Two U.S. Army Corps of Engineers employees and two businessmen were arrested in what prosecutors say may be the largest kickback and bribery scheme in the history of federal contracting. The conspirators steered no-bid contracts worth tens of millions of dollars to favored businesses and lined their pockets with $20 million in taxpayer money paid to them or promised by contractors, according to prosecutors. They were scheming to steer a nearly $800 million contract to a favored contractor when they were arrested, according to the charges.
“This scheme is staggering in scope,” said Ronald C. Machen Jr., the U.S. Attorney for the District of Columbia. “I think it surprised all of us.”
Prosecutors said the conspirators took advantage of a law designed to help stimulate Alaska’s economy and to settle land disputes by granting no-bid federal contracts to Alaskan native-owned businesses regardless of the size of the contract.
More than 100 federal agents executed search warrants on Tuesday throughout the capital region, including the headquarters of the Army Corps of Engineers at 441 G St. NW in downtown D.C.
Arrested Tuesday morning were Army Corps contracting employees Kerry F. Khan, 53, of Alexandria and Michael A. Alexander, 55, of Woodbridge. The other two men arrested were Khan’s son, Lee A. Khan, 30, of Fairfax, and Harold F. Babb, 60, of Sterling. Babb is director of contracts for EyakTek, an Alaska Native-owned small business based in Dulles.
The foursome bought more than a dozen properties from Florida to South Korea, Porsches, BMWs, Audis, a $21,000 Cartier watch, and paid $383,000 in hush money to a family member who threatened to alert authorities to the scheme, prosecutors said.
According to the 42-page indictment, Kerry Khan was promised or paid more than $18 million over the past five years, and received wire transfers of $1.2 million and $3.3 million, prosecutors said. He and his son also agreed to wire money to a relative imprisoned for a drug trafficking crime to prevent him from snitching on them to law enforcement, according to the indictment.
Alexander received more than $185,000 in cash and checks and $1 million to purchase a coffee shop called Seven Monkeys in a wealthy area of Seoul, South Korea.
Babb received nearly $700,000 in payments and was promised a new job.
Prosecutors described a complicated scheme to shift massive contracts to an unidentified firm while siphoning off millions of dollars. Khan and Alexander awarded contracts to a company identified in court documents as “Company A.” The chief technology officer of Company A submitted fraudulent billing work for inflated costs of more than $20 million to the Army Corps. After the Army Corps paid the inflated costs, “Company A’ kicked back the money to the conspirators.
Prosecutors said they were not ready to identify Company A and its chief technology officer.
Machen said the arrests Tuesday stopped a new plan to steer a $780 million contract to a company of their choice. The conspirators were planning to tailor the qualifications and stack the selection board so they could ensure the contract went to Company A.
The defendants were arraigned Tuesday and held without bond. A detention hearing is scheduled for Thursday morning.
