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State Dept. official’s brother has Blackwater ties

The inspec­tor gen­er­al says he will step aside from any future probe of the secu­ri­ty con­trac­tor because his sib­ling is a mem­ber of its advi­so­ry board.

by Paul Richter
Los Ange­les Times

WASHINGTON — The State Depart­men­t’s inter­nal watch­dog, accused of politi­ciz­ing his office, told a con­gres­sion­al pan­el Wednes­day that he will step aside from any future probe of Black­wa­ter USA because his broth­er serves on the advi­so­ry board of the con­tro­ver­sial secu­ri­ty con­trac­tor.

The tes­ti­mo­ny by Howard J. Kro­n­gard, the depart­men­t’s inspec­tor gen­er­al, came as a sur­prise at a con­gres­sion­al hear­ing about his per­for­mance. At first, Kro­n­gard denied that his broth­er, for­mer CIA offi­cial Alvin B. Kro­n­gard, had any inter­est in Black­wa­ter, the State Depart­men­t’s pri­ma­ry pri­vate secu­ri­ty con­trac­tor in Iraq being inves­ti­gat­ed for deaths of civil­ians.

How­ev­er, mem­bers of the House pan­el sug­gest­ed he was in error. Dur­ing a hear­ing break, Kro­n­gard called his broth­er and said he learned that, in fact, Alvin Kro­n­gard agreed ear­li­er this year to be a mem­ber of Black­wa­ter’s advi­so­ry board, a posi­tion that pays trav­el expens­es for meet­ings and offers $3,500 for each gath­er­ing attend­ed.

“I had not been aware of that,” Kro­n­gard said after the break. “I want to state right now on the record that I recuse myself from any mat­ters hav­ing to do with Black­wa­ter.”

Kro­n­gard, a for­mer cor­po­rate lawyer, has been under fire from Rep. Hen­ry A. Wax­man (D‑Beverly Hills), House Over­sight and Gov­ern­ment Reform Com­mit­tee chair­man, for imped­ing State Depart­ment inves­ti­ga­tions, includ­ing a Black­wa­ter probe.

Repub­li­cans on the com­mit­tee have argued that the accu­sa­tions were polit­i­cal­ly moti­vat­ed, but the dis­clo­sure by Kro­n­gard’s broth­er put them on the defen­sive and under­mined their defense of the inspec­tor gen­er­al.

“He has done you tremen­dous dam­age,” Rep. Christo­pher Shays (R‑Conn.) told Kro­n­gard. “I don’t know what kind of con­ver­sa­tion you had with him, but I would have been one unhap­py guy.”

Black­wa­ter has been the depart­men­t’s prin­ci­pal secu­ri­ty con­trac­tor in Iraq. It has become the tar­get of sev­er­al inves­ti­ga­tions in the after­math of a Sept. 16 inci­dent in Bagh­dad that killed 17 Iraqi civil­ians.

Wax­man has accused Kro­n­gard of poor man­age­ment and of imped­ing sev­er­al inves­ti­ga­tions to pro­tect the Bush admin­is­tra­tion from polit­i­cal embar­rass­ment. He and oth­ers on the com­mit­tee have charged that Alvin Kro­n­gard’s ties to Black­wa­ter were the rea­son Howard Kro­n­gard side­lined an inves­ti­ga­tion into weapons smug­gling charges.

Democ­rats pro­duced a let­ter from chief exec­u­tive Erik Prince invit­ing Kro­n­gard to join the pan­el, which advis­es Black­wa­ter on how to expand its busi­ness.

Howard Kro­n­gard has denied the charges lev­eled at him by sev­en cur­rent and for­mer State offi­cials. “I want to say in the strongest terms I nev­er imped­ed any inves­ti­ga­tion,” he said.


One comment for “State Dept. official’s brother has Blackwater ties”

  1. With a poten­tial 75% drop in rev­enues pro­ject­ed for 2014, Dubai-based “Supreme” is a reminder that the end of a con­flict can become a supreme headache for war-prof­i­teers:

    Supreme Own­er Made a Bil­lion­aire Feed­ing U.S. War Machine
    By David de Jong Oct 7, 2013 10:17 AM CT

    Chem­i­cal war­fare and car bomb­ings are just a few of the haz­ards work­ing in war-torn coun­tries such as Iraq and Syr­ia. For Supreme Group BV, it’s the cost of doing busi­ness.

    Dubai-based Supreme deliv­ers fuel and food — 100,000 meals a day — to troops sta­tioned in some of the most inhos­pitable parts of the world, includ­ing Liberia, Mali and Sudan. The per­ilous busi­ness, where con­trac­tors dodge bul­lets fired by the Tal­iban and explo­sives set by insur­gents, has made the company’s major­i­ty own­er, Stephen Oren­stein, a bil­lion­aire.

    “Our mantra is to pro­vide the same qual­i­ty of ser­vice in Rwan­da or Soma­lia as we do for restau­rant chains in Ger­many,” Oren­stein, 49, said in a phone inter­view from his office in Dubai. “We took a devel­oped world stan­dard and brought it to the devel­op­ing world.”

    Orenstein’s biggest busi­ness has been sup­ply­ing mil­i­tary per­son­nel in Afghanistan. Since the start of the war there in 2001, Supreme’s rev­enue has increased more than 50-fold to $5.5 bil­lion in 2011. Accord­ing to Supreme’s chief finan­cial offi­cer, Mike Thorne, more than 90 per­cent of the company’s rev­enue is derived from its Afghanistan oper­a­tions.

    That’s about to change. With the with­draw­al of NATO and Amer­i­can troops and the impend­ing loss of a $10 bil­lion food con­tract with the U.S. mil­i­tary, the com­pa­ny is pro­ject­ing it will lose more than 75 per­cent of its sales by the end of 2014.

    “We’re still a finan­cial­ly sound com­pa­ny, so I don’t view it as a col­lapse,” Thorne said by phone. “But we’re going to be a much small­er com­pa­ny.”

    Law­suits, Accu­sa­tions

    The company’s largest con­tract — an exclu­sive deal to dis­trib­ute food to U.S. mil­i­tary per­son­nel in Afghanistan — has been rid­dled with law­suits and accu­sa­tions, includ­ing the Depart­ment of Defense’s asser­tion that Supreme over­charged it by $757 mil­lion.

    “The Pen­ta­gon lost con­trol of this con­tract from the begin­ning and even today may be unable to recov­er hun­dreds of mil­lions of dol­lars in poten­tial over­pay­ments,” said U.S. Rep­re­sen­ta­tive John Tier­ney, the rank­ing Demo­c­ra­t­ic mem­ber on the House Gov­ern­ment Reform & Over­sight Sub­com­mit­tee on Nation­al Secu­ri­ty, in a state­ment to Bloomberg News. “By keep­ing the mon­ey flow­ing to Supreme through non­com­pet­i­tive con­tract exten­sions, the Defense Depart­ment unwise­ly and unnec­es­sar­i­ly put U.S. tax­pay­ers on the hook.”
    War Sup­port

    The bick­er­ing has spilled over to new busi­ness. In April, Supreme sued the U.S. gov­ern­ment in the Court of Fed­er­al Claims in Wash­ing­ton after the Defense Logis­tics Agency award­ed a new five-year, $10 bil­lion food con­tract in June 2011 to Dubai-based com­peti­tor Anham FZCO LLC, which also sup­plies food to the U.S. mil­i­tary in Iraq, Kuwait and Jor­dan.

    Oren­stein dis­putes the U.S. over­paid for Supreme’s ser­vices. The com­pa­ny said it’s owed an addi­tion­al $1.8 bil­lion.

    “The Pen­ta­gon used the word over­charg­ing and it’s not jus­ti­fied,” said Oren­stein. “We agreed on pre­lim­i­nary rates. They decid­ed to uni­lat­er­al­ly apply new rates based on the costs as they see them, and tried to recoup the dif­fer­ence between the two.”

    At the peak of the mil­i­tary cam­paign in Afghanistan, the U.S. Depart­ment of Defense oper­at­ed about 800 bases that housed and fed as many as 100,000 sol­diers a day. Accord­ing to Michelle McCaskill, a spokes­woman for the Defense Logis­tics Agency, which awards and man­ages defense con­tracts, the Pen­ta­gon has spent at least $24 bil­lion on food, fuel and oth­er sup­plies in sup­port of the war since Jan­u­ary 2002. By Feb­ru­ary 2014, 34,000 Amer­i­can sol­diers will be sta­tioned in the coun­try.


    For all the dan­ger, Supreme’s busi­ness is a prof­itable one when the world’s at war. Accord­ing to its annu­al reports, Supreme had net income mar­gins that ranged from 15 per­cent to 23 per­cent between 2008 and 2011.

    “That’s a fair­ly large prof­it mar­gin when it comes to fed­er­al gov­ern­ment con­tracts,” said Amey. “Most con­trac­tors claim that their prof­it mar­gins are zero to 5 per­cent.”

    Oren­stein con­firmed that Supreme’s food dis­tri­b­u­tion fee to the U.S. mil­i­tary in 2010 was “in the range of 18 to 21 per­cent” and could go as high as 50 per­cent, accord­ing to a tran­script of tes­ti­mo­ny he gave in a 2010 law­suit.

    He also tes­ti­fied that it was “very com­mon that the per­cent­age of total rev­enue, the ser­vice fee per­cent­age, exceed­ed 75 per­cent,” when the dis­tri­b­u­tion of food and oth­er sup­plies flown into Afghanistan by air­planes and heli­copters accel­er­at­ed in 2006.


    Oren­stein con­firmed that he and his fam­i­ly con­trol 75 per­cent of the com­pa­ny. His part­ner, Michael Gans, holds the rest with his wife. They con­trol the busi­ness through hold­ing com­pa­nies based in Lux­em­bourg, Cyprus, Ger­many and the U.K.

    Hid­den Bil­lion­aire

    Includ­ing almost $1 bil­lion in div­i­dends he has col­lect­ed since 2008, Oren­stein has a for­tune val­ued at least $1.1 bil­lion, accord­ing to the Bloomberg Bil­lion­aires Index.

    “As a pri­vate­ly-owned com­pa­ny, we do not dis­close per­son­al finan­cial data of share­hold­ers,” Vic­to­ria Frost, a spokes­woman for Supreme, said in an e‑mail.

    A U.S. cit­i­zen, Oren­stein was born in Frank­furt, where he still lives with his wife, Petra. His father, Alfred, was a sol­dier in the U.S. Navy and Army who set­tled in Ger­many fol­low­ing World War II. He left the ser­vice in 1957, and start­ed sup­ply­ing food to mil­i­tary bases across Europe.

    Oren­stein attend­ed board­ing school at Kim­ball Union Acad­e­my in Meri­den, New Hamp­shire, before enrolling at Lehigh Uni­ver­si­ty in Beth­le­hem, Penn­syl­va­nia. He dropped out fol­low­ing the death of his father in July 1985.

    “I took over as the only fam­i­ly mem­ber that was inter­est­ed in the busi­ness,” he said. “It was a very dif­fi­cult, very chal­leng­ing first five years.”


    Note that the above sto­ry was writ­ten before the recent US/Afghan secu­ri­ty pact that would keep US troops there until 2024, so Supreme may have found itself some headache med­i­cine.

    Posted by Pterrafractyl | January 6, 2014, 3:44 pm

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