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Custer Battles

Custer Battles, LLC was a private security and defense contractor founded in October 2001 by Scott Custer, a former U.S. Army Ranger, and Michael Battles, a former CIA officer and Army veteran, specializing in risk management, litigation support, and protective services.^[1]^[2] The firm rapidly expanded operations in Iraq following the 2003 U.S.-led invasion, securing contracts with the Coalition Provisional Authority (CPA) for high-value tasks such as securing Baghdad International Airport, providing armed escorts for currency shipments exceeding $1 billion, and establishing a canine detection unit for explosives and narcotics.^[3] These efforts positioned Custer Battles as an early entrant in the burgeoning private military contracting sector amid the chaos of postwar reconstruction, where it claimed to mitigate risks in a volatile environment through experienced personnel and rapid deployment capabilities.^[4] The company's defining controversy arose from a 2004 qui tam lawsuit under the False Claims Act filed by former associates alleging systematic overbilling and invoice fraud totaling over $10 million against the CPA, including the use of shell companies to inflate costs for mundane services like office renovations presented as armored vehicle conversions.^[5]^[3] A federal jury in Virginia found Custer Battles and its principals liable in 2006, awarding $3 million in damages that escalated to $10 million with penalties, spotlighting broader issues of accountability in Iraq contracting where lax oversight enabled opportunistic practices.^[6] However, the verdict was overturned by the district court and affirmed on appeal by the Fourth Circuit in 2009, ruling that the False Claims Act did not apply because the defrauded funds originated from seized Iraqi assets rather than direct U.S. appropriations, thus excluding the claims from qui tam jurisdiction despite evidence of deceptive practices.^[5]^[7] This outcome underscored causal gaps in legal frameworks for prosecuting fraud in hybrid governance entities like the CPA, where empirical irregularities in billing—such as unperformed work or fictitious subcontractors—were documented but evaded U.S.-specific liability.^[8] Custer Battles ceased major operations post-litigation, exemplifying the high-stakes volatility of wartime profiteering amid institutional ambiguities in oversight and funding sources.^[9]

Company Formation and Early Operations

Founding and Leadership

Custer Battles LLC was established in late 2002 by Scott Custer and Michael Battles, both former U.S. Army Rangers in their mid-30s who leveraged their military experience to enter the private security sector.^[10]^[11] The company was headquartered initially in the Washington, D.C., area and positioned itself as a provider of security and logistics services, particularly amid emerging opportunities in post-invasion Iraq.^[12] Scott Custer, a former U.S. Army officer with Ranger training, had prior experience as a defense consultant before co-founding the firm.^[2] Michael Battles, who also served as an Army Ranger, transitioned from a role as a CIA officer and had previously attempted an unsuccessful bid for U.S. Congress as a Republican in Rhode Island in 1998.^[12] The duo's leadership emphasized rapid deployment capabilities, drawing on their operational backgrounds to secure early contracts in high-risk environments.^[13] Under Custer and Battles' direction, the company was owned and managed exclusively by the founders, with decisions centralized to facilitate quick mobilization of personnel and resources.^[1] Their approach was characterized by aggressive pursuit of government-linked opportunities, though critics later noted the founders' relative inexperience in large-scale contracting as a factor in operational challenges.^[12]

Initial Contracts and Capabilities

Custer Battles, LLC was established by Scott Custer and Michael Battles, both former U.S. Army Rangers, to provide private security services leveraging their military expertise in high-risk environments. Prior to its entry into Iraq, the company had limited operations, generating under $200,000 in annual revenue primarily from security contracts in Afghanistan.^[12] These early activities focused on routine private security tasks, establishing baseline capabilities in personnel protection and site guarding without prior experience in large-scale government contracting.^[12] The firm's capabilities encompassed deploying armed personnel, operating security equipment, and utilizing specialized assets such as canine teams for detection and screening operations. In June 2003, shortly after the U.S.-led invasion of Iraq, Custer Battles secured its first significant contract: a $16.8 million no-bid agreement with the Coalition Provisional Authority to provide security at Baghdad International Airport.^[12] This included personnel for perimeter defense, machinery for access control, and K-9 units to screen passengers and cargo against threats like explosives.^[14] The initial $2 million payment funded mobilization for these services, marking the company's rapid expansion into postwar reconstruction security amid insurgent violence.^[14]

Involvement in Iraq Reconstruction

Context of Post-Invasion Security Needs

The U.S.-led coalition launched the invasion of Iraq on March 20, 2003, culminating in the fall of Baghdad on April 9, 2003, and the collapse of Saddam Hussein's Ba'athist regime.^[15] ^[16] In the immediate aftermath, Iraqi police, military, and government structures disintegrated, creating a profound security vacuum that enabled widespread looting beginning April 10, 2003.^[17] Looters targeted ministries, hospitals, and cultural sites including the National Museum of Iraq, with damages estimated in the millions and contributing to the breakdown of public order across urban centers.^[18] This chaos persisted until U.S. forces began securing key areas around April 16, 2003, but initial priorities focused on combat operations rather than comprehensive stability policing.^[17] The Coalition Provisional Authority (CPA), established on May 12, 2003, assumed transitional governance responsibilities, including reconstruction and security sector reform.^[19] However, CPA Order Number 2, promulgated on May 23, 2003, dissolved the Iraqi army, Republican Guard, intelligence services, and related ministries, demobilizing approximately 400,000 personnel without immediate reintegration plans.^[20] ^[21] This de-Ba'athification measure aimed to eliminate regime loyalists but exacerbated the security gap by idling experienced forces, many of whom subsequently joined insurgent networks amid economic hardship and resentment toward the occupation.^[22] The CPA's efforts to rapidly stand up new Iraqi security units faced recruitment shortfalls, training delays, and persistent infiltration risks, leaving critical vulnerabilities in internal policing.^[22] Post-invasion reconstruction initiatives, such as stabilizing the economy through dinar voucher distribution and currency exchange programs, alongside protecting logistics hubs like Baghdad International Airport, demanded robust perimeter and convoy security against opportunistic crime and burgeoning insurgency.^[23] The airport, essential for troop rotations and supply inflows, became a prime target due to its strategic value, requiring armed guards for access control and K-9 patrols to counter sabotage threats.^[23] With coalition troop levels around 150,000 stretched across counterinsurgency hunts and regime remnant pursuits, static security for non-combat assets proved untenable, prompting the CPA to outsource to private military contractors for cost-effective, scalable protection of personnel, facilities, and economic operations.^[24] ^[25] Sporadic attacks transitioned into coordinated insurgent violence by mid-2003, with former regime elements and foreign fighters exploiting the disorder to target reconstruction sites, further amplifying the reliance on external security providers.^[26]

Key Contracts: Dinar Vouchers and Currency Exchange

On August 27, 2003, Custer Battles LLC entered into the Dinar Exchange Contract with the Coalition Provisional Authority (CPA) to support the replacement of Iraq's old currency—featuring Saddam Hussein's portrait—with newly designed Iraqi dinars.^[1] The agreement tasked the company with constructing, equipping, operating, and securing currency exchange facilities as part of the Iraqi Currency Exchange program, a priority initiative to stabilize the post-invasion economy by facilitating the exchange of billions in old dinars for new currency shipped from the U.S. Federal Reserve.^[8]^[27] The contract's scope included establishing three exchange hubs in Baghdad, Basra, and Mosul, encompassing site construction, equipment installation, operational servicing, and provision of security to protect the facilities and distribution process amid widespread instability.^[1] Structured as a cost-plus arrangement, Custer Battles received reimbursement for documented expenses plus a 25% markup for overhead and profit.^[8] Payments totaled $15 million, comprising a $3 million advance disbursed on the signing date from seized Iraqi assets via the U.S. Treasury, and an additional $12 million drawn from the Development Fund for Iraq, which incorporated U.S. appropriations, seized funds, and other sources.^[1]^[8] This contract represented one of Custer Battles' early major awards in Iraq reconstruction, reflecting the CPA's rapid outsourcing of critical financial logistics to private firms in the chaotic immediate aftermath of the 2003 invasion, where traditional procurement processes were often bypassed for urgency.^[27] The dinar exchange effort aimed to prevent economic collapse by withdrawing approximately 500 billion old dinars from circulation while introducing an equivalent value in new notes, underscoring the program's scale and the security challenges it entailed.^[8]

Key Contracts: Baghdad International Airport Security

![Custer Battles K-9 unit training at Baghdad International Airport][float-right] Custer Battles was awarded a firm-fixed-price contract by the Coalition Provisional Authority on July 1, 2003, to provide security services at Baghdad International Airport (BIAP).^[1] The initial one-month letter contract was valued at $16,840,832 overall, following the acceptance of Custer Battles' lowest bid among proposals solicited by the CPA.^[1]^[8] This contract addressed the urgent post-invasion need to secure the airport complex, enabling its reopening to commercial flights amid ongoing instability.^[1] The scope encompassed comprehensive internal and external security measures, including armed patrols, checkpoints, an airport police force, and baggage screening by personnel certified by the U.S. Transportation Security Administration.^[1] Custer Battles deployed over 138 personnel initially, with numbers fluctuating based on operational requirements, as the contract did not mandate a fixed headcount.^[1]^[8] The bid incorporated estimated costs for approximately 138.5 personnel, reflecting the firm's commitment to rapid mobilization in a high-risk environment.^[8] The contract term extended beyond the initial month through a one-month extension to August 31, 2003, followed by a 10-month period concluding on June 30, 2004, totaling roughly 12 months of service.^[1] Performance evaluations noted the company's efforts as exceeding expectations, with CPA official Franklin D. Hatfield describing them as "far above and beyond" in securing the facility.^[1] This engagement marked one of Custer Battles' early major contracts in Iraq, leveraging its capabilities in private security provision.^[1]

Fraud Allegations

Origins of Claims from Whistleblowers

The origins of the fraud claims against Custer Battles trace to two key whistleblowers: Robert J. Isakson, managing director of DRC, Inc., a subcontractor to the firm, and William D. "Pete" Baldwin, a former on-site manager for Custer Battles in Iraq.^[3]^[28] Both individuals had direct involvement in the company's early Iraq operations, including security and logistics support under contracts awarded by the Coalition Provisional Authority (CPA) in 2003.^[12] Isakson, a former FBI agent, led DRC's efforts on subcontracts tied to Custer Battles' work, while Baldwin oversaw field operations and reported irregularities in billing documentation.^[29] Their suspicions arose from observations of invoicing practices during the execution of contracts for Iraqi dinar voucher processing and Baghdad International Airport (BIAP) security, prompting them to leave the company under strained conditions by late 2003.^[30] In November 2003, Baldwin confided concerns about potentially fraudulent invoices to Hugh B. Tant III, a senior CPA official, highlighting discrepancies such as inflated costs passed through Cayman Islands shell subsidiaries to exceed contract profit caps.^[31] This internal report, supported by spreadsheets documenting markups (e.g., a $240,000 truck acquisition billed at $600,000), triggered an initial CPA audit and escalated to U.S. investigators.^[31] Baldwin later alleged retaliatory discharge for raising these issues, while Isakson, drawing on his law enforcement background, compiled evidence of similar patterns across multiple reimbursements.^[30] These early disclosures formed the basis for a sealed qui tam complaint filed on October 1, 2004, in the U.S. District Court for the Eastern District of Virginia, under the False Claims Act, naming DRC, Inc. as relator alongside the individuals.^[28]^[32] The whistleblowers' accounts emphasized firsthand access to financial records and operational logs, contrasting with Custer Battles' defenses that portrayed the practices as legitimate subcontracting.^[12] Their cooperation with federal probes, including the Pentagon's criminal investigation initiated in October 2003, provided the evidentiary foundation for civil proceedings, though subsequent rulings debated the applicability of the False Claims Act to CPA-funded payments.^[33] No prior public allegations of this scope had surfaced before their involvement, marking the case as the first major qui tam action targeting Iraq reconstruction contractors.^[4]

Specific Alleged Overbillings and Inflated Invoices

Whistleblowers, including former Custer Battles managers, alleged that the company systematically inflated invoices under its dinar voucher security contract with the Coalition Provisional Authority (CPA) by fabricating equipment costs and misrepresenting services. A specific $250,000 invoice submitted to the CPA included a $157,000 charge for constructing a helicopter pad, which actually cost $95,000 and was built by an unrelated firm; the submitting manager described every line item as "false, fabricated, inflated."^[34] The company also allegedly repainted abandoned forklifts originally belonging to Baghdad Airways and billed the CPA thousands of dollars per month as newly leased equipment.^[34] For a related currency exchange convoy from Baghdad to Mosul, Custer Battles falsely invoiced for armed security details on a transport that proceeded unguarded and resulted in lost cargo cabins for a week.^[34] Relators in the qui tam lawsuit further claimed that Custer Battles used shell companies, including offshore entities like Mid East Leasing in the Cayman Islands and CBL, to generate fictitious subcontractor charges, enabling the addition of a 25% overhead and profit markup on exaggerated totals.^[35] Under the dinar exchange contract, this practice allegedly allowed the company to pocket the difference between actual costs and inflated amounts, plus the markup; a federal jury later determined that $3 million in payments under this contract represented fraudulent gains obtained via faked invoices from such shells.^[3]^[36] For the Baghdad International Airport security contract, a cost-plus arrangement, allegations centered on a $2.7 million invoice predicated on forged equipment leases and overstated subcontractor expenses, including inconsistent guard staffing levels that fell short of contracted requirements.^[37]^[38] October 2003 billing under this contract itemized $12,000 monthly for trucks, $5,000 for buses, and $2,000 for forklifts to a single subcontractor, Secure Global Distribution Inc., contributing to a $1.394 million payout before markups and additional offshore pass-throughs.^[35] These practices, per the relators, violated the contract's reimbursement terms by presenting knowingly false claims for CPA approval.^[8]

Legal Proceedings and Defenses

Qui Tam Lawsuit Under False Claims Act

The qui tam lawsuit United States ex rel. DRC, Inc. v. Custer Battles, LLC was filed in 2004 in the U.S. District Court for the Eastern District of Virginia by relators DRC, Inc.—a former subcontractor that had initially partnered with Custer Battles on the dinar voucher contract—and Robert Isakson, DRC's managing director.^[28]^[8] Under the qui tam provisions of the False Claims Act (31 U.S.C. §§ 3729–3733), the relators alleged that Custer Battles and its principals knowingly submitted false or fraudulent claims for payment to the Coalition Provisional Authority (CPA), a U.S.-led entity administering Iraq reconstruction funds, thereby defrauding the United States government.^[8] The suit sought treble damages and civil penalties for each false claim, with relators eligible for up to 30% of any recovery if successful, as the U.S. Department of Justice declined to intervene.^[39] The complaint centered on two primary contracts: the dinar voucher program and Baghdad International Airport security. For the dinar contract, relators claimed Custer Battles inflated invoices by misrepresenting costs, such as charging for nonexistent armored car services and substituting cheap shrink-wrap for required cash bags, while seeking reimbursement exceeding the $3 million advance payment through fabricated documentation.^[8] Airport contract allegations involved overbilling for personnel and equipment not provided, including duplicate claims for the same services and use of unqualified local hires billed at expatriate rates.^[8] These assertions stemmed from the relators' prior involvement as business associates, positioning them as insiders with access to internal records, though Custer Battles later contested the claims as arising from a soured partnership rather than verified fraud.^[39] Pre-trial proceedings addressed jurisdictional hurdles unique to CPA-funded contracts. In July 2005, Judge T.S. Ellis III ruled that false claims submitted to the CPA were actionable under the FCA, rejecting arguments that the CPA's international status exempted it from U.S. anti-fraud laws, as the funds originated from U.S. congressional appropriations.^[40] The U.S. government, via amicus briefing, supported this view, emphasizing the FCA's broad reach to protect appropriated funds regardless of the payee's formal status.^[40] However, the court limited dinar contract damages to the $3 million advance, dismissed conspiracy charges against Custer Battles principals as duplicative of the core fraud claim, and granted partial summary judgment favoring Custer Battles on certain airport allegations lacking direct evidence of falsity.^[8] These rulings narrowed the case scope while affirming the qui tam mechanism's applicability to post-invasion contracting disputes.^[8]

Jury Verdict, Appeals, and Judicial Rulings

In March 2006, a federal jury in the Eastern District of Virginia found Custer Battles, LLC liable under the False Claims Act for submitting false invoices related to a $3 million advance payment received for its dinar voucher exchange contract with the Coalition Provisional Authority (CPA), awarding $3 million in single damages, which were subject to trebling and civil penalties under the statute.^[5] The verdict stemmed from evidence that the company inflated costs and misrepresented personnel and equipment to justify the advance, though the jury did not find liability on separate claims tied to the Baghdad International Airport security contract due to insufficient proof of falsity in those submissions.^[5] In August 2006, U.S. District Judge T.S. Ellis III set aside the jury verdict and granted Custer Battles' renewed motion for judgment as a matter of law, ruling that invoices submitted to the CPA did not qualify as "claims" under the False Claims Act because the CPA was not an "officer, employee, or agent" of the United States government, and payments derived primarily from non-U.S. sources like seized Iraqi assets rather than appropriated U.S. funds.^[7]^[32] The district court further limited any potential FCA exposure to the $3 million advance, which originated from U.S. Agency for International Development funds, but ultimately dismissed all claims for lack of statutory coverage.^[5] The relators (DRC, Inc. and its principals) appealed to the U.S. Court of Appeals for the Fourth Circuit, which in April 2009 reversed the district court's judgment as a matter of law.^[5] The Fourth Circuit held that false claims to the CPA were actionable under the FCA because the CPA functioned as an agent of the United States—exercising substantial control over U.S.-funded reconstruction efforts—and any claim involving even a portion of U.S. funds satisfied the statutory definition, reinstating the jury's $3 million verdict for the advance payment overbilling.^[5]^[41] However, the appellate court affirmed the district court's exclusion of claims paid solely with non-U.S. funds (such as dinar-denominated payments from Iraqi assets) and upheld summary judgment for Custer Battles on the airport contract claims, finding no evidence that those submissions sought or diverted U.S. funds.^[5]^[42] No further appeals were pursued, leaving the reinstated $3 million liability (potentially trebled to $9 million plus penalties) as the effective judicial outcome, though enforcement details post-remand are not publicly detailed in court records.^[5]

Company's Counter-Lawsuit for Conspiracy

In April 2005, Custer Battles LLC initiated a countersuit against DRC Inc., the firm owned by whistleblower Robert Isakson, alleging breach of contract, fraud, misappropriation of trade secrets, tortious interference with business relations, and related claims of conspiracy to harm the company's operations in Iraq.^[43]^[44] The company accused DRC of submitting approximately $6 million in fraudulent invoices for unperformed work under a subcontract for airport security, overstating personnel and resources provided, and exploiting access to confidential data to poach clients, including by recruiting and underpaying Nepalese Gurkha guards.^[43] Custer Battles denied whistleblower allegations of kidnapping DRC personnel at gunpoint in Iraq, instead claiming it had offered to evacuate Bobby Isakson for safety reasons amid escalating violence, and portrayed the countersuit as a defense against baseless attacks funded by the relators' anticipated qui tam recovery.^[43] The company further contended that Isakson and associates conspired to fabricate fraud claims against it to extract payments, including through the use of shell entities and exaggerated billing practices mirroring those alleged against Custer Battles.^[44] During the October 2005 trial in the U.S. District Court for the Eastern District of Virginia, a jury rejected Custer Battles' breach of contract counterclaim against DRC, finding no liability or damages for the company on those grounds; this verdict was affirmed by the Fourth Circuit Court of Appeals on May 16, 2007.^[44] Isakson later prevailed on his own breach of contract claim against Custer Battles in related proceedings, securing a judgment for unpaid subcontract work.^[45] Custer Battles also pursued additional claims against the whistleblowers for slander and false allegations, which were ultimately dismissed following defenses asserting retaliatory motive.^[45]

Additional Controversies

Claims of Excessive Force

In February 2005, four former employees of Custer Battles—Captain Bill Craun (U.S. Army Rangers), Sergeant Jim Errante (military police), Corporal Ernest Colling (U.S. Army), and Will Hough (U.S. Marines)—publicly alleged that the company's security operators engaged in brutal and indiscriminate use of force against Iraqi civilians during missions in Iraq, prompting their resignations after one or two operations.^[46] These contractors, who had served in protecting supply convoys and other assets under Custer Battles' contracts, claimed the actions involved poorly trained Kurdish subcontractors harboring historical resentments toward Arabs, leading to excessive violence against non-combatants rather than insurgents.^[46] Craun specifically stated that the conduct targeted local civilians en route to work and would not be tolerated by the American public if known.^[46] Specific incidents cited occurred on November 8, 2004, during a convoy escort: one Kurdish subcontractor allegedly fired into a passenger car to disperse a traffic jam, potentially striking an occupant; a rear gunner reportedly shot an unarmed teenager standing roadside; and a Ford F-350 truck driven by company personnel smashed into a sedan carrying children, overturning it and likely causing fatalities among the occupants.^[46] The whistleblowers described a pattern of "shooting the place up" to terrorize civilians, contrasting sharply with military rules of engagement they had followed in prior service.^[46] Craun reported these events to U.S. Army criminal investigators, who initiated an inquiry, though no public outcomes from the probe have been documented.^[46] Custer Battles denied the allegations, attributing them to disgruntled former employees without evidence of injuries or deaths, and emphasized that mission leader Shawn Greene had not observed such harm.^[46] The company declined an on-camera interview but provided statements asserting compliance with operational standards; CEO Scott Custer similarly rejected claims of systemic abuse.^[46] These accusations emerged amid broader scrutiny of private military contractors in Iraq, where accountability gaps allowed unverified reports of misconduct, but no independent corroboration or legal findings substantiated the specific brutality claims against Custer Battles.^[46]

Jacqueline Battles Arrest and Fund Seizure

In September 2006, Jacqueline Battles, a German citizen and wife of Custer Battles co-founder Mike Battles, was arrested near Darmstadt, Germany, on suspicion of money laundering.^[47]^[48] The arrest stemmed from a German bank's report of suspicious transactions in her accounts approximately two months earlier, prompting an investigation into efforts to conceal funds allegedly linked to her husband's business activities.^[49]^[47] German authorities suspected Battles of transferring at least $2 million overseas, using accounts opened under her maiden name, Vihernik, to obscure the origins of the money, which prosecutors tied to proceeds from Custer Battles' operations in Iraq.^[47]^[48] This occurred amid ongoing fallout from a U.S. civil fraud verdict in March 2006, where Mike Battles and partner Scott Custer were held liable under the False Claims Act for defrauding the U.S. government by up to $50 million in Iraqi reconstruction contracts, resulting in a $10 million judgment (later partially overturned on jurisdictional grounds).^[48]^[47] Jacqueline Battles, who was not directly involved in the company, was placed in investigative custody but not formally charged at the time, as the probe continued alongside a parallel U.S. federal criminal investigation into Custer Battles.^[47]^[49] As part of the German investigation, authorities seized approximately $1 million in suspect funds from Battles' accounts in Darmstadt.^[47]^[49]^[48] The seizure targeted assets believed to represent laundered proceeds, though no further public details on the funds' disposition or the case's resolution have emerged from official records.^[47]

Media Coverage and Public Perception

Initial Reporting on Scandals

The first major media exposure of fraud allegations against Custer Battles occurred on October 10, 2004, in a Knight Ridder Newspapers article published by The Spokesman-Review, which detailed a whistleblower lawsuit filed under the False Claims Act by former executives Robert J. Isakson, a ex-FBI agent and managing director, and W.D. "Pete" Baldwin, the former in-country manager.^[50] The suit claimed the company defrauded U.S. taxpayers of tens of millions through a no-bid contract to secure Baghdad International Airport, using shell companies in the Cayman Islands, Beirut, and Cyprus to inflate costs on items like cabins and trucks, as evidenced by lease documents showing marked-up prices.^[50] The U.S. Department of Defense had suspended Custer Battles from new federal contracts on September 30, 2004, citing credible evidence of fraud, though the Justice Department declined to intervene in the suit, arguing the victim was the Coalition Provisional Authority rather than the U.S. government directly.^[50] Company attorney Richard Sauber dismissed the claims as originating from a disgruntled employee and competitor, asserting no credible proof existed.^[50] Follow-up reporting in early 2005 built on these disclosures, often emphasizing the chaotic postwar contracting environment. A February 25, 2005, Mother Jones piece described company documents from the suit revealing forged invoices for the dinar exchange contract, including sham subcontracts that tripled costs passed to the Coalition Provisional Authority.^[51] A March 12, 2005, Los Angeles Times investigation portrayed Custer Battles as emblematic of postwar disorder, noting the firm's rapid rise from obscurity to a $15 million airport deal amid lax oversight, while highlighting ongoing federal suspension and employee lawsuits.^[12] An April 3, 2005, Newsweek article criticized government inaction, quoting whistleblower attorney Alan Grayson on the failure to recover an alleged $50 million in overbillings.^[52] Initial coverage of excessive force claims surfaced on February 15, 2005, via an NBC News/MSNBC investigation by Lisa Myers, which interviewed four ex-Custer Battles contractors alleging brutality during supply convoy escorts, including unprovoked shootings of Iraqi civilians by heavily armed teams featuring poorly trained young Kurds with historical animosities.^[46] The report detailed resignations over such incidents, framing them as part of broader contractor accountability gaps in Iraq, though Custer Battles executives were not directly quoted in response.^[46] These stories, drawn from whistleblower accounts amid the Iraq War's scrutiny, often portrayed the firm as emblematic of privatized security risks, with limited counter-narratives from the company emphasizing operational necessities in hostile environments.

Broader Context of Contractor Criticisms in Iraq War

The extensive reliance on private contractors during the Iraq War, encompassing security, logistics, and reconstruction, involved U.S. expenditures exceeding $138 billion, with contractors often outnumbering deployed troops by significant margins.^[53] This outsourcing model, necessitated by rapid deployment demands and limited military capacity, faced criticism for fostering waste, fraud, and inefficiency, as documented in audits revealing poor contract management and inflated costs compared to in-house alternatives.^[54] The Special Inspector General for Iraq Reconstruction (SIGIR) reported that of the approximately $51 billion appropriated for reconstruction, between $6 billion and $8 billion was lost to waste, fraud, or mismanagement, including overbilling on fuel, housing, and infrastructure projects.^[55] Oversight deficiencies amplified these issues, with Government Accountability Office (GAO) assessments highlighting fragmented tracking of contractor personnel—estimated at over 100,000 in Iraq by 2007—and inadequate vetting, leading to subcontracting chains that obscured accountability and enabled cost escalations.^[56] Critics, including congressional inquiries, argued that the absence of unified command structures allowed contractors to operate with minimal transparency, as evidenced by delayed reporting of incidents and unmonitored expenditures totaling tens of billions.^[57] Private security contractors drew particular condemnation for operational misconduct, exemplified by the September 16, 2007, Nisour Square incident where Blackwater personnel killed 17 Iraqi civilians, prompting investigations into excessive force, rules of engagement violations, and jurisdictional gaps under U.S. military law.^[58] Similar concerns arose from contractor involvement in detainee abuses at Abu Ghraib prison in 2003–2004, where firms like CACI and Titan supplied interrogators implicated in torture, underscoring ethical risks of privatizing sensitive roles without equivalent military discipline.^[59] Further scandals involved the recruitment of personnel with prior human rights violations, such as South African mercenaries and Serbian paramilitaries hired for security tasks, which GAO and media probes linked to heightened risks of abuses and eroded local trust in U.S. operations.^[60] Congressional Research Service analyses noted persistent legal ambiguities, including debates over the Military Extraterritorial Jurisdiction Act's applicability, which delayed prosecutions and fueled perceptions of impunity.^[61] These patterns contributed to broader skepticism about the cost-effectiveness and moral hazards of contractor-heavy warfare, with estimates indicating private security alone consumed around $6 billion amid recurring audit failures.^[62]

Outcomes and Legacy

Company Dissolution and Financial Impact

Following the U.S. Department of Defense's suspension of Custer Battles LLC from federal contracting in September 2004, the company ceased operations at Baghdad International Airport by October 2004, as it could no longer secure or perform government-related work in Iraq.^[37]^[63] This debarment, which extended to 15 subsidiaries and key principals including founders Scott Custer and Mike Battles, prohibited the firm from bidding on or receiving new U.S. government contracts, effectively halting its primary revenue stream derived from Iraq reconstruction and security services.^[63]^[64] The March 2006 federal jury verdict in the qui tam lawsuit under the False Claims Act imposed a $10 million penalty on Custer Battles—comprising $9 million in trebled damages for $3 million in fraudulent claims plus a $1 million civil penalty—further straining the company's finances amid ongoing legal defense costs and reputational damage.^[65]^[66] Although U.S. District Judge T.S. Ellis III overturned the verdict in August 2006, ruling that claims submitted to the Coalition Provisional Authority did not qualify under the Act as they involved non-U.S. funds, the protracted litigation and prior suspension had already rendered the company unable to sustain operations.^[39] Efforts to circumvent the debarment through shell entities, such as transferring assets to Danubia Global LLC for nominal consideration, failed to revive the business, as whistleblowers alleged these maneuvers violated suspension orders, leading to additional countersuits and scrutiny.^[10] By 2005, Custer Battles was described as unable to sign contracts due to the bans, resulting in practical dissolution without formal bankruptcy proceedings; the firm relocated principals to Florida but could not recover, marking the end of its active contracting activities by mid-decade.^[63]^[64] The combined effects of lost revenue—estimated in tens of millions from prior Iraq contracts—legal expenses, and exclusion from the sector imposed severe financial impacts, underscoring vulnerabilities in small contractors reliant on wartime federal procurement.^[14]

Implications for Private Contracting in War Zones

The Custer Battles litigation exposed critical limitations in applying U.S. fraud statutes to private contractors operating in war zones under provisional authorities. In its April 10, 2009, decision, the U.S. Court of Appeals for the Fourth Circuit ruled that claims submitted to the Coalition Provisional Authority (CPA) for payment from Iraqi sovereign funds—such as those from seized assets or oil revenues—did not qualify as "claims" under the False Claims Act (FCA), 31 U.S.C. §§ 3729–3733, because they were not presented to any U.S. government department or agency for payment from Treasury funds.^[1] This source-of-funds analysis overturned jury verdicts on major contract elements, including dinar security and airport protection, leaving only a smaller portion involving U.S. funds subject to FCA liability.^[38] The ruling underscored jurisdictional hurdles in prosecuting fraud where contracts blend U.S. oversight with foreign funding streams, common in post-invasion reconstructions.^[67] This legal outcome highlighted systemic risks in private contracting amid wartime urgency, where inexperienced firms like Custer Battles—a Virginia-based startup with no prior large-scale security experience—secured multimillion-dollar deals for Baghdad International Airport security and currency exchanges in 2003 through aggressive low-bid tactics and CPA expediency.^[68] Allegations of inflated invoices, fictitious subcontracts, and overbilling totaling at least $3 million in proven instances revealed inadequate vetting and monitoring, exacerbated by the CPA's decentralized structure and reliance on self-certification.^[69] In combat zones, such opacity fosters opportunism, as contractors face minimal real-time accountability outside U.S. courts, with military commanders prioritizing operational tempo over audits.^[70] The scandal contributed to heightened congressional and executive scrutiny of private military contractors (PMCs), informing recommendations for bolstering wartime acquisition capabilities, including enhanced bidder qualifications, dedicated contracting personnel, and debarment protocols—Custer Battles was subsequently barred from further Iraq work by federal investigators.^[71] It foreshadowed 2010 FCA amendments expanding "claim" definitions to encompass demands on grantees handling government funds, aiming to close overseas loopholes exposed by cases like this.^[67] Broader lessons emphasized the causal pitfalls of privatization: while PMCs enable surge capacity in understaffed conflicts, lax regulation invites fraud and erodes fiscal discipline, as evidenced by the U.S. Government Accountability Office's repeated critiques of Iraq contracting waste exceeding $100 billion cumulatively.^[72] These dynamics persist, complicating enforcement in hybrid funding environments typical of modern interventions.^[73]

References

[1]
[PDF] Custer Battles Opinion - 4-10-09 - Crowell & Moring LLP
Apr 10, 2009 · Custer Battles was founded, managed, and owned by two former U.S. Army Rangers, Scott Custer and. Michael Battles, and described itself as a " ...
[2]
Custer Battles - SourceWatch
Aug 11, 2008 · Custer Battles, LLC is a security company based in McLean, Virginia, that promotes its services as including security services, litigation support, global risk ...
[3]
U.S. Contractor Found Guilty of $3 Million Fraud in Iraq
Mar 10, 2006 · Two former associates accused Custer Battles of faking invoices from shell companies to overcharge the coalition authority, then governing Iraq, ...<|separator|>
[4]
Custer Battles Royale | corpwatch
Mar 10, 2006 · Scott Custer and Michael Battles discovered contracting business to be so good in Iraq for their new private security firm that they soon ...
[5]
US v. Custer Battles, LLC, No. 07-1220 (4th Cir. 2009) - Justia Law
US v. Custer Battles, LLC, No. 07-1220 (4th Cir. 2009) case opinion from the US Court of Appeals for the Fourth Circuit.
[6]
Grassley Praises Use of False Claim Act in Iraq Contracting Case
A jury has found contractor Custer Battles and its owners, Scott Custer and Michael Battles, liable for fraud in the first Iraq contracting case under the False ...
[7]
$$10 million verdict overturned in fraud case - NBC News
Aug 19, 2006 · Ellis III, in a ruling made public Friday, ruled that Custer Battles' accusers failed to prove that the U.S. government was ever defrauded. Any ...
[8]
[PDF] United States Ex Rel. DRC, Inc. v. Custer Battles, LLC
In this qui tam action, the relators alleged that a government contractor,. Custer Battles, violated the Act by submitting fraudulent claims for payment to the ...
[9]
Custer Battles | Facing South
Mar 10, 2006 · Custer Battles, the scandal-plagued Iraq contractor, has been found liable for fraud by a jury in Virginia, where the company is based, ...<|separator|>
[10]
https://www.wsj.com/articles/SB115076836185284796
[11]
https://www.wsj.com/articles/SB109234861785890362
[12]
A Case Study in Postwar Chaos - Los Angeles Times
Mar 12, 2005 · The company's two founders were brash, energetic and inexperienced. Custer was a former Army Ranger. Battles was an ex-CIA agent who had made an ...Missing: founding leaders
[13]
Custer Battles: Why Won't the Justice Dept. Intervene to Reclaim ...
Mar 1, 2005 · The firm, Custer Battles is being charged in a lawsuit of defrauding the Coalition Provisional Authority of tens of millions of dollars during ...
[14]
Billions Wasted In Iraq? - CBS News
Feb 9, 2006 · The $2 million given to Custer Battles was the first installment on a contract to provide security at Baghdad International Airport. The company ...
[15]
To Baghdad and Beyond: ARSOF in Operation Iraqi Freedom | Article
Mar 20, 2023 · The invasion of Iraq began during the predawn hours of March 20, 2003. U.S. Army Special Forces Operational Detachments-Alpha from 5th ...Missing: post | Show results with:post
[16]
The Sack of Baghdad - The American Scholar
On April 8, 2003, nearly all agree, American tanks were pushing into the center of Baghdad, the museum's staff had fled, and Saddam Hussein's forces had entered ...
[17]
Looting Iraq - Smithsonian Magazine
All the looting at Baghdad's Iraq Museum had taken place by the time U.S. troops—engaged in toppling Saddam Hussein—arrived to protect it, on April 16, 2003.
[18]
Iraqi Looted and Stolen Artifacts - FBI
In March/April 2003, Iraqi cultural sites suffered major losses of artifacts. 7,000-10,000 remain missing, including the statue of Entemena and almost 5,000 ...
[19]
Iraq - Countries - Office of the Historian
On May 12, 2003, the United States established the Coalition Provisional Authority as the interim civil authority in Iraq, under the leadership of L. Paul ...
[20]
[PDF] coalition provisional authority order number 2 - GovInfo
5) Pensions being paid by, or on account of service to, a Dissolved Entity before. April 16, 2003 will continue to be paid, including to war widows and disabled.
[21]
[PDF] The Continuing Challenge of Building the Iraqi Security Forces
Jun 25, 2007 · The May 23, 2003 Coalition Provisional Authority (CPA) Order 2 disbanded the Iraqi military ... “Coalition Provisional Authority Order 2: ...
[22]
Developing Iraq's Security Sector: The Coalition Provisional ... - RAND
Dec 19, 2005 · Looks at the Coalition Provisional Authority's efforts to rebuild Iraq's security sector and provides lessons learned.
[23]
U.S.: Private Armies March into Legal Vacuum - CorpWatch
The company had several large contracts in Iraq, including one to defend Baghdad's airport following the US invasion. It did not respond to questions about the ...
[24]
Shadow Force: Private Security Contractors in Iraq | Cato Institute
Feb 16, 2009 · In February 2006 it was reported that 505 civilian contractors had died in Iraq since the beginning of the war. Another 4,744 contractors have ...
[25]
[PDF] Private Security Contractors in Iraq: Background, Legal Status, and ...
Sep 29, 2008 · “Iraq Contractors Face Growing Parallel War,” Washington Post, June 16, 2007, p. A12. According to the article, registered convoys were ...
[26]
Iraq's Insurgents: What Do They Want?
Aug 20, 2008 · Iraq's insurgencies began with the U.S. military invasion in March 2003 and gained momentum after the fall of Saddam Hussein's regime when ...
[27]
'Iraq was awash in cash. We played football with bricks of $100 bills'
Mar 20, 2006 · The contract to help distribute the new currency was won by Custer Battles, a small American security company set up by Scott Custer and former ...Missing: key | Show results with:key
[28]
DRC, Inc., et al v. Custer Battles, LLC, et al, No. 1:2004cv00199
The centerpiece of the relators case in chief was the testimony of relator Baldwin, Custer Battles s Iraq Country Manager throughout the relevant time period.
[29]
US: Security Company on Trial for Fraud | corpwatch
Isakson and Baldwin filed a lawsuit alleging false claims in connection with more than $16 million in contracts to Custer Battles for the Iraqi currency ...
[30]
United States Ex Rel. DRC, Inc. v. Custer Battles, LLC ...
... information ... The Dinar Exchange Contract was a cost-plus contract, meaning that Custer Battles ... Baghdad International Airport (the “Airport Contract”).Missing: details | Show results with:details
[31]
US: Witness Faults Custer Battles Billing Practices - CorpWatch
Hugh B. Tant III said he ordered an official investigation of Custer Battles LLC's accounting in November 2003 because an invoice seeking a $3.7-million profit ...
[32]
ellis081806 - Corporate Crime Reporter
The case was filed under the False Claims Act by Robert J. Isakson and William D. "Pete" Baldwin – two whistleblowers who used to work for Custer Battles.
[33]
The False Claims Act and War Profiteering - Senator Chuck Grassley
In this case, relators from DRC, Inc., a subcontractor for Custer Battles, LLC, alleged widespread fraud related to two contracts, and filed a sealed complaint ...<|control11|><|separator|>
[34]
Memos Warned of Billing Fraud by Firm in Iraq - The New York Times
Oct 23, 2004 · The memorandums, written primarily by two company managers, charged that the security firm, Custer Battles, repeatedly billed the occupation ...
[35]
Invoices Detail Fairfax Firm's Billing for Iraq Work
May 10, 2005 · Custer Battles also billed for millions in charges from other offshore companies with names like Mid East Leasing, of the Caymans, and CBL, of ...
[36]
UNITED STATES DRC INCORPORATED v. Taxpayers for Common ...
The Dinar Exchange Contract was a cost-plus contract, meaning that Custer Battles would be reimbursed for its actual expenses, plus 25% of its actual ...Missing: BIAP value exact
[37]
Military Suspends Firm Accused of Overbilling in Iraq
Oct 9, 2004 · In another case, a Custer Battles employee wrote in a report that a $2.7-million invoice was based on “forged leases, inflated invoices and ...Missing: details | Show results with:details<|separator|>
[38]
[PDF] <em>United States ex rel. DRC, Inc. v. Custer Battles, LLC</em>
On August 27, 2003, Custer Battles, LLC (―Custer Battles‖), a firm providing support services to governments engaged in global conflicts, entered into the ...Missing: capabilities | Show results with:capabilities<|separator|>
[39]
Custer Battles verdict thrown out | Phillips & Cohen
Aug 21, 2006 · A federal judge has thrown out a jury verdict against Iraq defense contractor Custer Battles, saying that the False Claims Act did not apply ...
[40]
30. U.S. supplemental brief in United States of America ex rel. DR ...
The government accepted the Court's invitation and on April 1, 2005, filed its brief stating the position of the United States: "Custer Battles's claims ...Missing: capabilities | Show results with:capabilities
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In High-Profile "Custer Battles" Dispute, US Fourth Circuit Holds that ...
The relators claimed that Custer Battles submitted inflated invoices to the CPA. Count I of the complaint alleged that Custer Battles presented to a US ...<|separator|>
[42]
Fourth Circuit Rules In Custer Battles | Crowell & Moring LLP
Apr 13, 2009 · Custer Battles, LLC (4th Cir. April 10, 2009), affirmed summary judgment in the contractor's favor in a qui tam case alleging that Custer ...Missing: capabilities | Show results with:capabilities
[43]
U.S.A.: Custer Battles Fights Back | corpwatch
Apr 27, 2005 · Vastly overstating DRC's financial and personnel resources and its ability to deliver the services Custer Battles hired it to provide, leading ...Missing: capabilities | Show results with:capabilities
[44]
DRC, Incorporated v. Custer Battles, LLC, No. 06-1591 (4th Cir ...
ISAKSON, II, Plaintiffs, versus CUSTER BATTLES ... DRC hired Albert Isakson ... conspiracy to interfere with business relations, and several other actions at common ...
[45]
[PDF] Senate Democratic Policy Committee Hearing
Sep 21, 2007 · We won my breach of contract claim against Custer Battles, and Pete won his retaliation claim for the retaliatory firing and refusal by them to ...
[46]
U.S. contractors in Iraq allege abuses - NBC News
Feb 15, 2005 · Named for founders Michael Battles and Scott Custer, who are military veterans, the company quickly nabbed lucrative contracts in Iraq ...Missing: capabilities | Show results with:capabilities
[47]
Wife of disgraced U.S. contractor arrested - NBC News
Sep 18, 2006 · ... Custer Battles LLC. That ruling was the first civil fraud verdict arising from the Iraq war. However, a federal judge overturned the verdict ...Missing: dinar | Show results with:dinar
[48]
Wife of R.I.-based contractor suspect in laundering millions
Sep 19, 2006 · In March, a U.S. jury ordered Battles' husband, contractor Mike Battles, and his business partner Scott Custer to pay $10 million for swindling ...
[49]
Contractor's Wife Held Over Suspect Funds - Los Angeles Times
Sep 19, 2006 · Jacqueline Battles was held after a bank reported “suspicious transactions” two months ago, prosecutor David Kirkpatrick said. She has not ...
[50]
U.S. firm accused of fraud in Iraq - The Spokesman-Review
Oct 10, 2004 · The whistleblowers – Robert J. Isakson, a former FBI agent who investigated white-collar crime and was managing director for a Custer Battles ...Missing: coverage | Show results with:coverage
[51]
Blind Oversight and Custer Battles - Mother Jones
Feb 25, 2005 · ... abuse in U.S. government contracting in Iraq.” Notably absent were ... Custer Battles, a private firm hired to provide security in Iraq.
[52]
FOLLOW THE MONEY - Newsweek
Apr 3, 2005 · By many accounts, Custer Battles was a nightmare contractor in Iraq ... abuse of taxpayer dollars... would be prohibited." More than U.S. ...
[53]
Contractors reap $138B from Iraq war - CNN
Mar 19, 2013 · The US has overwhelmingly borne the brunt of both the military and reconstruction costs, spending at least $138bn on private security, logistics and ...
[54]
A Cost Comparison of Using State Department Employees versus ...
Mar 4, 2010 · We and others have examined many of the challenges the government faces using contractors in Iraq, including issues related to the scope of ...Missing: War SIGIR
[55]
U.S. official says government wasted $6-8 billion in Iraq reconstruction
Jul 17, 2012 · The official in charge of monitoring America's $51 billion effort to reconstruct Iraq has estimated that $6 billion to $8 billion of that amount was lost to ...<|control11|><|separator|>
[56]
Rebuilding Iraq: DOD and State Department Have Improved ...
Jul 31, 2008 · GAO is also providing information on the legal framework used to hold private security contractor employees legally accountable for their ...Missing: SIGIR | Show results with:SIGIR
[57]
Department of Defense Contractors in Afghanistan and Iraq
Aug 13, 2009 · Some analysts believe that poor contract management has played a role in permitting abuses and crimes committed by certain contractors against ...
[58]
The Dark Truth about Blackwater - Brookings Institution
Neither private military contractors in general nor Blackwater in particular are the only cause of US troubles in Iraq.
[59]
A Fistful of Contractors: The Case for a Pragmatic Assessment of ...
Growing attention is being paid to private military companies (PMCs) that began operating in Iraq in the aftermath of the US-led invasion in 2003.
[60]
12. Military in Iraq Contracts Human Rights Violators
Apr 29, 2010 · South African hitmen, Serbian paramilitaries, and other human rights violators became guns for hire for military contractors in Iraq.Missing: overbilling | Show results with:overbilling
[61]
[PDF] Private Security Contractors in Iraq: Background, Legal Status, and ...
Jul 11, 2007 · Nevertheless, many. Members are concerned about transparency, accountability, and legal and symbolic issues raised by the use of armed civilians ...
[62]
Audit: US Fails In Tracking Cost of Iraq Contractors - ProPublica
Oct 30, 2008 · The US has spent about $6 billion on private security contractors and related services in Iraq, although the real tally remains unknown.
[63]
Execs from banned firm still getting Iraq deals - NBC News
Jun 12, 2005 · Custer Battles employees have also been accused of firing on unarmed Iraqi civilians, of using fake offshore companies to pad invoices by as ...
[64]
War contractors settle in Manatee - Sarasota Herald-Tribune
Apr 1, 2007 · Scott Custer, left, and Mike Battles moved to Lakewood Ranch as their contracting firm came under fire for alleged fraud in Iraq.Missing: founders | Show results with:founders
[65]
Iraq Fraud Trial Yields $10 Million Fine - NPR
Mar 11, 2006 · A federal jury in Virginia orders Custer Battles, a military contractor in Iraq, to pay a $10 million fine for fraud.Missing: verdict | Show results with:verdict<|separator|>
[66]
Military contractor ordered to pay $10M for Iraq overcharging
Mar 10, 2006 · A jury has ordered Custer Battles, a military contractor, to pay $10 million for fraudulently billing the government on Iraq reconstruction contracts.Missing: founders | Show results with:founders
[67]
United States ex rel. DRC, Inc. v. Custer Battles, LLC
Mar 11, 2025 · United States ex rel. DRC, Inc. v. Custer Battles, LLC: a Brutal Battle Foreshadowing the Future of False Claims Act Litigation.Missing: qui tam
[68]
Applying the False Claims Act to Security Contractors in Iraq
In order to provide context for the Custer Battles court's opinion, Part II of this Note generally describes the FCA and the policies behind its qui tam ...Missing: lawsuit | Show results with:lawsuit
[69]
U.S. Contractor Found Liable for Fraud in Iraq - Los Angeles Times
Mar 10, 2006 · A federal jury on Thursday found that a private security firm had bilked the US-led interim government in Iraq out of millions of dollars.Missing: vouchers | Show results with:vouchers
[70]
[PDF] THE USE OF PRIVATE MILITARY CONTRACTORS AND THE ...
May 17, 2006 · This Article argues that the main issue regarding the use of private military contractors (PMCs) is that of accountability. It begins by.
[71]
Invitation to Steal: War Profiteering in Iraq - FPIF
May 27, 2008 · Shortly after arriving in Iraq, Custer Battles received a lucrative contract to provide security for the Baghdad airport. As an example of ...
[72]
Contracting in Combat: Advice for the Commission on Wartime ...
The commission should promote recommendations to improve the government's capacity to make and oversee contracts in an expeditionary wartime environment.Missing: lessons zones
[73]
[PDF] International Law and Justice Working Papers
This paper discusses how states can be responsible for PMCs' misconduct under international law, even if states hire them to perform certain functions.