While U.S. involvement in the Iraq war has wound down, the government continues to spend billions of dollars annually on reconstruction and aid efforts in Iraq and Afghanistan. The government has relied heavily on contractors to participate in—and in many cases, lead— nearly every aspect of the wars and their aftermath. Unfortunately, government spending has been plagued by a significant amount of corruption. In September, 2011, the independent Commission on Wartime Contracting issued a report claiming that more than $60 billion in U.S. tax dollars had been squandered due to fraud and abuse in Iraq and Afghanistan over the past decade.
Allegations of fraud in Iraq and Afghanistan typically are focused in a few areas common to most False Claims Act lawsuits: double-billing for goods and services; inflating or overcharging for goods and services; charging for goods never delivered or services never performed; charging for goods or services that were inadequate, unsafe or failed to meet the contract specifications; and charging for services performed by untrained or unqualified contractors. However, the challenges of operating in unique wartime or post-wartime circumstances, performing such operations in foreign countries, and performing such operations amongst a population that may lack experience with Western rule of law norms, has helped create a veritable breeding ground for false claims. An earlier GAO report, from 2007, concluded that “there are a number of conditions that exist in Iraq that have led to, or will lead to, increased risk of fraud, waste and abuse of U.S. funds.”
A Virginia court’s ruling in 2006—eventually overturned by the U.S. Court of Appeals for the Fourth Circuit in 2009—had for a few years put a chill on False Claims Act cases originating overseas. A military contractor in Iraq, Custer Battles, was found by a jury in 2006 to have filed fake invoices and hugely inflated its costs. But the court ruled that only work paid for directly by the U.S Treasury was subject to the False Claims Act. This eliminated most of the company’s liability, since in the months after the Iraq invasion, American officials used seized Iraqi cash and Iraqi oil revenues to pay many contractors. The court also ruled that that American contracting officials abroad, like those with the Coalition Provisional Authority in Iraq, could not strictly be regarded as agents of the United States government within the False Claims Act. However, the Fourth Circuit reversed both of these rulings, and held that the company could not avoid paying $10 million in damages.
The Justice Department, with the participation of determined whistleblowers, has moved aggressively to bring cases under the False Claims Act. Notable lawsuits and settlements from the last few years include the following:
- In November, 2010, the engineering company Louis Berger Group Inc. settled criminal and civil claims brought against it regarding its handling of reconstruction contracts in Iraq and Afghanistan. The company allegedly overbilled for overhead costs relating to work performed overseas. To date, the $69 million settlement is the largest involving Iraq and Afghanistan contractors.
- In April, 2011, State Department contractors DynCorp International and the Sandi Group agreed to pay over $8 million to settle allegations that they submitted fraudulently inflated claims for the building of camps and for danger pay that was not actually provided to employees.
- In November, 2009, the Justice Department sued Lincoln Fabrics, Ltd. of Canada and its American subsidiary, Toyobo Co., Honeywell International, Inc. and others, alleging that their Zylon bullet-proof vests degraded quickly over time (especially in hot weather) and that the companies were aware of the defect.
- In April, 2011, the Justice Department sued engineering and logistics giant KBR, which was the main provider of support services to U.S. troops in Iraq. The suit alleges $103 million of costs billed to the government were for security personnel, when in fact the U.S. Army was already providing security for KBR workers.
- In September, 2011, Tamimi Global Company Ltd., a Saudi Arabian company, agreed to pay $7.4 million to settle criminal and civil allegations that it paid illegal kickbacks to get preferential treatment for the award of a subcontract to provide dining services in Camp Arifjan in Kuwait.
- Earlier this month Maersk Line Limited agreed to pay $31.9 million to resolve allegations that it submitted false claims to the United States in connection with contracts to transport cargo in shipping containers to support United States troops in Afghanistan and Iraq.
- In July 2011, Armor Group North America settled a False Claims suit for $7.5 million. The government had alleged that the company submitted false claims for payment on a State Department contract to provide armed guard services at the U.S. Embassy in Kabul, Afghanistan. Some of the contractor’s guards had visited brothels in Kabul, in violation of the federal Trafficking Victims Protection Act, and that the company’s management knew about the guards’ activities.
- Also last year, a United States Agency for International Development contractor, Academy for Educational Development, agreed to pay $5 million to settle claims that it had improperly supervised the distribution of funds intended for foreign assistance in Afghanistan and Pakistan.
An unfortunate reality is that the ongoing combat operations in Afghanistan, along with the continued reconstruction efforts in both Iraq and Afghanistan, will likely continue to provide opportunities for whistleblowers to reveal procurement fraud.