Afghanistan Food Fraud: Whistleblower, Guilty Plea, and Settlements

Supreme Foodservice, the primary food and water supplier to U.S. and coalition troops in Afghanistan, pleaded guilty to major fraud in December 2014 and paid roughly $434 million in combined criminal penalties and civil settlements. The Afghanistan food fraud settlement resolved a scheme that overcharged the Pentagon on an $8.8 billion Defense Logistics Agency contract by routing purchases through a hidden middleman company, inflating invoices, and pocketing supplier rebates the government was owed.¹

How the Overcharging Worked

The Defense Logistics Agency awarded Supreme Foodservice GmbH a Subsistence Prime Vendor contract in June 2005 to deliver food and water to troops in Afghanistan. From July 2005 through April 2009, Supreme ran purchases of fresh produce and bottled water through a UAE-based company called Jamal Ahli Foods Co., LLC, known as JAFCO. Supreme owned and controlled JAFCO but presented it to the government as an independent supplier, and used the arrangement to mark up prices before billing the Pentagon.²

The markups were not small. Internal company emails referenced price inflation of 57 to 60 percent over actual procurement cost. On non-alcoholic beer, the markup jumped from 25 percent to 125 percent. When contracting officers at the Defense Supply Center of Philadelphia questioned the pricing, Supreme executives said they had “negotiated better prices” on larger quantities or that the costs reflected the “high quality of product.”²

A second line of fraud ran alongside the JAFCO scheme. From June 2005 through December 2010, Supreme failed to disclose and pass through supplier rebates and discounts to the government as the contract required, and kept the savings.¹

Supreme tried to keep the arrangement quiet. In 2007, after firing an executive who knew about JAFCO, the company negotiated a separation agreement that included a €400,000 payment in exchange for silence about the overcharging. The scheme unraveled in March 2009 when a different former employee told the Defense Supply Center that Supreme owned and controlled JAFCO. The inflated markups stopped on April 1, 2009.²

The Whistleblower Case

The civil action that drove the resolution was filed by Michael Epp, a German citizen who had managed Supreme’s supply chain operations in Dubai under the Prime Vendor contract until early 2007.³ In March 2010 he filed a False Claims Act complaint in the Eastern District of Pennsylvania, captioned United States ex rel. Epp v. Supreme Foodservice A.G., Case No. 10-CV-1134.⁴

Epp gave investigators tens of thousands of emails and internal documents and traveled repeatedly from the Middle East to Philadelphia to meet with government attorneys. He received $16.16 million from the civil settlement for his role in exposing the fraud.⁵

The Guilty Plea and Criminal Penalties

On December 8, 2014, two Supreme entities entered guilty pleas in the U.S. District Court for the Eastern District of Pennsylvania before Judge Gene E.K. Pratter. Supreme Foodservice GmbH, successor to the Swiss-incorporated Supreme Foodservice AG, pleaded guilty to major fraud against the United States, conspiracy to commit major fraud, and wire fraud. Supreme Foodservice FZE, successor to the UAE-incorporated Supreme Foodservice KG, pleaded guilty to major fraud.¹

The criminal side of the resolution totaled $288.36 million:

$192 million in criminal fines ($96 million per company, the statutory maximum).
$48 million in restitution, reflecting the verified government loss from the JAFCO scheme.
$10 million in criminal forfeiture.
$38.3 million paid directly to the DLA to refund separate overpayments on bottled water.

Supreme AG was also placed on five years of probation, with a condition that it hold an annual service event to assist military veterans or their families.²

The Civil Settlements

On the civil side, Supreme Group B.V. and its subsidiaries agreed to pay $146 million to resolve three separate matters:¹

$101 million to resolve the Epp whistleblower suit over inflated food and water costs and unreturned supplier rebates.
$20 million to settle allegations, investigated by the Eastern District of Virginia, that Supreme Site Services GmbH stole fuel meant for military generators at Kandahar Air Field and then billed the DLA for it.
$25 million to resolve claims, investigated by the Southern District of Illinois, that Supreme Logistics FZE billed the U.S. Transportation Command for expensive refrigerated trucks while actually using cheaper non-refrigerated vehicles.

Combined with the criminal resolution, the total penalty across all proceedings came to roughly $434 million.⁶

Why No Executives Were Charged

No individual was criminally charged. Supreme Group B.V. was a privately held company headquartered in Dubai, majority-owned by Stephen Orenstein and his family (about 75 percent), with partner Michael Gans and his wife holding the remainder. The owners held their interests through holding companies in Luxembourg, Cyprus, Germany, and the United Kingdom.⁷

U.S. Attorney Zane Memeger said Orenstein, who oversaw day-to-day operations during the fraud period, was based in Dubai and effectively beyond the reach of U.S. prosecutors because the UAE has no extradition treaty with the United States. Judge Pratter expressed frustration during the proceedings that the “primary actors” behind the company were not present to face consequences. As part of the settlement, Supreme’s owners were barred from doing business with the U.S. federal government for five years.⁸

Who Investigated the Case

The investigation was run jointly by the Defense Criminal Investigative Service, the FBI, the Special Inspector General for Afghanistan Reconstruction, the Army Criminal Investigation Command, and the U.S. Attorney’s Office for the Eastern District of Pennsylvania.¹

What Happened After the Settlement

The $434 million resolution did not close out the money fight between Supreme and the government. A separate billing dispute was already in progress at the Armed Services Board of Contract Appeals, driven in part by DLA administrative offsets that had withheld $21.8 million per month from Supreme starting in March 2012 and recovered more than $390 million by September 2013.⁷

In November 2023, the board held that Supreme’s guilty plea for major fraud was a prior material breach of the contract, barring recovery on claims from work performed during the original contract term of June 2005 through December 2012. That ruling defeated $285.8 million in claims Supreme had filed against the government.⁹ The remaining appeals were dismissed with prejudice in May 2024 on a joint motion by Supreme and the government, closing out nearly a decade of post-settlement litigation.¹⁰

The underlying troop-feeding contract had already changed hands. In June 2012, the DLA awarded a new $10 billion food distribution contract to Anham FZCO, a Dubai-based competitor, and extended Supreme’s contract by up to $1.5 billion through December 2013 to bridge the transition.¹¹

1
U.S. Department of Justice. Defense Contractor Pleads Guilty to Major Fraud in Provision of Supplies to U.S. Troops in Afghanistan
2
FBI. Defense Contractor Pleads Guilty to Major Fraud in the Provision of Supplies to U.S. Troops in Afghanistan
3
False Claims Act Legal Center. Supplier of Food to U.S. and Coalition Troops in Afghanistan Pays $389,300,000
4
False Claims Act Legal Center. Press Release: Supreme Settlement and Agreement
5
Constantine Cannon. DOJ Fraud Settlement, Supreme Foodservice
6
Food Engineering Magazine. Supreme Pleads Guilty, Will Pay U.S. $389 Million for Afghanistan Food Fraud
7
Financial Advisor Magazine. Supreme Owner Made Billionaire Feeding U.S. War Machine
8
The Philadelphia Inquirer. Military Supplier Fined $250 Million
9
Armed Services Board of Contract Appeals. ASBCA Nos. 58958 et al., Supreme Foodservice GmbH
10
Armed Services Board of Contract Appeals. ASBCA Nos. 59419 et al., Supreme Foodservice GmbH – Order of Dismissal
11
Foreign Policy. Congress to Reveal New Allegations in Multibillion Afghanistan Food Contract Dispute