IAP Worldwide Services, Inc: Writing the Rules for the Contract It Wanted

In the IAP Worldwide Services, Inc FCPA case, the company admitted using a shell bidder to hide its role in shaping a Kuwait surveillance contract it wanted to win. The Justice Department described those criminal admissions in its June 16, 2015 announcement of the company’s non-prosecution agreement and a former vice president’s guilty plea. If you knew who wrote the project requirements, who really stood behind the bidder or why the consultant received the money, you would recognize a different deal from the one the paperwork presented.

The Kuwait Security Program Put the Next Bid Inside the First Contract

The Kuwait Security Program gave the company working on the first phase an opportunity to influence the requirements for the next. Kuwait’s Ministry of the Interior initiated the program in 2004 to provide nationwide surveillance capabilities for several government agencies, primarily through closed-circuit television. The ministry oversaw the project and selected its contractors.

Phase I covered planning and feasibility. Phase II covered installation, with revenues expected to be substantially greater. For IAP, a Florida defense and government contractor, the commercial attraction lay in getting the early work to improve its position for the larger contract.

In the admissions accompanying its non-prosecution agreement, IAP described a plan to become the Phase I consultant so it could tailor the Phase II requirements to its strengths. That would give it an advantage when the installation work went out to bid. The planning assignment was therefore part of the sales strategy for the work that would follow.

Kuwait was paying a contractor to plan a purchase. The contractor was planning its own win. Honest competitors would face requirements shaped by the business they were bidding against, with that business’s involvement concealed. The people who understood the technical specifications could see something that the bidder’s name alone would hide.

Ramaco Kept IAP Behind the Bid

IAP admitted that its executives and senior employees, including the former vice president, set up a shell company called Ramaco in February 2006 to bid on Phase I. The Justice Department reported that the purpose included concealing IAP’s role in crafting the later requirements and its conflict of interest in pursuing the next contract.

The shell company separated the name on the bid from the company seeking the commercial advantage. That is why reviewing a third party means understanding its part in the project as well as its identity. In this case, the important relationship was between the apparent bidder and the contractor shaping the future competition.

For an employee in proposals, project planning or contracts, the useful knowledge could be who supplied the requirements and whose capabilities those requirements favored. For finance, it could be the connection between the contracting entity and the company account receiving its money. Those are different views of the same concealed relationship.

Half the First Contract Was Earmarked for Bribes

Ramaco secured the Phase I contract for approximately $4 million. In the criminal admissions described by the Justice Department, IAP and the former vice president agreed that half of that amount would go to a consultant who would pay bribes to Kuwaiti government officials. The payments were intended to help obtain and retain the first contract and obtain the second.

The Justice Department’s account of the payment route says IAP and the executive admitted disguising the payments by moving funds Ramaco received into an IAP bank account, then through accounts and intermediaries to the consultant. IAP admitted that it and its co-conspirators paid approximately $1,783,688 to the consultant between September 2006 and March 2008, with the understanding that some or all of it would be used to bribe Kuwaiti officials.

The admitted plan connected the government’s project payments to the officials whose decisions the company wanted. Following the money through the intermediaries brings the customer, the company account and the consultant into the same picture. A person who approved a transfer may know which project funded it, while someone managing the consultant may know what the payment was supposed to accomplish.

IAP Admitted the Scheme, and Its Vice President Pleaded Guilty

IAP entered a non-prosecution agreement, while its former vice president pleaded guilty to conspiring to violate the Foreign Corrupt Practices Act’s anti-bribery provisions. The Justice Department’s case index identifies the company agreement and lists the executive’s prosecution separately.

The agreement required IAP to review its controls and make any changes needed to maintain accurate records and an anti-corruption program. For an insider, a payment approval, a consultant’s stated assignment and the corresponding accounting entry can show whether the company’s account of an expense matches the business decision behind it.

The Consultant’s Work Has to Explain the Fee

The consultant’s assignment and actual work can explain what the payment bought. We compare the engagement letter, invoice and delivered work with the government decision the company was trying to influence.

Under its 2011 deferred prosecution agreement, Magyar Telekom admitted using false success-fee contracts that served no legitimate business purpose and produced no valuable performance. A report available for approximately GBP 500 supported a EUR 450,000 payment. The supposed work could not explain the fee.

For an IAP insider, the question would have been what the consultant was actually being paid to accomplish. The company’s admission tied the intended payment to decisions about both phases of the ministry’s project. Knowledge of that assignment would connect the transfers to the business IAP wanted.

What an Insider Can See in the Project Records

The IAP case connects the project requirements, the shell bidder and the consultant payments. Each part may be visible to a different employee, which is why an insider’s explanation of the records matters. The person drafting a specification can explain its commercial effect, while the person handling a payment can explain the approval behind it.

We would connect the planning work to the later bid requirements, and the contracting entity to the company that directed the work. On the payment side, we would connect the consultant’s assignment, invoices, approvals and transfers to the ministry decisions the business wanted. Your knowledge of how those pieces fit can make an ordinary-looking project expense understandable as part of a bribery arrangement.

A 2019 working paper hosted by MIT Sloan, Do Corporate Whistleblower Laws Deter Accounting Fraud?, found a lower estimated probability of accounting fraud among companies exposed to state False Claims Acts. In a small subset with internal-audit data, it found little evidence that increased internal-audit investment explained the effect.

For fraud involving false claims on U.S. government money, a whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. The foreign-bribery whistleblower programs have their own terms, which our experts assess with you against the conduct and payments you know.

You Know Who Was Behind the Bid

If you saw a consultant shaping a government bid while the real contractor stayed off the paperwork, bring that account to our whistleblower experts. We build the case around the connection between the project decisions and the payments, and bring in Foreign Corrupt Practices Act whistleblower lawyers who understand overseas contracting. Work with us to turn what you saw behind the bid into your strongest whistleblower case, with an expert partner beside you throughout.