Procurement Fraud Enforcement

More recently, a multiple agency probe into the improper dealings of former lobbyist Jack Abramoff prompted the loss of job and liberty for a top White House procurement officer who set the government's purchasing policy. The investigation focused on the advice and aid that former General Services Administration Chief of Staff David Safavian offered his former co-worker Abramoff in his effort to obtain GSA-controlled property. Safavian was also among those Abramoff treated to a Scottish golf outing in violation of GSA ethics rules banning the receipt of a gift from anyone having official business before GSA. In September 2005, Safavian resigned from his post as a top official at the Office of Management and Budget. In June 2006, he was convicted of making false statements to investigators about his dealings with Abramoff and obstruction of a GSA proceeding. Last fall, Safavian was sentenced to 18 months in a federal prison. See Schmidt, Susan: 'Official in Abramoff Case Sentenced to 18 Months,' The Washington Post, Oct. 28, 2006.

Coordination of Criminal Fraud Investigations and Prosecutions

A wide range of provisions are used in the criminal prosecution of those allegedly involved in procurement fraud, including false claims, 18 U.S.C. ' 287, Major Fraud Act, 18 U.S.C. ' 1031, fraud and false statement provisions, 18 U.S.C. ' 1001, bribery, 18 U.S.C. ' 201, conspiracy, 18 U.S.C. ' 371, and the Procurement Integrity Act, 41 U.S.C. ' 423. Broadly interpreted, these and other industry-specific rules, regulations and provisions, have been used in charging instruments against government officials, lobbyists, lawyers, contracting companies, and their employees.

The FBI has traditionally taken the lead in the criminal investigation of procurement fraud matters. However, the tragic events of 9/11 redirected the FBI's attention more toward national security and terrorism. To coordinate the continued efforts of the FBI and the many agencies that have assumed a greater role in detecting and punishing procurement fraud, in October 2006, Deputy Attorney General Paul J. McNulty announced the formation of the National Procurement Fraud Task Force ('Task Force'). Chaired by DOJ Criminal Division head Alice Fisher, the Task Force combines the might of the FBI, Inspectors Generals for the Department of Defense,
CIA, NASA, General Services Administration, among other agencies, as well as the government's defense-related investigative agencies. Its stated purpose is to root out 'defective pricing or other irregularities in the pricing and formation of contracts, product substitution, misuse or classified and procurement sensitive information, false claims, grant fraud, labor mischarging, accounting fraud, fraud involving foreign military sales, ethics and conflict of interest violations, and public corruption associated with procurement fraud.' See 'Combating Procurement Fraud: A National Initiative to Increase Prevention and Prosecution of Fraud in the Federal Procurement Process' (Oct. 10, 2006), available at www.usdoj.gov/ criminal/npftf/pr/speeches/2006/oct/10-10-06npftfinitia tive.pdf

The initiative is similar to the Procurement Fraud Working Group that McNulty spearheaded while serving as U.S. Attorney for the Eastern District of Virginia. See DOJ Press Release 'Combating Procurement Fraud,' Feb. 18, 2005, available at www.washingtondc.fbi.gov/dojpressrel/pressrel05/fraud021805.htm. That initiative, which came on the heels of that office's prosecution of the Druyun case and other high-profile procurement fraud cases, highlighted the exchange of information among several law enforcement agencies.

Increase in Civil False Claims Act Qui Tam Cases

The vast array of criminal penalties are not the sole weapons against procurement fraud. Increasingly, investigations are resulting in civil penalties under the False Claims Act, 31 U.S.C. ' 3729 et seq. The act provides for treble damages and a monetary penalty against contractors and others who knowingly submit or cause to be submitted a false or fraudulent claim to the federal government. Significantly, the act uniquely encourages action on the part of persons with knowledge of false claims for payment against the government. Under the act's qui tam enforcement provision, a private citizen ('relator') can file a sealed complaint against government contractors and others. Brought on behalf of the federal government, the suit enticingly offers a bounty in the form of a percentage of the money recovered. Amendments to the False Claims Act made in 1986 have resulted in an increase in qui tam suits. In the 20 years ending on Sept. 30, 2006, the DOJ had recovered more than $18 billion, with $3.1 billion recovered in fiscal year 2006 alone.

We continue next month with a discussion of increased congressional oversights.

Paul Clinton Harris, Sr. is a partner in the Washington, DC, office of the law firm Shook, Hardy & Bacon, and is a member of the Government Enforcement and Compliance group. A former Deputy Associate U.S. Attorney General and Virginia legislator, Harris was Senior Counsel and Director of Enterprise Compliance at Raytheon Company prior to joining the law firm. He conducts corporate internal investigations and counsels clients in regulatory enforcement actions.

Each year, the federal government spends several hundred billion dollars to obtain goods and services from corporations and other nongovernmental entities. Under the critical eye of the nation's taxpayers, the federal government has amplified its own scrutiny of the ethics and integrity of its procurement officers and those companies with which it contracts. Via new national legislation and investigative initiatives, the attention of Capitol Hill and federal law enforcement offices across the nation is keenly focused on the prevention, detection and punishment of procurement fraud. It is a brand new day ' and a potentially dark one for the unwary governmental contractor.

Recent Scandals and Prosecutions

Several recent highly publicized investigations have fueled the federal government's heightened efforts to crack down on schemes involving conflicts of interest, defective pricing, bid-rigging, product substitution, accounting fraud, grant fraud, misuse of classified or other sensitive information, and other ethical breaches. Among them was the manipulation of a federal contract for the leasing of 100 Air Force refueling tankers worth over $20 billion. Darleen Druyun, the Air Force's former principal deputy assistant secretary for acquisition and management, supervised the lease negotiations and other Boeing contracts only to retire and begin working at Boeing. Not only did Druyun give Boeing special treatment, she agreed to higher pricing and negotiated lucrative jobs for herself and family members. In October 2004, she pled guilty to conflict of interest violations and conspiracy to defraud the government and was sentenced to nine months in a federal prison. See Merle, Renae: 'Long Fall for Pentagon Star: Druyun Doled Out Favors by the Millions.' The Washington Post, Nov. 14, 2004. For his role in the company's improper job talks with Druyun, Boeing's chief financial officer Michael Sears also pled guilty to conflict of interest violations and was sentenced to four months in prison. See 'Former Boeing CFO Sears Sentenced to Prison, Fined.' St. Louis Business Journal, Feb. 18, 2005. Significantly, Boeing was fined $615 million, the largest sum in a federal procurement fraud matter. See Tomasko, Catherine: 'Boeing Pays Record $615 Million to End Fraud Charges.' Andrews Publications (Jul. 14, 2006).

More recently, a multiple agency probe into the improper dealings of former lobbyist Jack Abramoff prompted the loss of job and liberty for a top White House procurement officer who set the government's purchasing policy. The investigation focused on the advice and aid that former General Services Administration Chief of Staff David Safavian offered his former co-worker Abramoff in his effort to obtain GSA-controlled property. Safavian was also among those Abramoff treated to a Scottish golf outing in violation of GSA ethics rules banning the receipt of a gift from anyone having official business before GSA. In September 2005, Safavian resigned from his post as a top official at the Office of Management and Budget. In June 2006, he was convicted of making false statements to investigators about his dealings with Abramoff and obstruction of a GSA proceeding. Last fall, Safavian was sentenced to 18 months in a federal prison. See Schmidt, Susan: 'Official in Abramoff Case Sentenced to 18 Months,' The Washington Post, Oct. 28, 2006.

Coordination of Criminal Fraud Investigations and Prosecutions

A wide range of provisions are used in the criminal prosecution of those allegedly involved in procurement fraud, including false claims, 18 U.S.C. ' 287, Major Fraud Act, 18 U.S.C. ' 1031, fraud and false statement provisions, 18 U.S.C. ' 1001, bribery, 18 U.S.C. ' 201, conspiracy, 18 U.S.C. ' 371, and the Procurement Integrity Act, 41 U.S.C. ' 423. Broadly interpreted, these and other industry-specific rules, regulations and provisions, have been used in charging instruments against government officials, lobbyists, lawyers, contracting companies, and their employees.

The FBI has traditionally taken the lead in the criminal investigation of procurement fraud matters. However, the tragic events of 9/11 redirected the FBI's attention more toward national security and terrorism. To coordinate the continued efforts of the FBI and the many agencies that have assumed a greater role in detecting and punishing procurement fraud, in October 2006, Deputy Attorney General Paul J. McNulty announced the formation of the National Procurement Fraud Task Force ('Task Force'). Chaired by DOJ Criminal Division head Alice Fisher, the Task Force combines the might of the FBI, Inspectors Generals for the Department of Defense,
CIA, NASA, General Services Administration, among other agencies, as well as the government's defense-related investigative agencies. Its stated purpose is to root out 'defective pricing or other irregularities in the pricing and formation of contracts, product substitution, misuse or classified and procurement sensitive information, false claims, grant fraud, labor mischarging, accounting fraud, fraud involving foreign military sales, ethics and conflict of interest violations, and public corruption associated with procurement fraud.' See 'Combating Procurement Fraud: A National Initiative to Increase Prevention and Prosecution of Fraud in the Federal Procurement Process' (Oct. 10, 2006), available at www.usdoj.gov/ criminal/npftf/pr/speeches/2006/oct/10-10-06npftfinitia tive.pdf

The initiative is similar to the Procurement Fraud Working Group that McNulty spearheaded while serving as U.S. Attorney for the Eastern District of Virginia. See DOJ Press Release 'Combating Procurement Fraud,' Feb. 18, 2005, available at www.washingtondc.fbi.gov/dojpressrel/pressrel05/fraud021805.htm. That initiative, which came on the heels of that office's prosecution of the Druyun case and other high-profile procurement fraud cases, highlighted the exchange of information among several law enforcement agencies.

Increase in Civil False Claims Act Qui Tam Cases

The vast array of criminal penalties are not the sole weapons against procurement fraud. Increasingly, investigations are resulting in civil penalties under the False Claims Act, 31 U.S.C. ' 3729 et seq. The act provides for treble damages and a monetary penalty against contractors and others who knowingly submit or cause to be submitted a false or fraudulent claim to the federal government. Significantly, the act uniquely encourages action on the part of persons with knowledge of false claims for payment against the government. Under the act's qui tam enforcement provision, a private citizen ('relator') can file a sealed complaint against government contractors and others. Brought on behalf of the federal government, the suit enticingly offers a bounty in the form of a percentage of the money recovered. Amendments to the False Claims Act made in 1986 have resulted in an increase in qui tam suits. In the 20 years ending on Sept. 30, 2006, the DOJ had recovered more than $18 billion, with $3.1 billion recovered in fiscal year 2006 alone.

We continue next month with a discussion of increased congressional oversights.

Paul Clinton Harris, Sr. is a partner in the Washington, DC, office of the law firm Shook, Hardy & Bacon, and is a member of the Government Enforcement and Compliance group. A former Deputy Associate U.S. Attorney General and Virginia legislator, Harris was Senior Counsel and Director of Enterprise Compliance at Raytheon Company prior to joining the law firm. He conducts corporate internal investigations and counsels clients in regulatory enforcement actions.