Branstad administration's fertilizer plant deal looks even worse

The Egyptian company that received the largest tax incentive package in Iowa history has a subsidiary accused of defrauding the federal government out of $332 million, Ryan Foley reported yesterday in a must-read story for the Associated Press. Excerpts from Foley’s article are after the jump, but I strongly recommend reading the whole piece.

Iowa Economic Development Authority Director Debi Durham admitted that the federal lawsuit over improper contracts “did not come up in our due diligence,” which is no surprise. Durham’s negotiating strategy seems to have been not to question anything Orascom executives told Iowa officials. Although Governor Terry Branstad has claimed Iowa landed the fertilizer plant deal “by the skin of our teeth,” evidence suggests Orascom would have invested in Iowa even without generous state and local tax incentives.

From Ryan J. Foley’s Associated Press report of February 14, Iowa unaware of company’s fraud suit:

Orascom didn’t tell Iowa officials – and were not required to – that it is contesting a lawsuit filed by the federal government in 2004 alleging its subsidiary, Virginia-based Contrack International, was part of a joint venture that improperly won $332 million in U.S.-financed construction contracts in Egypt, officials said.

The state’s vetting also did not uncover the lawsuit, which seeks to recover funds spent by the U.S. Agency for International Development, Authority Director Debi Durham told the AP.

“It did not come up in our due diligence,” she said. “But you’re talking about a global corporation that has numerous subsidiaries. I’m not sure how anyone would have found that.”

Orascom had disclosed the lawsuit previously, saying it owns 40 percent of a venture being sued by the United States, according to copies of its annual reports reviewed by AP. Orascom says it has “strong substantive reasons” to deny the allegations, and that any resolution shouldn’t significantly impact its financial statements.

Former county supervisor Larry Kruse, who helped negotiate the deal, said county officials were also unaware of the lawsuit. […]

The lawsuit alleges Contrack and two other companies collaborated to win USAID-financed contracts to build Egyptian infrastructure for which they should have been ineligible. They formed a secret, joint venture to conceal that one of the partners was an Egyptian company, the lawsuit alleges, because only U.S. contractors were eligible.

Sawiris, the Orascom CEO who recently appeared with Branstad at the plant’s groundbreaking, was designated as Contrack’s representative on the venture’s executive committee, records show. He has not been personally accused of wrongdoing. Some employees working on the Iowa project are employed by Contrack.

[Democratic State Senator Joe] Bolkcom said state officials conducted an “amateur hour” negotiation with Orascom, and should look into the lawsuit’s allegations.

Iowa Democratic Party press release, February 14:

Branstad Administration Asleep at the Switch over Orascom Deal

Branstad Administration did not know company that received $100 million in taxpayer support was under investigation for fraud

DES MOINES — Iowa Democratic Party Chair Rep. Tyler Olson today called on the Branstad Administration to explain how it didn’t know that a subsidiary of Orascom – the recipient of one of the largest state incentive packages in Iowa history – was under investigation by the US Government for fraud.

“It is unbelievable the Branstad Administration did not fully vet Orascom and gave over $100 million in taxpayer money without knowing this information,” said Iowa Democratic Party Chair Tyler Olson.  “Iowans demand that any time state dollars are given to a company the government does its due diligence.  Someone did not find this information and now Iowans are left to wonder what else we don’t know about the Governor’s deal.”

Governor Branstad announced last year that his administration was going to give foreign-based Orascom more than $100 million in state aid to build a new fertilizer plant in Iowa. The $200 million total incentive package was one of the largest corporate aid packages in Iowa history.

The Associated Press revealed today that no one with the Iowa Economic Development Authority knew an Orascom subsidiary was under investigation for defrauding the federal government.

UPDATE: Jennifer Hemmingsen of the Cedar Rapids Gazette wrote a good commentary on this lapse.

The lawsuit is ongoing, and Orascom denies the allegations. The Iowa Fertilizer Company wasn’t required to disclose the lawsuit and so they didn’t. You can even argue it doesn’t matter, that these two small pieces of a vast multinational corporation probably have little to do with each other. But it’s troubling the Iowa leaders who signed off on the tax deal didn’t know the lawsuit existed at all.

Economic Development Authority Director Debi Durham’s explanation doesn’t inspire a lot of confidence:

“It did not come up in our due diligence,” she told the AP. “But you’re talking about a global corporation that has numerous subsidiaries. I’m not sure how anyone would have found that.”

The AP did – by taking a look at Orascom’s annual report. That sounds like Due Diligence 101.

No kidding.

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