Friday, December 19, 2014

Closure to the Largest Bribery and Kickback Scheme in the History of Federal Contracting

Monday of this week, the Department of Justice announced that Eyak Technology LLC and Eyak Services LLC (related companies) agreed to pay $2.5 million and relinquish any rights to additional payments from the United States Government, to resolve allegations that the companies submitted false claims to the Corps of Engineers. These companies are subsidiaries of Eyak Corporation, an Alaska Native Corporation (ANC). When the fraud was first exposed, the Corps of Engineers stopped payment on all of Eyak's invoices. Eyak has agreed not to pursue those payment requests.

You may remember this case that first came to light in 2011. Eyak had a $1 billion contract with the Corps of Engineers to provide and install high-tech equipment. Between 2007 and 2011, Eyak's director of contracts accepted kickbacks from several subcontractors. The  kickbacks were included in billings from the subcontractors and subsequently passed along to the Government. In many cases, work was never performed. The Justice Department emphasized also that Eyak lacked the internal controls to detect the improper charges and that's where the Corporation got in trouble. Yes, there were rogue employees but the lack of adequate internal controls allowed the fraud to occur and fester for so many years.

The main contractor employee in the scheme is now serving a seven year prison sentence and was forced to pay $9 million in restitution. A Corps of Engineers participant is serving a 19 year sentence. So far, more than 20 people and businesses have been convicted of charges related to their involvement in the contract fraud scheme.

This case should be a reminder to all Government contractors of the importance of implementing effective internal controls, ethics, and compliance programs. This case also illustrates what can happen when the Government purchases commercially - there is no Government oversight of the contractor.

You can read the Department of Justice press release here.

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