Ex-employees now accuse two former Pentagon officials of plotting with Custer Battles to set up shell companies that, among other things, sold arms on the Iraqi black market — weapons that could have been used against American troops. These startling charges come in a sealed federal lawsuit obtained by the Associated Press (AP).

The Iraq occupation has become a "free fraud zone," in the words of a former top official at the Coalition Provisional Authority. Washington has simply left the cash register open. Hundreds of millions seem to have vanished into corrupt contractors' pockets, according to U.S. audits. And the government shows little passion for going after the crooks. The only case to have gone to a jury involved a civil suit filed by former workers.

Custer Battles had won over $100 million in contracts for work in Iraq. Its politically connected founders defrauded the government with brazen non-concern.

Retired Brig. Gen. Hugh Tant III testified that the company was paid to provide trucks to the military, but that the vehicles didn't run and had to be towed. Tant said that when he confronted Mike Battles, the reply was, "You asked for trucks ... it is immaterial whether the trucks were operational."

The company was hired to screen civilian passengers and freight at the Baghdad airport, but because of the violence, there were no commercial flights. So the company sent its screeners to do other jobs while continuing to bill the Coalition Provisional Authority for the nonexistent security services, former employees allege.

Plunder can be fun. In 2003, a sack filled with bricks of $100 bills was delivered to the company at the Baghdad airport. Custer Battles employees playfully tossed the bricks back and forth on the tarmac. In another stunt, the company painted over the Iraqi Airways name on forklifts and leased them back to the U.S. government.

The first whistleblower suit stemmed from Custer Battles' work in helping to introduce a new Iraqi currency. A jury found that the company had defrauded the U.S. government of $3 million.

In 2004, the Air Force banned the company from getting any more contracts in Iraq. But that didn't mean the game was over. Custer Battles moved its assets and most of its employees to a new company called Danubia Global — which, The Wall Street Journal reports, won government contracts worth $1.28 million a month. The principals created other companies to get around the suspension, including two based in Battles' Rhode Island office.

The latest suit says that former acting Navy Secretary Hansford Johnson and former acting Navy Undersecretary Douglas Combs were in on a scheme "to set up sham companies" to conceal Custer Battles' ownership and control, according to AP. Last year, one of those companies bought Danubia.

Johnson and Combs reportedly asked Air Force Deputy General Counsel Steven Shaw to lift the ban on Custer Battles. In an e-mail to Shaw, Combs called Battles and Custer men with "stellar records." Shaw refused the request.

With $21 billion now budgeted for Iraq reconstruction, you'd think the leaders in Washington would tighten up the oversight. Think again.

Sen. Byron Dorgan, a North Dakota Democrat, has proposed creating a special committee to review government contracts in Iraq. Last month, it went down in flames with only one Senate Republican voting for it, Rhode Island's Lincoln Chafee.

It all sort of leaves you speechless.

Froma Harrop's column appears regularly on editorial pages of The Times. Her e-mail address is fharrop@projo.com

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