War Fraud Whistleblowers Under Wraps

Recently, the Congressional Research Service released an amazing statistic – it will cost one million dollars a year to support one soldier for one year in Afghanistan.

This mind-blowing number partly includes the cost of private contractors who have moved into areas of support that have been strictly military in the past. Estimates for the numbers of contractors have been as high as one contractor for every soldier. As President Obama prepares to announce his decision on Afghanistan, the price of this war is also on his mind since he included Peter Orszag, the director of the Office of Management and Budget, in his last war council.

One of the reasons for the high costs of maintaining each soldier is the lack of oversight of private contractor billings over the course of these two wars. The Department of Defense (DOD), and especially the Army, has fought the auditors and the investigators in the military who have attempted to expose fraud, waste, overbillings and other abuses of costs in contractor contracts. The contractors, using contingency contracting, which is similar to the old cost plus contracts, knew that their profits and, more important, their future task orders and contracts would be priced based on what they spend in the beginning of the wars. So the contractor billing meter, especially in labor costs, spun vigorously in the first years of the war with little oversight. When the Defense Contract Audit Agency (DCAA) tried to withhold a small percentage of payment from KBR, the largest contractor, because it believed that the billings were excessive and they wanted to scrub the numbers, the Army pushed past the DCAA and paid KBR the excessive costs. This set the tone to let the contractor billings run wild.

Click here to see Truthout’s Matt Renner interview Dina Rasor.

These unscrubbed, uninvestigated contractor billings promise to become the base costs for all the future contracts with all the fraud, waste and fat built into the baseline of future war contractor contracts. That is partly how it can cost a million dollars to take care of each soldier in Afghanistan for a year. KBR, the largest contractor which supports most of the Army’s basic needs, has already run up a bill of over $32 billion to feed troops, do their laundry, drive trucks and maintain the buildings in Iraq and Afghanistan. It is a service industry with no big plants or permanent workforce to maintain; yet it has billed an astonishing amount of money for everyday tasks.

So where are all the whistleblowers who have witnessed this fraud? There have been some who came forward to testify to some Congressional hearing but there has been very little follow-up. A few have also talked to the news media, but the story of exorbitant contractor billings comes and goes with little progress in solving the problem. There should be many whistleblowers out there since most of these contractors, unlike regular DOD contractors who build weapons, do not have a large permanent workforce but instead have a high turnover of employees.

I know where many of the whistleblowers, with their stories and documentation, are. They have in the past five years filed qui tam False Claims Act cases on behalf of the federal government to get some of the ill-gotten support money back from the contractors. Qui tam is a provision of the Federal False Claims Act that allows private citizens to file a lawsuit in the name of the US government charging fraud by government contractors and others who receive or use government funds, and share in any money recovered. One of the provisions of this law is that these cases are filed under seal, meaning in secret, so that the companies don’t know that the Department of Justice (DOJ) and the US Attorney Offices are investigating them. This also means that the cases do not show up on the court docket, so the general public also does not know about these cases. The seal was originally envisioned to last months but usually lasts years because the DOJ doesn’t have the necessary investigative resources or internal will to move these cases quickly. Many of the cases will be rejected by the DOJ and the whistleblower (called a relator), and his or her attorneys have the right to take the case through the courts themselves on behalf of the government. Because of the prohibitive costs and recent bad court rulings, it has been very difficult for relators to do that. So the relators do everything to help the DOJ investigate and intervene in the case and it is in their best interest not to object when the DOJ asks for extensions of the seal year after year even while the companies continue to defraud the government and the troops they are serving. In other words, while these seals run on for up to five years, the contractor overbilling meter is running.

But what this does is to lock up fraud cases for years, and in the case of Iraq and Afghanistan war contractors, allows them to continue to commit fraud under a compliant military. Truthout editor Matt Renner wrote about this problem of piled-up war contractor cases last year before Obama took office and it was estimated that there were 50-70 Iraq and Afghanistan war contractor cases under seal in the DOJ awaiting a decision. There was an anticipation that the DOJ would intervene in more of these cases with the new administration. That isn’t happening for several reasons.

In the interest of full disclosure, I have worked as an investigator on many qui tam cases for over 20 years (and these cases have returned over $100 million back to the US Treasury) and am currently working on Iraq and Afghanistan war cases which I cannot discuss due to the court seal. So I know about these types of cases and see the problems of not bringing these contractors to justice firsthand. I have also co-authored a book on Iraq war contractors and their failings. For this analysis, I have interviewed five top qui tam relator attorneys about why so many DOD cases languish in the DOJ. These are attorneys who have, or have considered, filing cases against Iraq and Afghanistan war contractors. They have all requested to speak off the record so that they can speak freely and not jeopardize their working relationship with the DOJ and others in government.

I was surprised at how these top attorneys separately listed the same main problems of why so many war contractor cases are stuck in the DOJ. The very first problem that came up was that the DOJ and the DOD don’t have the investigative resources to effectively investigate the fraud charges. The DOD, over the past two decades, has dramatically cut its internal investigators and auditors as the defense budget rose. The DOJ usually has to rely on these remaining investigators, who are already pushed to the limit by DOD, to investigate the procurement and auditing aspects of the fraud in these cases. The attorneys agree that most of the time, it is very hard for the DOJ and the local US Attorney Office to investigate these cases because of the lack of expertise at their disposal.

Another major problem is that the DOD, especially the Army, is less than enthusiastic in investigating their war contractors for fraud. Therefore, the DOJ has the problem of getting the DOD to cooperate, and some of the DOJ attorneys see their role as being the department’s legal counsel on these cases. (I would like to think that the DOJ is the taxpayers’ counsel in these fraud cases.) One attorney went as far as to say that he wasn’t afraid of questioning the witnesses from the war contractor’s side but was worried about the Army contract personnel because they all too often excuse the contractor’s fraudulent activity and weaken the case. One of the attorneys theorized that the Army was afraid to be tough on its biggest war contractors because it had to rely on them in the battlefield and had to keep good relationships, no matter how large the fraud.

In my book, “Betraying Our Troops: The Destructive Results of Privatizing War,” I documented that KBR, on numerous occasions, threatened the generals in charge of bases with stopping work in the middle of a war zone. One KBR manager threatened not to feed the troops on the base the next day unless the general got the Army to approve payments right away to KBR on dubious billings. Because many generals caved in to these threats, one can see why the Army would not want to threaten these large contractors during a war situation to get back ill-gotten gains through qui tam lawsuits.

Almost all of these attorneys have filed some war contracting cases, but they say that it is becoming more and more difficult to take any DOD qui tam case and especially the war contractors’ cases. They believe it is because of the lack of oversight by the Army and the political influence the large war contractors have with the Congress and the Army bureaucracy. They say that the DOJ is emphasizing health care and so Medicare cases and pharmaceutical cases are easier and those government bureaucracies don’t fight you to protect the thousands of health care and pharmaceutical companies. So they are opting to spend their time with the healthcare whistleblowers because the lawsuits are more likely to be successful. There is a great need to recover money from fraudulent health-care companies, but it is coming at the expense of our troops and our military’s ability to fight a war. Many of these attorneys have fought defense fraud in the past and believe that, more than ever, and especially with the war contractors, there needs to be successful prosecutions of defense fraud, but the system is making it too hard to do.

The largest war contractors know this and have shown more arrogance for committing fraud than I have seen in my 30 years of investigating defense fraud. This will help these contractors continue to run up the costs and ignore or wait out the lawsuits, knowing that the DOJ is likely to dump them because they are hard and take up resources.

The DOJ recently issued a press release that illustrates this problem and imbalance in the DOJ qui tam prosecutions. In part the press release says:

“A top priority for this administration is fighting health care fraud. On May 20, 2009, the Attorney General and the Secretary of the Department of Health and Human Services (HHS) announced the creation of a new interagency task force, the Health Care Fraud Prevention and Enforcement Team (HEAT), to increase coordination and optimize criminal and civil enforcement. These efforts not only protect the Medicare Trust Fund for seniors and the Medicaid program for the country’s neediest citizens, they result in higher quality health care at a more reasonable price.

“In fiscal year 2009, health care fraud recoveries reached $1.6 billion, two-thirds of the year’s total. The Department of Health and Human Services reaped the biggest recoveries, largely attributable to its Medicare and Medicaid programs. Recoveries were also made by the Office of Personnel Management, which administers the Federal Employees Health Benefits Program, the Department of Defense for its TRICARE insurance program and the Department of Veterans Affairs, among others.

“The largest health care recoveries came from the pharmaceutical and medical device industries, which accounted for $866.7 million in settlements, including Aventis Pharmaceuticals Inc., Bayer HealthCare LLC, Eli Lilly & Company and Quest Diagnostics Inc. and its subsidiary, Nichols Institute Diagnostics Inc. In addition to federal recoveries, these pharmaceutical and medical device fraud cases returned $402 million to state Medicaid programs.”

The release does address the recoveries from defense contractors and particularly war contractors at the end of the release:

“Procurement fraud accounted for a quarter of fiscal year 2009 recoveries with $608.4 million in settlements and judgments, including $422 million attributable to Department of Defense contracts. Of that amount, $59 million related to contracts in support of the wars in Iraq and Afghanistan, including two settlements with The Boeing Company totaling $27 million and a $26.3 million settlement with APL Limited. This brings settlements and judgments in procurement fraud cases involving the wars in Southwest Asia to a total of $76 million, with many matters still pending.”

It is interesting that they put a $27 million Boeing settlement in the war contractor category even though that case was defective work on the aerial refueling fleet used in Iraq and Afghanistan, not directly in service support of the troops. And APL Limited had a shipping contract to ship goods to Iraq and Afghanistan, which is not the main problem of overcharging while serving the troops in these countries. Even with that addition of $27 million and the $26.3 million, the whole recovery was $76 million. To put that in perspective, KBR, the largest war contractor supplier on the ground in Iraq and Afghanistan, has billed the government over $32 billion over the course of the war even though there have been congressional and media exposes of their overbilling, especially in labor costs.

The DOJ has just recently announced that it has intervened in a war contractor case in which a Kuwait-based contractor, Public Warehousing Co. KSC, has been accused of overbilling the DOD for food for the Iraq and Afghanistan troops in an $8.5 billion contract. It is a start but it doesn’t solve the problem with American war contractors because the Army is not going to be as loyal to a foreign company and this Kuwaiti company will not have as much political favoritism in Congress.

So what will it take for the DOJ to take war contactor qui tam cases seriously and get the resources that they need? First, the White House and the Civil Division of the DOJ needs to put the DOD, the Army and the contractors on notice that they will give these cases the needed resources and priority so that the DOJ can sort out the best cases that have been hung up under seal for as long as five years. Tony West, the Assistant Attorney General for the Civil Division, claims in his recent press release that all qui tam cases will have high priority, and Senator Claire McCaskill asked him about the war contractor cases recently during her subcommittee hearings. Over the course of two months, I have been requesting comment from Mr. West or some DOJ spokesperson on this problem but they decline to comment.

If the DOJ and White House do not take the initiative, the Congress could mandate that the DOJ do the same type of interagency task force on war contracting cases as it did so successfully in health care. This would take some political will on the part of the Congress and would need the cooperation of the Armed Services committees in both houses of Congress so that the DOD and the Army would be put on notice to stop protecting these contractors.

What will happen if these war contractor cases just continue to languish under seal? Eventually, the judges in these cases will be more and more reluctant to extend the seals and the DOJ, because it has not had the resources to investigate the case to its satisfaction, will decline to intervene. The relators and their attorneys, who would like to try these cases in the courts themselves, will have recent legal precedent against them and most will not be able to pursue their cases. The contractors will then get away with the fraud and all the costs of that fraud will become part of the baseline or historic costs used to compete and judge future contracts. As with weapon systems, each war will build more and more fraud and waste dollars into the baseline and it could be that in the future, we would think it was a bargain to spend a million dollars a year to support each soldier in a future war. Meanwhile, money for body armor, new helmets and other protective gear for the troops will get just a small amount compared to what the contractors get for slinging hash, driving trucks, doing laundry and fixing light bulbs in support of our wartime troops.

Is this administration and this Congress up to the difficult challenge to fix this problem? Ironically, the leader of this administration, President Obama, is probably the first president to know and understand the power of the qui tam False Claims Act law. While he was an associate in a Chicago law firm, he worked on protecting a qui tam relator from retaliation and this case went to the Supreme Court and won.

Stay tuned . . . if you don’t hear about American war contracting fraud cases in the news, you will know that there is a group of very frustrated whistleblowers who cannot legally tell you what is going on with fraud in our wars.