Insurance fraud? Army contractors probed

Officials with Sakar al-Fahal and al-Jubori could not be reached by telephone or e-mail for comment.

Alarms went off shortly after the two companies were selected in mid-March by the Joint Contracting Command in Iraq to design and build a security network for an oil pipeline running from the town of Bayji to Baghdad, according to Corps of Engineers e-mail traffic.

Rhee's North District office was made the contracting authority for the awards. Before the companies could begin the work, the office needed verification each had the necessary Defense Base Act insurance.

Both submitted letters stating that the coverage was being provided by the Continental Insurance Company, which is headquartered in Chicago. The Corps of Engineers has an arrangement with Continental so contractors can get insurance at set rates.

The cost of insurance is based on the type and a size of the contract. For construction work, $7.25 of coverage is required for every $100 of payroll. So for a project with a payroll of $200,000, a premium of $14,500 needs to be paid to cover employees who might be injured or killed while working under a government contract in a foreign location.

Cut and paste job?
In early April, Willy Quiambao, a North District contract specialist, examined the confirmation letters from Sakar al-Fahal and al-Jubori. He thought they looked as though they'd been cut and pasted together. Quiambao showed them to Rhee. She agreed.

Quiambao contacted Rutherfoord International in Alexandria, Va., Continental's broker for Defense Base Act insurance, and was told there was no record of either company being insured. The letters were fakes.

Rhee then checked to see how much business the two companies had done with the corps before the latest awards. She found nearly $10 million for projects mostly related to rebuilding Iraq's electrical power grid, according to a lengthy April 5 memorandum she wrote on the situation.

She also learned from the Joint Contracting Command, a Defense Department organization separate from the corps, that the owners of Sakar al-Fahal and al-Jubori are cousins and work out of the same warehouse in Tikrit, about 90 miles northwest of Baghdad.

When told the letters weren't valid, representatives for the companies said they'd gotten them from Rutherfoord's representative in Baghdad. When informed Rutherfoord had no representative in Baghdad or anywhere else in Iraq, the companies said they were deceived by a broker they identified as Ahmed Sa'eed who was issuing fraudulent confirmation letters.

"We were in a bank, inquiring about methods of wiring funds, and he approached us to be one of the local brokers, and we paid him the premium," Mithaq M. al-Fahal, senior project manager at Sakar al-Fahal, wrote in an April 4 e-mail to Sara Payne, a senior vice president at Rutherfoord.

"We are filing a claim, and we will work with the police to get him arrested. We'll let you know," al-Fahal wrote. He does not say how much the company paid.

The prospect of an unauthorized broker in Baghdad selling fake insurance policies generated even more worries at the Corps of Engineers and Rutherfoord.

Payne "is really concerned, and I agree with her suspicion that this is bigger than we think," Quiambao said in an e-mail to his colleagues.

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