More Stories of Government Corruption
Okay,
even we are getting a bit tired of
reporting, over and over, stories of corrupt military and civilian
officials doing what they inherently know is wrong, what they have been
trained to know is wrong, and what they should expect to get caught for
doing. Last time, we told you about an
Army Colonel (well, now a former Colonel)
who sold-out his commission as an “officer and a gentleman” for a paltry
$50,000 in cash and $12,500 in plane tickets. That fraudster was not
only a commissioned officer, he was a Contracting Officer’s Technical
Representative (COTR, sometimes also called COR) and the senior
member of a source selection board—i.e., he led the team that picked the winning bidder. As such, he
had to have beaucoup training in
procurement integrity, ethics, and the standards of conduct expected of someone in whom trust had been vested.
For
instance, a quick visit to the Department of Defense Standards of
Conduct Office in the General Counsel’s office (OSDGC-SOCO) reveals:
- An Ethics Resources Library
- Link to Joint
Ethics Regulation (JER) 5500-7-R
- Link to the
website of the Government Ethics Office (OGE)
- Link to on-line training in standards of conduct (note the 2009
training is off-line and the site does not yet have the 2010 training)
So
there is no question that the former Army Colonel, COTR, and Senior
Source Selection Board member could not plead ignorance of the standards
of conduct to which he was expected to adhere. But maybe he could plead not guilty by reason of insanity, because he sold his
pension for $62,500. Our opinion: loser.
And we are back again
with yet two more stories of government
corruption—two men who both violated the expected
standards of conduct and accepted “gratuities” for giving special
treatment to contractors.
Our first story today concerns Bill
Collins, of Bartlett, Tennessee. Mr. Collins was a
U.S. Army Contracting Officer who pleaded guilty to soliciting “more
than $17,000 in bribes and other payments from an Egyptian businessman
in Kuwait,” according to this Department of Justice press release. In other words, he’s another sell-out who received
next-to-nothing for his corrupt actions—which were
described with the wonderful euphemism, “unlawful salary
supplementation.” According to the DOJ release—
Collins was
employed by the U.S. Army Area Support Group-Kuwait (ASG-KU). ASG-KU is
responsible for maintaining Camp Arifjan, a U.S. military installation providing support for
operations in Afghanistan, Iraq and other locations in the Southwest
Asian Theater. As part of those responsibilities, ASG-KU maintains an
off-post housing office, located in downtown Kuwait City, which procures, leases and supervises off-post
housing for government employees and military service members stationed
at Camp Arifjan. According
to court records, Collins worked in ASG-KU’s off-post housing office as a
housing specialist responsible for supervising private contractors and
procuring off-post apartment rentals.
In his guilty plea, Collins admitted that between
July and December 2009 he solicited more than $11,000 in bribes from an
Egyptian businessman in exchange for submitting an inflated off-post
apartment lease for approval. Collins also admitted that between July
and December 2009 he received at least $5,600 from the Egyptian
businessman as compensation for Collins’s services in connection with a fixed-price U.S. government contract awarded
to the Egyptian businessman’s company. The government contract was for
maintenance services for off-post housing managed by Collins and the
ASG-KU off-post housing office.
At sentencing, Collins faces a
maximum penalty of 20 years in prison and a $500,000 fine.
Let’s
do the math, gentle readers. Collins received less than $20,000 for which he may have to pay $500,000
and spent up to 20 years in a Federal prison. Our opinion: another
loser.
Our second story concerns a more intelligent fraudster—this
time a (former) Sergeant with the U.S. Army. This Sergeant, Ray Chase,
pleaded guilty to accepting “approximately $1.4 million in illegal
gratuities from private contractors during his deployment in Kuwait in
2002 and 2003,” according to this DOJ announcement. The announcement provides the
following details—
Chase was a sergeant first
class during his deployment to Kuwait from January 2002 through December
2003. Chase served as the contracting officer’s representative and the
non-commissioned officer in charge of the military dining facility at
U.S. Central Command at Camp Doha, Kuwait. During 2003, Chase also
served as the non-commissioned officer in charge for the military dining
facility at Camp Arifjan,
Kuwait. Chase supervised the food procurement, preparation and service
operations at Camp Doha and Camp Arifjan. As a part of his official duties, Chase also coordinated
orders for certain blanket purchase agreements the U.S. Army had with
various private contractors to provide supplies and services to both of
those dining facilities.
During … court proceeding and according to court documents, Chase
admitted that he received approximately $1.4 million from private
contractors for official acts he performed and was going to perform in
2002 through the end of 2003. According to court documents, he was paid
by private contractors that included Tamimi Global Company Ltd., LaNouvelle General Trading & Contracting Corp., and another unnamed
company.
In addition to accepting the illegal
gratuities, Chase admitted that after he returned to the United States
in 2004, he structured various financial transactions to avoid currency
transaction reporting requirements. Chase also admitted at today’s
hearing that he made false statements when interviewed by federal
authorities in February 2007.
At sentencing, scheduled for
Aug. 6, 2010 … Chase faces a
maximum sentence of five years in prison. Chase has agreed to forfeit
assets traceable to the proceeds of his crimes.
First,
let us acknowledge that Sergeant Chase at least got decent money for
selling-out. Sure, he’s going to have to pay it back, and spend up to 5
years in a Federal prison, but compare his math to Collins and you’ll
have to agree that it at least makes more sense. Looks
to us like he had a decent defense attorney, who helped him avoid the
punishments associated with violations of wire fraud, money laundering,
and the False Statements Act. Perhaps we should be unsurprised. After
all, he was a non-commissioned officer and would thus be expected to be
clued-in to what was what—as opposed to, say, a Colonel or a Contracting
Officer.
But we also noticed that Sergeant Chase was yet another Contracting Officer’s Technical Representative (COTR/COR) who
decided to take a little more than he was legally entitled to receive.
Plus he was the non-commissioned officer-in-charge (NCOIC) of the
military dining “facility”—and, as such, he would have received much of
the standards of conduct training we discussed at the beginning of this
article.
To conclude, we know that there are corrupt contractors. We
know that fraud is rampant, especially in the Southwest Asia Area of
Operations. But we continue to be shocked and amazed as the number of
well-trained, experienced, civilian and military officials in the public
procurement process that are crooked. We are
doing our part to publicize the cases and highlight the penalties and
punishments, but the word does not seem to be getting out to the
troops. Do we need to bring capital punishment back in order to create a
decent deterrent?
More seriously, where are the
controls on this type of behavior? We understand there is a war or two
going on, and things get messy in a combat zone … but as taxpayers we
expect better of our government personnel—and we expect better controls
to prevent and/or detect the wrongdoing at the time the wrongdoing is
committed, and not six or seven years after the fact.
Two More Illustrative Cases of Wrongdoing
On April 15, 2010, the
Department of Justice (DOJ) announced that Thomas A. Drake had received
a 10-count indictment from a Federal Grand Jury, accusing him of (among
other things) willfully retaining classified information, obstruction
of justice, and making false statements. According to the DOJ press release, Drake (age 52) was a
high-ranking senior executive with the National
Security Agency (NSA, often called “No Such Agency” because
of the highly classified nature of its work) from 2001 through 2008.
During the later years of his tenure with the NSA, “newspaper reporter published a
series of articles about the NSA. The indictment alleges that Drake
served as a source for many of those articles, including articles that
contained classified information.”
According to the DOJ release—
The
indictment alleges that in approximately November 2005, a former
congressional staffer asked Drake to speak with a reporter. Between
November 2005 and February 2006, according to the indictment, Drake
signed up for a free account and then paid for a premium account with an
e-mail service that enabled its users to exchange secure e-mails
without disclosing the sender or recipient’s identity. Using an alias,
Drake allegedly then contacted the reporter and volunteered to disclose
information about the NSA. The indictment alleges that Drake directed
the reporter to create the reporter’s own secure e-mail account. After
the reporter created such an account, Drake also allegedly required the
reporter to agree to certain conditions, including never revealing
Drake’s identity; attributing information gathered from Drake to a
"senior intelligence official"; never using Drake as a single source for
information; never telling Drake who the reporter’s other sources were;
and not commenting on what people, to whom Drake recommended the
reporter speak, said to the reporter.
Drake
allegedly attempted to conceal his relationship with the reporter and
prevent the discovery of evidence linking Drake to his retention of
classified documents after the FBI began a criminal investigation into
the disclosure of classified information. Specifically, Drake allegedly
shredded classified and unclassified documents, including his
handwritten notes that he had removed from the NSA; deleted classified
and unclassified information on his home computer; and made false
statements to FBI agents.
The indictment also alleges
that Drake took a series of steps to facilitate the provision of this
information to the reporter, including:
- exchanging hundreds of
e-mails with and meeting with the reporter;
- researching
stories for the reporter to write in the future by e-mailing unwitting
NSA employees and accessing classified and unclassified documents on
classified NSA networks;
- copying and pasting
classified and unclassified information from NSA documents into untitled
word processing documents which, when printed, had the classification
markings removed;
- printing both classified and
unclassified documents, bringing them to his home, and retaining them
there without authority;
- scanning and emailing
electronic copies of classified and unclassified documents to the
reporter from his home computer; and
- reviewing, commenting on, and editing
drafts of the reporter’s articles.
The announcement
ends with a reminder that, “Willful retention of classified documents carries a
maximum penalty of 10 years in prison. Obstruction of justice carries a
maximum penalty of 20 years in prison. The charge of making a false
statement carries a maximum penalty of five years in prison. Each of the
charged counts carries a maximum fine of $250,000.”
In a second story, DOJ
announced on April 19, 2010, that Charles Jumet, a Virginia resident,
had received the longest prison sentence for violations of the Foreign Corrupt Practices Act (FCPA)
ever handed out to an individual. The DOJ announcement
stated that Jumet was sentenced to 87 months in prison “for paying
bribes to “former
Panamanian government officials to secure maritime contracts, in
violation of the Foreign Corrupt Practices Act (FCPA), and for making a
false statement to federal agents.” In addition to receiving the long
prison term, Jumet was ordered to pay a $15,000 fine plus serve three
years of supervised release.
The DOJ press released provided the following details
of Jumet’s wrongdoing—
According
to court documents, from approximately 1997 through July 2003, Jumet and
others conspired to pay money secretly to Panamanian government
officials in exchange for awarding contracts to Ports Engineering
Consultants Corporation (PECC) to maintain lighthouses and buoys along
Panama’s waterway. In December 1997, the Panamanian government awarded
PECC a no-bid 20-year concession. Upon receipt of the concession, Jumet
admitted that he and others authorized corrupt payments to be made to
the Panamanian government officials. In total, Jumet and others caused
corrupt payments of more than $200,000 to be paid to the former
administrator and the former deputy administrator of the Panama Maritime
Authority and to a former high-ranking elected executive official of
the Republic of Panama.
Jumet also
made a false statement to federal agents about a ‘dividend’ check
payable to the bearer in the amount of $18,000 that was endorsed and
deposited into an account belonging to the high-ranking elected
Panamanian government official. Jumet falsely claimed that this
‘dividend’ check was a donation for the high-ranking elected official’s
re-election campaign, when, in fact, Jumet admitted it was given to the
elected Panamanian government official as a corrupt payment for allowing
PECC to receive the contract.
In a
related case, John Warwick pleaded guilty on Feb. 13, 2010, for his role
in the same conspiracy to violate the FCPA. He is scheduled to be
sentenced by Judge Hudson on May 14, 2010.
Marshall J. Doke, Jr.
(a noted legal practitioner) testified
before the Senate Committee on Homeland Security and Governmental
Affairs in February, 2010. He testified—
Competition is required not only
to obtain lower prices but also to prevent unjust favoritism, collusion,
or fraud. I emphasize this last purpose because of what one federal
judge called a growing culture of corruption in Washington. I personally
believe we have had more reported fraud in government contracting in
the last 10 years (including fraud by high level government officials)
than the combined amount in the previous 40 years. I believe the
deficiencies in our competition process have given such enormous
discretion to contracting officials that, together with a lack of
transparency, they have created an environment and circumstances that
have contributed significantly to this increase in fraud.
Stories
such as these two tend to confirm Doke’s impression.
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FAPIIS Goes Live—Or Does It?
We called it “past
performance on steroids” and we see no reason to back away from that
description. As we originally posted,
FAPIIS was to be used for evaluating contractor past performance or
making a determination of contractor responsibility when making a new
contract award decision.
As we told you, the final rule (published
in March 2010) summarized FAPIIS as follows—
FAPIIS is intended to significantly
enhance the scope of information available to contracting officers as
they evaluate the integrity and performance of prospective contractors.
…FAPIIS will also include contracting officers' non-responsibility
determinations (i.e., agency assessments that prospective contractors do
not meet requisite responsibility standards to perform for the
Government), contract terminations for default or cause, agency
defective pricing determinations, administrative agreements entered into
by suspension and debarment officials to resolve a suspension or
debarment, and contractor self-reporting of criminal convictions, civil
liability, and adverse administrative actions. The system will collect
this information … from existing systems … contracting officers …
suspension and debarment officials … and contractors ….
FAPIIS
went “live” on April 22, 2010—as this
story on TheHill.com reports. In the words of the article—
The Federal Awardee Performance and
Integrity Information System aims to prevent less-than-ethical
contractors from taking overlapping jobs, covering up past poor
performances, or not being upfront about conflicts of interests. Federal
procurement officers are supposed to use the information in the
database when certifying a vendor.
The article quotes
Senator Claire McCaskill (D-MO)—who should be known to our readers as
the Senator who spearheaded the inquiries into audit quality problems at
DCAA—as saying—
If
we’re going to get the best bang for our buck, we need to make sure the
people who are awarding contracts have access to all the information
they need to make smart decisions. Because we didn’t have a centralized
place for the information, bad actors were being awarded new contracts
despite countless dollars lost to waste, fraud and abuse.
Though
FAPIIS has been implemented, it hasn’t been fully
implemented.
As part of implementing FAPIIS, FAR
9.406-3 was revised to require that Suspension/Debarment Officials
(SDOs) enter data about administrative agreements (which are
alternatives to suspension or debarment) into the FAPIIS database. It
was judged to be critical that contracting officers learn which
contractors have avoided suspension or debarment through executing
administrative agreements. Such contractors may have avoided dire
consequences, but the creators of FAPIIS still thought contracting
officers ought to know—and to take into account—how close the
contractors came to the “death penalty” of government contracting. But
the Department of Defense (DOD) won’t be submitting its data into the
system.
On April 15, 2010, Mr. Shay Assad (Director,
Defense Procurement and Acquisition Policy) issued a Class Deviation to
military services, DOD agencies, and DOD field activities, directing
that DOD SDOs not to enter information regarding administrative
agreements into FAPIIS. The Class Deviation can be found here. The language is unclear
regarding the rationale for not submitting the data, though it hints at
the lack of a “template for storage” of the data. The Class Deviation
states that the template is anticipated to be “incorporated into FAPIIS
by the fall of 2010.”
How serious is this
gap in the FAPIIS inputs? It’s difficult to state with any certainty.
But it seems strange that FAPIIS should be ready in all respects—except
for this one. One wonders which contractors have administrative
agreements, and might be put at a competitive disadvantage were those
agreements to be brought to the attention of the contracting officer
overseeing a source evaluation? We’ll have to wait until October or
November to learn the answer to that question. In the meantime, take a
stroll through the Federal Contractor
Misconduct Database.
US At Mercy of Chinese for Rare Earth Metals
The U.S. Government
has recently become aware that it has a supply chain in addition to an
industrial base, and has grown vaguely concerned that its supply chain
may be vulnerable to interruption, which may lead to disruptions in
goods and services needed for warfighters. We reported on this new
focus in this article, but at that time the
Pentagon’s Industrial Policy Directorate seemed to be worried more
about loss of critical skills than anything else. Meanwhile, § 843 of the FY National Defense
Authorization Act (P.L. 111-84) required
the Government Accountability Office (GAO) to investigate and report
back to Congress on the state of “rare earth materials in the defense
supply chain”. The report was transmitted to
Congress on April 1, 2010, but published on the internet on April 14,
2010. The full report can be found at the
GAO site.
For those of us lacking a scientific background, GAO provided a
helpful definition of “rare earth materials” and explained why they are
important to defense programs such as radars, precision-guided
munitions, as well as to more mundane items such as cell phones and
computer hard-drives. GAO stated that—
Rare earth elements are used in many applications for
their magnetic and other unique properties.
These include the 17 chemical elements
beginning with lanthanum, element number 57 in
the periodic table, up to and including lutetium, element number 71, as well as yttrium and scandium…. Rare earth
materials—rare earth ores, oxides, metals, alloys, semifinished rare earth
products, and components containing rare earth
materials—are used in a variety of commercial and military applications, such as cell phones, computer hard
drives, andDepartment of Defense (DOD)
precision-guided munitions. Some of these
applications rely on permanent rare earth magnets that have unique properties, such as the ability to withstand
demagnetization at very high temperatures.
As GAO
noted, producing rare earth materials requires a number of steps,
including mining, separating, refining, forming, and (finally)
manufacturing. (This background will be helpful later.)
GAO
reported several rather alarming findings, including—
- While rare earth ore deposits are geographically
diverse, current capabilities to process rare earth metals into finished
materials are limited mostly to Chinese sources.
- The United States previously performed all stages
of the rare earth material supply chain, but now most rare earth
materials processing is performed in China, giving it a dominant
position that could affect worldwide supply and prices.
- Based on industry estimates, rebuilding a U.S. rare
earth supply chain may take up to 15 years and is dependent on several
factors, including securing capital investments in processing
infrastructure, developing new technologies, and acquiring patents,
which are currently held by international companies.
- Government and industry officials have identified
a wide variety of defense systems and components that are dependent on
rare earth materials for functionality and are provided by lower-tier
subcontractors in the supply chain.
- Defense systems will likely continue to depend on rare
earth materials, based on their life cycles and lack of effective
substitutes.
- We [GAO] found examples of components
in defense systems that use Chinese sources for rare earth materials
and are provided by lower-tier subcontractors.
- DOD has
not yet identified national security risks or taken department-wide
action to address rare earth material dependency, but expects to
consider these issues in its ongoing study expected to be completed by
the end of September 2010.
GAO reported that, prior to 1985,
the U.S. performed all rare earth material supply chain and production
steps, from mining to manufacturing. However, with the closure of the Mountain
Pass (CA) production facility, the relocation
of Magnequench’s plant to
China, and the closure of Hitachi Magnetics Corporation’s Edmore, MI
production facility, the U.S. has been essentially 100% out of the rare
earth material production business since 2005.
Although the Mountain Pass facility resumed operations in 2007, return to the pre-1985 state could take as many as
15 years (i.e., not until 2025). In the
meantime (according to GAO)—
China has
adopted domestic production quotas on rare earth
materials and decreased its export quotas, which increases prices in the Chinese and world rare earth materials markets. China increased export taxes
on all rare earth materials to a range of
15 to 25 percent, which increases the price of inputs for non-Chinese competitors.
We
don’t want to be overly alarmist here—but this is a potentially very
serious problem that could affect a number of major defense acquisition
programs, from the DDG-51’s Hybrid Electric Drive Ship Program to the
M1A2 Abrams Tank’s reference and navigation system. We encourage DOD’s
Industrial Policy Directorate to get moving on this potential supply
chain “interruption”.
In unrelated news, this is our 200th blog article posted on the website.
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