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Odd couple at center of Russian helicopter inquiry

Sunday - 3/2/2014, 12:00pm  ET

Associated Press

WASHINGTON (AP) -- Yuri Borisov's performance on a lucrative U.S. military contract was dismal -- cost overruns, blown deadlines, forged paperwork.

Yet that didn't keep the Russian entrepreneur from winning more business with the Department of Defense, according to interviews and documents obtained by The Associated Press.

Borisov, who specializes in refurbishing Russian Mi-17 helicopters, had an ally in Bert Vergez, an Army colonel who ran an obscure defense acquisition office in Huntsville, Ala.

When Borisov insisted on being paid millions of dollars extra for overhaul work his companies were late on, Vergez supported him.

When Borisov sought a new multimillion helicopter overhaul contract, it was Vergez's office that approved the deal.

Even when auditors from the Pentagon inspector general's office were uncovering signs of illegal activity, it was Vergez who pitched a plan to install new engines on Mi-17s bound for Afghanistan -- an arrangement that promised millions of dollars in revenue for Borisov.

The relationship between the two men is at the heart of a criminal investigation into why the Huntsville office Vergez once commanded kept dealing with Borisov despite an alarming catalog of problems.

The case is a glimpse into the labyrinth of military procurement, where even today, Borisov's companies, AviaBaltika Aviation and Saint Petersburg Aircraft Repair Company, remain technically eligible for federal contracts. The inspector general's audit recommended that the Army take steps to debar or suspend the companies, but no such action has been taken more than a year later.

"I am deeply concerned by the Department of Defense's stubborn refusal to stop contracting with firms that stand accused of defrauding the U.S. government," said Sen. John Cornyn of Texas, the Senate's second-ranking Republican. "If the Pentagon fails to take the formal steps to bar these firms from future contracts, the real victim will be the American taxpayer."

The FBI and Defense Criminal Investigative Service are leading the inquiry. Representatives for both agencies declined comment.

Vergez, who retired from the military in November 2012, and Borisov did not return phone calls seeking comment for this story.

It's unclear when the two men met.

Vergez, 48, spent 25 years in uniform.

He graduated in 1987 from Norwich University, a private military school in Vermont, and earned a master's degree from the Florida Institute of Technology. In the Army, Vergez flew Apache and Cobra attack helicopters. He deployed to Albania in 1999 and later served a tour in Iraq, his service record states. In 2001, Vergez was assigned to the Army command in Hunstville that manages the service's aviation budget.

Borisov, 57, served in the Soviet military for 10 years and launched his aviation companies in the early 1990s. AviaBaltika is based in Kaunas, Lithuania. Saint Petersburg Aircraft Repair Company, better known as SPARC, is headquartered in Russia.

In Lithuania, Borisov is well known for his flamboyant lifestyle and a scandal that led to the impeachment in 2004 of Lithuania's president, Rolandas Paksas. Borisov was the top financial backer of Paksas's election campaign. He contributed $400,000.

The president's troubles began after police alleged that Borisov was in cahoots with the Russian mafia. Paksas's political career fell apart after telephone calls secretly recorded by the state security department became public during the Lithuanian parliament's impeachment proceedings. In one, Borisov is allegedly caught speaking with reputed Russian mob bosses.

Borisov and Paksas denied all the accusations. No charges were filed against Borisov, but the U.S. Embassy in Vilnius, Lithuania's capital, kept a close eye on him. When AviaBaltika applied to the Lithuanian government in 2005 for a license to train Iranian helicopter pilots, Tom Kelly, then the embassy's deputy chief of mission, alerted State Department officials in Washington.

Kelly called AviaBaltika "infamous" in a cable published by the Wikileaks website. The Lithuanian government, Kelly wrote, understood the license request "is likely to set off alarms in Washington, and wants to make sure we have a chance to affect" the decision. The U.S. recommended the request be denied. It was.

But warnings about Borisov's companies appear to have slipped through the cracks. By 2008, AviaBaltika and SPARC were part of an umbrella contract to support U.S. counterterrorism activities held by defense industry giant Northrop Grumman and managed by a Navy office in Dahlgren, Va.

AviaBaltika and SPARC were tasked with overhauling 10 Mi-17 helicopters, part of the U.S. strategy to defeat al-Qaida and other extremist groups. The Pentagon acquired dozens of new and used Mi-17s to give to Iraq, Afghanistan, Pakistan and other countries in its fight against terrorism.

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