FEMA Tarp Contractor Under Investigation for Fraud
Petra Gonzalez, 85, spends hours of the day standing and walking on the potholed road that runs past her house. To get food to cook, Gonzalez has to hike to a refrigerator up the hill, covered only by a blue tarp. (Photo by Sarah L. Voisin/The Washington Post via Getty Images)
The owners of a company contracted by FEMA to bring hundreds of thousands of tarps to Puerto Rico after Hurricane Maria are under federal investigation for fraud, according to court records.
Two affidavits, filed in federal court in Tennessee, allege that the owners of Master Group USA LLC falsified records to hide the fact that the tarps were made in China, which violates federal sourcing laws. They also claim that the owners “fraudulently misused” $1.4 million from a separate government grant to reimburse tarp suppliers after FEMA suspended Master Group’s contract and stopped payment.
The documents were first reported by the Daily Beast. Neither the company nor the owners, Karim Sadruddin and Rahim Sadruddin, have been charged with a crime.
Concerns about Master Group’s violation of federal rules by purchasing emergency tarps for Puerto Rico in China were first reported as part of FRONTLINE’s film Blackout in Puerto Rico, which detailed FEMA’s months-long delay in getting this basic supply of disaster response to hurricane victims in 2017.
Searching import records, FRONTLINE and NPR uncovered how Master Group had purchased hundreds of thousands of tarps from China using a string of middlemen, and ultimately left Puerto Ricans without tarps months after the disaster. FEMA suspended Master Group’s contract in April 2018 because of quality concerns and has since disbarred the Sadruddins from doing business with the government for three years.
The problems with Master Group were part of a string of failures FEMA faced getting emergency tarps to the island. When Maria struck, FEMA had less than 12,000 tarps on the island and scrambled to get half a million more. The first two companies the agency contracted with, which had little experience with disaster relief, failed to deliver any tarps. Two months after the hurricane, FEMA awarded a new $30 million contract to Master Group, a company known for importing hookah tobacco, for 475,000 tarps.
The court documents provide new details on how Master Group’s owners tried to skirt detection. According to the records, Master Group initially provided documents to FEMA claiming that the tarps were manufactured and loaded in Taipei, Taiwan — a country that it could source from — but shipped via Shanghai to save money. However, federal investigators found the shipping company didn’t exist at the address listed and was not a registered business. Ultimately, they said that the “shipping documents are believed to be fraudulent.”
Master Group also provided a bank receipt that purportedly showed how it payed the shipping company for the tarps, but federal investigators found that, too, appeared to be fake.
Emails obtained by federal investigators showed that the Sadruddins had “knowledge that China would possibly be used to manufacture tarps sold to FEMA,” the affidavit states.
The court filings also detail evidence of further fraud. The allegations stem from another company owned by the Sadruddins, Textile Corporation of America, which won a $3 million grant from the Tennessee Valley Authority in 2017 for an economic development project. But, the documents claim, the Sadruddins falsified billing records to the TVA to get reimbursed for over $1.4 million on work that hadn’t been done. Once the Sadruddins received those funds, the affidavit states, they used much of that money to pay off tarp suppliers it had procured from China for FEMA.
FEMA said it was not involved in the federal investigation, but noted that the agency now has 280,000 tarps in Puerto Rico “which is 22 times more than we did in 2017.”
The Saddrudins did not respond to a request for comment.