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They Don't Make Contractor Crime Like They Used To

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The company that, like the Energizer Bunny, just keeps going and going and going, at least from the perspective of giving the media something to write about, has done it again. Yes, you guessed it; once again, the company formerly known as Blackwater Worldwide and Xe Services, now Academi, is back in the news.

On August 7 the Justice Department announced the unsealing, in United States District Court in New Bern, N.C., of a Bill of Information and Deferred Prosecution Agreement (DPA) involving Academi.

Essentially, what was announced the was the result of a five-year, multi-agency federal investigation that covered an array of criminal allegations including export and International Emergency Economic Powers Act (IEEPA) allegations involving the manufacture and shipment of short-barreled rifles, fully automatic weapons, armored helicopters, armored personnel carriers, Foreign Corrupt Practices Act (FCPA) allegations in both Iraq and Sudan, unlicensed training of foreign nationals and firearms violations. As the result of that investigation, the government has brought 17 criminal charges against the company.

In the agreement Academi admitted certain facts set forth and agreed to a $7.5 million fine; although that is subject to a credit of up to 2.5 million dollars for compliance-related costs. That's a sweet deal; as punishment goes we should all suffer like that.

It bears remembering that what was made public was essentially a deal that was made years ago between the government and Blackwater, back before founder Erick Prince relinquished some of his ownership rights, as head of EP Investments LLC, in 2009.

None of these charges are new. As Academi pointed out in its only public response to the news:

ACADEMI is pleased to reach this important agreement on this legacy matter. It is yet another step in our commitment to fairly resolve past issues and become the industry leader in governance, compliance, and regulatory matters. The agreement, which does not involve any guilty plea or admit to any violations, [emphasis added] reflects the significant and tangible efforts that ACADEMI's new ownership and leadership team have made in achieving that goal. The company is fully committed to this agreement and looks forward to successfully fulfilling its obligations on this legacy matter as we continue to lead by example in our regulatory and compliance efforts.

As Academi spokesman John Procter later said, "There is a distinction between an admission of events taking place and an admission of guilt."

In fairness to ACADEMI some of the charges are fairly trivial. For example, counts one and two, "allege violations of IEEPA based upon Academi/Blackwater's export of Iridium Satellite phones and Crypto Satellite phones to the Sudan in November 2005 without the authorization of the U.S. secretary of the treasury, as required by law." Putting aside the fact that anyone can go online and buy or rent such phones if they have the money, the government seems concerned that the phones were labeled not for sale and were shipped to Kenya and not directly to Sudan, thus seeming to circumvent sanctions then in effect.

But as one former Blackwater official in a position to know said, that was done not to evade sanctions but, as recommended by the Sudanese consultant they used, to get the phones through Kenyan customs without them being stolen. It may have been poor judgment but it was not like they were selling automatic weapons to deranged movie theater patrons. As law-breaking goes this is hardly riveting news.

Some observers note that press coverage focusing on the $7.5 million fine, omits mention of a previous $42 million settlement between the company and the Department of State as part of a settlement of violations of the Arms Export Control Act and the International Trafficking in Arms Regulations, bringing the total up to about $50 million. This is true. On the other hand, consider that Blackwater has received contract awards of over a billion dollars that is not saying much either.

What is more interesting is to be reminded of just how diversified Blackwater was as a company. It had its fingers in many different pies. Its corporate organization serves as a textbook example of horizontal proliferation. Erik Prince at least deserves more credit as a businessman than he generally gets.

According to the DPA the agreement includes:

subsidiaries, divisions and affiliates through which ACADEMI LLC and its predecessor-in-interest, EP Investments, L.L.C., has conducted business: EP Investments, L.L.C. (formerly d/b/a Blackwater Worldwide), Blackwater Lodge and Training Center, Inc., (formerly d/b/a Blackwater USA and n/k/a ACADEMI Training Center, Inc.), Blackwater Security Consulting LLC (formerly d/b/a Blackwater Maritime Solutions and a/k/a USTC Security Consulting LLC), Blackwater west LLC (cancelled), GSD Manufacturing LLC (f/k/a Blackwater Target Systems LLC and formerly d/b/a Blackwater Manufacturing?) ACADEMI Pro Shop (f/k/a Blackwater Proshop LLC), Blackwater Logistics LLC (cancelled on May 1, 2008), Blackwater Armor & Targets LLC (cancelled on March 28, 2008), Guardian Flight Systems LLC (f/k/a Blackwater Airships LLC), Black Group, LLC (owned by Prince Group LLC Apex Management Services LLC), Samarus CO LTD, Salamis Aviation LLC, Company, Pelagian Maritime, LLC, Raven Development Group LLC (cancelled), BWT Services LLC (cancelled) , ACADEMI Real Estate Holdings, LLC Holdings), Leasing LLC (cancelled), EP Management Services, LLC (cancelled), Paravant LLC, Xe Aviation LLC, XPG LLC, Prince Group LLC, Total Intelligence Solutions LLC, Technical 2Defense, Inc., and Terrorism Research Center, Inc.

What also stands out is how negligible some of the improvements that Blackwater/Academi made, in response to previous government complaints of export compliance violations. For example, the DPA states:

ACADEMI LLC has created an Office of Firearms Control ("OFC"), a firearms & explosives control program within the RCO, hired a full­time Director, Firearms & Explosives Control, and has undertaken a number of firearms compliance measures (collectively, the "firearms compliance program"). Specifically, Xe Services LLC has done the following: (1) transitioned its firearms Acquisition & Disposition log from hardcopy to electronic format, allowing for more accurate, reliable and extensive record-keeping; (2)introduced robust searching capabilities of the nearly nine thousand (9,000) individual acquisition and disposition Í records; (3)implemented a procedure whereby the OFC is notified of newly arrived firearms upon delivery. This procedure verifies all shipping documents against FFL records to ensure accurate recordation and includes a verifiable firearm sign­out procedure; (4) put security measures in place that require all weapons to be stored only in secure spaces, and has implemented monthly audits of weapons maintained at all locations, overseas and domestic, with written records submitted to the OFC.

Years ago I obtained under the Freedom of the Information Act part of the Worldwide Personal Protective Services (WPPS) contract issued by the State Department for protection of its personnel, which used Blackwater, along with other security contractors. Given the reporting requirements, along with other regulations, it seems that ACADEMI is now doing what Blackwater should have been doing years ago. Of course, better late than never.

Of course, this agreement does not signify the end of Academi's/Blackwater's woes. As the Danger Room blog noted:

Academi has the next three years to essentially prove to the Justice Department that all of this is a relic of the firm's bad old days, before it came under new ownership and hired legal compliance officers. It may not have an easy case to make. Two employees who worked for Academi under its current management are suing the company for wrongful termination after they blew the whistle on a third employee's attempts to fake the results of a gun test for Afghan security forces.

Still, it would be good in the future if the government were to devote as much time and effort into investigating things like when private security contractors kill civilians in a foreign country as it does into investigating the export of satellite phones.