Bribery Charges Hit Panalpina

      The U.S. Justice Department has intervened in a whistleblower lawsuit against Kellogg Brown & Root (KBR), Panalpina Inc. and EGL that alleges that employees of the two freight forwarders doing business with the companies provided unlawful kickbacks to KBR transportation department employees. KBR is the prime contractor under the Logistics Civil Augmentation Program (LOGCAP III) contract for logistical support of U.S. military operations in Iraq.

     The whistleblowers also allege overbilling by a KBR subcontractor in the Balkans, Wesco, under a military contract.

     The United States is pursuing allegations that the two freight forwarders, Eagle Global Logistics (which has since merged with TNT Logistics and become CEVA) and Panalpina provided unlawful kickbacks in the form of meals, drinks, and tickets to sports events and golf outings to KBR employees.

     The government will seek damages and penalties under the False Claims Act and common law, as well as penalties under the Anti-Kickback Act.

The United States has declined to intervene in the remaining allegations of the relators’ suit.

      The lawsuit was filed in U.S. District Court for the Eastern District of Texas under the qui tam or whistleblower provisions of the False Claims Act by David Vavra and Jerry Hyatt who have been active in the air cargo business–the industry relevant to the case.

     Under the qui tam or whistleblower provisions of the False Claims Act, a private citizen, known as a "relator," can sue on behalf of the United States. If the suit is successful, the relator may share in the recovery.

     "Defense contractors cannot take advantage of the ongoing war effort by accepting unlawful kickbacks," said Tony West, Assistant Attorney General of the Civil Division of the Department of Justice.

     "We are committed to maintaining the integrity of the Department of Defense's procurement process."

     The United States previously intervened in and settled the relators’ allegations that EGL included non-existent charges for war risk insurance in invoices to KBR for air shipments to Iraq, costs that KBR passed on to the Army.

     Two EGL employees pleaded guilty to related criminal charges. EGL paid the United States $4 million in the civil settlement.

     The government also intervened in and settled the relators’ allegations that EGL’s local agent in Kuwait, a company known as Al-Rashed, overcharged it for the rental (or demurrage) of shipping containers.

     The United States resolved potential claims arising from that matter against EGL for $300,000.

     Finally, EGL paid the government $750,000 to settle the relators’ allegations that the company provided kickbacks to employees in KBR’s transportation department.

     Former EGL employee Kevin Smoot and former KBR employee Bob Bennett pleaded guilty to related criminal charges in federal court in Rock Island.

     For Panalpina, these new charges could also represent an even further challenge.

     As a result of a 2007 Department of Justice and Securities and Exchange Commission corruption investigation in Nigeria, the Swiss logistics giant Panalpina said it was not possible to receive official customs clearances for air and ocean freight shipments fast enough in Nigeria to meet customer’s demands without offering “facilitation payments” that violated anti-corruption laws.

     In August 2008, Panalpina said these compliance concerns had forced it to withdraw completely from the West African country Nigeria after 50 years of service there.

     In other words Panalpina was just doing business as business is done in Nigeria and ended up paying fines for that privilege and decided to pack West Africa in altogether.

     Interestingly on April 29, 2010, Panalpina posted the following statement on the company website:

     “In view of the advanced stage of the settlement negotiations with the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC), Panalpina has decided to reserve CHF 120 million, an amount anticipated to cover fines, other penalties and legal expenses relating to the settlement of both the U.S. Foreign Corrupt Practices Act (FCPA) and the U.S. antitrust investigations.”

     This newest case is being prosecuted as part of a USA National Procurement Fraud Initiative that was initiated in October 2006 with formation of a National Procurement Fraud Task Force in USA.