An international food supplier has pleaded guilty in federal court to major fraud against the United States and agreed to pay more than $434 million in penalties for overcharging the U.S. government for food and water shipped to armed forces serving in Afghanistan.
Supreme Foodservice GmbH, a privately held Swiss company, and Supreme Foodservice FZE, a privately-held United Arab Emirates (UAE) company, pleaded guilty in the Eastern District of Pennsylvania (EDPA) and paid $288.36 million in the criminal case, a sum that includes the maximum criminal fine allowed.
In addition, Supreme Group B.V. and several of its subsidiaries have agreed to pay an additional $146 million to resolve a related civil lawsuit, as well as two separate civil matters, alleging false billings to the Department of Defense (DoD) for fuel and transporting cargo to American soldiers in Afghanistan.
The lawsuit was filed in the Eastern District of Pennsylvania, and the fuel and transportation allegations were investigated by the Southern District of Illinois and the Eastern District of Virginia, respectively, along with the Department’s Civil Division.
“These companies chose to commit their fraud in connection with a contract to supply food and water to our nation’s fighting men and women serving in Afghanistan,” said U.S. Attorney Zane David Memeger for the Eastern District of Pennsylvania. “That kind of conduct is repugnant, and we will use every available resource to punish such illegal war profiteering.”
In 2005, Supreme Foodservice AG, now called Supreme Foodservice GmbH, entered into a contract with the Defense Supply Center of Philadelphia (DSCP, now called Defense Logistics Agency – Troop Support) to provide food and water for the U.S. forces serving in Afghanistan. According to court documents, between July 2005 and April 2009, Supreme Foodservice AG, together with Supreme Foodservice KG (now called Supreme Foodservice FZE) devised and implemented a scheme to overcharge the United States in order to make profits over and above those provided in the $8.8 billion contract.
The companies fraudulently inflated the price charged for local market ready goods and bottled water sold to the United States under the contract. The Supreme companies did this by using a UAE company it controlled, Jamal Ahli Foods Co. LLC (JAFCO), as a middleman to mark up prices for fresh fruits and vegetables and other locally-produced products sold to the U.S. government, and to obscure the inflated price the Supreme companies were charging for bottled water. The fraud resulted in a loss to the government of $48 million.
Supreme AG, Supreme FZE and Supreme’s owners made concentrated efforts to conceal Supreme’s true relationship with JAFCO, and to make JAFCO appear to be an independent company. They also took steps to make JAFCO’s mark-up look legitimate, and persisted in the fraudulent mark-ups even in the face of questions from DSCP about the pricing.
In early March 2006, after a DSCP contracting officer told the Supreme food companies that she wanted to see a manufacturer’s invoice for specific frozen products, Supreme Foodservice GmbH lowered its prices for those products to prices that did not include a JAFCO mark-up.
On March 14, 2006, instead of disclosing that the initial pricing had included a mark-up, a Supreme executive misled the DSCP representative by saying, “Based on more realistic quantities, we have been able to negotiate a better price,” to explain the change in pricing.
In June 2006, when a DSCP contracting officer raised questions about pricing focusing on four specific items, Supreme executives again misled the DSCP, claiming that the high prices were for a high quality of product, and offering to sell lower quality products for lower prices. Supreme Foodservice GmbH did this even after analyzing its JAFCO margin on the four items in question and finding its profit margins were between 41 and 56 percent.
In September 2007, after a fired Supreme executive threatened to tell the DSCP about the fraud, his former employer entered into negotiation of a “separation agreement” with that executive to induce that executive not to disclose the ways in which the Supreme food companies were overcharging the DSCP. The agreement stated that the executive would receive, among other things, a payment of 400,000 euros in September 2010, provided that the executive did not cause: a deterioration in the economic situation linked to the SPV contract; the termination of the SPV contract; or a decrease in the price levels for products, specifically including LMR and bottled water provided to the U.S. government.
Defendant Supreme GmbH pleaded guilty to major fraud against the United States, conspiracy to commit major fraud and wire fraud. Supreme FZE, which owns JAFCO, pleaded guilty to major fraud against the United States. The Supreme companies agreed to jointly pay $48 million in restitution and $10 million in criminal forfeiture. Each company also agreed to pay $96 million in criminal fines. In addition, as a result of the criminal investigation, the Supreme companies paid $38.3 million directly to the DSCP as a refund for separate overpayments on bottled water.