Senate Judiciary Holds Hearing on Combating War Profiteering

WASHINGTON (Tuesday, March 20) – The Senate Judiciary Committee held a hearing, “''Combating War Profiteering: Are We Doing Enough To Investigate and Prosecute Contracting Fraud and Abuse in Iraq?” on Tuesday focusing on the widespread contracting fraud, waste and abuse in Iraq.

“Our Nation has sent nearly half a trillion dollars to Iraq 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.  This trend has raised the cost of this military action by untold billions,” said Senator Patrick Leahy (D-Vt.), Chairman of the Committee.  “Predictably, these actions by the Bush Administration have led to widespread fraud, waste and abuse in Iraq, on a scale that may be unprecedented in our history.”  

Leahy has introduced the War Profiteering Prevention Act of 2007 (S. 119), which would create criminal penalties for war profiteers and cheats who would exploit taxpayer-funded efforts in Iraq and elsewhere around the world. The legislation builds on earlier efforts by Chairman Leahy, who is also a senior member of the Appropriations Committee, to crack down on this type of rampant fraud and abuse.  It 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. 

Statement Of Chairman Patrick Leahy
Chairman, Senate Judiciary Committee
Hearing On ''Combating War Profiteering: Are We Doing Enough
To Investigate And Prosecute Contracting Fraud And Abuse In Iraq?”
March 20, 2007

Efforts to combat war profiteering have a history going as far back as the practices themselves.  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 this week the fourth anniversary of the war in Iraq, we also must recognize that 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 half a trillion dollars to Iraq 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.  This trend has raised the cost of this military action by untold billions.  Predictably, these actions by the Bush Administration 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. 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 over-billing.  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 those with close ties to this 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.  It is as if the Department of Justice is allergic to demanding the accountability that the American people deserve when it comes to how taxpayer funds have been misappropriated. 

Regrettably, the earlier rubberstamp Congress attempted to limit the investigation of fraud in Iraq and 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 four years of war, the Department of Justice has failed to move aggressively enough in prosecuting fraud in Iraq.  As we sit here today, the Inspectors General before us have more than 70 open and active investigations in contracting fraud and abuse in this war, but the Justice Department has only brought six criminal cases involving fewer than 20 individuals over the last three years.  Private whistleblowers have filed numerous civil claims involving Iraq fraud under the False Claims Act.  That is the federal law first used by President Lincoln to combat war profiteering – a law which was reinvigorated by Senator Grassley and Congressman Berman during the procurement scandals of the 1980s.  Despite these many cases filed by whistleblowers, the Justice Department has yet to intervene publicly in a single case – not one.  In fact, to date the Justice Department has largely chosen not to proceed against the corporations involved in war profiteering and contracting abuse.

As reported to our Committee by the Department of Justice, the crimes in many of these criminal cases were committed by employees of Kellogg, Brown & Root, one of the largest contractors in Iraq, and a division of Halliburton.  In these cases, KBR 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 formal case, civil or criminal, against KBR, or Halliburton, and KBR has not returned the profits made from the criminal acts of their employees.

Just last week, we learned that Halliburton will move its CEO’s headquarters outside the United States to Dubai, and Halliburton apparently plans to spin off KBR.  Perhaps Halliburton and its CEO are more comfortable in Dubai than in the United States.  But whether they are or not, their move is an insult to the U.S. soldiers and taxpayers who paid the tab for their no-bid contracts and endured their overcharges for all these years.

I introduced the War Profiteering Prevention Act of 2007, S.119, on the first day of this new Congress.  The bill has 18 cosponsors, including Senators Feinstein, Feingold, Schumer and Durbin, who are members of this Committee.  By this measure we hope to clarify that no one anywhere in the world can defraud this country during a time of war -- and get away with it. 

This legislation makes acts of war profiteering a specific crime, and more importantly, this bill reaches all contracting fraud whether it occurs in this country or not and whether it is committed by a U.S. citizen or not.  Our legislation applies to all reconstruction and relief activities overseas to make sure no one can exploit our country in times of emergency.  I have been proposing versions of this bill since 2003, when it did pass the Senate.  Unfortunately, this crucial provision was stripped out of the final version of a bill by a Republican-controlled conference committee.

At our hearing today, we will hear whether this Administration continues to use "cash" contracts in Iraq, which create obvious risks for fraud and abuse.  As we all know, the Special Inspector General has already disclosed that this Administration disbursed through the Coalition Provisional Authority more than $10 billion in cash in Iraq, with little or no accounting of how the money was spent.  And yet, it appears that this practice has continued in many contracts in Iraq.  The Inspectors General here today are sifting through millions of documents reflecting these cash disbursements and finding evidence of fraud.  “Cash” contracts create incentives for fraud.

We will also explore why some cases have not been prosecuted, because of legal disputes about the extraterritorial reach of U.S. law.  That is a problem our War Profiteering bill would solve.

I hope to get a better understanding of why the Justice Department has been so slow to act and has not treated these problems as priorities.  During the first three years of the war, the Department of Justice undertook no specific initiatives to combat fraud in Iraq, and it appears that there were few, if any, investigators, other than the Special Inspector General, to pursue allegations of fraud in Iraq.  Only in the last six months has the Department now formed a task force on these problems, and that task force has not brought any new cases.  I hope and expect that the Department of Justice can do better in the future.  At the suggestion of our Ranking Member, we invited the Attorney General to come or send a representative.  He has chosen to designate a deputy assistant from the Criminal Division rather than anyone from the leadership of the Department. 

Congress has sent billions upon billions of dollars to Iraq with too little accountability and too few financial controls. More than $50 billion of this money has gone to private contractors hired to guard bases, drive trucks, feed and shelter the troops and rebuild the country.  Too much of this money is unaccounted for, and many of the facilities and services that these funds were supposed to pay for are still nonexistent. We in Congress must ask:  Where did all the money go?  We need to press for more accountability over the use and abuse of billions of taxpayers’ dollars sent as development aid to Iraq.

A new law to combat war profiteering in Iraq and elsewhere is sorely needed and long overdue. Although there are anti-fraud laws to protect against the waste of U.S. tax dollars at home, no law expressly prohibits war profiteering or expressly confers jurisdiction on U.S. federal courts to hear fraud cases involving war profiteering committed overseas.  The bill which once again is before our Committee would criminalize overcharging taxpayers to defraud and to profit excessively from a war, military action, or reconstruction efforts.  It would also 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 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.

Our bill also addresses weakness in the existing laws used to combat war profiteering, by providing clear authority for the Government to seek criminal penalties and to recover excessive profits for war profiteering overseas. These are strong and focused sanctions that are narrowly tailored to punish and deter fraud or excessive profiteering in contracts, both at home and abroad.

The message sent by this bill is clear:  Any act to exploit the crisis situation in Iraq or elsewhere overseas for exorbitant gain is unacceptable, reprehensible, and criminal.  Such deceit demeans and exploits the sacrifices that our military personnel are making in Iraq and Afghanistan, and around the world.  We cannot in good faith ask the American people to sacrifice for reconstruction efforts that allow some to profit unfairly.  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.  Combating war profiteering is not a Democratic issue or a Republican issue. Rather, it is a cause that all Americans can support.

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