THE BLOG
12/21/2010 11:59 pm ET | Updated May 25, 2011

Can't Anyone at the Defense Department Do Oversight? Anyone at All?

The perennial issue regarding private military security contractors is the degree to which they are subject to effective oversight. In that regard there is only one item in today's news worth looking at. That is the report issued by the House Subcommittee on National Security and Foreign Affairs, chaired by John F. Tierney (D-MA). The Majority staff report is titled, Mystery at Manas: Strategic Blind Spots in the Department of Defense's Fuel Contracts in Kyrgyzstan. The report culminates an eight-month investigation into the Department of Defense's multi-billion dollar aviation fuel contracts at the Manas Transit Center in Kyrgyzstan.

Reminding one of the famous line by 1st Lieutenant Milo Minderbinder in Joseph Heller's famous Catch-22 novel, "We're gonna come out of this war rich!" the report found that to keep U.S. warplanes flying over Afghanistan, the Pentagon allowed a "secrecy obsessed" business group to supply jet fuel to a U.S. air base in Kyrgyzstan, turning a blind eye to an elaborate fraud involving fuel deliveries from Russia.

The subcommittee found that the Pentagon and State Department diplomats ignored red flags raised by jet fuel contracts worth nearly $2 billion for the Manas Transit Center, a U.S. base used for in-flight refueling over Afghanistan. The fuel was supplied by a Gibraltar-registered business group comprising Mina Corp. and Red Star Enterprises.

True, the report found no evidence of corrupt ties between Mina Corp. or Red Star and the families of Kyrgyz leaders. Yet it cautioned that a lack of proper oversight and a neglect of America's broader interests in the region had often left Washington blind to "political, diplomatic and geopolitical collateral consequences." These include the ouster of two Kyrgyz governments in popular revolts stirred in part by anger over alleged jet fuel corruption and also U.S. ties with Moscow.

Since 2002, the Defense Logistics Agency-Energy has awarded Mina and its sister-
company, Red Star Enterprises, four contracts worth $2 billion for fuel at Manas, and has awarded several additional contracts to Red Star for fuel supply to the United States' Bagram Air Base in Afghanistan. The day after the 2010 contract award, an official from DLA-Energy called the Majority staff of the Subcommittee to ask who owned the companies. The Pentagon did not know.

As the New York Times reported, for a number of years ending in April 2010, two Pentagon middleman companies misled the Russian authorities, by using falsified export documents, into thinking that the large quantities of jet fuel they were purchasing were for civilian use, not military, apparently with the intention of evading a tariff.

But the fuel was being bought by the Pentagon for shipment to the American airbase in Manas, Kyrgyzstan, and from there on to Afghanistan, the report said. Once Russian officials discovered the true identity of the recipient, they cut off supplies, creating a major logistical headache for United States military commanders.

Officials for the contractors expressed little remorse for their actions, the report shows.

"We got one over on 'em," the report quotes one company official, Charles Squires, as telling investigators. "I'm an old cold warrior, I'm proud of it, we beat the Russians, and we did it for four or five years."

Until, that is, the Russians objected and the system unraveled.

That breakdown forced a major redrawing of supply routes into Afghanistan for jet fuel, which is in chronically short supply in landlocked Afghanistan. It also touched off a major behind-the-scenes diplomatic effort by the Obama administration to rebuild the fuel lines.

If this is an example of effective contract oversight I'm the Chief of Naval Operations.

This fuel supply system accounted for more than half of the jet fuel used in the war, the report said. It is suggested that the Russian authorities knew all along about the falsified certificates, but did not act because the subsidiary of the Russian energy giant Gazprom which supplied the fuel was making profits on the sales.

In any case, the Russian Federal Security Service and the Russian Parliament investigated in 2009, the report said, and the trainloads of jet fuel from Gazprom started to dry up, halting altogether on April 1.

In a deposition with Congressional investigators, Red Star and Mina Corporation officials characterized the false certificates as necessary to circumvent Russian export restrictions on jet fuel sales to foreign militaries. In interviews, Kyrgyz officials characterized them as an effort to avoid export tariffs.

While those assertions remain in dispute, there is no question that the supply disruption caused major problems. Contractors were compelled to buy far more costly fuel that had to be shipped through the Black Sea and sent overland to Kyrgyzstan and Afghanistan. It also forced the military to rely more heavily on supply routes from Pakistan into Afghanistan on vulnerable mountain roads where trucks came under repeated attack this summer.

Putting aside for the moment of just how bad the oversight was the strategic question, as geopolitical types like to phrase it, was whether anyone was really interested in doing it in the first place. Here is how the report puts it:

Like many of the logistics contracting agencies that support the U.S. war effort in Afghanistan, DLA-Energy has a single-minded focus on providing the warfghters with the goods they need to achieve their mission. Judged by that metric, DLA-Energy's efforts have been remarkable. The U.S. mission in Afghanistan has required the delivery of billions of gallons of fuel to some of the most remote and hostile locations in the world. Simply stated, without this fuel, the war would come to a grinding halt. But DLA-Energy's by-the-book focus on performance and price was inadequate for proper strategic oversight of multi-billion dollar fuel contracting in a highly graft-prone region of the world.

Policy officials at the Pentagon and State Department did little to nothing to assist DLA-Energy in oversight of its massive fuel procurement contracts. As long as the flow of fuel met demand, the civilian and military officials at the Department of Defense showed little interest in fuel contracting. Te State Department, meanwhile, viewed the fuel contracts as solely a mater for the Pentagon to manage, even when fallout from the contracts badly damaged U.S.-Kyrgyz relations. In short, DLA-Energy, the Pentagon, and State Department all turned a blind eye to the fuel contracts' serious political, diplomatic, and geopolitical collateral consequences.

Evidently what we had here, as was memorably said in the classic movie Cool Hand Luke, was a failure to communicate.

Returning to the oversight, or lack thereof, consider just these few paragraphs:

6. DLA-Energy conducted only superficial due diligence on Mina and Red Star, and turned a blind eye to allegations of corruption. Until recently, DLA-Energy never knew Mina and Red Star's beneficial ownership and never had any clear visibility into their subcontracting relationships. When the interim government of Kyrgyzstan alleged that Mina and Red Star had corrupt relations with the Bakiyev family, DLA-Energy made no inquiry to determine whether the allegations might be true.

7. DLA-Energy took few steps to mitigate potential corruption and ignored red fags of anti-competitive behavior. DLA-Energy had little independent understanding of fuel supply at Manas or in Central Asia and took few steps to mitigate the high potential for corruption in a graft-prone region. When red flags of potentially corrupt or anti-competitive behavior did arise, the agency took no steps to address them.

8. The Department of Defense failed to oversee a highly sensitive fuel supply arrangement created by Mina and Red Star to disguise their fuel procurement. For most of the past five years, Mina and Red Star procured a majority of their fuel from refineries in Russia despite a perceived official Russian ban on the export of fuel for military use. Mina and Red Star constructed complex arrangements in which proxy subcontractors obtained certifications from Kyrgyz authorities stating that the fuel was being procured for domestic civil aviation. According to Mina and Red Star, the Russian refineries were aware that the U.S. military was the ultimate end-user of the fuel, and they believed that the Russian export control authorities were also aware because of the large quantity of fuel being procured. Mina and Red star told DLA-Energy and Pentagon officials about the deception; but, despite extensive memoranda and e-mails documenting the arrangements, senior DLA-Energy officials claimed that they were not aware of the scheme and asserted that there might not have been a Russian ban.