Multimillion-dollar U.N. corruption case uncovered

UNITED NATIONS -- The deal looked simple enough: U.S. military equipment suppliers bribed an African defense minister's salesmen to secure part of a $15 million gig to outfit a presidential guard.

But the salesmen were actually FBI agents. And the operation resulted in what U.S. authorities in January called their biggest foreign bribery sting to date, netting 16 indictments and 22 arrests of small arms and military equipment makers.

At the center of the U.S. case is Richard Bistrong, a former Florida executive who first surfaced in a series of cases of bribes and bid-rigging for multimillion-dollar U.N. peacekeeping contracts. The trail to Bistrong is laid out in U.N documents, e-mails and legal filings reviewed by The Associated Press.

The story of Bistrong and the military equipment suppliers shows how vulnerable the United Nations is to corruption in how the billions of dollars a year that it oversees are spent. It also raises questions about how well that spending will be monitored in the future: The anti-corruption unit that first uncovered the bribery and bid-rigging was disbanded in 2008, after more than 300 investigations in three years.

"It is greatly disturbing that an organization plagued by corruption and mismanagement would disband its anti-corruption task force," said U.S. Rep. Ileana Ros-Lehtinen of Florida, the ranking Republican on the House Foreign Affairs Committee, who has proposed requiring the U.N. to do more to fight corruption or risk losing U.S. financial support. "What will the [Obama] administration do to address U.S. taxpayer dollars being misappropriated, squandered and stolen at the U.N.? We need to demand concrete reform now."

Martin Nesirky, who became the U.N.'s chief spokesman in December, said he was assured by senior U.N. officials that the world body's contracting and spending processes "have been tightened to ensure the bid-rigging and bribery described ... are no longer possible." But, he added, the procurement division is reviewing the Bistrong case "to identify what actions are warranted."

Bistrong is a former executive for military equipment supplier Armor Holdings of Jacksonville, Fla. The Justice Department charged him in January with bribing foreign officials to outfit U.N. peacekeepers with $6 million in ballistic body armor and helmets. He was charged with cooking the books between 2001 and 2006 to obscure $4.4 million in payments, including $200,000 in kickbacks to one intermediary, to get the contracts.

Bistrong also was accused of paying $15,000 in bribes to a Dutch agent after obtaining a $2.4 million pepper spray contract from the National Police Services Agency of the Netherlands, and with providing kickbacks to an election official in Nigeria to get a contract to provide fingerprint ink pads to Nigeria's Independent National Election Commission.

Court papers say Bistrong had help from unindicted co-conspirators who are described but not named. However, they are named in documents by the U.N. Procurement Task Force, the former anti-corruption unit that set in motion the U.S. case.

In 2006, the task force identified an obscure marketing company, IHC Services Inc., with offices in midtown Manhattan and Milan, Italy, that seemed unusually successful at securing lucrative U.N. contracts for its clients.

Task force investigators then discovered the secret to the company's middleman role: It partnered with a corrupt U.N. procurement official, Alexander Yakovlev, to arrange for companies to win contracts by obtaining confidential U.N. documents and providing preferential treatment to certain favored vendors represented by IHC.

For example, officials from Cyprus-based food rations supplier Eurest Support Services flew to New York to conduct what the task force described as an elaborate bid-rigging operation. In a hotel suite just blocks from U.N. headquarters, Eurest officials, with the help of IHC and Yakovlev, doctored bids for U.N. contracts by first securing their competitors' confidential proposals, according to task force records such as e-mails, phone records, store receipts and the statements of two confidential informants who took part in the bid-rigging.

The next month, Eurest won a $62 million U.N. contract in Liberia and a $24.4 million U.N. contract in Eritrea. Those were among $234 million in contracts the U.N. had awarded the company to supply food rations to peacekeeping forces since the early 1990s.

Neither IHC nor Eurest were charged with crimes, but Eurest's new owner, Britain's Compass Group, settled competitors' lawsuits for about $74 million, while not admitting liability.

Compass said at the time that it believed the problems did not extend beyond the behavior of a few individuals, and it had taken disciplinary action.

The task force then focused on Bistrong, Armor and other companies securing U.N. contracts with help from IHC and Yakovlev.

Yakovlev has pleaded guilty to U.S. charges of accepting $900,000 in bribes from U.N. contractors, but he did not acknowledge involvement in the Eurest or Armor bids. Task force investigators had documented in a series of U.N. reports more than $3.5 million in bribe payments he deposited in at least 12 bank accounts around the world.

In January 2007, the task force asked Armor for documents, setting off an internal company investigation the next month and a separate probe by its board of directors.

A lawyer for the board then "disclosed the circumstances" behind its probe to Justice Department and U.S. Securities and Exchange Commission officials, British-based BAE Systems said in a May 2007 press release shortly after purchasing Armor.

That month, the U.N. investigations were made public in the company's SEC filing. The Justice Department began following up.

Ed O'Callaghan, a former federal prosecutor in the U.S. attorney's office for the Southern District of New York who has overseen high-profile and international corruption cases, said the task force "certainly showed its value in that and other investigations" pursued and prosecuted by U.S. authorities.

"An organ as large as the United Nations, with the budget that it has, needs to have a vigorous watchdog," he added.

The task force advised Armor's lawyers in a December 2008 letter that the case was completed and cited Bistrong e-mails showing he was "well aware" IHC improperly supplied Armor with confidential U.N. bid documents.

The task force's three-year investigation concluded that Armor officials, IHC and Yakovlev steered a 2001 contract for bulletproof vests to Armor subsidiary Supercraft (Europe) Ltd., opening the door to more U.N. contracts through 2006.

A lawyer for Bistrong and officials from Armor, Compass and IHC, which no longer exists, did not respond to AP requests for comment.

The task force was created in 2006 to prevent another scandal like the $1.8 billion bilked from the U.N.-administered oil-for-food program for Iraqi humanitarian relief. It completed more than 300 investigations in three years, but was closed down at the end of 2008 due to political opposition from some countries.

Since the start of 2009, the number of complex fraud and corruption probes completed by the U.N.'s permanent investigation division has sharply declined, the AP reported in January.

The task force's draft report on Armor and Bistrong was left to the U.N's permanent investigation division to issue in 2009. It was never issued. A year later, Nesirky said the report is "forthcoming."