Whistleblowers allege fraudulent distribution of foreign aid, DOJ disagrees

Murray Famer (left) and John McAvoy are waiting to see whether the Justice Department is able to have their whistleblower lawsuit dismissed. They claim federal officials have improperly distributed millions of dollars in foregin aid to an agency in Honduras. 

A Mobile man at the center of a whistleblower lawsuit believes his case could expose corruption surrounding the distribution of aid the United States has sent to Honduras and other countries for years, but the Department of Justice (DOJ) believes his case lacks merit and should be dismissed.

Those were the two sides presented during a hearing last week in Mobile before Presiding U.S. District Judge Kristi DuBose, who will soon be tasked with deciding whether a lawsuit Mobile businessman Murray Farmer filed on behalf of the government and U.S. taxpayers is tossed out.

Farmer is a former employee of DRC Inc., a local company that performed work on behalf of the U.S. Agency for International Development (USAID) in Honduras after Hurricane Mitch struck there in 1998.

Specifically, DRC won a multimillion-dollar contract in 2001 to build 22 water and sewer systems in rural areas of the Central American country. The contract was technically with the Honduran Social Investment Fund (FHIS) — an agency DRC believed was an arm of the Honduran government.

There were plenty of reasons to believe that at the time, too. For one, the president of the country signed DRC’s contract and those documents were formally approved at a televised ceremony in the Honduran oval office that featured officials from USAID, FHIS and Honduran government agencies.

Because the U.S. doesn’t turn millions of dollars in aid directly over to a foreign country, DRC would submit invoices for its work to FHIS, which would send it to USAID to be certified and sent to the U.S. Treasury Department for final approval. If approved, DRC would get a check from the U.S. government.

However, payments to DRC eventually halted after allegations surfaced that Farmer — who was working on the ground in Honduras — had bribed top officials there in order to secure the contract DRC was awarded. Farmer has always denied those allegations, and after multiple audits and criminal probes, federal prosecutors eventually notified Farmer he’d been formally cleared of any wrongdoing.

Yet, DRC was, and still is, owed millions of dollars promised to it in the bilateral agreement with FHIS, Honduras and USAID. In the end, the uncompensated work cost the company well over $30 million and it was unable to remain in business — putting around 300 employees out of work in Mobile. The lack of payment also kicked off a string of lawsuits that have gone on for more than a decade.

With DRC out of business, Farmer started a new legal entity called MBS or “Mugged by the State.” In the mid-2000s, MBS sued the U.S. to recoup money it was owed, and the U.S. countersued MBS on allegations of fraud and filing a false claim in response. In the end, the cases were both settled.

Around that same period, MBS and FHIS went into an arbitration process that resulted in a $51 million award in MBS’s favor. However, like with previous bills, FHIS sent the request to pay MBS to the U.S. government, which never responded. Then, in 2010, Farmer set his sights on the Honduran government and filed another legal action in hopes of forcing the country to pay the $51 million on FHIS’s behalf.

However, the government argued FHIS wasn’t technically a branch of the government, but was established under Honduran law as a “quasi-government agency” that is legally distinct and, therefore, not liable for the $51 million arbitration judgment against FHIS.

The Honduran Supreme Court agreed, and when Farmer appealed the case to Washington, D.C., in 2014, so did U.S. District Judge Paul L. Friedman in an order that dismissed the case at the Hondurans’ request. However, that acknowledgment is what brings us to the case on DuBose’s docket in Mobile now.

In 2017, Farmer filed a qui tam or “whistleblower” lawsuit against Honduras, FHIS, several of their officials and multiple USAID employees in their official and individual capacities. The suit alleges that if FHIS wasn’t part of the Honduran government, it should have never received U.S. foreign aid and any representation that it was part of the government was a fraudulent, false claim against the U.S.

Strengthening the allegation, Farmer was joined by co-plaintiffs John McAvoy, a retired USAID contracting specialist who supervised DRC’s work in Honduras, and Marco Zavala, a retired USAID liaison who worked directly with FHIS during the time that work was performed.

Speaking with Lagniappe, McAvoy said there was never any doubt in his mind FHIS was part of the Honduran government while he was working overseas in the late ’80s. He thinks the government is trying to have it both ways and USAID, DOJ and the federal court system are going along with it.

“They would take the position to receive aid money, but when there’s a dispute they say, ‘We’re really not the government, so you can’t use this avenue to get justice,’” McAvoy said. “The law specifies how you can administer foreign aid and it doesn’t say you can take government-to-government money and give it to a non-government entity, yet that’s what USAID has done and continues to do.”

Adding insult to injury, the lawsuit also alleges a handful of USAID staff members actually approved a payment of $100,000 to cover FHIS’s legal expenses when it was litigating the case MBS and Farmer brought against it. The government has so far not disputed this happened but has said it doesn’t consider it fraud.

“USAID took money it owed to me, the contractor, and gave it to Honduras to fight my claims for payment. It’s just the ultimate betrayal,” Farmer said. “They invited me to go overseas, let me do the job, didn’t pay me and then gave my money that I earned that they agreed they owed me to a foreign country to fight my claims and avoid paying me. It’s cannibalism. USAID are cannibals.”

Qui tam proceedings, like the one Farmer has filed, are typically brought by citizens or government employees on behalf of the government. A “whistleblower” makes an allegation to the government, and if an investigation confirms evidence of a crime, the U.S. can intervene and prosecute the case.

If the U.S. recovers any money from prosecuting a qui tam claim, the whistleblower receives a cut, but despite his case alleging close to $1 billion in potential fraud, Farmer has maintained this isn’t about money or recovering what he lost to Honduras. Both he and McAvoy said they believe similar situations are happening elsewhere under USAID, and hope their lawsuit can expose and stop it.

The government, however, seems to disagree.

In 2019, while the case was still under seal, attorneys for DOJ gave notice a review didn’t uncover any evidence of fraud against U.S. taxpayers and, thus, it would not be taking any action related to the allegations. When attorneys for the whistleblowers indicated they would proceed without the government, attorneys from DOJ intervened again in the case and sought to have it dismissed entirely.

In the courtroom, Justice Department trial attorney Jay Majors argued USAID still contends FHIS is a proper contractor that can receive U.S. foreign aid, adding that regardless of who moved the lawsuit forward, the agency would maintain it hasn’t suffered any loss. He argued if there’s no loss to taxpayers, there’s no reason for DOJ to be involved.

He also noted, because it was initially involved with the plaintiff and some of the defendants are named in their official capacity as federal officials, DOJ could be put in a position of arguing both sides of the lawsuit. Were that to happen, DOJ could have to hire private attorneys to defend USAID.

It’s also worth noting the plaintiff hasn’t accused anyone of personally pocketing funds appropriated for foreign aid. However, Farmer argues there’s a lack of oversight into the billions of dollars USAID receives from Congress every year and it benefits from maintaining that “status quo.”

“USAID receives about $27 billion a year and they’re very poor stewards of that money. We don’t even know the exact extent of the damage to U.S. taxpayers,” Farmer said. “They work primarily overseas and there’s very little oversight. How many taxpayers have they ripped off that we don’t even know about?”

DuBose seemed most interested in whether a whistleblower lawsuit based on alleged violations of the False Claims Act was the “proper vehicle” for the case Farmer is trying to make. Typically, whistleblower lawsuits are filed against individual employees or outsiders committing fraud against the government — like doctors illegally claiming reimbursements from Medicaid.

The plaintiffs argue fraud occurred when foreign aid was distributed to “quasi-governmental entities” like FHIS, but DuBose said their case isn’t alleging some kind of unknown misfeasance took place as much as its challenging USAID’s policy on whether FHIS is a qualified contractor.

DuBose said it seemed as if the plaintiffs were saying, “On behalf of the U.S. government, we’re going to sue the U.S. government to show why the U.S. government made the wrong determination.” She asked Farmer’s attorney, Willie J. Huntley, to explain why a whistleblower suit is appropriate in that scenario.

Huntley did not immediately have a response and asked for additional time to review cases with similar circumstances. DuBose granted the request, giving Huntley around five days to file a brief explaining the plaintiffs’ position. After that, DOJ will have until Jan. 28 to file a response.

It’s unclear when a final ruling might be made on the government’s motion seeking to have the case dismissed, but Farmer — who has fought to recover the millions he and his ex-employer lost working for the Republic of Honduras — said this whistleblower lawsuit is likely his last chance at justice.

Still, Farmer maintains, at this point, his latest lawsuit isn’t about the money — it’s about keeping what he went through from happening to anyone else in the United States.

“USAID has continued to give money to FHIS as if it were part of the government, and you have to be part of the government to receive those funds,” Farmer said. “Honduras was never eligible to get this money, but USAID has continued to give them money to this day because the deep state wants everything to continue moving along as if none of this ever happened.”