[Senate Hearing 110-39]
[From the U.S. Government Publishing Office]
S. Hrg. 110-39
COMBATING WAR PROFITEERING: ARE WE DOING ENOUGH TO INVESTIGATE AND
PROSECUTE CONTRACTING FRAUD AND ABUSE IN IRAQ?
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HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
MARCH 20, 2007
__________
Serial No. J-110-20
__________
Printed for the use of the Committee on the Judiciary
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COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts ARLEN SPECTER, Pennsylvania
JOSEPH R. BIDEN, Jr., Delaware ORRIN G. HATCH, Utah
HERB KOHL, Wisconsin CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California JON KYL, Arizona
RUSSELL D. FEINGOLD, Wisconsin JEFF SESSIONS, Alabama
CHARLES E. SCHUMER, New York LINDSEY O. GRAHAM, South Carolina
RICHARD J. DURBIN, Illinois JOHN CORNYN, Texas
BENJAMIN L. CARDIN, Maryland SAM BROWNBACK, Kansas
SHELDON WHITEHOUSE, Rhode Island TOM COBURN, Oklahoma
Bruce A. Cohen, Chief Counsel and Staff Director
Michael O'Neill, Republican Chief Counsel and Staff Director
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
Feingold, Hon. Russell D., a U.S. Senator from the State of
Wisconsin...................................................... 5
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 1
prepared statement........................................... 102
Specter, Hon. Arlen, a U.S. Senator from the State of
Pennsylvania................................................... 3
WITNESSES
Bowen, Stuart W., Jr., Special Inspector General for Iraq
Reconstruction, Arlington, Virginia............................ 7
Gimble, Thomas F., Acting Inspector General, Department of
Defense, Arlington, Virginia................................... 9
Sabin, Barry M., Deputy Assistant Attorney General, Criminal
Division, Department of Justice, Washington, D.C............... 11
QUESTIONS AND ANSWERS
Responses of Stuart W. Bowen, Jr. to questions submitted by
Senators Leahy, Kennedy and Specter............................ 19
Responses of Thomas F. Gimble to questions submitted by Senators
Leahy, Kennedy and Specter..................................... 32
Responses of Barry M. Sabin to questions submitted by Senators
Leahy, Kennedy and Specter..................................... 44
SUBMISSIONS FOR THE RECORD
Bowen, Stuart W., Jr., Special Inspector General for Iraq
Reconstruction, Arlington, Virginia, statement................. 83
Gimble, Thomas F., Acting Inspector General, Department of
Defense, Arlington, Virginia, statement........................ 91
Sabin, Barry M., Deputy Assistant Attorney General, Criminal
Division, Department of Justice, Washington, D.C., statement... 105
COMBATING WAR PROFITEERING: ARE WE DOING ENOUGH TO INVESTIGATE AND
PROSECUTE CONTRACTING FRAUD AND ABUSE IN IRAQ?
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TUESDAY, MARCH 20, 2007
United States Senate,
Committee on Senate Judiciary,
Washington, D.C.
The Committee met, pursuant to notice, at 9:35 a.m., in
room SD-226, Dirksen Senate Office Building, Hon. Patrick J.
Leahy, Chairman of the Committee, presiding.
Present: Senators Leahy, Feingold, Cardin, Specter, and
Coburn.
OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM
THE STATE OF VERMONT
Chairman Leahy. Good morning. As you may have gathered,
talking up here, Senator Specter and I are friends. We go back
to our days as prosecutors. Sometimes in this job that is a
good background to have. He used it well in his days as
Chairman, and we were trying to work out some of the logistics
for the rest of the week.
Today, though, we have an issue of war profiteering, and
the efforts to combat war profiteering have a long history.
They go back almost as far as the practice itself. During the
Civil War, President Lincoln fought against war profiteers,
denouncing them as ``worse than traitors.'' He pushed for the
first Federal laws curbing this abuse. In World War II,
President Roosevelt spoke out against ``war millionaires'' who
made excessive profits exploiting the calamity of war.
President Truman, when he served in the Senate, crossed this
country holding now famous public hearings to expose gross
fraud, waste, and abuse by military contractors. As we observe
the fourth anniversary of the Iraq war this week, we continue
to face war profiteering in that conflict. As Iraq Study Group
Co-Chair Lee Hamilton testified before this Committee just a
few weeks ago, contracting fraud and abuse significantly
undermine the current efforts in Iraq.
Our Nation has sent nearly a half a trillion dollars to
Iraq--and we are on track to send a trillion dollars--with few
or no controls over how that money has been spent. The Bush
administration has chosen to use private contractors in this
war to a greater extent than at any time in our history. The
trend has raised the cost of this military action by untold
billions. Predictably, these actions have led to widespread
fraud, waste, and abuse in Iraq on a scale that may be
unprecedented in our history.
The Inspectors General before this Committee today have
reported that billions of dollars spent in Iraq are unaccounted
for and may have been lost to fraud or other misconduct.
Billions of dollars. And if any of you are making out your tax
returns for this time of the year, just think about that. It is
your money. These Inspectors General have opened hundreds of
investigations into fraud, waste, and abuse in Iraq, Kuwait,
and Afghanistan involving illegal kickbacks, bid rigging,
embezzlement, and fraudulent overbilling. These investigations
have uncovered crimes committed by employees of the largest
Government contractors in Iraq, including Kellogg, Brown &
Root, a wholly owned subsidiary of Halliburton. Many of these
matters involve abuse of the now infamous ``cost-plus'' and
``no-bid'' contracts so often used by the Bush administration
to award huge sums to many who, it turns out, have close ties
to the administration.
Despite these investigations and mounting evidence of
fraud, the administration has committed precious few resources
to investigate and prosecute those who have illegally exploited
this war for profit.
I think they relied upon a Congress that would not ask
questions. In fact, that same Congress--and it has changed- -
attempted to limit the investigation of fraud in Iraq, and they
actually wanted to shut down the office of the Special
Inspector General for Iraq Reconstruction. I am pleased that
better sense prevailed and the Inspector General's authority
was reinstated after the people spoke last November.
During the nearly 4 years of war, the Department of Justice
has failed to move aggressively enough in prosecuting fraud in
Iraq. Today, the Inspectors General before us have opened
hundreds of investigations, they still have more than 70 open
and active cases in contracting fraud and abuse in this war.
But so far, the U.S. Justice Department has only brought eight
criminal cases involving 25 individuals over the last 3 years.
The crimes in a number of these cases were committed by
employees of Kellogg, Brown & Root, one of the largest
contractors in Iraq--as I said, a wholly owned subsidiary of
Halliburton. In these cases, the employees have admitted to
receiving kickbacks, inflating costs, embezzling money, and
stealing millions from the American people. But so far, the
Justice Department has brought no legal action, civil or
criminal, against KBR or Halliburton.
Now, just last week, we learned that Halliburton will move
its CEO's headquarters outside the United States to Dubai. They
apparently plan to spin off KBR. One of the late-night comics
said that moving to Dubai was because of the location--just
outside the reach of the long arm of the law. I do not know
whether that is so or not, but whether they are or not, the
move is an insult to the U.S. soldiers and taxpayers who have
paid the tab for these low-bid contracts and ``no-bid''
contracts, and endured these overcharges all these years.
I introduced the War Profiteering Prevention Act on the
first day of this new Congress. This makes acts of war
profiteering a specific crime and reaches all contracting
fraud, whether it occurs in this country or outside. It applies
to all reconstruction and relief activities overseas. I have
been proposing versions of this bill since 2003. It actually
did pass the Congress, but the White House brought pressure on
the Republican leadership in the House, and they removed it
from the conference committee.
A new law to combat war profiteering in Iraq and elsewhere
is sorely needed, and long overdue. There are anti-fraud laws
to protect against the waste of U.S. tax dollars at home, but
no law to specifically cover when it is spent overseas.
So we want to send one message: Any act to exploit the
crisis situation in Iraq or elsewhere overseas for excessive
profit is unacceptable, is reprehensible, is criminal, and the
American people will not stand for it. That kind of deceit
demeans and exploits the sacrifices that our military personnel
are making in Iraq and Afghanistan and around the world.
Combating war profiteering is not a Democratic issue or a
Republican issue. It is an American issue. The American people
are sacrificing so far to the tune of half a trillion dollars.
We will at least double that amount. We ought to make sure at
least--whether they agree with or oppose the war in Iraq--they
ought to at least know that their tax dollars are being spent
the way they should be.
[The prepared statement of Senator Leahy appears as a
submission for the record.]
Senator Specter?
STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM THE STATE
OF PENNSYLVANIA
Senator Specter. Thank you, Mr. Chairman. I believe that
the focus that you have brought to bear on this important issue
is very, very important, with your legislation and with this
hearing today. There is no better therapy to combat white-
collar crime than a prison sentence. You and I both know that
from our earlier days as prosecuting attorneys.
Senator Leahy and I frequently discuss our first meeting at
a national convention of the District Attorneys Association
when he was DA of Burlington, Vermont, and I was district
attorney of Philadelphia. And that experience has demonstrated
to both of us that you really attract the attention of white-
collar criminals when they go to jail.
There are lots of arguments about whether deterrence is
effective. You are not going to stop passion homicides with
jail sentences because people are thinking about something
else. But profiteering and commercial crimes, white-collar
crimes, are customarily very, very carefully thought out. And I
believe that President Lincoln had it right on the quotation
which Senator Leahy has cited when he said that war
profiteering was a characteristic worse than traitors.
I think there is something especially opprobrious about
contractors going to Iraq and taking advantage of that
situation at a time when so many brave young men and women are
giving their lives or giving their limbs for their country. And
at a time when the American taxpayers are being hit so very,
very hard for the costs of Iraq, especially hard and especially
difficult under those circumstances.
Before coming here this morning, I signed three letters to
relatives of Pennsylvanians who had been killed in action, and
later this week in the Appropriations Committee, where both
Senator Leahy and I serve, we will be taking up the
supplemental appropriation which has $100 billion for Iraq. So
it is especially disheartening to see what is going on there.
Since 2000, ten companies with billions of dollars in U.S.
contracts for Iraq reconstruction have paid more than $300
million in penalties to resolve allegations of bid- rigging
fraud, and I sharply question whether these matters are
appropriately resolved with agreements to pay penalties. Three
hundred million dollars is not unsubstantial, but it may be de
minimis, relatively meaningless, compared to the billions of
dollars which are involved. Probably a very inexpensive license
to cheat the American taxpayers.
We have seen a few convictions. The Custer Battles firm
billed the Government about $10 million when its actual costs
did not exceed $4 million, and it billed $400,000 for a $74,000
electric bill.
The Pentagon investigation found evidence that Halliburton
had overcharged $61 million for fuel deliveries from Kuwait to
Iraq. Halliburton also admitted that two of its employees took
nearly $6 million in kickbacks.
Another major company, Bechtel, hired three subcontractors
in Iraq that have been fined more than $86 million over the
last 4 years, and those contractors continue to work for
Bechtel.
A subsidiary of Northrop Grumman, Vinnell Corporation, has
been penalized over $190 million over the last 4 years. The
company now has a $48 million contract to train a new Iraqi
army. If this kind of conduct is met with a small fine or a
relatively small fine, really a license, and then rehired,
there is no incentive not to violate the law.
The majority of contracts for troop support overseas is on
a noncompetitive basis, which contrasts with regular
contracting procedures which are full and open competition.
Well, that ought to be changed. It may be difficult to find
contractors to function in Iraq, but I think it can be done
with sufficient diligence. And there are cost-plus contracts.
Well, that again is an open invitation to run up the costs. So
we are dealing with enormously serious problems here.
The reality is that the Judiciary Committee cannot trail
all of these people, but we have a Special Inspector General
for Iraq Reconstruction testifying here today. We have the
Department of Defense Acting Inspector General. And we have the
Criminal Division of the Department of Justice, which really
ought to be focusing on these matters instead of so much e-mail
traffic which captures all of our attention.
I am trying to get some of my colleagues on this side of
the aisle to come down. We have had 3,000 documents delivered,
and we are about to vote this morning on changing the
procedures for replacing United States Attorneys. Every time we
turn around, there is another major calamity, catastrophe,
within the jurisdiction of this Committee. It will not be until
tomorrow that we will have to review what the FBI has done or
not done on National Security Letters. They came to us, asked
for renewal of the PATRIOT Act, and the Judiciary Committee
wanted to be patriotic, so we renewed the PATRIOT Act. And we
find major abuses in the National Security Letters.
We are in the midst of reviewing many, many documents to
prepare for that hearing tomorrow, and a renewed call has come
to take away the intelligence function from the Department of
Justice and the FBI and give it to an analogy to what the
British use. So that we are beset by problems, as we all know,
and--
Chairman Leahy. We have one less problem on things to read.
With all due respect, Mr. Sabin's testimony did not arrive
until after 5:00 last evening, and I remember--I liked the
Specter rule on that, so he will not be testifying. We will put
his statement in the record.
I also feel--
Senator Specter. May I commend you, Mr. Chairman, for
finding one less problem.
Chairman Leahy. What he is commending me for is following
the Specter rule, but what I might say--and I know Senator
Feingold wanted to make a brief remark here. But if you are
having hundreds of millions of dollars of cost overruns and you
get fined a couple million dollars when it is found out, it
really is a cost of doing business.
I agree with Senator Specter. If people think they are
actually going to go to jail, if they think the buyers are
going to close on them, what I have found as a prosecutor is
that had a lot more impact than any kind of fine or censure you
might do.
Senator Feingold, did you want to say something before we
start?
Senator Feingold. Thank you, Mr. Chairman, for recognizing
the need to hold--
Senator Specter. Excuse me one moment, Senator Feingold. I
am going to have to excuse myself now. I will have staff here
and will review the testimony very closely, and I will join
Senator Leahy in his efforts to crack down on this malicious,
vicious practice.
Thank you, Mr. Chairman.
Chairman Leahy. Thank you. Well, Senator Specter, you have
always been consistent on that, and I appreciate that. Thank
you.
Senator Feingold?
STATEMENT OF HON. RUSSELL D. FEINGOLD, A U.S. SENATOR FROM THE
STATE OF WISCONSIN
Senator Feingold. Thank you, Mr. Chairman, for recognizing
the need to hold a hearing on this very important issue. I have
to leave in a couple of minutes to chair my own hearing in the
Foreign Relations Committee on Chad and the Central African
Republic as it relates to Darfur and their own problems. But I
would like to make a few brief comments about the importance of
strong oversight and accountability for U.S. taxpayer dollars
going to Iraq.
The Special Inspector General for Iraq Reconstruction plays
a crucial role in investigating and reporting fraud and misuse
of Iraq reconstruction funding. I recognize the difficult task
that SIGIR staff has and commend the SIGIR for its efforts to
bring increased transparency to U.S. reconstruction spending. I
support efforts to ensure that SIGIR's unique role is preserved
as long as this administration continues to request emergency
funding for the Iraq war.
That said, I believe that we can do even more to deal with
those who waste or fraudulently use Iraq reconstruction funds.
I strongly encourage all U.S. Government agencies involved in
oversight activities in Iraq to work together to aggressively
pursue allegations of misuse and to penalize those who use U.S.
taxpayer dollars for personal gain.
I look forward to working with my colleagues to ensure that
Congress is providing adequate resources to ensure the
oversight activities in Iraq are robust and effective. SIGIR
has played a significant role in targeting abuse of the U.S.
contracting system in Iraq, and I want to briefly touch on the
potential for SIGIR to strengthen oversight activities in
Afghanistan as well.
While Afghanistan receives significantly less funding than
Iraq, we also need to ensure that taxpayer funding for
reconstruction in Afghanistan is adequately distributed and
accounted for. Today, as we examine the value of having strong
oversight in Iraq, Mr. Chairman, we should also take into
consideration the value it could add in Afghanistan. And I look
forward to continue discussions with my colleagues and Mr.
Bowen about a potentially expanded role for SIGIR.
Once again, I thank you for your important role and the
work that you and your staff are doing to ensure that U.S.
taxpayer dollars are being well spent.
Thank you so much, Mr. Chairman.
Chairman Leahy. Thank you very much.
Gentlemen, would you--and, incidentally, before I swear you
in, I should mention, Mr. Sabin, you did get your testimony
here earlier than the incomplete document dump we got in
connection with the mass firing of U.S. Attorneys, and
obviously anybody is free to ask you any questions. I commend
you on that. I know it has been busy down there at the
Department of Justice. We are trying to enforce this rule. We
have been ignored on the documents, but you were ahead of them,
incomplete though they were.
Please stand, gentlemen, and raise your right hand. Do you
solemnly swear that the testimony you will give in this
proceeding will be the truth, the whole truth, and nothing but
the truth, so help you God?
Mr. Bowen. I do.
Mr. Gimble. I do.
Mr. Sabin. I do.
Chairman Leahy. Let the record show that all were sworn in.
The first witness, Stuart Bowen, has served as the Special
Inspector General for Iraq Reconstruction since October of
2004. He previously served as the Inspector General for the
Coalition Provisional Authority in Iraq. Mr. Bowen has served
President George W. Bush as Deputy Assistant to the President,
Deputy Staff Secretary and Special Assistant to the President,
and Associate Counsel. He has been a partner at the law firm of
Patton Boggs, LLP. Of course, Mr. Boggs was a classmate of mine
in law school. From 1992 to 1994, Mr. Bowen served as the
Assistant Attorney General of Texas in administrative law
litigation, holds a B.A. from the University of the South,
attended Vanderbilt Law School, and received his J.D. from St.
Mary's Law School.
Please go ahead, Mr. Bowen.
STATEMENT OF STUART W. BOWEN, JR., SPECIAL INSPECTOR GENERAL
FOR IRAQ RECONSTRUCTION, ARLINGTON, VIRGINIA
Mr. Bowen. Thank you, Mr. Chairman.
Chairman Leahy, Ranking Member Specter, and members of the
Committee, thank you for this opportunity to address you today
on the role of the Special Inspector General for Iraq
Reconstruction's oversight, and specifically investigations, in
Iraq reconstruction. This hearing asks whether we can do more
to combat fraud in Iraq, and before I answer that question, let
me make two salient points to put my answer in context.
First of all, corruption within the Iraqi Government is a
serious problem inhibiting all progress in Iraq. We have called
it the ``second insurgency'' in our reports, and I returned
last week from my 15th trip to Iraq and during that time met
with the Commissioner on Public Integrity, the analogue to the
FBI in Iraq, and the President of the Board of Supreme Audit,
the analogue to the Government Accountability Office, and both
of them, again, emphasized to me the problem of corruption
across the government in virtually every ministry.
The CPI Commissioner told me that he has 2,000 cases
involving $8 billion of alleged corruption--
Chairman Leahy. How many?
Mr. Bowen. Two thousand cases involving $8 billion of
alleged corruption within the Iraq Government. The President of
the Board of Supreme Audit has hundreds of audits going on and
in virtually every case finds missing funds. Again, this is
involving Iraqi money on the Iraqi side. My office has a
working arrangement with the CPI, and we continue to support
them where we come across evidence of potential Iraqi
wrongdoing.
On the U.S. side, the incidence of corruption with respect
to the U.S. reconstruction program that SIGIR has uncovered to
date is a relatively small component of the overall investment.
We have found egregious incidents of fraud. We have
aggressively pursued them, and we have produced prosecutions
and imprisonments. As you said, Mr. Chairman, fraud is
unacceptable in Iraq. We must aggressively pursue it. And as
Ranking Member Specter said, the best way to get attention is
to put people in prison, and I agree. And that is my mission
and has been from the start.
You summarized our overall effort at SIGIR, and that is, to
account for how the taxpayers' money has been invested in Iraq.
And we continue to do that aggressively.
In January, two individuals were sentenced to prison as a
result of SIGIR investigations. In early February, indictments
were announced of five more individuals as a result of SIGIR
investigations. We have opened 300 cases. We have over 70
ongoing, and 28 of those cases are under prosecution at the
Department of Justice. So we take seriously the mandate
Congress has given us to audit, inspect, and investigate the
use of taxpayer dollars in Iraq, and I am committed to
maintaining a robust deterrent presence in ia as long as SIGIR
exists.
Today, we have eight investigators on the ground in Iraq
investigating fraud. It is the largest contingent of fraud
investigators there. They travel the country pursuing leads and
also work regionally. To date, we have produced 12 quarterly
reports, 82 audit reports, 80 on-site inspections, and as I
said, over 300 investigations opened, yielding 10 arrests, 5
indictments, 5 convictions, and 2 imprisonments, and working on
79 live investigations. We have 19 investigators on staff,
eight, as I said, in Iraq and the balance here in Arlington.
One of the most important aspects of our work is to develop
a task force, working relationships with other agencies
involved in oversight in Iraq, including my colleague, Mr.
Gimble, and the Defense Criminal Investigative Service. Our
first task force was the Special Investigative Task Force for
Iraq Reconstruction, SPITFIRE, and it combined the efforts of
the Internal Revenue Service, the Department of Homeland
Security's Immigration and Customs Enforcement office, the FBI,
and the Department of State IG office. That task force was able
to effectively pursue the Bloom-Stein conspiracy that my
auditors uncovered in Hilla, Iraq--a very egregious kickback
and bribery scheme involving over $10 million in reconstruction
funds that Philip Bloom, a contractor, and Robert Stein, the
comptroller for that region, engineered to their own criminal
ends. SPITFIRE continues and we continue to pursue a number of
leads that arose from that case.
The other major initiative that SIGIR has begun is the
International Contract Corruption Task Force. The Joint
Operations Center for that task force is housed at SIGIR, and
it is already producing effective cross-pollination of
investigative leads and source development with respect to
ongoing investigations, including some very significant ones
that will be--that news of which will be forthcoming in the
course of this year.
That task force includes the U.S. Army's Criminal
Investigative Division Major Procurement Fraud Unit, the
Defense Criminal Investigative Service, the FBI, and the
Department of State's IG. And, again, a number of the Iraq
Relief and Reconstruction Fund cases that we have ongoing are
making rapid progress as a result of coordinated effort among
the agencies assigned with jurisdiction.
We also are part of the DOJ National Procurement Fraud Task
Force, and we continue to work closely with DOJ in the
investigation and prosecution of our cases.
And, finally, to coordinate efforts in oversight in Iraq, I
formed shortly after I was appointed 3 years ago the Iraq
Inspector General's Council, which brings together everyone in
every corridor who has got oversight, and we deconflict and
discuss what needs to get done to ensure, as you said, Mr.
Chairman, that we account for how the taxpayer dollars are
being invested in Iraq.
Thank you.
[The prepared statement of Mr. Bowen appears as a
submission for the record.]
Chairman Leahy. Thank you very much.
You have made how many trips over there, did you say?
Mr. Bowen. Fifteen.
Chairman Leahy. God bless you.
Mr. Bowen. Thank you, sir.
Mr. Gimble became Acting Inspector General of the
Department of Defense on September 10, 2005. Prior to his
appointment, Mr. Gimble was Principal Deputy Inspector General,
has held other key positions in the Office of the Inspector
General for the Department of Defense. He served with the U.S.
Army as an infantry soldier in combat, was awarded the Bronze
Star, the Purple Heart, the Combat Infantry Badge. He has a
bachelor's of business administration from Lamar University, an
MBA from the University of Texas at San Antonio.
Mr. Gimble, thank you for joining us today and please go
ahead.
STATEMENT OF THOMAS F. GIMBLE, ACTING INSPECTOR GENERAL,
DEPARTMENT OF DEFENSE, ARLINGTON, VIRGINIA
Mr. Gimble. Members of the Committee on the Judiciary,
thank you for the opportunity to appear before the Committee
today to talk about our oversight and investigation into
contracting fraud in Iraq. The Global War on Terrorism is a top
priority of our DoD IG office, and currently we have 150
personnel providing oversight of the $463 billion in DoD
supplemental funds appropriated to support our fight in the war
on terrorism.
The Defense Criminal Investigative Service is the
investigative arm of the DoD Inspector General and has been
investigating DoD-related matters pertaining to the Iraqi
theater, to include Kuwait, since the start of the war.
We continue to expand our in-theater presence. For example,
in March of 2006, we established our first forward field site
in Qatar, under the sponsorship of the Commander of the U.S.
Central Command. We use the Qatar office as a hub to deploy
teams into Iraq, Kuwait, and Afghanistan.
Recently, in coordination with the Commanding General of
the Multinational Force-Iraq, we established our second forward
deployed office, at Camp Victory. We currently have two
investigators and eight auditors assigned there. In addition,
we have two advisers in the International Zone and two
additional investigators stationed in Kuwait.
The presence of the DCIS in the region has led to 83
investigations. Our investigations have focused on matters such
as bribery, theft, gratuities, bid rigging, product
substitution, and conflicts of interest. These alleged crimes
expose U.S. and coalition forces to substandard equipment and
services, or shortages that aggravate an already harsh and
harmful environment. Currently DCIS is conducting 56
investigations involving war profiteering, contract fraud, and
contract corruption in Iraq. Fifteen of those investigations
are being conducted by four DCIS special agents that are in
theater, and the remaining 41 are being conducted by 31 special
agents that are housed in our U.S. and Germany offices.
The criminal activities being investigated in Iraq involve
members of the U.S. Armed Forces, U.S. contractor personnel, as
well as foreign personnel. For example, in January 2004, an
investigation was initiated on information from the Defense
Contract Audit Agency concerning allegations of kickbacks and
gratuities that were solicited and/or received by Kellogg,
Brown & Root (KBR) employees. KBR has also been alleged to have
been overcharging for food and fuel.
The DCIS has also initiated a project to review paperwork
associated with payments made by the U.S. Army paying agents in
Iraq. Those payment records are currently stored at the Defense
Finance and Accounting Service, Rome, New York. This is
expected to be a long-term effort. DCIS is working with the FBI
and coordinating its activities with the U.S. Attorney's Office
in the Northern District of New York. Also, our Deputy
Inspector General for Auditing at DoD IG is conducting a
concurrent review of the records, and several questionable
transactions have been discovered and referred for further
investigation.
Since the Global War on Terrorism began, DCIS has pursued
criminal, civil, and administrative remedies against U.S. and
foreign persons and companies. Ten of those investigations with
adjudication fall within the prohibited activities of the War
Profiteering Prevention Act of 2007.
These investigations have resulted in four Federal
indictments, nine criminal informations, two Article 32
hearings under the Uniform Code of Military Justice. As a
result of the investigations, eight U.S. persons and one
foreign person were convicted and have a total of 14\1/2\ years
in confinement and an additional 9 years of probation. Two
individuals and one company were debarred from contracting with
the U.S. Government; an additional 17 companies and personnel
were suspended, and two contractors signing settlement
agreements with the U.S. Government.
In all, about $9.8 million was paid to the U.S. in
restitution, plus $322,000 was levied in fines and penalties,
with another $3,500 being forfeited.
We in the DoD IG are committed to remaining an active
player in preventing and detecting fraud in the Iraqi theater.
Again, thank you for the opportunity to appear before your
Committee today.
[The prepared statement of Mr. Gimble appears as a
submission for the record.]
Chairman Leahy. Thank you, Mr. Gimble. On those sentences,
what was the average? Of the ones who served time, what was the
average sentence?
Mr. Gimble. Eight total people had a total of 14\1/2\
years, I think.
Chairman Leahy. But that is 14 years for 8 or each one had
14 years?
Mr. Gimble. No. It was a total of 14\1/2\ years for all 8.
Chairman Leahy. So that would be about a year and a half.
Mr. Gimble. About a year and a half, yes, sir.
Chairman Leahy. Thank you. Over the last 3 years, I
understand the Inspectors General here today have opened
hundreds of investigations into fraud. I think there are
currently more than 70 that are open and active that have been
referred to the Department of Justice. I understand from the
public records the Justice Department has brought eight
criminal cases involving 25 people over the last 3 years. Is
that correct?
Mr. Bowen. I believe it is nine.
Chairman Leahy. Nine, okay. And you have--
Mr. Bowen. I should say nine SIGIR cases. I don't know
about--
Chairman Leahy. What?
Mr. Bowen. Nine from our investigations.
Chairman Leahy. Have they moved vigorously enough,
aggressively enough, in the cases you have referred to them?
Mr. Bowen. I think that they are moving very aggressively
now, and I think over the last year we have made a lot of
progress as the recent indictments and the convictions reveal.
We have 28 cases that are being aggressively managed now. I
have met with the Assistant Attorney General in the Criminal
Division, Alice Fisher, and she has deployed the resources
necessary to vigorously prosecute these cases.
Chairman Leahy. Mr. Sabin, when would we expect the Justice
Department to start prosecuting these investigations that have
been referred to you? And I realize that it sometimes takes a
while to put a case together for prosecution. You and I have
both been there, but when can we expect this?
Mr. Sabin. Mr. Chairman, it is a priority area for the
Department of Justice. We have devoted significant
prosecutorial and investigative resources to it.
Chairman Leahy. How many full-time prosecutors?
Mr. Sabin. We have 70 prosecutors, approximately, both in
the civil and criminal arena, devoted throughout the Justice
Department to these matters.
Chairman Leahy. Full-time?
Mr. Sabin. I can't represent that it is full-time, sir, but
working on these matters, so I would say approximately 70 is
the number that the folks have provided.
Chairman Leahy. How many are there full-time, this is their
one duty?
Mr. Sabin. I can walk through specifics. We have folks in
the Antitrust Division. We have individuals in the Criminal
Division, both in the Asset Forfeiture and Money- Laundering
Section, the Public Integrity Section, the Fraud Section, the--
Chairman Leahy. Do you have enough people or do you need
more?
Mr. Sabin. Well, I am not going to get into the specifics
of resource allocation. I can talk to you about the manner in
which we have tried to--
Chairman Leahy. I am trying to help you out here. Do you
need more--
Mr. Sabin. Right, but I cannot speak for our budgetary
process with respect to--
Chairman Leahy. When will the prosecutions start on the
backlog?
Mr. Sabin. Sir, we believe that we are devoting significant
resources to it. We believe that those prosecutions have to
date occurred. We have had, as you have noted, 25 defendants
charged. I believe it is 12 separate cases. That is on the
criminal side.
We also have, of those 16 defendants that have been
convicted on a wide variety of money laundering, major fraud
against the Government, wire fraud, mail fraud, kickback, bulk
cash smuggling. So we have tried to use the full resources that
Congress--
Chairman Leahy. These are the ones that have been convicted
and are serving time? These are the ones that got a year and a
half, approximately?
Mr. Sabin. Mr. Stein in the Stein and Bloom case, it is my
understanding, received a 9-year sentence. Mr. Bloom I believe
received a 4-year sentence.
Chairman Leahy. Are they in the average then of the 14
months?
Mr. Sabin. I am not going to represent what the average or
median is. We can work with you to get you those specific
statistics.
Chairman Leahy. Please, I would be very interested in that.
Mr. Sabin. We would be happy to provide that to you, sir.
Chairman Leahy. Do you expect further prosecutions to be
brought, say, in the next 3 months?
Mr. Sabin. I am not going to give a specific time frame,
but absolutely we are devoting time and energy to make these
criminal cases.
Chairman Leahy. In your position, you would know if there
is going to be, wouldn't you?
Mr. Sabin. I am not going to speculate as to when a
particular indictment--
Chairman Leahy. I am not asking you to speculate--
Mr. Sabin. --is going to occur.
Chairman Leahy. This is an easy yes or no. In your
position, would you know if prosecutions are about to be
brought?
Mr. Sabin. Yes.
Chairman Leahy. Do you know of any that are about to be
brought in the next 3 months?
Mr. Sabin. Depending on factors, yes.
Chairman Leahy. How many?
Mr. Sabin. I am not going to give you a specific answer to
that, sir, but--
Chairman Leahy. Why not?
Mr. Sabin. Because they are ongoing, operational endeavors
with respect to those matters. It depends upon search warrants.
It depends upon cooperators.
Chairman Leahy. I understand.
Mr. Sabin. So we are working our way through both
individuals and corporate entities to ensure that we are
making--
Chairman Leahy. By the end of the year, how many do you
think might be brought?
Mr. Sabin. Sir, I am not going to commit to a specific
number, but I can say here today that we are devoting the
resources. It is a priority area, and we are going to make
these cases. As you are aware--
Chairman Leahy. Would it surprise you to think that perhaps
Senator Specter and I may be asking you this question
periodically as the year goes on?
Mr. Sabin. And, sir, I would be happy to come up-- indeed,
maybe I will have a chance to give an opening statement at that
time. But--
Chairman Leahy. Well, if you get the testimony in ahead of
time under the rules, then you will. As I said, though, you
were better than the incomplete--you came in more timely than
the incomplete dump of other information in a different matter.
Mr. Sabin. I am not going to comment on that, but--
Chairman Leahy. I do not--
Mr. Sabin. --I would tell you respect--
Chairman Leahy. There are a lot of things you are not going
to comment on. I understand. We will ask you though, Mr. Sabin,
I am not trying to play games here. I am worried that it has
taken a long time on some of these. Mr. Bowen says there are as
many as 2,000 investigations of fraud in Iraq.
Mr. Sabin. I believe that was referencing, though, if I am
not mistaken, in Iraq as opposed to U.S. based.
Mr. Bowen. Yes, those are Iraqi cases. We have 28 cases at
the Department of Justice right now.
Chairman Leahy. Am I correct in understanding there is
about $8 billion in missing funds, unaccounted for funds?
Mr. Bowen. There are two figures here. One is the 2,000
cases that Judge Radhi told me about involve, according to his
figures, about $8 billion in Iraqi funds. You may be referring
to our audit of 2 years ago, which looked at about $8.8 billion
in money that was provided by the CPA to the then-government of
Iraq, and we found that the CPA did not have adequate controls
to account for how that money was actually used.
Chairman Leahy. When I was in law school at Georgetown, I
used to enjoy coming up to enjoy coming up to watch the Senate,
and I remember Everett Dirksen, who was the Republican leader
at that time, his oft-repeated statement, you know, ``A billion
here and a billion there, after awhile we are talking about
real money.'' He is right, of course.
You have, what, about 20 full-time fraud investigators in
Iraq and Kuwait?
Mr. Bowen. I have eight full-time in Iraq and another 12
here in Arlington.
Chairman Leahy. Is that enough?
Mr. Bowen. We can always do more to exercise oversight and
investigate allegations of wrongdoing. One of the challenges in
Iraq is putting together a case when there is no electronic
trail to follow. There is no EFT, electronic funds transfer, in
Iraq, which means you depend exclusively on individuals coming
forward. And we are talking about individuals coming forward in
an environment where their lives are threatened.
Chairman Leahy. It is not too easy to come forward.
Mr. Gimble, do you have enough investigators?
Mr. Gimble. I am with Mr. Bowen. We can always use more.
But we actually have 35 full-time equivalents working those
issues now.
Chairman Leahy. We will come back to that. Dr. Coburn has
been waiting patiently here.
Senator Coburn, go ahead.
Senator Coburn. Mr. Chairman, all of these gentlemen, save
Mr. Sabin, have been before the Federal Financial Subcommittee
of Homeland Security, and all these questions have been
addressed, and we have had hearings exactly like this. And so I
do not have any questions. I came to hear the testimony today.
Chairman Leahy. I appreciate that. As always, I appreciate
having you here.
Senator Cardin?
Senator Cardin. Thank you, Mr. Chairman.
This is somewhat frustrating to all of us because it is a
lot of money that the taxpayers of the United States have spent
in an effort to try to help rebuild Iraq. So we are talking
about billions of dollars.
How much money have we recovered from those who have
committed wrongdoings as contractors in Iraq with U.S. dollars?
How much has actually been recovered to date?
Mr. Bowen. SIGIR has recovered about $10 million in cash
and illegal property, contraband.
Mr. Sabin. In terms of the Department of Justice, on the
civil side my understanding is that it is $5.8 million
resulting from two civil settlements. And then there is on the
criminal side forfeiture and restitution. For example, the
Bloom-Stein case, each of the two lead defendants were ordered
both forfeiture and restitution $3.6 million jointly and
severally, as well as additional matters out of the LOGCAP
Working Group task force. In the Central District of Illinois,
there is a matter that was $350,000, et cetera.
So pull that all together, I would say maybe approximately
$8 million, but I can get you the specific breakdown, Senator
Cardin.
Senator Cardin. Well, I think that would be helpful. The
estimates that have been used indicate that the amount of fraud
far exceeds those dollars amounts, and I really do applaud your
efforts. I know it is difficult. I know it is not easy. I
cannot think of a much worse conduct than a contractor taking
advantage of a war effort. We have brave men and women who are
serving in our armed forces, and you would think that the
business community that is involved in Iraq would understand
the sacrifices that are being made and, if anything, would be
looking at ways to help the mission rather than making a profit
unjustifiably through corruption.
I am not sure I totally understand the difference in the--I
understand the Iraqi corruption issues, but does this involve
the U.S. funding? Is there any U.S. dollars involved in the
contracts that the Iraqis are investigating?
Mr. Bowen. No. Those contracts involve Iraqi funds,
according to Judge Radhi's report to me.
Senator Cardin. So there are no U.S. dollars involved, no
funds made available through our country to Iraq that are
involved in these issues?
Mr. Bowen. Not in the cases he has reported to me. I have a
memorandum of agreement with him wherein if he comes across
cases involving the misappropriation of U.S. dollars, he will
refer that information to me; and, likewise, if I come across
cases involving Iraqi money, I refer them to him.
Senator Cardin. I could tell you that from the press
accounts and from the information that has been made available
to our Committee, there is a significant amount of concerns. I
appreciate the fact that investigations are ongoing. It just
does not appear that we are being as aggressive as we need to
with certain business entities that are extremely active in
Iraq, and the reports indicate that U.S. taxpayers have been
overcharged. There are also reports that large sums of monies
have gone unreported. We do not know where they are. And yet
there--am I wrong on that?
Mr. Bowen. Senator Cardin, you are right, there has been a
problem with waste, as our audits and inspections have
documented. However, accumulating evidence in theater up to the
standard of review required in criminal cases has been a
challenge. That is why I have pushed my office to pursue other
alternative punitive measures such as debarments and
suspensions. And that is something that we are going to
aggressively pursue this year.
We have had 14 companies and individuals suspended and
another 12 that are--8 that have been debarred, another 12
pending debarments. I think, though, this is a fruitful path to
pursue in order to hold accountable those who have taken
advantage of the situation in situations where we cannot come
up with sufficient evidence to convict them of criminal
wrongdoing.
Senator Cardin. And Senator Leahy has suggested--yes?
Mr. Sabin. I would agree with that. I think we are trying
to use the full tools available, so you would have the
suspension and debarment procedure that Mr. Bowen referred to.
We have brought corporate cases against business entities in
the civil realm on two public instances, and we are looking,
consistent with the fundamental principles of Federal
prosecution relating to corporate entities to explore corporate
charges as well in the criminal context.
Senator Cardin. And I would just call to your attention
Senator Leahy's legislation, because I do think it makes it
clear about the particular focus that the United States wants
to have on profiteers in our war efforts. That to me takes it
to a different level, and those who participate need to
understand that this is more than an 18-month sentence. This is
someone who has committed a horrible act. When we have our
soldiers that we ask every day to take on the challenges,
including their own safety, the least that we can expect from
contractors is that they will do their job and will not try to
take advantage of the circumstances.
Thank you, Mr. Chairman.
Chairman Leahy. Thank you.
You know, we do not have a law that actually makes war
profiteering a specific Federal crime. This bill would do so. I
direct this to you, Mr. Sabin. It would also extend
extraterritorial jurisdiction to the full extent that we can
under both U.S. law and obviously our treaty obligations.
Now, should we have such a clear, precise piece of
legislation?
Mr. Sabin. Fair question, sir. We share common ground in
this. We want to make sure that we have all the appropriate
tools and authorities to address the war profiteering, to
reduce fraud, and protect the public. I, in fact, commend your
leadership and attention to this important area.
We have as part of our National Procurement Fraud Task
Force a working group made up of Inspector Generals throughout
the interagency process reviewing appropriate legislative and
regulatory mechanisms that may be appropriate, not only on the
criminal side but on the civil side.
Chairman Leahy. I do not want to get too far off my
question. You said that you want all the tools you can. Is this
a tool that you could use?
Mr. Sabin. The Department has not sent forth particular
views on your proposed legislation, but--
Chairman Leahy. Either for or against it.
Mr. Sabin. There is not a specific views letter on it, but
I can work with the Committee, our staff can work with your
staff with respect to some of the technical concerns that we
have.
For example, the willfulness that is drafted in the statute
would increase the burden of proof, the mens rea requirement,
as opposed to the normal mail and wire fraud statutes. So it
would make it harder to bring these cases.
Chairman Leahy. What about the extraterritorial
jurisdiction?
Mr. Sabin. There is a logistical and a jurisdictional
component to extraterritorial jurisdiction. For example--
Chairman Leahy. Let's put aside the logistical one for a
moment. What about the--
Mr. Sabin. The jurisdictional, if it is not explicitly
stated in a congressional criminal law, then you can in some
instances based upon five principles of extraterritorial
jurisdiction under international law, read into it an
extraterritorial component.
Chairman Leahy. Is this specific enough?
Mr. Sabin. Well, yours is specific. The point is it may
have unintended consequences. For example, the wire fraud
statute has been construed to have extraterritorial
application--
Chairman Leahy. In what way?
Mr. Sabin. You can bring a wire fraud charge, a violation
of Title 18 United States Code Section 1343, presently even
though extraterritorial jurisdiction is not explicitly stated
in the congressional enactment. So we have time-tested fraud
statutes. So the fact that you have asserted specific
extraterritorial jurisdiction in the proposed War Profiteering
Act may have consequences, for example, in the securities fraud
realm, in the bank fraud context, in the wire fraud and mail
fraud context. So that is what I am suggesting, that we can
work through these technical issues.
As an explicit statement of extraterritorial jurisdiction,
the impact upon the protective principle, the ability for the
United States interest in terms of its public fisc, its monies,
its documents--
Chairman Leahy. Well, let me talk about under the current
laws. How many of these referrals that you have had, how many
has the Department of Justice joined in cases?
Mr. Sabin. All the referrals that SIGIR has made to us we
have worked with them to review and explore criminal or civil
potential.
Chairman Leahy. You have joined every one of those cases?
Mr. Sabin. I believe through the International Contract
Corruption Task Force, as an operational matter, we are working
with SIGIR and a host of other entities. I am not going promise
that criminal charges are going to be brought.
Chairman Leahy. Okay. Well, maybe I should ask you,
Mr. Bowen: How many matters alleging fraud have been
referred to the Justice Department?
Mr. Bowen. Total since inception, I am going to have to get
you that number. Currently, we have 28. Five are civil and the
balance are criminal. But the total number since inception is
upwards towards 40.
Chairman Leahy. And how many has the Justice Department
joined?
Mr. Bowen. They have acted or are considering action on
everything that we have presented. The turndown rate of our
cases has been low.
Chairman Leahy. Thank you.
I am not sure, Mr. Sabin, whether you are saying this is or
is not a tool that a prosecutor can have in their arsenal, this
War Profiteering Act. I realize the tools you have now. I
always liked the idea, if I had a criminal matter coming before
me when I was a prosecutor, that I could look down and find
about half a dozen statutes that applied and pick the one that
I thought I had the best chance of winning on.
Mr. Sabin. Fair point, sir. And we want to make sure that
we have the tools that we need. So if--but we have not had any
obstacles to bringing cases because, remember, these cases have
both an international and domestic component. So that would be
a territorial application of U.S. law and not needing to go
into an extraterritorial aspect if there are facts and
incidents that are occurring in the continental United States.
So you do not have to resort to extraterritorial jurisdiction.
Chairman Leahy. How much have you recovered on these cost-
plus contracts?
Mr. Sabin. I do not have that specific answer, but we can
absolutely get that to you, sir.
Chairman Leahy. Please. Have some of these cost-plus
contracts been used to commit fraud?
Mr. Sabin. I believe the answer is yes, but, again, we can
provide the specifics that are in the public realm. We would be
happy to work with the Committee to provide that.
Chairman Leahy. And we have a lot of cash contracts. Still,
it boggles my mind--maybe it is being a frugal Vermonter where
we like to know where the money goes, but seeing these large
transport planes coming in with these huge piles of cash that
are passed out when we were first there. Are we still paying
out war contracts in cash?
Mr. Bowen. Yes, contracts are commonly paid out in cash
when Iraqi firms are involved in direct contracting in Iraq
today.
Chairman Leahy. And do I understand from your earlier
testimony that that exacerbates the problem of following up on
it?
Mr. Bowen. It does. When I arrived in Iraq on my first trip
3 years ago and saw the amount of cash that was simply moving
out of the pallets, I recognized we had an oversight issue of
enormous proportion. And, indeed, that was one of the matters
addressed in the audit I referred to earlier. Our other audits
also looked at the management of cash in Iraq during CPA and
found the controls wanting. Those controls have improved over
time, and I might add that one of the important initiatives the
SIGIR has engaged in over the last 18 months is our Lessons
Learned program. We have presented those reports--Senator
Coburn referred to them earlier--before the Senate Governmental
Affairs and Homeland Security Committee, and in the Contracting
Lessons Learned report, I highlighted the importance for
Congress to review the cost-plus contract system. I do think
that waste has been the larger issue in Iraq, and the place
where that has happened is within the cost-plus arena and the
failure to definitize costs as required over time.
Chairman Leahy. Thank you.
Senator Coburn, I know you have had these matters before
your other Committee. Did you have anything further you wanted
to add?
Senator Coburn. Just a comment, and it is really political
in nature. You know, talking about war profiteering, we are
going to have a supplemental on the floor, and it is going to
have $21 billion worth of war profiteering on it by the Senate,
things added to it that do not have anything to do with the
war. And so I think it is good that we look at this and then we
look at ourselves as we look at that supplemental.
Chairman Leahy. Thank you.
I see nobody else here. We may have some questions for the
record. Mr. Bowen, Mr. Gimble, Mr. Sabin. Is it Sabin?
Mr. Sabin. Yes, sir.
Chairman Leahy. We have a number of Sabins in Montpelier,
Vermont, where I was born. That is how they pronounce it also.
Thank you all for being here. I do appreciate it.
Mr. Bowen. Thank you, Mr. Chairman.
[Whereupon, at 10:33 a.m., the Committee was adjourned.]
[Questions and answers and submissions for the record
follow.]
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