Defense Contractor Fined $389 Million for Defrauding Government | Practical Law

Defense Contractor Fined $389 Million for Defrauding Government | Practical Law

The US Department of Justice (DOJ) has announced that it has fined a federal defense contractor almost $400 million for violating the False Claims Act  (FCA) in connection with government contracts to provide food, water and fuel to US soldiers in Afghanistan.

Defense Contractor Fined $389 Million for Defrauding Government

Practical Law Legal Update 2-591-6745 (Approx. 3 pages)

Defense Contractor Fined $389 Million for Defrauding Government

by Practical Law Commercial
Published on 09 Dec 2014 • USA (National/Federal)
The US Department of Justice (DOJ) has announced that it has fined a federal defense contractor almost $400 million for violating the False Claims Act (FCA) in connection with government contracts to provide food, water and fuel to US soldiers in Afghanistan.
On December 8, 2014, the US Department of Justice (DOJ) issued a press release to announce a $389 million fine against a federal defense contractor for violating the False Claims Act (FCA) while providing goods and services to US troops in Afghanistan. This fine includes:
This fine is one of the largest penalties the DOJ has ever imposed on a defense supplier. For more information on the FCA, see Practice Note, Understanding the False Claims Act.

Criminal Fraud Against US Government

Beginning in 2005, Supreme Foodservice GmbH was under a government contract with the Defense Supply Center of Philadelphia to provide food and water to US forces stationed in Afghanistan. According to the DOJ's charges, Supreme Foodservice GmbH and Supreme Foodservice FZE violated the FCA by fraudulently inflating the price charged for bottled water, fresh fruits, vegetables and other locally-produced products they sold to the US under the subsistence prime vendor contract. The DOJ alleged that this fraud cost the US government $48 million.
The Supreme companies pleaded guilty to the DOJ's major fraud charges and agreed to:
  • Jointly pay:
    • $48 million in restitution;
    • $10 million in criminal forfeiture; and
    • $38.3 million directly to the Defense Supply Center of Philadelphia as a refund for separate overpayments on bottled water.
  • Each pay $96 million in criminal fines.
The total sum, $288.3 million, includes the maximum criminal fine permitted under the law.

Civil Settlements

In addition, Supreme Group B.V. and its subsidiaries faced related civil lawsuits alleging violations of the FCA. As part of these related civil settlements:
  • Supreme Group agreed to pay $101 million to settle a whistleblower lawsuit that alleged that the contractor and its subsidiaries violated the FCA by:
    • knowingly overcharging for supplying food and water under its subsistence prime vendor contract; and
    • failing to disclose and pass through to the government rebates and discounts it obtained from its suppliers.
  • Supreme Site Services GmbH, Supreme Group's subsidiary, agreed to pay $20 million to settle allegations that it overbilled the government for fuel the Defense Logistics Agency purchased for Kandahar Air Field in Afghanistan under a NATO Basic Ordering Agreement.
  • Supreme Logistics FZE, Supreme Group's subsidiary, agreed to pay $25 million to resolve allegations that it falsely billed the government in connection with shipping contracts between the US Transportation Command and various shipping carriers to transport food to US troops in Afghanistan.