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From Antitrust Law Daily, October 14, 2016

Israeli national extradited, arraigned on charges he defrauded U.S. foreign aid program

By Linda O’Brien, J.D., LL.M.

An Israeli executive has been extradited from Bulgaria and arraigned on charges arising from his participation in multiple schemes to defraud the U.S. Foreign Military Financing program (FMF), the Department of Justiceannounced today (U.S. v. Marshak, Dkt. 3:16-cr-00011-AWT).

According to a five-count indictment filed in the federal district in Hartford, Connecticut, Yuval Marshak, a former owner and executive of an Israel-based defense contractor, carried out three separate schemes between 2009 and 2013 to defraud the multi-billion dollar United States foreign aid program and used a U.S. company to launder some of the proceeds of his fraud.

The FMF is a program through which the U.S. government provides assistance to foreign government to purchase military parts and materials from U.S. companies. The rules and regulations of the FMF program require the disclosure of and approval for any FMF-funded commissions and require that all goods and services be of United States origin to qualify for FMF funding. The rules also strongly encourage the use of competitive bidding in the award of all FMF contracts. U.S. vendors who receive FMF funded contracts are required to certify their compliance with these regulations to the DOD.

Marshak and others falsified bid documents to make it appear that certain FMF contracts had been competitively bid when they had not, according to court documents. Marshak also made false certifications to the U.S. Department of Defense (DOD) stating that no commissions were being paid and no non-United States content was used in these contracts, when, in fact, he had arranged to receive commissions and to have services performed outside the United States, all in violation of the DOD’s rules and regulations. Marshak arranged for these undisclosed commission payments to be made to a Connecticut-based company that was owned by a close relative to disguise the true nature and destination of these payments.

Marshak is charged with two counts of wire fraud, one count of mail fraud, one count of major fraud against the United States, and one count of international money laundering. The wire and mail fraud charges carry a maximum penalty of 20 years in prison and a $250,000 fine. The major fraud against the United States count carries a maximum penalty of 10 years in prison and a $1 million fine, while the international money laundering charge carries a maximum penalty of 20 years in prison and a $500,000 fine.

As a result of the investigation, earlier this year the Antitrust Division entered into a non-prosecution agreement with Octal Corp., a New Jersey-based defense contractor that received one of the FMF contracts at issue. Octal acknowledged that its employees concealed the agreement to pay, and the payment of, the commission on the FMF contract the company received, and falsely denied the commission in a written certification to the DOD. Under the terms of this agreement, Octal agreed to cooperate in the Justice Department’s investigation and to pay a monetary penalty of $100,000 and $360,000 in restitution to the DOD.

The Antitrust Division also entered into a non-prosecution agreement with Hale Products Inc., a Florida-based company that received another FMF contract referenced in the indictment. Hale acknowledged that, in connection with this FMF contract, its employees concealed the agreement to pay, and the payment of, the commission and falsely denied the commission in a written certification to the DOD. Hale has agreed to cooperate in the department’s investigation and to pay a monetary penalty of $50,000 and $10,200 in restitution to the DOD.

"By falsifying bid documents and receiving undisclosed side payments through a company in the United States, Marshak’s actions threatened the integrity of the FMF program, through which the United States government provides billions of dollars each year in foreign aid to countries around the world," said Acting Assistant Attorney General Renata Hesse of the Department of Justice’s Antitrust Division. "Marshak’s extradition marks another step forward in our efforts to coordinate investigations with foreign authorities and is further evidence that the Antitrust Division will continue to vigorously pursue individuals and companies that compromise essential government programs regardless of where they reside."

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