A federal district court judge in Virginia has ruled that the False Claims Act does not apply to contractors who were paid by the coalition authority using Iraqi oil money.
The False Claims Act, widely regarded as the government’s most potent weapon against contractor fraud, imposes significant financial penalties on companies who defraud the government. Some whistle-blower lawsuits will be derailed by this ruling but the case against Custer Battles can proceed, the judge held. Custer Battles, a security company, was mainly paid with confiscated Iraqi money that had become United States property.
Custer Battles won more than $100 million in security and logistical contracts in Iraq. It is alleged that the company used shell companies to file phony, inflated invoices, cheating the coalition authority by tens of millions of dollars.
The New York Times (subscription required) reported on the judge’s ruling on July 12, 2005.