updated 8/14/2009 2:59:17 PM ET 2009-08-14T18:59:17

Despite a growing corruption investigation, the Navy has allowed a defense contractor in the middle of a federal contracts-for-cash probe to keep working with the government, the company says.

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Under an agreement between the Navy and Kuchera Defense Systems of Windber, Pa., the company has made changes in its accounting practices in exchange for authority to seek government contracts again, Kuchera's lawyer said Thursday night.

The Navy alleged fraud when it suspended the company, which has grown in recent years because of millions of dollars in congressional earmarks sponsored by Rep. John Murtha, D-Pa.

Dennis McGlynn, an attorney representing Kuchera, said the firm was removed from the Excluded Parties List System of contractors blocked from government work. The government had placed Kuchera on the list in April.

On Friday, the Navy had no immediate comment on the matter.

Murtha's office welcomed the development. “The Navy’s decision is obviously good news for Kuchera Defense, their employees and our community,” spokesman Matthew Mazonkey said.

Kuchera is caught up in a criminal investigation that became public early this year when FBI agents raided the company's offices. In a separate raid last November, the FBI carted away financial records of campaign donations by a Washington-area lobbying firm founded by Paul Magliocchetti, who has long been close to Murtha. Magliocchetti's firm specialized in getting "earmarks" for defense contractors from Murtha and other House appropriators.

The Justice Department investigation focuses on the campaign donations from defense contractors that have fueled the process of congressional earmarks — specific projects that lawmakers direct to particular contractors — for many decades.

As part of the probe, a federal grand jury subpoenaed Rep. Pete Visclosky's office, campaign committees and some of his employees to turn over documents in the probe. The chief of staff for the Indiana Democrat resigned after the subpoenas were delivered.

Congressional earmarks
In recent years, Murtha has steered millions of dollars in congressional earmarks to Kuchera from the Pennsylvania Democrat's position as chairman of the House Appropriations Subcommittee on Defense. Visclosky is the third-ranking Democrat on the panel and also chairs his own House appropriations subcommittee on energy and water.

The most ominous development for members of Congress and defense contractors under scrutiny in the probe is the cooperation that two government witnesses recently began providing federal prosecutors.

One of them, Richard Ianieri, worked closely with one of the owners of the Kuchera company, William Kuchera, and with a lobbying firm that once employed Murtha's brother and that still employs a former Murtha aide.

On July 29, Ianieri testified in federal court in Pensacola, Fla., that he had taken $200,000 in kickbacks from the Kuchera company, after providing the defense contractor with $650,000 from an $8.2 million congressional earmark. Ianieri's firm had gotten the earmark after hiring the firm that employed Murtha's brother. Murtha's office refuses to say whether the congressman sponsored the earmark.

The Pensacola case was Ianieri's first public appearance as a prosecution witness. A month ago, he pleaded guilty to two felonies involving the $8.2 million earmark and faces up to 15 years in prison. If Ianieri provides what the government regards as substantial assistance in the criminal probe, it could result in a judge giving Ianieri a lighter sentence. Sentencing is scheduled for Sept. 22.

The $8.2 million earmark that was the focus of a criminal trial in Pensacola was intended for a program at the munitions directorate of the Air Force Research Laboratory at Eglin Air Force Base. The base is an hour's drive east of Pensacola, Fla. The program was designed to rapidly improve the Air Force's battlefield communication technology.

Under questioning by a federal prosecutor in court, Ianieri testified about where he moved $1.824 million of the earmarked funds. Some of it ended up at Kuchera and the lobbying firm that at the time employed Murtha's brother.

Kickbacks
Why Ianieri acted as he did was never made clear.

In some instances, "there was political and earmark pressure" to shift the money, testified Ianieri, who was not asked to specify the sources of the pressure.

Kuchera used some of the funds to support travel on an aircraft that the defense contractor partly owned, said Ianieri.

"You get roughly 200" in kickbacks, said the prosecutor. "How much goes to the aircraft?"

"I believe it was 200 or 250, something like that," Ianieri replied.

Under additional questioning, Ianieri said that he paid $574,000 to a pair of software manufacturers. One of the software companies then paid $82,398.15 to the lobbying firm that employed Murtha's brother, KSA Consulting. The figure amounted to almost precisely 1 percent of the total value of the earmark, $8.2 million.

"What happened to the software" that Ianieri's company purchased? asked the prosecutor.

"Nothing. It sat at the office" unused, Ianieri replied.

"Why go through the charade of buying the software? Why not just give them $574,000 out of the contract?" asked the prosecutor.

"I believe that in the case of the particular software that was purchased, that needed to be a software purchase so that the lobbyist could get their commission on it," Ianieri replied.

In the Florida case in which Ianieri testified, the jury convicted the defendant, who was among five subcontractors receiving slices of the $1.824 million from the $8.2 million earmark.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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