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Afghan contracts rife with corruption, U.S. finds

| Wednesday, Aug. 17, 2011

WASHINGTON -- After examining hundreds of combat support and reconstruction contracts in Afghanistan, the U.S military estimates $360 million in tax dollars has ended up in the hands of people the American-led coalition has spent nearly a decade battling: the Taliban, criminals and power brokers with ties to both.

The losses underscore the challenges the United States and its international partners face in overcoming corruption in Afghanistan. A central part of the Obama administration's strategy has been to award U.S.-financed contracts to Afghan businesses to help improve quality of life and stoke the country's economy.

But until a special task force assembled by Gen. David Petraeus began its investigation last year, the coalition had little visibility into the connections many Afghan companies and their vast network of subcontractors had with insurgents and criminals -- groups military officials call "malign actors."

In a murky process known as "reverse money laundering," payments from the United States pass through companies hired by the military for transportation, construction, power projects, fuel and other services to businesses and individuals with ties to the insurgency or criminal networks, according to interviews and task force documents obtained by the AP.

"Funds begin as clean monies," according to one document, then "either through direct payments or through the flow of funds in the subcontractor network, the monies become tainted."

Bribery, extortion rampant

The conclusions by Task Force 2010 represent the most definitive assessment of how U.S. military spending and aid to Afghanistan has been diverted to the enemy or stolen. Only a small percentage of the $360 million has been garnered by the Taliban and terror groups, said a senior U.S. military official in Kabul. The bulk of the money was lost to profiteering, bribery and extortion by criminals and power brokers, said the official, who declined to provide a specific breakdown.

Overall, the $360 million represents a fraction of the $31 billion in active U.S. contracts that the task force reviewed. But insurgents rely on crude weaponry and require little money to operate. And the illicit gains buttress what the International Crisis Group, a Brussels-based think tank, referred to in a June report as a "nexus between criminal enterprises, insurgent networks and corrupt political elites" in Afghanistan.

More than half the losses flowed through a large transportation contract called Host Nation Trucking, the official said. Eight companies served as prime contractors and hired a web of nearly three dozen subcontractors for vehicles and convoy security to ship huge amounts of food, water, fuel and ammunition to American troops stationed at bases across Afghanistan.

$983 million contract

The Defense Department announced on Monday that it had selected 20 contractors for a new transportation contract potentially worth $983.5 million to replace Host Nation Trucking. Officials said the arrangement will reduce the reliance on subcontractors and diminish the risk of money being lost. Under the new National Afghan Trucking Services contract, the military will be able to choose from a deeper pool of companies competing against one another to offer the best price to move supplies. The arrangement also gives the United States more flexibility in determining whether security is needed for supply convoys and who should provide it, according to a description of the contract.

The Pentagon did not provide the names of the 20 companies picked because of worries that larger contractors who weren't selected might try and coerce them into a takeover, the senior defense official said. None of the eight prime contractors affiliated with the Host Nation Trucking contract are part of the new arrangement, the official added.

HEB International Logistics of Dubai, a Host Nation Trucking prime contractor, "made payments directly to malign actors," one of the task force documents reads. In 2009 and 2010, an HEB subcontractor identified in the document only as "Rohullah" received $1.7 million in payments. A congressional report issued last year said Rohullah is a warlord who controlled the convoy security business along the highway between Kabul and Kandahar.

The congressional report said Rohullah's hundreds of heavily armed guards operated a protection racket, charging contractors moving U.S. military supplies along the highway as much as $1,500 a vehicle. Failure to pay virtually guaranteed a convoy of being attacked by Rohullah's forces, said the report. Rohullah's guards regularly fought with the Taliban, but investigators believe Rohullah moved money to the Taliban when it was in his interest to do so.

Rohullah and the security company he was affiliated with, Watan Risk Management, denied ever making payments to the insurgents, according to the report. But in December, the United States placed Watan in "proposed debarment status," which prevented it from signing new contracts or renewing existing contracts. Watan challenged the decision in federal court. Two weeks ago, Watan and U.S. officials signed an agreement that states the company may not bid on any mobile security contracts for the next three years. The ban does not affect other companies controlled by Watan's owners.

Rep. John Tierney, D-Mass., former chairman of the House oversight panel that investigated the wayward payments, said America must stop the diversion of taxpayer dollars to the enemy. "When war becomes good business for the insurgents, it is all the more difficult to convince them to lay down their arms," Tierney said.

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