Custer Battles is a McLean, Virginia based company, founded by Scott Custer, a former Army Ranger and Michael Battles a former CIA officer who is also a commentator for Fox News. While running for Congress in Rhode Island in 2002 Battles was fined by the Federal Election Commission for misrepresenting campaign contributions.
Iraq: The Profitable Venture
With the remarkably honest slogan "Transforming Risk into Opportunity", Custer Battles went from being a tiny startup to a multimillion dollar enterprise when it landed a $16.8 million no-bid contract to guard Baghdad International Airport in May 2003. With the CPA providing the $2 million startup money in cash which was stuffed by partner Mike Battles into a duffel bag and transported to Lebanon. The company soon started expanding its business and within six months Custer Battles was employing more than 1,000 people and raking in annual revenues of $75 million. In August 2003, the company also won a cost-plus logistical support contract at an astonishing 25 percent markup for a massive currency exchange to shift Iraq from its old Dinars to the newly issued currency. Its successes even elevated it to the front page of the Wall Street Journal in August 2004.
Allegations of Fraud
In late 2004, the company was suspended from doing business with the US government after a Pentagon investigation - soon joined by a lawsuit filed by two former employees - revealed that the company was running a fraudulent scheme of subsidiaries, billing the CPA for equipment and services that didn't exist and for inflating other charges. According to the Los Angeles Times, employees allegedly 'forged invoices, clashed with government officials and tried to dodge taxes'. The company was also accused of threatening one employee and his 14-year-old son at gunpoint. The company was also being investigated by the FBI and the Pentagon Inspector General's Defense Criminal Investigative Services. Several high officials in the government also came under investigation in the aftermath. The whistleblowers who filed a civil lawsuit under the False Claims Act have told investigators that the company had set up subsidiaries in the Cayman Islands to create fake invoices which were padded with a markup that led to profits of as much as 130 percent.
In the 14 months since it won its first contract 'at least five senior U.S. government officials or consultants came to suspect wrongdoing by the firm or its employees' yet it continued to win new government contracts and even today holds a major contract in the occupation's program to equip the new Iraqi army. Although the firm defrauded the CPA of a total of $50 million, the US Government refused to join the lawsuit.
Allegations of Abuse
The firm courted further controversy when four of its former employees alleged that its mercenaries were 'brutalizing Iraqi civilians'. They claimed that 'heavily armed security operators, including poorly trained young Kurds 'terrorized civilians, shooting indiscriminately as they ran for cover, smashing into and shooting up cars'. One of the former employees said '[he] didn't want any part of an organization that deliberately murders children and innocent civilians.'
- ^T. Christian Miller, “Contractor accused of fraud in Iraq”, Los Angeles Times, October 9, 2004
- ^John Helyar, “Fortunes of War”, Fortune, Jul 26, 2004
- ^Matt Kelley, “Contractor Accused of Overbilling in Iraq”, AP, October 8, 2004
- ^Lisa Myers & the NBC investigative unit, “U.S. contractors in Iraq allege abuses”, MSNBC, Feb 17, 2005
- T. Christian Miller, “A Case Study in Postwar Chaos”, Los Angeles Times, March 12, 2005