IOWA CITY - State and local officials promised an Egyptian company $200 million in tax breaks to build a fertilizer plant in southeast Iowa without knowledge of a pending lawsuit alleging one of the company's subsidiaries defrauded U.S. taxpayers out of millions of dollars, officials told The Associated Press.
The Iowa Economic Development Authority and Lee County approved the incentives for a subsidiary of Cairo-based Orascom Construction Industries, which is planning to invest $1.4 billion to build the plant near Burlington. Their failure to uncover the lawsuit - disclosed by Orascom in its annual report - raises questions about the research that went into the deal, which has been criticized as rushed and overly generous.
Orascom didn't tell Iowa officials - and were not required to - that it is contesting a lawsuit filed by the federal government in 2004 alleging its subsidiary, Virginia-based Contrack International, was part of a joint venture that improperly won $332 million in U.S.-financed construction contracts in Egypt, officials said.
In this Nov. 19, 2012 photo Egyptian billionaire Nassef Sawiris, left, CEO of Cairo-based Orascom Construction Industries, Iowa Secretary of Agriculture Bill Northey, center, and Gov. Terry Branstad sign their name in concrete during a groundbreaking ceremony for a fertilizer plant in Wever.
The state's vetting also did not uncover the lawsuit, which seeks to recover funds spent by the U.S. Agency for International Development, Authority Director Debi Durham told the AP.
"It did not come up in our due diligence," she said. "But you're talking about a global corporation that has numerous subsidiaries. I'm not sure how anyone would have found that."
Orascom had disclosed the lawsuit previously, saying it owns 40 percent of a venture being sued by the United States, according to copies of its annual reports reviewed by AP. Orascom says it has "strong substantive reasons" to deny the allegations, and that any resolution shouldn't significantly impact its financial statements.
Former county supervisor Larry Kruse, who helped negotiate the deal, said county officials were also unaware of the lawsuit.
Democrats have accused Republican Gov. Terry Branstad of approving too much aid for Orascom, which is managed by Egyptian billionaire Nassef Sawiris and is one of the largest employers in the Middle East. One lawmaker calls it the worst economic development deal in Iowa history. Supporters say it will create desperately needed jobs and cut the price of fertilizer for farmers.
The lawsuit alleges Contrack and two other companies collaborated to win USAID-financed contracts to build Egyptian infrastructure for which they should have been ineligible. They formed a secret, joint venture to conceal that one of the partners was an Egyptian company, the lawsuit alleges, because only U.S. contractors were eligible.