London Daily

Focus on the big picture.
Friday, Aug 22, 2025

How the Pentagon was duped by contractors using shell companies

How the Pentagon was duped by contractors using shell companies

Some Defense Department suppliers have used front companies to fraudulently win manufacturing bids, US government says.

Shell companies have come under attack for obscuring illicit money flowing into real estate. But it turns out they’re also a problem for the Pentagon.

Some Defense Department suppliers have used such front companies to fraudulently win manufacturing bids, according to a U.S. Government Accountability Office study of Defense Department contractors.

In some cases, the shell companies helped contractors obscure that they were making U.S. military equipment abroad, the GAO said, posing a risk to national security and quality control. More often, they were used to win contracts meant for companies owned by disabled veterans or minorities, it said.

The government watchdog reviewed 32 cases that made their way to criminal prosecutions or lawsuits between 2012 and 2018. Taken together, they illustrate how the Pentagon’s $350 billion in annual contracting can be gamed using companies that exist largely on paper.

The problem could be far bigger, since the GAO’s study wasn’t intended to gauge its scope. The watchdog said the Pentagon had made only spotty efforts to pierce the secrecy of shell companies.

“I don’t think anybody really knows the extent of the problem,” said Robert Burton, a former top government procurement attorney now at Crowell & Moring. “I do know that some of these folks have become quite proficient at disguising ownership.”


Secrecy Haven

Although shell companies have many legitimate uses, they’ve also become an invaluable tool allowing terrorists, money launderers, human traffickers and tax cheats to evade detection.

Even as countries in Europe and elsewhere are requiring greater disclosure, the U.S. remains a tax and secrecy haven, allowing so-called beneficial owners who profit from these corporations to hide their identities by registering in states like Delaware, Nevada, Wyoming and South Dakota.

One case reviewed in the GAO’s November report, involving a contractor in Paterson, New Jersey, shows how the tactic can pose a safety risk for the armed forces. That contractor, run by a businessman named Ferdi Gul, won 346 U.S. military contracts over several years to supply parts for torpedoes, bomb ejector racks and mine clearance systems. His company was registered with the Pentagon as a domestic manufacturer.

But the parts were actually made thousands of miles away in Gul’s native Turkey, U.S. authorities say. Using a front company to disguise the arrangement, Gul illegally exported military technical drawings there and defrauded the U.S. of $7 million, they said.

The Pentagon “routinely encountered significant problems with the quality of the parts,” and tests revealed “numerous design flaws” in torpedo parts provided by Gul’s company, court records show.

Two of Gul’s employees pleaded guilty to their roles in the fraud. Gul, who was first charged in 2015 and indicted in 2018, hasn’t responded to the case in federal court in New Jersey. At the time of his indictment, he was believed to be living in Turkey.


Legal Framework

Lawmakers in Washington are trying to bring more transparency to corporate ownership. The House passed a bill in October that would force states to collect information about who’s behind shell companies of all types and share it with law enforcement. A similar bill is pending in the Senate Banking Committee.

In the absence of such transparency, the Defense Department continues to face financial and national security risks in its supply chain, the GAO said. Protecting that pipeline is a daunting challenge, and it begins at the most basic level -- figuring out who actually owns its contractors and benefits from their work.

The Pentagon accounted for two-thirds of all U.S. government contracts last year, awarding $350 billion in business to 38,000 companies. Foreign suppliers are eligible for some Pentagon contracts but not for those involving certain sensitive technologies.

The Defense Department faces “several types of financial and nonfinancial fraud and national security risks posed by contractors with opaque ownership,” according to the GAO. Such opaque companies owned by adversary states could pose intelligence threats, if they steal intellectual property or insert malware into critical systems, the Office of the Director of National Intelligence said in a 2017 report.

“Not only might you have sanctioned parties doing contracting work, but enemies of the U.S. getting access to our funds, our equipment, our sites and our personnel,” says Greg Lisa, a Hogan Lovells lawyer who worked at the Treasury Department’s Financial Crimes Enforcement Network. “That’s frightening.”

The Defense Department, through a spokesman, declined to comment.


Banning Contractors

Burton, the former procurement attorney, said he helped ban contractors for a variety of regulatory violations during his years of government work. Some of them would later resume work for the Pentagon using shell companies to disguise their identities.

“They just sort of slithered away and created a new entity,” he said.

For foreign adversaries like China, Russia or Iran, shell companies could be a point of entry into the Pentagon’s procurement system. Last year, the Air Force scrapped a $420 million contract to make bunker-busting bombs after a competitor complained that it had been given to a foreign-owned company with ties to a U.S-sanctioned Russian oligarch.

Federal contractors are supposed to self-report ownership information to the government, but the Defense Department often can’t verify that information.

Defense Department contracting officers lack the “time, resources or training they need to conduct in-depth reviews or analysis of the ownership aspects of a particular company,” the GAO said. The ownership data in the federal database used by the Pentagon to assess vendors lists only “prime contractors,” not subcontractors in the supply chain.


Sensitive Contracts

For particularly sensitive contracts, the Pentagon has taken steps to address risks from suppliers with murky ownership. In those cases, it has increased collection of ownership data prior to awarding contracts and excluded suppliers who pose significant risks of infiltration by adversaries. It’s also sought to identify officers, directors and owners of suppliers deemed to pose a supply-chain threat.

While the GAO praised some Pentagon efforts to monitor contractor ownership, it said they’ve been piecemeal. It recommends that the Pentagon emulate the private sector by using commercially available data mining and analysis tools to uncover identifying information from a range of databases.

Banks, for example, use credit bureaus and other data sources to gather personal information on new customers and to report suspicious financial activities to law enforcement.

“There’s a rule in banking called ‘Know Your Customer,”’ said Jeffrey Lovitky, a Washington lawyer and expert in government procurement law. “In military procurement, there really should be a rule, ‘Know Your Contractor.’”

In another case reviewed by the GAO, the government didn’t know the true supplier when it granted a contract to a New Jersey company to make safety gear called wing pins for F-15 fighter jets.

The winning bidder was a company called Allied Components LLC, created by a man named Robert Luba. It turned out that was a shell company. Luba and a business associate, Hannah Robert, used another company based in India to manufacture the components, while lying to the Defense Department about their supplier, prosecutors said. Working with an unidentified partner in India, Robert secretly exported technical drawings for aircraft parts, nuclear submarine torpedo systems and attack helicopters.


Foreign Contracts

To avoid detection, Robert and her Indian partner posted sensitive military data on the password-protected website of a New Jersey church where Robert was a volunteer. In addition to illegally exporting the blueprints, they used them in seeking contracts in the United Arab Emirates, Pakistan and Indonesia, prosecutors said.

The contactors’ crimes had safety implications, too. The Defense Department discovered wing pins provided by Luba failed to meet hardness specifications. The military eventually had to replace the wing parts in 47 F-15 jets.

Luba “not only jeopardized the lives of men and women on the front lines of our national defense, he put all Americans at risk,” according to Paul Fishman, the U.S. attorney in New Jersey at the time. Luba pleaded guilty in 2013 to violating the Arms Export Control Act, and conspiring to do so. Robert pleaded guilty to a similar conspiracy two years later.

Newsletter

Related Articles

0:00
0:00
Close
After 200,000 Orders in 2 Minutes: Xiaomi Accelerates Marketing in Europe
Ukraine Declares De Facto War on Hungary and Slovakia with Terror Drone Strikes on Their Gas Lifeline
Animated K-pop Musical ‘KPop Demon Hunters’ Becomes Netflix’s Most-Watched Original Animated Film
New York Appeals Court Voids Nearly $500 Million Civil Fraud Penalty Against Trump While Upholding Fraud Liability
Elon Musk tweeted, “Europe is dying”
Far-Right Activist Convicted of Incitement Changes Gender and Demands: "Send Me to a Women’s Prison" | The Storm in Germany
Hungary Criticizes Ukraine: "Violating Our Sovereignty"
Will this be the first country to return to negative interest rates?
Child-free hotels spark controversy
North Korea is where this 95-year-old wants to die. South Korea won’t let him go. Is this our ally or a human rights enemy?
Hong Kong Launches Regulatory Regime and Trials for HKD-Backed Stablecoins
China rehearses September 3 Victory Day parade as imagery points to ‘loyal wingman’ FH-97 family presence
Trump Called Viktor Orbán: "Why Are You Using the Veto"
Horror in the Skies: Plane Engine Exploded, Passengers Sent Farewell Messages
MSNBC Rebrands as MS NOW Amid Comcast’s Cable Spin-Off
AI in Policing: Draft One Helps Speed Up Reports but Raises Legal and Ethical Concerns
Shame in Norway: Crown Princess’s Son Accused of Four Rapes
Apple Begins Simultaneous iPhone 17 Production in India and China
A Robot to Give Birth: The Chinese Announcement That Shakes the World
Finnish MP Dies by Suicide in Parliament Building
Outrage in the Tennis World After Jannik Sinner’s Withdrawal Storm
William and Kate Are Moving House – and the New Neighbors Were Evicted
Class Action Lawsuit Against Volkswagen: Steering Wheel Switches Cause Accidents
Taylor Swift on the Way to the Super Bowl? All the Clues Stirring Up Fans
Dogfights in the Skies: Airbus on Track to Overtake Boeing and Claim Aviation Supremacy
Tim Cook Promises an AI Revolution at Apple: "One of the Most Significant Technologies of Our Generation"
Apple Expands Social Media Presence in China With RedNote Account Ahead of iPhone 17 Launch
Are AI Data Centres the Infrastructure of the Future or the Next Crisis?
Cambridge Dictionary Adds 'Skibidi,' 'Delulu,' and 'Tradwife' Amid Surge of Online Slang
Bill Barr Testifies No Evidence Implicated Trump in Epstein Case; DOJ Set to Release Records
Zelenskyy Returns to White House Flanked by European Allies as Trump Pressures Land-Swap Deal with Putin
The CEO Who Replaced 80% of Employees for the AI Revolution: "I Would Do It Again"
Emails Worth Billions: How Airlines Generate Huge Profits
Character.ai Bets on Future of AI Companionship
China Ramps Up Tax Crackdown on Overseas Investments
Japanese Office Furniture Maker Expands into Bomb Shelter Market
Intel Shares Surge on Possible U.S. Government Investment
Hurricane Erin Threatens U.S. East Coast with Dangerous Surf
EU Blocks Trade Statement Over Digital Rule Dispute
EU Sends Record Aid as Spain Battles Wildfires
JPMorgan Plans New Canary Wharf Tower
Zelenskyy and his allies say they will press Trump on security guarantees
Beijing is moving into gold and other assets, diversifying away from the dollar
Escalating Clashes in Serbia as Anti-Government Protests Spread Nationwide
The Drought in Britain and the Strange Request from the Government to Delete Old Emails
Category 5 Hurricane in the Caribbean: 'Catastrophic Storm' with Winds of 255 km/h
"No, Thanks": The Mathematical Genius Who Turned Down 1.5 Billion Dollars from Zuckerberg
The surprising hero, the ugly incident, and the criticism despite victory: "Liverpool’s defense exposed in full"
Digital Humans Move Beyond Sci-Fi: From Virtual DJs to AI Customer Agents
YouTube will start using AI to guess your age. If it’s wrong, you’ll have to prove it
×