Mr. Speaker, I submit for the Record a statement from Stuart W. Bowen, Jr., Special Inspector General for Iraq Reconstruction. Statement of Stuart W. Bowen Jr., Special Inspector General for Iraq…
Mr. Speaker, I submit for the Record a statement from Stuart W. Bowen, Jr., Special Inspector General for Iraq Reconstruction.
Statement of Stuart W. Bowen Jr., Special Inspector General for Iraq
Reconstruction, Before the United States House of Representatives
Committee on the Judiciary Subcommittee on Crime, Terrorism, and
Homeland Security
War Profiteering and Other Contractor Crimes Committed Overseas
(Tuesday, June 19, 2007, Washington, DC)
Chairman Scott, Ranking Member Forbes, and members of the
Subcommittee, thank you for this opportunity to address you
today on the work of the Office of the Special Inspector
General for Iraq Reconstruction.
To ensure accurate context, permit me to outline several
points essential to understanding the challenges of
investigating and prosecuting fraud in Iraq.
First, corruption within the Iraqi government, indeed
within the fabric of Iraqi society, is a serious problem that
inhibits progress on many fronts in Iraq. This is widely
recognized by the Government of Iraq and the international
community. In our quarterly reports, SIGIR has called Iraq's
endemic corruption problem a ``second insurgency.''
I returned last month from my 16th trip to Iraq and, during
my visit, I met with the Commissioner of Public Integrity,
who heads the institution created by the CPA to increase
accountability for public corruption in Iraq--and the
President of the Board of Supreme Audit, the analogue to the
Government Accountability Office, which has existed in Iraq
for many decades. The Iraqi anti-corruption authorities again
emphasized to me the widespread nature of the problem of
corruption, which stretches across the government, afflicting
virtually every ministry. And they outlined for me the
difficulties they face in implementing their respective anti-
corruption mandates.
The CPI Commissioner told me that he currently has 2,000
cases involving $5 billion in alleged corruption. And the
President of the Board of Supreme Audit has hundreds of
audits ongoing. In virtually every case, he is uncovering a
lack of accountability. Let me emphasize that the CPI and the
BSA oversee Iraqi money--not U.S. money--that is missing or
has been stolen from Iraqi programs.
During my visit, I was informed about political
interference with the work of Iraqi investigators and
prosecutors. For example, I learned that Ministers and former
Ministers are exempt from prosecution unless the assent of
the Prime Minister is obtained; and each Minister is
entitled, under an Iraqi criminal code provision, to immunize
selectively ministry employees from being held accountable
for corruption.
Iraq must make progress on rule of law enforcement, in
general, and corruption, in particular; political
interference with fighting corruption remains a problem,
undermining the effectiveness of the developing rule of law
system and consequently eroding the Iraqi people's confidence
in their government.
Iraq is a sovereign state. The role of the United States
thus is to encourage the development of an efficient Iraqi
justice system. We do this for its own sake and for the sake
of maintaining and building upon the efforts made, at great
cost in blood and treasure, by Americans and Iraqis since the
liberation of Iraq.
SIGIR's specific role in this process has been to review
the effectiveness of United States efforts to improve the
rule of law system and to build up the corruption-fighting
capacity of the Iraqi government.
On July 28, 2006, SIGIR released a survey on this subject
and found that American efforts were funded at a very modest
level, given the scope of the problem, receiving about $65
million (about three-tenths of 1 percent of our total
reconstruction spending). My auditors found that American
efforts have not been sufficiently coordinated and focused
and that more adequate leadership and organization was
needed. The U.S. Embassy has responded to some of these
concerns since the review was released. SIGIR will soon
release another review on the issue, updating our previous
report.
SIGIR has a continuing investigative responsibility to
detect and investigate malfeasance in American relief and
reconstruction programs in Iraq. As part of this effort, we
have developed good working-level and leadership-level
relationships with the CPI and the BSA. We coordinate with
these Iraqi agencies whenever we come across evidence of
potential wrongdoing by Iraqis. SIGIR, of course,
concentrates its law enforcement efforts on American targets
and works with the Department of Justice in their effective
prosecution.
My second point is that the incidence of corruption within
the U.S. reconstruction program--judging from those cases
that we have uncovered thus far--appears to constitute a
relatively small component of the overall American
financial contribution to Iraq's reconstruction. Based on
the work of our 18 career investigators on SIGIR staff, I
believe that losses to American taxpayers from fraud
within reconstruction programs will likely amount to a
relatively small component of the overall investment in
Iraq, totaling in the tens of millions (rather than
hundreds of millions or billions, as is sometimes
imagined). However, the fact that the fraud we have
detected is relatively small (to date) does not diminish
the aggressiveness with which SIGIR pursues allegations of
fraud in Iraq. We have found egregious incidents of fraud.
And in partnership with the Department of Justice, SIGIR
has produced clear results in prosecutions and
convictions.
For example, in January, two individuals were sentenced to
prison as a result of SIGIR investigations. In early
February, indictments were announced of five more
individuals, resulting from SIGIR investigations. To date,
SIGIR has opened over 300 cases, and we have over 70 ongoing
investigations. Thirty-two of those cases are under
prosecution at the Department of Justice.
We believe that the publicity our enforcement actions have
received has helped to deter misconduct in the U.S.
reconstruction program. And we also believe that enforcement
will be an increasingly important part of SIGIR's mission
over the next 18 months. Moreover, in the course of this
year, we expect to produce concrete investigative results as
significant current cases come to fruition.
SIGIR remains committed to a robust, deterrent presence in
Iraq as long as our temporary organization exists. Today, I
have five investigators on the ground in Iraq investigating
fraud. Although there are other law enforcement agencies
fighting fraud in Iraq, SIGIR has maintained over the past 3
years the largest contingent of fraud investigators in Iraq.
My investigators travel the country under dangerous
conditions, pursuing leads, interviewing witnesses, and
piecing together evidence on a wide variety of cases. Their
work also takes them to other countries in the region. Of
note, SIGIR is currently reducing its overall personnel
``footprint'' in Baghdad in conjunction with the reduction in
spending of appropriated dollars on Iraq reconstruction.
One of the most important aspects of our investigative
efforts is the development of
task-force relationships with other agencies involved in
oversight in Iraq, including may colleagues from the Office
of Inspector General of the Department of Defense and the
Defense Criminal Investigative Service, as well as the
Federal Bureau of Investigation. SIGIR has 16 investigators
in Arlington, and we are participating in the new Joint
Operations Center located at the FBI to coordinate and
enhance fraud investigations in Iraq.
SIGIR's 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, Immigrations and Customs enforcement
office, the FBI and the Department of State Office of
Inspector General. That task force was able to effectively
pursue the Bloom-Stein conspiracy that my auditors
uncovered in Hillah, Iraq--a very egregious kickback and
bribery scheme involving over $10 million in
reconstruction funds that Philip Bloom, the contractor,
and Robert Stein, the Coalition Provisional Authority
comptroller for that region, engineered for their own
criminal ends. SPITFIRE continues its work today; and we
continue to pursue a number of leads that arose from the
Bloom-Stein case.
The other major task-force initiative that SIGIR has
initiated with the FBI is the International Contract
Corruption Task Force (ICCTF). ICCTF prompted the creation of
the Joint Operations Center mentioned above, which is
producing the effective collection and coordination of
investigative leads and source development. Although I am not
at liberty to discuss details of these cases, I am very
pleased with the very significant progress the JOC
investigators have made, news of which I expect to be
forthcoming later this year.
Along with SIGIR, the ICCTF includes the U.S. Army's
Criminal Investigative Division's Major Procurement Fraud
Unit, the Defense Criminal Investigative Service, the FBI,
and the inspectors general of the Department of State and the
Agency for International Development.
SIGIR is also part of the DOJ National Procurement Fraud
Task Force. We continue to work closely with DOJ in the
investigation and prosecution of our cases.
Finally, to coordinate efforts in oversight in Iraq, I
formed the Iraq Inspector Generals' Council, IIGC, 3 years
ago, which brings together every agency with oversight
authority in Iraq for a meeting every quarter. The IIGC
exists to deconflict and coordinate the member agencies'
oversight efforts in Iraq.
SIGIR is not limiting its efforts just to addressing
contractor misconduct through the criminal justice system. We
also refer cases to the U.S. government's administrative
debarment and suspension processes. To date, the competent
oversight authorities have, through established rules that
preserve due process, suspended 17 companies and individuals,
debarred ten, and have another nine pending debarments.
To date, SIGIR has produced 13 quarterly reports, 86 audit
reports, and 90 inspection reports. Our auditors and
inspectors regularly refer investigative leads to our
investigators some of which have developed into very
significant cases. The Bloom-Stein case is just one example.
SIGIR's three lessons-learned reports produced to date have
provided recommendations on policies designed to improve
economy, efficiency and effectiveness for the Iraq program
and for future reconstruction and stabilization operations.
The reports have prompted the introduction of reform measures
in the Congress that will improve contracting processes.
SIGIR is at work on a lessons-learned capping report, which
will be produced at the end of this year. It is my hope that
our lessons learned reports will prompt reforms that will
improve the capacity of law enforcement to deter crime.
Mr. Chairman, with respect to H.R. 400, Representative
Abercrombie's bill entitled the ``War Profiteering Prevention
Act of 2007,'' our position is essentially what it was when
we were asked to reflect on its counterpart at a Senate
hearing this past March. SIGIR remains a strong proponent of
legislation that would strengthen efforts to punish fraud or
abuse in contracting programs in Iraq or elsewhere. We look
forward to working with the Department of Justice to enforce
H.R. 400, should it become law. We are, however, unaware of
instances where the Justice Department was unable to
prosecute, under existing law, on the facts we developed in
our investigations.
One of our responsibilities in Iraq is to encourage
efficiency in the reconstruction effort. In that role, we
have prompted management to seek the widest possible
participation by business enterprises (especially Iraqi
firms) in reconstruction. The security risks in Iraq are
self-evident, and thus the risks to any business enterprise
operating in such an environment are mammoth. International
companies likely will not get into the business of
reconstruction in Iraq without incentives that render the
risk-taking worthwhile. This reality should figure in the
development of legislation that affects contracting in Iraq
or similarly insecure environments.
Whether H.R. 400 becomes law, SIGIR will continue to
aggressively pursue investigations, provide robust oversight
through audits and inspections, and will press for more
efforts to improve contract administration, quality
assurance, and quality control. It is my hope that our
continuing efforts will help promote an aim we all share--a
reconstruction program that is administered and executed
honestly, and is as well-managed and efficient as possible
under very challenging circumstances.
Mr. Chairman, members of the Committee, thank you for your
time and attention to these important matters, and I look
forward to answering your questions.
I want to pay a special thank you, a big mahalo, to Mr. Scott and to the Judiciary Committee for their hard work. I am very grateful to the ranking members, the Republicans and Democrats. We cannot resolve this without seeing to it that we have a bipartisan approach on this.
I am particularly grateful to Senator Pat Leahy, who is the Judiciary Chairman in the Senate, for entrusting this bill to our care here in the House and allowing me to introduce it as a companion bill to the one that has passed in the Senate. I am very hopeful that we can get a vote in the Senate and move this to the President's desk.
When the wrong computer equipment arrived in Iraq, the contractor ordered it dumped into a mammoth burn pit and placed an order for replacements, rather than sending it back. The government paid for both the wrong computers and the replacements. The contractor collected a fee for each, thanks to a cost-plus contract.
Halliburton had drivers driving empty trucks between bases in Iraq, unnecessarily exposing the drivers to danger, because the company was paid by the trip, not by the amount of materiel hauled or a flat fee; $186 million was spent over 2 years to build 142 health care centers, yet only 15 have been completed and only eight are open. According to testimony, the contractor lacked qualified engineers, hired incompetent subcontractors, failed to supervise construction work, and failed to enforce quality control.
A large U.S. construction company was paid tens of millions of dollars to repair Iraq's schools. Many of the schools were never touched, and several that were repaired, and I say that in quotes, were left in shambles, one filled with unflushed sewage.
At least 10 companies with billions of dollars in contracts have already been forced to pay up to $300 million in penalties to resolve allegations of bid-rigging, fraud, gross overcharging, delivery of faulty military parts and environmental damage, $300 million in penalties. Some of these same companies have faced such allegations during past military operations in other countries, but have had no problem receiving new contracts in Iraq.
Despite millions of dollars in payments to U.S. companies, key pieces of Iraq's infrastructure, power plants, telephone exchanges, sewage and sanitation systems, have either not been repaired or have been fixed so poorly that they still don't function.
How has this been allowed to happen? The United States Government directly and through the late Coalition Provisional Authority have outsourced the war in Iraq like no other in our history, spending more than $50 billion on private contractors to provide food, water, gasoline and other supplies, guard bases, drive trucks, and many other activities in support of our troops.
But consistent with the administration's overall attitude toward spending public money with private companies, little or no thought was given to contract oversight or accountability. As a result, some of these contractors have declared the U.S. occupation of Iraq open season on the taxpayer. Cleaning up this mess has been hampered by the fact that while anti-fraud laws protect against the waste or theft of U.S. taxpayers in the United States, there have been no statutes prohibiting sleazy business practices by American companies overseas.
As we have learned in the investigation of the Blackwater USA contract, the Coalition Provisional Authority issued order number 17, which specifically exempted U.S. contractors from Iraqi law.
In fact, one contractor was found guilty of 37 counts of fraud, including false billing, and was ordered to pay more than $10 million in damages, but the decision was overturned because the contracts were let through the Coalition Provisional Authority, and it was found that U.S. laws against fraud did not apply.
Despite the fact that the Coalition Provisional Authority was created by the Bush administration under the Department of Defense; despite the fact
that L. Paul Bremer, the overseer in Iraq, subsequent to the initial attack on Iraq, had an office literally across the hall from Secretary Rumsfeld, the Coalition Provisional Authority was not considered part of the U.S. Government, and, therefore, U.S. laws were unenforceable.
These practices are a flagrant abuse of the public's trust and the public's money during a time of war and cannot be allowed to continue. H.R. 400, the War Profiteering Prevention Act of 2007, will, one, criminalize war profiteering defined as contract fraud or overcharging for goods and services in connection with the mission of the United States Government overseas; two, violations of law will be a felony and punishable up to 20 years in prison and fines up to $1 million or twice the illegal profits of the crime; three, jurisdiction for such cases, no matter where the alleged crimes are committed, will be in the United States Federal court.
H.R. 400 was heard and considered by the House Judiciary Subcommittee on Crime, Terrorism and Homeland Security and ordered reported to the full Judiciary Committee by a voice vote on August 1. Among the many significant consequences of the decision to invade and occupy Iraq marked by a complete dismissal of the need for intelligent planning and stunning incompetence in the conduct of the war, this problem has received too little attention from the news media, the public, and the Congress.
Most of the cases of fraud, questionable business practices and outright corruption have been uncovered and investigated through the efforts of the Special Inspector General for Iraq Reconstruction, Mr. Stuart Bowen, Jr. Mr. Bowen and his super staff both here in the U.S. and on the ground in Iraq have provided oversight and insight under the most difficult conditions imaginable for billions of American taxpayer dollars intended to rebuild Iraq and support our troops in combat. They deserve our gratitude. They deserve the gratitude of the Congress and the Nation for a tough job well done.
Mr. Speaker, this bill, together with H.R. 2740, legislation passed by this House last week to expand the reach of the Uniform Code of Military Justice to private civilian security operatives in the region are two important steps this Congress is taking to clean up the mess in Iraq.
H.R. 400, in conclusion, Mr. Speaker, the War Profiteering Prevention Act will help end the open season declared on American taxpayers.
Mr. Speaker, will the gentleman yield?
Mr. Speaker, I find it very unfortunate that my good friend from Virginia has taken a position that the bill in any way encourages the whims of prosecutors. As Mr. Scott has pointed out, the standard is very high and applies to any contract, whether it's in the United States or overseas. There is nothing applied to the contracts overseas that is not applied to a contract here in the United States when it comes to the question of fraud or overcharging or deliberate deception with regard to the contract. That standard has to be met in any court and has to come before any judge meeting such a standard. There is no differentiation whatsoever.
The reason the bill is here, and the reason we're bringing the legislation, is the courts have ruled that there is, at best, an ambiguous situation, if not an outright gap between the capacity for prosecution of such a crime, should the standard for the crime be sustained by a prosecutorial investigation, and what is possible in Iraq. It can't be prosecuted in Iraq, and the courts found that it wasn't. We did not have legislation sufficiently clear in the United States in order to prosecute it. Thus, far from arbitrary or capricious prosecution, we have the opportunity for arbitrary defrauding of the United States taxpayer with no consequences. That's why the legislation is here.