how CB turned that profit and the "calamity" that brought it down. In addition to the initial contract, Custer Battles won several more contracts to "provide security and logitics" in Iraq. In October, two months after this expose in the Wall Street Journal, the New York Times reported that two former employees filed a lawsuit against Custer Battles that accused it of bilking the U.S. government of millions:
The suit, which was filed in February but unsealed by the federal authorities only yesterday, alleges that the company repeatedly provided grossly inflated bills, claimed payments to shell companies that provided no services, and billed for purchases never made, causing ”tens of millions of dollars in fraudulent damage to the United States.”
Custer Battles took full advantage of the poor monetary-tracking system of the CPA as it subcontracted out jobs for a fraction of their winning bid, again from the October 9, 2004 New York Times:
Custer Battles received a $12 million subcontract to provide security services for power line construction from Washington Group International, a large American firm that was working for the Army Corps of Engineers. The suit says that the company then subcontracted most of the actual work to another company called Falcon Security for just $4.1 million, resulting in ”an exorbitant profit.”
That same day, the Seattle Times additionally reported that the Air Force suspended the company from winning any other contracts after CB "sent fake bills to the U.S.-financed Coalition Provisional Authority."
Pete Baldwin, one of the two former employees behind the lawsuit came forward under the federal whistle-blower act.
Testifying before the Senate Democratic Policy Committee [PDF], Frank Willis, a former adviser for the U.S. in Iraq, said he watched "$2 million worth of crisp bills into his gunnysack" for Custer Battles as payment, the Washington Post reported in February 2005:
"In sum: inexperienced officials, fear of decision-making, lack of communications, minimal security, no banks, and lots of money to spread around. This chaos I have referred to as a ‘Wild West,’ " Willis said in testimony he prepared to give today before the Senate Democratic Policy Committee, whose members want to spotlight the waste of U.S. funds in Iraq.
A spokeswoman for Custer Battles, Jennifer Christensen, confirmed the gangland-style payments, stating that the arrangement was necessary because "the CPA had no electronic means of providing payment to its contractors," as reported by the Associated Press.
In April 2005, the AP reported that Battles claimed to have connections at the Bush White House and that Custer Battles security forces had a reputation as "gunslingers," said a retired lieutenant colonel that only gave the name "Hank."
He described a Baghdad hotel gunfight that erupted not long after Custer Battles security agents landed. It was started by a rocket-propelled grenade attack. When the smoke cleared, the guards – who’d leaned out windows and fired more than 3,000 rounds in the middle of a residential neighborhood – realized they had been shooting at each other.
Earlier this year, four former employees, all military veterans, said they quit after witnessing Custer Battles security escorts shooting indiscriminately at civilians, including gunning down a teenager walking along a road. The men also said guards in a truck drove over a car containing children and adults while trying to make their way through a traffic jam.
Custer Battles denied the accounts, saying they found "no evidence" in an e-mail to the AP. I imagine the "investigation" went something like this:
Manager: Hey did you guys drive over a car with kids and adults in it to get through a traffic jam?
Manager: Okay. [Types e-mail] "Sorry chief, we turned up nothing. Peaches. –C.B."
The AP article said that Custer Battles inflated cost claims to $9.8 million for work that actually cost $3.7 million, an increase of 162 percent when the max profit margin is 25 percent. [ed. note: I don’t think any company that is looking to profit in a war-torn nation is going to be conservative on the profit margins.] One example of the deliberate overcharging:
An astounding allegation in the whistle-blowers’ suit says Custer Battles took forklifts abandoned by Iraqi Airways, painted them to cover the airline’s name, and then charged the coalition thousands of dollars on fake invoices, claiming it was "leasing" the equipment.
In June 2005, the AP learned that former executives of Custer Battles, still banned from receiving contracts, were soliciting more contracts under new company names, but get this, all housed in the same office building suite as Custer Battles — Suite 100 on Hammerlund Way in Middletown, R.I.
Earlier this year, retired Brigadier General Hugh Tant testified in the war profiteering trial of CB that the contract to distribute Iraq’s new currency was "probably the worst I have ever seen in over 30 years" in the Army. He continued:
After Tant spoke of the broken-down trucks delivered on the Custer Battles contract, he testified that Battles responded: "You asked for trucks and we complied with our contract and it is immaterial whether the trucks were operational or not."
During the trial, Michael Battles denied any knowledge of the inflated invoices and kept "zero contact" with the currency project in Iraq. Instead, he blamed Baldwin. Days later, Scott Custer testified that CB spent $1.4 million more than it was paid for its contracts. In March, the company was ordered by a jury to pay $10 million "in damages and penalties for defrauding the government on its work in Iraq." Alan Grayson, an attorney for the whistleblowers said:
"Companies like Custer Battles go there with the idea of stuffing their pockets with cash. This jury of eight people heard the evidence and were repelled by it."
A second fraud trial, this one based on CB’s security contracts for the Baghdad Airport, is pending.
Custer Battles was the first company to be held responsible for war profiteering and hopefully not the last. Rapacious corporations profit off of the death and misery of an ill-fated plan for war and are protected by their enablers in the power structure. Their cost-cutting actions put our armed forces at greater risk, inflame tensions with the locals for piss poor work (of which many use imported labor), and thus, undermine our efforts. All while ripping off the American taxpayers. I can’t think of anything more treasonous than that.
Other posts in this series:
"Merchants of Misery" and the "Do-Less-Than-Nothing" Congress (introduction), 04.29.06
Houston, We Have a Problem (Halliburton), 05.06.06
Friends in High Places (Bechtel), 05.20.06
[Cross-posted at The Great Society]