No Comment — July 23, 2010, 1:56 pm

Those Slippery Fuel Contracts

At his SpyTalk blog at the Washington Post, Jeff Stein reports on why the congressional probe into the Manas fuel contracts has been stagnant. It seems that Red Star/Mina Corp., the shadowy London-based companies who are beneficiaries of roughly $1½ billion in Pentagon fuel contracts, were using their overseas registries to avoid complying with congressional queries—ultimately leading the Oversight Committee to issue formal subpoenas and involve the U.S. Marshalls. Now, Stein reports, the congressional investigators have a compliance agreement:

After weeks of tense negotiations, a House oversight subcommittee has gotten promises of cooperation from two secretive companies at the center of allegations regarding corruption in aviation fuel contracts at the big U.S. air base in Kyrgyzstan. The objects of the panel’s attention are Douglas Edelman, a Californian with extensive business experience in Moscow and Central Asia, and Erkin Bekbolotov, a Kyrgyz national. The men are partners in Red Star Enterprises and Mina Corp. Ltd, firms that were awarded sole-source, classified, $1.4 billion Defense Department contracts to supply fuel to Manas in 2002.

The companies’ dance with congressional investigators seems to have been motivated by their desire to avoid disclosing their beneficial ownership. In a press release, the companies have their lawyer state that their objective is “preserving the confidentiality of the companies’ operations and the privacy of its personnel.” The identity of the companies’ beneficial owners and the qualifications and experience of their key personnel would be right at the heart of any congressional probe.

Stein’s report marks the first appearance of Douglas Edelman in press accounts of the matter. He is tagged as a “Californian with extensive business experience in Moscow and Central Asia,” but the accuracy of that description must be tested by congressional investigators. Just exactly what are the commercial experience and credentials of Mr. Edelman and the rest of the Red Star/Mina Corp. team? What is their experience dealing with energy industry and fuel supply arrangements prior to these contracts? What was it about the Red Star/Mina Corp. team that justified this extraordinary series of DOD contract awards, in which the normal prime concern—an established track record—was completely disregarded? Neither the Pentagon nor the State Department has offered a plausible answer to that question.

There seems little doubt that these contracts as structured and implemented by DOD would have been exceptionally profitable to those who received them. DOD, with strong State Department backing, insisted on exemption from all taxes, customs, duties, and other government charges, not only for themselves but also for Red Star/Mina Corp. The holders of such contracts therefore figured to sweep in staggering profits at little risk. What is the relationship between the principals of these companies, and the beneficial owners of these companies, and the U.S. Government? Congress must nail this down with certitude. And it’s hard to understand why the answers to such questions should be concealed from the American public.

One of the major issues hanging over the government contracting process now is “capture”—the revolving door between government service and contractors, which leads to the writing of contracts that are unnecessary or commercially unfavorable to the taxpayer. In this case, a number of figures at Red Star/Mina Corp. appear to have been in government service just before Red Star/Mina Corp. emerged in this business line with a healthy portfolio of government fuel-supply contracts. These details need to be flushed out.

Jeff Stein’s source identifies for him the other obvious issue for Congress: “’The heart of the investigation,’ the source said, ‘is why Red Star and Mina Corp. were not investigated under’ the Foreign Corrupt Practices Act, which forbids U.S. companies from paying bribes or kickbacks to foreign officials.” As I noted in congressional testimony, the Justice Department was fully informed about the contracts in 2005–06, established the links between those contracts and entities controlled by former President Akayev, and even froze his U.S. bank accounts. But it evaded all queries about Red Star/Mina Corp. when investigators for Kyrgyzstan asked about their role. This points to something very screwy in the Justice Department’s interpretation and application of the FCPA.

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