Leahy Anti-War Profiteering Bill
Targets Cheats Who Defraud Taxpayers And Troops

…Bill Would Make It A Crime To Exploit Taxpayer-Funded
War Reconstruction And Disaster Relief Efforts

WASHINGTON (Thursday, March 2) – Senator Patrick Leahy, D-Vt., Thursday joined in introducing a reform bill that would make it a crime to overcharge the government for goods and services in military contracts and other publicly funded relief efforts while intending to excessively profit.

Leahy, a senior member of the Appropriations Committee and its Defense and Foreign Operations Subcommittees, offered the bill as news reports continue to reveal sizable abuses in military contracts awarded by the Bush Administration in connection with the reconstruction efforts in Iraq. News reports earlier this week revealed that the Army has quietly awarded a Halliburton Co. subsidiary, Kellogg, Brown & Root, more than $250 million in reimbursements, profits and bonuses that government auditors had concluded were unreasonable and unsupported, said Leahy, who is also the ranking Democratic member on the Judiciary Committee.

“Recent examples of contract fraud and abuse involving Halliburton make clear that the Bush-Cheney Administration’s approach to reconstruction in Iraq has been a formula for mischief,” said Leahy. “Waste, fraud and abuse in the name of defense is doubly destructive and doubly offensive, and it should never be tolerated. It saps resources needed by our troops and it plays the taxpayers for fools, all the while hiding under the cover of national defense.”

The bill is similar to legislation Leahy introduced in 2003, that was subsequently passed by the Senate as part of an appropriations bill but later torpedoed by the White House and the House Republican leadership, which stripped out the Leahy provision.

Under the bill, the new crime would be a felony, subject to criminal penalties of up to 20 years in prison and fines of up to $1 million or twice the illegal gross profits of the crime.

Leahy’s bill is also included as a provision in a larger Democratic proposal that was also unveiled on Thursday. Leahy joined Democratic Leader Harry Reid (D-Nev.) and Senator Byron Dorgan (D-N.D.) in introducing the Honest Leadership and Accountability in Contracting Act of 2006, the Democratic proposal to clean up the persistent problem of waste, fraud, and abuse in government contracting that rewards cronies and refuses oversight.

Leahy’s statement, background information on the documented contract abuses and a section-by-section of the bill are below.

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Statement Of Sen. Patrick Leahy
On Introduction Of The War Profiteering Prevention Act Of 2006
March 2, 2006

Mr. LEAHY: Mr. President, today I am introducing the "War Profiteering Prevention Act of 2006.” This bill creates criminal penalties for war profiteers and cheats who, for ill-gotten gain, would exploit the United States Government's taxpayer-funded war and reconstruction efforts in Iraq and elsewhere around the world. I am pleased that Senator Dorgan has also included this legislation in the “Honest Leadership and Accountability in Contracting Act of 2006” that is also being introduced today.

I previously introduced this legislation in 2003. It came to be cosponsored by 21 Senators, including Senators Clinton, Dodd, Feinstein, Johnson, Kerry, Landrieu, Bill Nelson, Wyden, Dayton, Durbin, Feingold, Harkin, Jeffords, Kennedy, Kohl, Lieberman and Reid. The Senate Appropriations Committee unanimously accepted these provisions during a Senate Appropriations Committee markup of the $87 billion appropriations bill for Iraq and Afghanistan for Fiscal Year 2004, and it passed the Senate. It was the right thing to do then, and it is the right thing to do now.

Regrettably, the Republican leadership in the House stripped this legislation out of that appropriations bill, and we regrettably have been witnessing the results in the meantime. Billions appropriated for the continuing war efforts and for reconstruction are unaccounted for, and fraud has been rampant. The recent report of the special inspector general confirms that U.S. taxpayer funds appropriated for reconstruction have been lost and diverted.

There are, of course, anti-fraud laws to protect against waste of tax dollars at home. But none expressly prohibits war profiteering, and none expressly confers jurisdiction for fraud overseas. This bill would criminalize "war profiteering" -- overcharging taxpayers in order to defraud and to profit excessively from a war, military action, or reconstruction efforts. It would prohibit any fraud against the United States involving a contract for the provision of goods or services in connection with a war, military action, or for relief or reconstruction activities. This new crime would be a felony, subject to criminal penalties of up to 20 years in prison and fines of up to $1 million or twice the illegal gross profits of the crime.

The bill also prohibits false statements connected with the provision of goods or services in connection with a war or reconstruction effort. This crime would also be a felony, subject to criminal penalties of up to 10 years in prison and fines of up to $1 million or twice the illegal gross profits of the crime. These are strong and focused sanctions that are narrowly tailored to punish and deter fraud or excessive profiteering in contracts, here and abroad, related to the United States Government's war or reconstruction efforts.

Congress has sent more than a quarter of a trillion dollars to Iraq with too little accountability and too few financial controls. Disturbingly, there are widespread reports of waste, fraud and war profiteering in Iraq, and the special inspector general examining the use of reconstruction funds in Iraq recently found that billions of taxpayer dollars remain unaccounted for. For example, a recent report on 60 Minutes revealed that more than $50 billion of U.S. taxpayer funds have gone to private contractors hired to guard bases, drive trucks, feed and shelter the troops and rebuild in Iraq. This is more than the entire annual budget of the Department of Homeland Security. In addition, just this week, the New York Times, reported that the Army has decided to reimburse a Halliburton subsidiary -- Kellogg Brown & Root -- for nearly all of its disputed costs on a $2.41 billion no-bid contract to deliver fuel and repair oil equipment in Iraq, even though the Pentagon's own auditors had identified more than $250 million in charges as potentially excessive or unjustified. That article further notes that the Army’s decision to pay all but 3.8 percent of these questionable charges lies well outside the normal practice of the military. The recent revelations about contract fraud and abuse in Iraq make clear that the approach to reconstruction in Iraq has been a formula for mischief. We need strong disincentives for those who would take advantage of the chaos of war to defraud American taxpayers.

We also need to strengthen the tools available to federal prosecutors to combat war profiteering. Despite well-publicized allegations of fraud and war profiteering in Iraq, so far the Government has brought only one case to recover these funds -- a civil lawsuit brought under the False Claims Act. That case involves a contractor accused of overcharging the Government millions of dollars under a contract to help distribute new Iraqi currency during the first months after the collapse of the Hussein government. The Government=s ability to recover funds in that case is being questioned by the defendant, however, who argues that legal technicalities may constrain current law from reaching all of the conduct of contractors working in Iraq or elsewhere overseas. This bill would address this problem by providing clear authority for the Government to seek criminal penalties and to recover excessive profits for war profiteering overseas. It should already be law, but three years ago the House Republican leadership rejected it.

Every penny of our taxpayers’ money must be expended carefully and purposefully and protected from waste. The message sent by this bill is that any act taken to financially exploit the crisis situation in Iraq or elsewhere overseas for exorbitant financial gain is unacceptable, reprehensible -- and criminal. Such deceit demeans and exploits the sacrifices that our military personnel and National Guard are making in Iraq and Afghanistan.

When U.S. taxpayers have been called upon to bear the burden of reconstruction contracts -- where contracts are awarded in a system that offers little competition and even less accountability -- concerns about wartime profiteering are a grave matter. Historical efforts to stem such profiteering have been successful: Congress implemented excessive-profits taxes and contract renegotiation laws after both World Wars, and again after the Korean War. Advocating exactly such an approach, President Roosevelt once declared it our duty to ensure that Aar few do not gain from the sacrifices of the many.” Then, as now, our Government cannot in good faith ask its people to sacrifice for reconstruction efforts that allow so many others to profit unfairly.

There is urgency to this important measure because criminal statutes cannot be applied retroactively. These controls should have been put in place at least three years ago; they need to be in place now. I urge that the Senate make prompt passage of this legislation a high priority. I hope that this time the House Republican leadership will have learned the hard lessons of the last three years and that, this time, they will allow this bill’s enactment, on behalf of the Nation’s taxpayers.

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(Background Information)

Billions Of Taxpayer Dollars Lost
To Fraud And Waste In Iraq And Elsewhere

The United States has spent more than a quarter of a TRILLION dollars during its three years in Iraq. 

Over $50 BILLION -- more than the annual budget of the Department of Homeland Security -- has been spent to hire private contractors to guard bases, drive trucks, feed and shelter the troops and rebuild the country
BILLIONS of taxpayer dollars are unaccounted for, according to a recent finding by the special inspector general examining the Iraq reconstruction effort.

Since 2000, 10 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, delivery of faulty military parts and environmental damage in connection with other projects. 

Seven other companies with Iraq reconstruction contracts have agreed to pay financial penalties without admitting wrongdoing. 

Custer Bates, Halliburton and Bechtel – Examples of Fraud and Waste

CUSTER BATES is accused of bilking the government out of $50 MILLION 

Custer Bates billed the government nearly $10 MILLION when its actual costs were less than $4 MILLION, according to a government investigation.   

Custer Bates over billed electricity costs by $326,000 - Actual electricity charges of $74,000 were billed at $400,000.  

Custer Bates over billed for trucks that did not run by $572,000 – Actual purchase price of $228,000 for faulty trucks were billed to government for $800,000.

The two largest government contractors in Iraq -- Bechtel Corp. and Halliburton Co. -- have been fined several times in the past three years.

HALLIBURTON CO. averages about $ 1 BILLION A MONTH from the government for work in Iraq this year, according to executives.  The company took in $3.6 BILLION last year from contracts to serve U.S. troops and rebuild the oil industry in Iraq.  

A pattern of fraud, waste, and corruption by Halliburton in Iraq emerged through news reports between December 2003 and May 2004.  In December, a Pentagon investigation found evidence that Halliburton's Kellogg, Brown & Root (KBR) had overcharged the U.S. government some $61 MILLION for fuel deliveries from Kuwait to Iraq.  In January, Halliburton admitted to the Pentagon that two of its employees took up to $6 million in kickbacks for awarding a Kuwaiti-based company with work in Iraq.   Then in early February it was reported that the company had agreed to repay the U.S. government some $27 million for meals that were never served to American troops. 

Bills From Five-Star, Beachfront Hotel And Drivers Paid to Haul Empty Trucks - In May, the Coalition Provisional Authority's inspector general started raising questions about the bills that Halliburton had racked up at a five-star beachfront hotel near Kuwait City.  And 12 Halliburton truck drivers claimed they risked their lives driving empty trucks in Iraq while their employer billed the government for hauling absolutely nothing.

Investigation of Overcharging And Potential Connection to Nigeria Bribery Scheme - Federal authorities are also investigating whether Halliburton broke the law by using a subsidiary to do business in Iran, whether the company overcharged for work done for the Pentagon in the Balkans and whether it was involved in an alleged $180 million bribery scheme in Nigeria.  The company admitted in 2003 that it improperly paid $2.4 million to a Nigerian tax official.

BECHTEL CORP. paid more than $110,000 to the Environmental Protection Agency and the Energy Department in 2000 and 2001 to settle alleged safety and environmental violations.  Bechtel has prime construction contracts in Iraq worth more than $2 billion.

Fines Exceeding $86 Million - Bechtel hired three subcontractors in Iraq that have been fined more than $86 million in the past four years, though none had been banned from getting new contracts.

Others Punished For Waste, Fraud and Abuse Of Govt. Contracts

American International Contractors Inc., paid $4.7 million in fines in 2000 after pleading guilty to bid rigging on a U.S.-funded water project in Egypt, according to published reports.  AICI has part of a $325 million contract to rebuild Iraq's transportation systems, has a share of a $500 million contract for emergency construction needs in the Pentagon's Central Command region, which includes Iraq and Afghanistan, and is in a partnership that has a $70 million construction contract at Al-Udeid air base in Qatar, used to support troops in Iraq.

Fluor Corp., paid $8.5 million to the Defense Department in 2001 to settle charges it improperly billed the government for work benefiting its commercial clients, according to published reports.  Fluor and AMEC created a joint venture that has $1.7 billion in contracts to rebuild Iraq's electricity, water, sewer and trash removal infrastructure.

Great Lakes Dredge & Dock Co., paid a $969,000 fine in 2002 for environmental damage in the Florida Keys National Marine Sanctuary, according to published reports.  Bechtel awarded the company a subcontract to clear the Iraqi port of Umm Qasr.

Northrop Grumman Corp., whose Vinnell Corp. subsidiary was awarded a $48 million contract to train the new Iraqi Army last year, according to published reports.  Northrop Grumman has been penalized $191.7 million in the past four years, including $750,000 paid to the Pentagon in 2000 in a case involving allegations of providing faulty replacement parts for the JSTARS airborne surveillance system.

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(Section-by-Section of Bill)

Sectional Analysis of the War Profiteering Prevention Act of 2006

Sec. 1.             Short title. 

The short title of the bill is the AWar Profiteering Prevention Act of 2006.@ 

Sec. 2.             Criminalizes War Profiteering and Fraud in Connection with War, Military Action, or Relief and Reconstruction Efforts.

The bill criminalizes war profiteering - defined as materially overvaluing any good or service with the specific intent to defraud and excessively profit from a war, military action, or relief or reconstruction activities - and any fraud against the United States involving a contract for the provision of any goods or services in connection with a war, military action, or relief or reconstruction activities.  The bill subjects violators to up to twenty years imprisonment and a fine not to exceed the greater of $1,000,000 or twice the amount of any illegal gross profits, or both.

In addition, the bill prohibits making a false statement in any matter involving a contract for the provision of any goods or services in connection with a war, military action, or relief or reconstruction activities.  The bill subjects violators of this provision to up to ten years imprisonment and a fine not to exceed the greater of $1,000,000 or twice the amount of any illegal gross profits, or both.

The bill creates extraterritorial jurisdiction over offenses committed overseas and covers any person in the United States, or abroad, who violates its provisions.  It also establishes venue in the United States district courts based upon the location of the defendant or the acts taken in furtherance of the crime.

The bill establishes war profiteering and fraud in connection with a war, military action, or relief or reconstruction activities as a predicate act for money laundering.

The bill further provides that war profiteering and fraud in connection with a war, military action, or relief or reconstruction activities is the basis for civil or criminal forfeiture of illegal profits or proceeds.

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