business news in context, analysis with attitude

Crain’s Chicago Business reports that “Sara Lee Corp. says federal investigators told the company it is not a target of a probe into possible fraud and corruption in supplying food for the U.S. military in Iraq,” but rather is being treated as a “potential witness” in the investigation.

The Wall Street Journal yesterday reported that a number of American food manufacturers – including Perdue Farms, Sara Lee and ConAgra – “are under scrutiny in a federal probe of possible fraud and corruption in the military's food-supply operations for the Iraq war.” The investigation is looking into deals made by these companies to provide products to the military.

According to the original Journal story, “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.”

This morning, the Journal is reporting that a Houston businessman, Samir Itani, who runs a company called American Grocers, has been “charged in U.S. District Court for the Southern District of Texas with 46 criminal counts of conspiring to defraud the U.S. and making false claims in connection with at least $1.9 million in allegedly bogus invoices he submitted between 2004 and 2005. He has pleaded not guilty.”

According to the Journal, “The indictment charges that American Grocers, among other things, inflated its bills for food by putting on its invoices costs that were never incurred, such as trucking charges. Public Warehousing Co., a Kuwaiti company that is the main contractor for providing food to American troops in Iraq, paid the inflated bills and passed the costs on to the U.S. government, the indictment says.

“Public Warehousing has said it did nothing wrong and it is cooperating with the U.S. investigation. A Public Warehousing spokesman said yesterday that an executive at the company spotted irregularities in American Grocers' invoices and brought the problem to the Pentagon's attention.”
KC's View:
Clearly, this is going to be a complicated story that will require constant updates. It seems obvious – and probably fairly traditional – that some companies will try to exploit wartime situations to make greater profits for themselves. It may just take time to sort who, when, here and how much.

I wrote yesterday that if these allegations are true, a simple fine wouldn’t seem to be appropriate, or enough. I’m thinking that maybe some of these executives should be forced to live in Iraq for a month or so and serve food to the soldiers based there. Let them live through the same horror that these soldiers live with every day.

Got a ton of emails yesterday suggesting that I was actually being too easy of these companies. And you’re probably right.

But let’s not rush to judgment. After all, Sara Lee’s role in the story seems to have changed in just 24 hours, and there’s almost certainly more stuff that we don't know.