Food Companies, Including Poison Pot Pie and Peanut Butter People ConAgra, Face U.S. Probe Over Iraq Deals

WASHINGTON -- Prominent American food companies are under scrutiny in a federal probe of possible fraud and corruption in the military's food-supply operations for the Iraq war.

Investigators from the Justice Department and the Defense Department are looking into deals that Perdue Farms Inc., Sara Lee Corp., ConAgra Foods Inc. and other U.S. companies made to supply the military, according to people involved in the inquiry. The companies made the deals with the help of former U.S. military procurement officials they hired as consultants or executives.

The inquiry is focused on whether the food companies set excessively high prices when they sold their goods to the Army's primary food contractor for the war zone, a Kuwaiti firm called Public Warehousing Co. A related question is whether Public Warehousing improperly pocketed for itself refunds it received from these suppliers. Public Warehousing bought vast amounts of meat, vegetables and bakery items from the food companies, and delivered them to U.S. troops.

Public Warehousing's dealings are the subject of "a very large and active investigation into criminal and civil fraud involving amounts in the hundreds of millions of dollars," Justice Department lawyer Brian Mizoguchi told a judge in Federal Claims Court in Washington, D.C., on June 12. Public Warehousing, which receives more than $1 billion annually to feed troops in Iraq and Kuwait, denies wrongdoing.

Federal investigators are also examining the role Army officials played in picking the food companies that are Public Warehousing's suppliers. Once a "prime vendor" is chosen by the Pentagon to deliver the food -- in this case, Public Warehousing -- that vendor receives guidance from the Army on what should be on the menu. Sometimes the Army demands specific brands of food from specific manufacturers. The prime vendor must then negotiate prices for these menu items with these manufacturers.

Profit Margins

In general, many military contracts pay suppliers the cost of the goods they distribute plus a profit margin. In such cases, it is a challenge to ensure that the supplier seeks the lowest price from the maker of the goods. Unless adequate safeguards are in place, the supplier and the maker have an incentive to inflate the cost and share the extra profits among themselves.

Federal law prohibits government contractors from obtaining money through false or fraudulent pretenses.

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