Shell companies behind US defence department fraud

A study by the US Government Accountability Office (GAO) has revealed that the defence department either paid or lost at least US$875 million to fraudulent contractors. 

The study provides examples of 32 dubious defence contractors that conned the department, often using anonymous shell companies.

Security risks

The department faces several types of financial and non-financial fraud and national security risks posed by contractors with opaque ownership according to the study.

It says these risks, identified through GAO’s review of 32 cases, include price inflation through multiple companies owned by the same entity to falsely create the appearance of competition.

Other risks include contractors receiving contracts they were not eligible to receive, and foreign manufacturers receiving sensitive information or producing faulty equipment through a US-based company.

Aircraft grounded

One case cited in the study involved an ineligible foreign manufacturer that illegally exported sensitive military data and provided defective and non-conforming parts that led to the grounding of at least 47 fighter aircraft.

The case involved a US citizen and an Indian resident who, as a contracting firm, falsely claimed to operate a US owned entity to win lucrative government contracts.

They were able to do this because they created a US-registered shell company. An ineligible foreign-based entity was then used to manufacture the parts that grounded the aircraft.



Categories: Trade Based Financial crimes News

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