Ground Services International Pays $12.3 Million to Settle New York State Fraudulent-Kickback Investigation

On December 13, 2018, the Office of New York State Attorney General Barbara D. Underwood (OAG) announced that airport ground handling company Ground Services International (GSI) had entered into a civil settlement to pay $12.3 million, for making fraudulent kickback payments intended to influence various contracts that GSI had at John F. Kennedy International (JFK) Airport and in other airports across the United States.

This settlement – the third stemming from “Operation Greased Runway,” the OAG’s ongoing investigation into the contracting and procurement processes at JFK Airport – resolves claims pursuant to New York State Executive Law Section 63(12), which prohibits “engag[ing] in repeated fraudulent or illegal acts or otherwise demonstrat[ing] persistent fraud or illegality in the carrying on, conducting or transaction of business.”  According to the OAG’s statement, its ongoing investigation “revealed that GSI expanded its business and won new contracts with two major companies, British Airways and Terminal One Group Association L.P. (‘TOGA’), while at the same time making undisclosed payments to the companies’ key executives.”

The investigation found that the then-President of GSI, Jeff Kinsella, “secretly agreed to provide an ownership interest in GSI to a senior British Airways executive who had influence over procurement decisions at the airline, while that executive was promoting GSI’s services within British Airways.”  From 2009 to 2016, Kinsella made regular payments to the British Airways executive that totaled more than $1.2 million.  During that same period, British Airways substantially expanded its business with GSI, including continuing to service Terminal Seven, which British Airways currently operates, at JFK Airport. When Kinsella sold GSI in 2016, according to the OAG, the British Airways executive received an additional payment of $3.6 million from Kinsella “for his secret ownership interest. GSI never disclosed either its payments to the executive, or the executive’s financial stake in GSI, to British Airways, the Port Authority, or any other entity in the airline industry.”

GSI also made improper payments to the then-Executive Director of TOGA, Edward Paquette, whom the OAG termed “the key decision maker with respect to the contract for ground services at JFK’s Terminal One.”  After Paquette recommended GSI for the Terminal One contract, that contract became GSI’s largest contract nationwide.  Shortly after GSI received the Terminal One contract, Kinsella began directing monthly payments to a company set up by Paquette specifically to receive the kickbacks. From 2015 through 2017, during which Paquette oversaw the contract at TOGA, GSI paid him a total of $640,000.  In 2017, as a result of Operation Greased Runway, Paquette pleaded guilty to New York State felony charges related to stealing from his employer and accepting bribes totaling $1.3 million.

The OAG also stated that GSI, while secretly making these improper payments, “made millions of dollars in profits from its contracts at Terminal One and Terminal Seven at JFK Airport with British Airways and TOGA respectively.”  As a consequence, as part of the settlement GSI acknowledged that its conduct was deceptive, improper, and compromised the integrity of business operations at JFK Airport.  In addition, GSI agreed to injunctive relief to improve its compliance and contracting processes:

GSI is required to implement and maintain an anti-bribery and corruption policy, and to train employees on that policy annually. The company will also establish an anonymous tip line where employees can report suspected violations of the policy. GSI must also submit to review by an outside audit firm, appoint a Chief Ethics and Compliance Officer, reform its internal bidding process to ensure that potential conflicts of interest are identified, and submit an annual affirmation of compliance signed either by the company’s CFO or CEO to the Port Authority Inspector General’s Office.

Note:  This settlement is a timely reminder to corporate compliance officers that bribery and corruption risks can arise domestically as well as internationally, and that failure to extend compliance anti-corruption policies and internal controls to domestic activities and transactions can have severe legal and reputational consequences.  The fact that Kinsella was able, over a nine-year period culminating in his sale of GSI in 2016, to make nearly $5 million in illicit payments to the unnamed British Airways executive indicates the severity of the deficiencies in GSI’s prior compliance regime.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s