Articles Posted in Iraq & Afghanistan Contractor Fraud

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.

We saw yesterday’s quarterly audit report on Iraq fraud, published by the Special Inspector General for Iraq Reconstruction (SIGIR), Stuart Bowen Jr. The message is sobering:

“The security situation in Iraq continues to deteriorate, hindering progress in all reconstruction sectors and threatening the overall reconstruction effort,” in the words of the Inspector General.

We all have already seen reports of how the United States is being exploited by dishonest and incompetent contractors in Iraq. This IG Report discusses not only poor security, but also corruption among Iraqi officials and bad management of the contracts.

According to the Congressional Research Service, the United States has spent to date over $437 billion on the Iraq War. An additional $100 billion is estimated to be spent this year. While much of the money, obviously, goes for troops, a great deal of these amounts has gone to civilian contractors involved in reconstruction efforts in Iraq. But where has the money gone and who is accounting for its proper use?

According to Senator Patrick Leahy of Vermont, “Eventually we’re going to have a bill for about $1 trillion dollars and people are not going to be able to account for a very, very large part of it.” It is shocking to us that the Justice Department has done so little to address ever increasing reports of contractor fraud and abuse in Iraq. After three and a half (3 ½) years of war, to the best of our knowledge, not a single criminal case has been filed against any large corporation doing work in Iraq. While a few qui tam actions are beginning to emerge publicly, given that the war effort is taking place in a foreign country which obviously creates evidentiary issues, it may be some time before the full extent of contractor fraud and abuse becomes publicly known. Nonetheless, given the amount of no-bid contracts, this proves to be a major problem.

We support any effort to increase criminal penalties for those who exploit the war effort and obviously would encourage greater, not fewer, False Claims Act cases directed at such fraud and abuse. Billions of tax dollars are being spent on the war effort and most agree that billions are probably being lost to contractor waste, fraud and abuse. If contractor fraud continues to go unchecked in Iraq, the Government only invites more fraud. Accordingly, the whistleblower plaintiff’s bar should step up its efforts and utilize where applicable the government’s most effective tool in combating waste fraud and abuse in government programs: the False Claims Act.