As former federal prosecutors, it is always of interest to us to read about grand jury indictments involving fraud schemes. We have presented many such indictments to grand juries ourselves and know how the system works. On Tuesday of this week, a grand jury in Washington, D.C., returned an indictment against three Army Reserve Officers and two civilians based on allegations that they steered more than $8.6 million dollars in Iraqi reconstruction funds to a contractor in exchange for a variety of kickbacks and other inducements. The 25 count indictment, which includes charges of conspiracy and money laundering, is obviously the “Tip of the Iceberg” because the amount of money at issue in this particular scheme ($8.6 million) is insignificant when it comes to the billions of dollars that are still unaccounted for according to the Special Inspector General’s Office responsible for the oversight of the expenditure of government monies in Iraq.
The Department of Justice has always tried to publicize indictments in specific areas because of the “deterrent affect” it might have relative to others. Here, however, the proverbial horse is already out of the barn and there is not going to be much deterrence with respect to the billions already spent and unaccounted for (typically in no bid contracts). Hopefully, this indictment is a sign of things to come in terms of holding accountable those who would defraud their own government when it comes to schemes of this nature.
We continue to believe that Whistleblowers and Qui Tam lawsuits are the best deterrent there is for schemes of this nature. When you hit someone’s pocketbook, particularly companies who enrich themselves at taxpayers’ expense, with the treble damages and attorney’s fees and other remedies available under the False Claims Act, this truly does have a deterrent effect on others. Indictments, of course, are necessary in order to prosecute the guilty but with respect to the ill-gotten gain, indictments are not the best vehicle for getting taxpayer money back. While the government presumably will proceed in this case with forfeiture actions because of the money laundering charges, nonetheless, whistleblower suits are still the government’s most effective tool at combating fraud and waste.