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posted: 7/14/2013 12:01 AM

How manager stole $30 million through government contracts

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  • "Kerry Khan was the ringleader of the largest bribery and bid-rigging scheme in the history of federal contracting," U.S. Attorney Ron Machen said in a statement after a sentencing hearing Thursday. "His corrupt network of public officials and private contractors looted the U.S. Treasury for years."

      "Kerry Khan was the ringleader of the largest bribery and bid-rigging scheme in the history of federal contracting," U.S. Attorney Ron Machen said in a statement after a sentencing hearing Thursday. "His corrupt network of public officials and private contractors looted the U.S. Treasury for years."
    Associated Press, 2005

 
The Washington Post

WASHINGTON -- You couldn't tell by looking at him that Kerry Khan was an "extraordinarily greedy" criminal mastermind.

With his baggy blue jumpsuit pant legs stuck in white socks and white canvas slip-ons, Khan looked more like a broken man -- certainly a caught one.

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Now he'll be a number, a Bureau of Prisons inmate looking at almost 20 years.

It's what he gets for his scheme to cheat taxpayers out of $30 million through bribery and kickbacks connected to bogus and grossly inflated U.S. Army Corps of Engineers contracts.

"Mr. Khan was greedy. He was extraordinarily greedy. His greed was of epic proportions," Assistant U.S. Attorney Michael Atkinson said at Khan's sentencing hearing Thursday.

Khan, 55, who pleaded guilty last year, was a program manager for the agency. He had a good record until he decided to use his position to steal in a big way. From 2007 through 2011, he received $12 million, directly and indirectly, through a government procurement scam. He used the money for Rolex watches, flat-screen televisions, computer equipment, top-shelf liquor, travel, cars, more than a dozen pieces of property and "payments to and for the benefit of Khan's mistresses in Virginia, Florida, Maryland and the Philippines," according to prosecutors.

"This defendant has engaged in crime of historic proportions in the context of procurement fraud," according to their sentencing recommendation.

One reason Khan was arrested on Oct. 4, 2011, was that the "intensity of Khan's cash demands ... were too great for the undercover operation to continue," the prosecution document says.

"Kerry Khan was the ringleader of the largest bribery and bid-rigging scheme in the history of federal contracting," U.S. Attorney Ron Machen said in a statement after the hearing. "His corrupt network of public officials and private contractors looted the U.S. Treasury for years. Khan is now headed to prison for more than 19 years, where the friends, family and colleagues he brought into his criminality will be joining him. His lengthy prison sentence is an appropriately forceful response to this brazen scheme."

Fifteen people and one company have pleaded guilty in the case, and prosecutors indicate that there are more to come.

Another Army Corps program manager, Michael Alexander, was sentenced to six years in the scam. The next gavel to drop could be on unnamed "Public Official C," whom prosecutors say also was bribed.

The sentence was more forceful than the 15 years Machen's office proposed and almost twice the 10 years Khan's lawyer, who did not reply to a request for comment, suggested. U.S. District Judge Emmet Sullivan called the government's proposal "too lenient." He took into account government evidence that Khan was not just a crook but a real lowlife. Taps on Khan's cellphone indicated that he had someone assault his mistress in the Philippines and planned to travel there to have sex with a 15-year-old girl.

"Those tapes are shocking," Sullivan said.

He also noted that Khan took responsibility for his crimes and offered "heartfelt apologies."

But that wasn't enough for Sullivan to accept even the prosecution's sentencing recommendation.

"There is a need for deterrence ... for those contemplating this kind of activity," the judge said.

The sentence certainly sends a strong message to current and potential thieves in the federal workplace. With prosecutors like Machen and Atkinson and judges like Sullivan, the crooked should get straight quick.

But what about Uncle Sam? What lessons are in this sad tale for government officials?

Sam isn't an accomplice, but it seems like he made it a little too easy for Khan and others to steal.

The Army Corps used "what is known as an Indefinite Delivery/Indefinite Quantity (ID/IQ) contract," according the Justice Department. "Authorized agencies and departments are not required to obtain three separate bids" or to compare contracts before submitting an invoice for products and services.

This might be efficient, but the lack of control cries out for better oversight, at the agency level, by the Office of Management and Budget, and Congress.

"Anytime the Department of Justice announces the prosecution of a bad actor, it underscores the importance of the efforts we have in place to root out those who seek to waste and abuse public resources," said Joe Jordan, OMB's administrator for federal procurement policy.

But are those efforts enough?

Doug Garman, a spokesman for the Army Corps, said the agency continues to use ID/IQ contracts, which are not restricted to a dollar amount, but has "instituted several improvements ... in the process and compliance with laws, regulations, and policies." The improvements include mandatory training for acquisition personnel and "peer reviews of all acquisitions prior to release of a solicitation and award."

That's good, but is anyone questioning the fundamental issue of allowing sole-source contracts that have no dollar limitation?

"There should be an investigation of what went wrong here ... what sort of checks and balances, what sort of oversight, what sort of auditing," Machen said during an interview.

He was talking about investigating the process here, not the crooks. He can put the crooks away, but it's up to others to fix a process that is too easily cheated.

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