Xe Services (formerly known as Blackwater) is once again in the news, thanks to charges made by two of its former employees.
The ex‐employees, a husband and wife team, Brad and Melan Davis, worked in various Blackwater locations, both overseas and in the United States.
They are suing Blackwater under the False Claims Act, a U.S. federal law which allows people who are not affiliated with the government to file actions against federal contractors claiming fraud against the government. Persons filing under the Act stand to receive a portion (usually about 15–25 percent) of any recovered damages. Claims under the law have been filed by persons with insider knowledge of false claims which have typically involved health care, military, or other government spending programs. The government has recovered nearly $22 billion dollars under the False Claims Act between 1987 and 2008.
The Davis’s suit (posted by Ms. Sparky here) makes many charges but, predictably, the press thus far has largely focused on the most sensationalistic, namely that Blackwater officials kept a Filipino prostitute on the company payroll for a State Department contract in Afghanistan, and billed the government for her time working for Blackwater male employees in Kabul. The alleged prostitute’s salary was categorized as part of the company’s “Morale Welfare Recreation” expenses.
This rather superficial focus is similar to what the media did when the Project on Government Oversight released its report last September on drunken party antics by ArmorGroup private security contractors in Kabul, Afghanistan. Lost in all the coverage of contractors eating chips out of someone’s ass was the fact that ArmorGroup’s performance had “negatively impacted the security posture of the Local Guard Program for the U.S. Mission to Kabul.”
Let’s acknowledge that for the time being the Davis’s charges are just that and have yet to be proven. But if they end up being substantiated and Blackwater eventually suffers significant punishment it will be the equivalent of convicting Al Capone on tax evasion charges, given that in December a U.S. federal judge dismissed charges against Blackwater contractors accused of killing innocent Iraqi civilians in the September 2007 Nisoor Square incident, on the grounds that the government bungled the case by using testimony that was given under a grant of immunity.
It may be sad to say but, given the history of sexual activities and some private contractors, the alleged use of a prostitute by Blackwater may actually be a step up. At least they were not trafficking in child sex slaves as some DynCorp contractors did in Bosnia back in the late 1990s.
Nor did they drug and gang rape a fellow contractor as some KBR contractors reportedly did in 2005.
In fact, Blackwater contractors may have been inspired by the actions of the now legendary Tori the Escort. Back in 2007 Wonkette broke the story that Tori was going to be in Baghdad’s Green Zone for an extended tour, “entertaining all members of the PMC community registered with PSCAI (Private Security Company Association of Iraq).”
If only Blackwater had not billed the government for her services it is likely that nobody would care. There has been no detail yet on what she was paid or what Blackwater billed the government for, when requesting reimbursement for her services, so one cannot say if she was truly more cost effective and efficient than a public sector counterpart — a constant claim that the private sector always makes — such as a congressman or senator. Hopefully future depositions will provide further detail.
But even when you add in the overhead (whatever that might be, clean sheets provided by KBR perhaps?) that contractors always add when submitting bills to the government it seems unlikely that the net revenues would be worth the scandal.
Blackwater would have been better off just employing the prostitute as an independent contractor and paying for her services out of pocket.
As the use of a prostitute is between consenting parties it cannot be termed “sexual harassment” which is actually prohibited under the terms of the Worldwide Personal Protective Services (WPPS) contract under which Blackwater operates in Afghanistan. However there is a clause, with respect to guard conduct that states:
Personal activity on post: The guards will not engage in any unofficial business on post; i.e., soliciting, canvassing, peddling, sales promotion of a commercial item, loan money for interest and etc: (p. 70)
Of course, a lawyer could probably argue that the woman was originally working at a hotel, thus, not on base, and as such is not covered by the clause. Where she worked when she was put on the payroll remains an unanswered question.
It bears pointing out that Melan Davis, who reported the billing of the prostitute’s services to the government was hired back in December 2005. In the suit she notes:
Shortly after I was hired, I asked for guidance on the cost accounting. As a result of my request, a group of Blackwater personnel (including me) attended a meeting with Paul Desolites, Department of State. Mr. Desolites advised us that any costs billed to Task Orders Nos. 4 and 6 had to be costs actually incurred by Blackwater making payments to third parties. Intra‐company transfers from one Blackwater entity to another were not permitted to be submitted for reimbursement under the terms of the Task Orders.
After the Department of State meeting educated me on die permissibility of various practices, I discovered a substantial amount of fraudulent billing. One of the first items I uncovered was Blackwater billing for payments made to a prostitute. I came across the name of a female Phillipino on the expenses submitted for cost reimbursables in connection with Task Force No. 4. At that time, to my knowledge, the only third country nationals we had in country in Afghanistan were Columbians. I wanted to figure out whether we had Phillipinio third country nationals as well because I had not seen any others beyond this name.
I contacted Susan Bergman, who was the logistics operations manager in Kabul, Afghanistan. She informed me that the woman was not a third country national hired to serve as a static guard, but rather was a prostitute, who had been ousted from the hotel where she was working for several Blackwater men. As a result, they put her on the Blackwater payroll under the Morale Welfare Recreation (“MWR”) category. To the best of my knowledge, Blackwater billed her plane tickets and monthly salary to the United States under the Task Orders.
This takes corporate pimping to new heights. Also, given the timeline she describes this means that Blackwater was still a member of the International Peace Operations Association, a leading trade group for the private military contracting industry. (Blackwater pulled out of IPOA after the Nisoor Square shootings). IPOA has a Code of Conduct that its member companies are supposed to follow, though what happens if a company violates the code has never been clear.
While there is nothing in the Code that says contractors can’t use prostitutes there are a few sections that could reasonably be construed as suggesting it is a bad idea.
The section on human rights says “Signatories shall respect the dignity of all human beings and strictly adhere to all applicable international humanitarian and human rights laws.”
The section on accountability says “Signatories shall support effective legal accountability to relevant authorities for their actions and the actions of their personnel. Signatories shall proactively address minor infractions, and to the extent possible and subject to contractual and legal limitations, fully cooperate with official investigations into allegations of contractual violations and breaches of international humanitarian and human rights laws.” By billing the government for the prostitute’s services Blackwater was certainly in violation of “contractual limitations.”
Moving on, there are a number of far more serious allegations in the Davis’s suit, which merit full investigation.
Let’s consider Hurricane Katrina. Over the years Blackwater has taken lots of criticism from critics with axes to grind for supposedly providing jackbooted mercenaries to patrol the streets in the hurricane’s aftermath. Up to now this has mostly been hot air with precious little substantiation.
But in the suit Brad Davis, who worked in Louisiana for Blackwater, contends:
Blackwater failed to provide the services required by the contract with FEMA and the State of Louisiana. Blackwater was arming its employees with deadly weapons (shotguns, Glocks, and M‐4s) in order to provide security. As a result, Blackwater was required to monitor closely the weaponry, and keep at all times a registry of the weapons in the hands of its employees. Blackwater utterly failed to monitor these deadly weapons, and instead lost track of countless weapons.
Blackwater repeatedly and routinely falsified records to hide this serious issue from FEMA and other United States agencies.
Blackwater repeatedly and routinely falsified GSA 139 forms, which are the forms that Blackwater was directed to use to record the hours worked by its employees. Blackwater permitted employees to “clock in” for their fellow employees.
Beginning in October 2005, and continuing until at least April 2006, Blackwater submitted invoices to the United States and to the State of Louisiana that contained falsified hours.
Reasonable discovery is likely to establish that the persistent fraud by Blackwater on the Hurricane Katrina contracts that was observed firsthand by Relators during the October 2005 to April 2006 timeframe actually persisted well past April 2006.
It bears note that during this time, when Blackwater was a member, that IPOA’s Code of Conduct states that, “Signatories using weapons shall put the highest emphasis on accounting for and controlling all weapons and ammunition utilized during an operation and for ensuring their legal and proper accounting and disposal at the end of a contract.”
A thus far unmentioned aspect of the weapons issue, mentioned in a footnote to the suit, is the following from Brad Davis:
I also learned from colleagues that the failure to account for weapons was not limited to Louisiana. On one occasion, Blackwater employees working in Moyock sold a M249 (known as a “saw”) to a civilian for $10,000. It is illegal to possess such weapons. Not realizing it was illegal, the purchaser brought it back to the armory on a different shift, complaining that there was something wrong and seeking refund or replacement. Although the United States ended up learning about the incident, the United States did not realize that the United States law enforcement personnel tasked to investigate the incident were put on Blackwater’s payroll.
In plain English that seems to say that Backwater paid off the police to ignore its violation of the law.
Davis also says that:
Blackwater failed to fulfill the contract requirements for training in Louisiana. Blackwater hired persons without completing any screening in advance. At times, it turned out that Blackwater had armed and placed on the streets persons who had been convicted of felonies or were otherwise prohibited by the Lautenberg Act (regarding persons convicted of domestic violence) from carrying weapons. Although Blackwater eventually terminated some or all of those persons, Blackwater had armed them and placed them on public streets of Louisiana for a significant period of time.
Another disturbing charge is this:
Blackwater operated a private training facility called Blackwater Academy.
Many persons enrolled in Blackwater Academy were subsequently hired by Blackwater to serve on the Department of State contract, International Republican Institute contract, and other contracts funded by the United States.
Blackwater hired persons to serve on these contracts in order to ensure that these persons had the funds necessary to pay their outstanding tuition bills at Blackwater Academy.
As a result of this direct financial benefit to Blackwater Academy, Blackwater would continue to deploy persons to serve as “shooters” on contracts funded by the United States even after such persons had proven themselves wholly incompetent.
Despite pleas from its own management, Blackwater repeatedly refused to terminate shooters who had used excessive and unjustified force against Iraqis because Blackwater wanted to ensure that these persons could pay outstanding Blackwater Academy tuition.
By providing unqualified shooters who used excessive and unjustified force against Iraqis, Blackwater defrauded the United States in two ways: First, it failed to provide contractually‐required services. Second, this misconduct caused the United States to expend substantial time and money redressing the various harms caused by these unqualified persons.
These unqualified persons included Beau Phillips and Luke Doak, both of whom injured Iraqis with unjustified and excessive force.
Blackwater management was well aware of the unjustified shootings, but failed to report them to the United States as was required by the terms of the contract. Blackwater also failed to terminate these persons and instead continued to bill the United States for their services.
Blackwater continues to defraud the United States to date by billing the United States for trainings conducted by Luke Doak.
If true, what Blackwater did could be considered a form of indentured servitude. Blackwater permits persons to go through the Academy at no charge, and then deducts the tuition from their subsequent pay as Blackwater contractors over a two year period. That explains why Blackwater would keep someone in the field who should not be there. For example, Blackwater benefited financially in two ways by keeping Doak on contract: Blackwater received payments from the United States and also received payments directly from Doak.
As Davis notes in the suit, “Gloria Shyties told me that Blackwater needed to find Doak a job in order to ensure that he repaid Blackwater the tuition. She was well aware of the fact that Doak had murdered two people with Blackwater weapons while working on a Blackwater contract in Iraq.”
Second, if Blackwater was providing unqualified personnel to work in Iraq it was clearly in violation of the terms of its WPPS contract.
Brad Davis details three incidents that he personally observed in which Blackwater personnel intentionally used excessive and unjustified deadly force, and in some instances used unauthorized weapons, to kill or seriously injure innocent Iraqi civilians. He notes that in regard to the first incident, Blackwater failed to report the incident to the State Department, a clear violation of the WPPS contract. After the second incident the State Department had heard about it because someone other than Blackwater had reported it.
According to Brad Davis, Blackwater not only overbilled the United States for travel expenses in Afghanistan but did so in various ways:
First, Blackwater created phony invoices that misled the United States into believing Blackwater had made payments to an unrelated third party.
Second, Blackwater transported employees on its own wholly‐controlled Presidential Airways subsidiary (previously called Blackwater Aviation), but billed the United States as if the travel had occurred on unrelated third party commercial carriers.
Third, Blackwater created phony invoices to obscure the fact that Blackwater had failed to keep any of the necessary contemporaneous documentation on travel. Blackwater and Greystone employees worked around the clock in Jordan for several days in February 2008 creating phony invoices — at rates well in excess of what was actually paid to any third party — to match personnel musters. In reality, Blackwater lacked the necessary contemporaneous records and was not authorized to bill the United States under the terms of the contract.
Davis also charges that in addition to improperly billing the U.S. government it also solicited kickbacks:
Blackwater overbilled the United States for services provided by a man named Sargon Hendrich. Mr. Hendrich provided some services to Blackwater, and invoiced those services at rates well in excess of fair market value. Blackwater billed the services to the United States. After the funds received from the United States were disbursed to Mr. Hendrich, he would then pay kickbacks to Blackwater.
Furthermore, in what can be only viewed as a moment of serendipity in light of a recent U.S. Government Accountability Office report on the subject Brad Davis charges that:
Blackwater used Greystone, a wholly‐controlled offshore company, to obscure the amount of taxable revenues earned by Blackwater. Reasonable discovery will show that Blackwater transferred funds offshore to Greystone, and then reflected those funds as payment for management fees. Reasonable discovery will show that Blackwater was using this mechanism to send its profits offshore beyond the reach of the United States Internal Revenue Service.
Ironically, given the private military industry’s constant refrain that it is more cost‐effective than government, the suit notes that “On or about March 25, 2006, Blackwater contractor Greg Krebs told Melan Davis that she would never win a medal for saving the government money, and she needed to back off.”
It also appears that Blackwater may have been inspired by former U.S. Senator John Edwards of North Carolina, the state where Blackwater is headquartered. Among other things, Edwards is distinguished for cheating on his wife when she was battling lung cancer. The suit notes that:
Defendants wrongfully terminated Melan Davis from the corporate offices in retaliation for her attempts to rectify the abuses occurring in the Jordan offices. Defendants’ own internal investigation recommended that Ms. Davis not be terminated, but Defendants nonetheless terminated Ms. Davis on February 1, 2008, while she was out on leave battling cancer.
Yet another charge, which seems reminiscent of the character Lieutenant Milo Minderbinder in Joseph Heller’s famed Catch‐22 novel is that “Erik Prince personally smuggled out antique Iraqi fighter planes. He had the planes dismantled, smuggled out in parts, and then reassembled for display.”
If the suit comes to trial Blackwater’s lawyers conceivably could argue that whatever illegal actions took place were the result of actions by its independent contractors, not that that would be much of an excuse, as Blackwater’s responsibility for proper oversight exist regardless of who is being paid. Nevertheless it is important to remember that much of the activities were both known to and participated in by permanent Blackwater staff, according to the suit. Regarding Louisiana, Brad Davis says, “In my area, I personally caught five Blackwater employees engaged in fraud. These employees would show up at the site, sign in and leave a few hours later. Two of those persons were not so‐called “independent contractors,” but were full‐time Blackwater employees from Moyock. There names are John Youngblood, and Heather Brantley.”
Mark Corallo, a spokesman for Xe Services said Thursday that “The allegations are without merit and the company will vigorously defend against this lawsuit. It is noteworthy that the government has declined to intervene in this action,” he said.
Of course, back when the U.S. government was investigating Blackwater contractors for the Nisoor Square shootings company spokesmen condemned the government for what they characterized as a rush to judgment before the facts were in. Now they are praising the government for not joining in even though the facts have yet to be verified. One hopes that in the future Xe will at least make up its mind about what it wants the government to do.