Monday, November 5, 2007

Thank You, Whistleblowers

Whistleblowers claim contractor fraud ignored

Web Posted: 11/04/2007 12:56 AM CDT
Guillermo Contreras

: Barrington "Barry" Godfrey of Houston tried to get mega-contractor KBR to quit overcharging the government for thousands of troops he said the company never fed.

He alleges he was forced out for raising the issue, and that the Justice Department tried unsuccessfully to keep his allegations secret and then refused to join him in a whistleblower suit.

Iowa businesswoman Beth A. Hanken says she sounded the alarm more than a year ago about the military's principal food distributor in Kuwait, Public Warehousing Co., over allegations it was taking kickbacks from a subcontractor that helped it inflate prices of food for U.S. troops.

A Defense Department official, she claims, responded by forwarding her allegations to Public Warehousing, touching off legal threats that she believes were meant to silence her. The Justice Department this year declined to join a whistleblower lawsuit she filed.

The companies deny any wrongdoing, but Godfrey and Hanken are among a growing list of people who contend they were abandoned by the government when they stuck their necks out to protect taxpayers footing the bill for the war in Iraq.

Alan M. Grayson, who represents Hanken, Godfrey and a handful of other whistleblowers in lawsuits about contracting fraud in Iraq, says the department is thwarting whistleblowers of helping them.

He argues that the Bush administration sweeps many cases under the rug, obtains court orders to keep details from the public and that Justice Department lawyers threaten whistleblowers with dismissal of their cases or contempt of court simply for telling people what they know.

Grayson knows of a dozen whistleblower lawsuits that recently were unsealed after the Justice Department refused to join them; he represents the whistleblowers in five of them.

"In every one of those cases, the Bush administration has taken no action to punish the war profiteers, or recover the money stolen from the taxpayers," Grayson said.

Others argue the Justice Department lacks the resources to go up against contractors with scores of corporate lawyers who can thwart any meaningful government intervention or probe. A former U.S. attorney in San Antonio, John Clark, said whistleblowers with deep pockets to take on the contractors are essential to the government.

Beyond these complexities is another problem: a loophole in the False Claims Act, the country's best weapon against corporate fraud. The law requires that false claims be "presented" to a government employee in order to be a violation. The technicality sidelined one of the most notable whistleblower cases recently.

Issues such as these permit an environment that allows graft and corruption to breed, according to critics, whistleblower advocacy groups and other observers. The corruption, fraud, waste and abuse in Iraq have been so bad that Sen. Byron Dorgan of North Dakota described it as an "orgy of greed."

The case of Fort Sam Houston-based Army Maj. John L. Cockerham — the largest U.S. bribe investigation to come out of the war — emerged from this environment. The Army contracting officer is jailed in San Antonio awaiting trial on charges that, while stationed in a Kuwait contracting office, he steered several lucrative military service and supply contracts to companies that agreed to kick $15 million back to him.

Although Cockerham, his wife and his sister were indicted, none of the companies alleged to have bribed him has been charged or even publicly identified by the U.S. government. Critics complain this secrecy will eventually enable the government to dodge any real pursuit of the contractors, and the Justice Department will focus instead on easier targets — individuals.

The Justice Department says the investigation is ongoing, and defends its track record in all fraud-related cases. In addition, it says it has helped recover millions already in war-related fraud cases.

Watchdogs aren't so sure.

"In the case of these fraud cases, it's taxpayers' interests that are on the line," said Charlie Cray, director of the Center for Corporate Policy in Washington, D.C. "Given how much they're willing to spend on the war and priorities of the administration in general, I see no evidence that they are willing to protect the interests of taxpayers when it comes to corporate fraud."

Triple damages

The False Claims Act is a law forged by President Lincoln during the Civil War to punish war profiteers. Examples of fraud abounded, such as the Army ordering gunpowder and getting crates of sawdust instead.

The law stood for more than 100 years before Congress modernized it in 1986.

In the 20 years since, thousands of cases have been brought to the government's attention, largely under a litigation weapon called a "qui tam" lawsuit. The term comes from a Latin phrase that means "He who sues on behalf of the king as well as for himself."

The whistleblower, also known as the "relator," can file a qui tam lawsuit against the offending company. The suit generally remains sealed — outside of public view — for 60 days, giving the Justice Department time to investigate the allegations and decide whether to join the suit. When the department joins, it generally takes the lead from the whistleblower.

Successful qui tam cases can result in contractors having to pay back three times what they stole, overcharged or defrauded from the government. The companies could also be banned from doing business with the government, a death knell for some. The whistleblowers get a bounty — about 15 to 30 percent — of any settlement or verdict against the contractor.

Even when the Justice Department doesn't join and the whistleblower forces a settlement or a verdict, the government gets the bulk of what is recovered.

The most prominent example of that in contracting cases was a whistleblower lawsuit Grayson filed against Custer Battles, a private security contractor. After a trial, jurors hit the company with a $10 million verdict after determining it had committed more than 40 examples of fraud and abuse in Iraq.

The presiding judge overturned the verdict after determining the False Claims Act didn't apply because no fraudulent claims were ever presented to a government agency. Custer Battles was paid by the Coalition Provisional Authority, a hybrid entity that received billions of U.S. taxpayer dollars to rebuild Iraq.

"It's still the (U.S.) taxpayer being ripped off, and there should be a way to close that loophole," said David Colapinto, general counsel for the National Whistleblower Center, an advocacy group in Washington.

In September, Sen. Chuck Grassley of Iowa and other lawmakers introduced a bill that aims to tighten the False Claims Act and address the technicality. Lawmakers also have been asked to include provisions that would speed up the qui tam process.

A report in 2005 by the Government Accountability Office, Congress' investigative arm, shows that cases in which the Justice Department intervened took a median of 38 months to resolve. Some took as little as four months, or as long as 187, the report said.

The vast majority of the cases end before trial.

Since 1986, the Justice Department has recovered more than $15 billion from all cases filed under the False Claims Act. Of that, $10.7 billion were from qui tam cases where the government intervened, according to Justice Department records.

Whistleblowers who took on the contractors on their own — after the U.S. government refused to join in the qui tam lawsuits — helped recover another $412 million during the same period.

Recovered money

Patrick Burns, spokesman for the Washington, D.C.-based nonprofit Taxpayers Against Fraud, said the Justice Department does few qui tam cases, but said that is because it has few resources.

"It's a small collection of lawyers working very hard in opposition to a rising and unlimited army of corporate lawyers paid for by companies," Burns said.

He said Congress needs to appropriate more money so the Justice Department can match the muscle of corporations and more vigorously pursue corruption.

Others also observe that sometimes the Justice Department doesn't have willing clients.

"Federal agencies (which) have responsibility for administering a particular program don't always see their roles the same way that another federal agency, for example, the Department of Justice, might see them," said former U.S. attorney Clark, who now represents whistleblowers. "If an agency doesn't view a case the same way the Department of Justice does, that would make it difficult, if not impossible, for the department to prosecute it."

Burns takes it further, saying the Defense Department, for instance, may try to work out its own deal with a contractor so as not to lose funding for a contract, even a fraud-plagued one. The department might not want a contractor penalized because the money gained in a qui tam goes into the general U.S. treasury, and the agency might have to fight to get that money the following year, Burns said.

The Justice Department, in a lengthy statement, defended its enforcement and gave four examples of whistleblower cases alleging fraud in Iraq that it joined. The suits were settled, resulting in $14 million being recovered.

The department also said it has an undisclosed number of cases under investigation and denies that it has turned down cases for political or reasons other than their merit. It acknowledged it has joined fewer than 25 percent of the qui tam cases in those 20 years, but views that as a good thing.

"This means that 75 percent of the cases have not warranted our intervention, and the dollar recoveries are evidence that our decisions have been sound ones," Justice Department spokesman Charles Miller said in an e-mail. "Simply because some cases alleging fraud in Iraq have been declined does not mean that there is fraud that has been ignored, nor does it mean that there are not other matters that contain meritorious allegations that are being investigated and pursued."

Public Warehousing

Two whistleblowers didn't find a receptive government when they tried to use the False Claims Act.

Beth Hanken, president of Iowa-based Midwest Ventures, which sells meat products, filed suit in federal court in Philadelphia in January 2006. The suit names Public Warehousing Co. and Richmond Wholesale Meat Co. of Richmond, Calif., which served as consolidator for Public Warehousing.

Public Warehousing had won two consecutive contracts, including a $67 million contract in 2004 to supply food to 150,000 to 160,000 U.S. troops in the gulf region, according to court documents.

Hanken alleges in her suit that Public Warehousing "received kickbacks from Richmond in exchange for retaining Richmond and allowing Richmond to charge higher prices than other potential subcontractors."

The suit said Midwest and other subcontractors were pushed aside even though they offered Public Warehousing lower prices than Richmond. A procurement manager for Public Warehousing, the suit said, told Hanken that Richmond was being overpaid.

Hanken said she reported the alleged wrongdoing to the Defense Supply Center-Philadelphia, or DSCP.

Instead of investigating the complaint, the suit said, an official with the center sent the allegation to Public Warehousing.

Hanken then received a letter from the company's lawyers telling her to stop making allegations the company argued were wrong and defamatory.

"In sum, PWC, in a coordinated effort with Richmond Wholesale, eliminated Midwest as a supplier to DSCP," the suit said.

Public Warehousing denies any wrongdoing, and plans to issue its response in court.

Richmond claimed the matter stems from events in 2005, when Richmond determined meat products Hanken sent to Richmond for delivery to Public Warehousing did not meet military specifications.

Richmond said it shared the concerns with Public Warehousing, which rejected Midwest's product.

"We have always operated within the rules and regulations required by government contractors," Richmond President Werner Doellstadt said. "We have done nothing illegal, and, to the contrary, continue to maintain the highest legal and ethical standards in dealing with our customers."

The Justice Department's Miller said Hanken's case was rejected in March after the agency and investigators from the Defense Department found her evidence fell short.

That the government pulled away after a year left Hanken feeling abandoned and frustrated.

She said she may not be able to carry on without the government's help.

"I'm all alone now," Hanken said. "It costs an enormous amount of money to pursue these cases."

Two months before deciding not to join Hanken's suit, the Defense Department issued subpoenas in a separate criminal investigation of Public Warehousing, now based on allegations that the firm got improper payments from U.S. food companies, the Wall Street Journal first reported in October.

It may have begun after a former Army contracting officer in Kuwait — who later was found dead under mysterious circumstances — had blown the whistle, according to the paper.

In response to the investigation, Public Warehousing, now known as Agility Logistics, says it is reliable and cost-effective in providing its services.

"The company has always cooperated with the reviews, inspections, audits and inquiries necessary to ensure taxpayer dollars are being spent appropriately," it said.

The KBR Case

Barry Godfrey feels Hanken's frustration.

The former KBR employee filed a suit in Virginia alleging KBR inflated the number of military personnel it claimed to have served and ignored massive labor markups of its subcontractors.

The suit gives several examples of unauthorized and excessive markups, which Godfrey claims he tried to stop. The suit said he was met with resistance within KBR.

Godfrey, a senior contract administrator, said that during 2004, a subcontracted dining facility near Mosul, Iraq, was serving about 2,500 people a day but billing as if there were 5,000.

"At three meals a day, this was billing for almost 10,000 meals a day that were not served," the suit said.

In other examples, Godfrey found double-billing that KBR employees authorized for subcontract work that was not done or kitchen equipment that was never obtained.

Godfrey said he made repeated attempts to force the subcontractors to reduce the bills, but that others within KBR blocked his attempts.

In December 2004, he went on vacation.

When he came back, his cell phone and computer, which contained documentation in connection with the allegations of fraud, had been stolen, the suit said.

Also, one of the subcontractors complained to a KBR contract chief that Godfrey was treating the subcontractor unfairly.

Godfrey was suspended for 10 days and told by another KBR executive, "We can't have subcontractor CEO's complaining about subcontract administrators," the suit said.

"They told me I was out of my lane," Godfrey said.

Godfrey said KBR remained complacent and did nothing because it holds so-called "cost-plus" contracts.

"The more they spend the more they make," Godfrey said.

Eventually, his suit said, his workplace was so hostile that he decided to leave KBR.

In a statement, KBR said it could not comment on pending litigation, but denied it has defrauded the government.

"Our work serving the troops in Iraq is unmatched," KBR said in a statement. "Despite the challenges of war, KBR has met the demands of our customer, the U.S. Army, often within very short deadlines, and has provided excellent service."

Godfrey, who said he went to Iraq because he felt a sense of patriotism to help U.S. forces, feels disillusioned with the way the government responded after he filed his whistleblower suit.

He waited for the Justice Department to join his suit for two years. In January, the department asked a judge to continue to keep it sealed. The judge refused and unsealed it; the Justice Department bailed out.

"They did nothing," Godfrey said. "People just tend to ignore this and continue to reward the same contractor ... with more contracts and more business."

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