Chuck Grassley

United States Senator from Iowa

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The False Claims Act and War Profiteering

Mar 20, 2007


The False Claims Act and War Profiteering


Prepared Statement of Senator Chuck Grassley of Iowa

Senate Committee on the Judiciary

Combating War Profiteering: Are We Doing Enough to Investigate

and Prosecute Contracting Fraud and Abuse in Iraq?

Tuesday, March 20, 2007

 

Mr. Chairman, thank you for holding today’s hearing on contracting fraud and abuse during the reconstruction of Iraq. 

 

During my time in the Senate, I have fought long and hard to ensure that taxpayer dollars spent by the government are free from fraud, waste, and abuse, especially government dollars paid to federal contractors. 

 

This Committee, like all Congressional committees, has a Constitutional duty to conduct oversight of federal spending to determine if expenditures are sound and to ensure that laws passed by Congress are implemented and enforced in a manner consistent with the spirit and intent of the legislation.

 

Today’s hearing presents an opportunity to address concerns surrounding the waste, fraud, and abuse of taxpayer dollars during the reconstruction of Iraq.  Over the past three years, billions of dollars have been spent on the reconstruction of Iraq.  As audits, investigations, and media reports have shown, the waste, fraud, and abuse of reconstruction dollars spent in Iraq is a real issue. 

 

Today’s witnesses will speak to the problems they’ve uncovered while conducting oversight of both funds administered by the US Government and those by the Iraqi government.  And while the way both of these funds are administered is different and distinct, the truth is that all monies invested in the reconstruction of Iraq need to be free from waste of all forms.  We must make every effort to ensure that these investments result in the building of the foundations of democracy for the Iraqi people. 

 

That said, the goal of this hearing should be to focus not only on pointing out problems with fraud, waste, and abuse, but also addressing solutions to these problems.  Once fraud, waste, or abuse is found, the objective should turn to recovering as much money as possible from the source of the wrongdoing and ensuring those responsible are held accountable. 

 

The federal government has a number of laws on the books for recovering funds lost to unscrupulous contractors.  To varying degrees, these laws provide different remedies such as restitution, fines, or even debarment from federal contracting programs.  However, the reality of the contracting world is that all too often monies lost to fraud, waste, or abuse are lost and gone forever. 

 

Be it settlements for pennies on the dollar or promises of reform on future contracts, the bottom line is that contractors that game the system and obtain endless streams of government dollars are only persuaded when the financial impact hits home.  The cost of settling fraud should not be just another cost of doing business.  One law that has teeth and has been used with great success to combat fraud is the False Claims Act (FCA). 

 

The False Claims Act (FCA) was originally passed by Congress and signed into law by Abraham Lincoln in 1863.  The FCA was passed as a tool to help deter and prevent war profiteering during the Civil War, and over time, has become the preeminent tool for combating fraud in government programs.  

 

As the primary author of the 1986 amendments to the FCA, I take great pride in the fact that this law has helped recover over $20 billion since 1986.  By empowering individual citizen whistleblowers to file lawsuits on behalf of the government, a legal mechanism known as qui tam, these qui tam relators sue those who have defrauded the government.  In return for the often long and difficult litigation, the qui tam relator is rewarded a portion, usually 15-25%, of the total recovery.  The remainder of the money is returned to the government. 

 

These qui tam lawsuits have helped uncover massive fraudulent schemes that without the help of these whistleblowers would have gone undetected and undeterred for years and years.  When it comes to fraud, the 1986 amendments to the FCA changed the playing field for those seeking to do wrong to the federal treasury. 

 

One problem with the FCA has been its application and interpretation in cases involving fraud stemming from the reconstruction of Iraq.  One particular case, United States ex rel. DRC, Inc. et al. v. Custer Battles, LLC, is illustrative of the problems qui tam relators have had in bringing FCA cases related to the reconstruction of Iraq.  In this case, relators from DRC, Inc., a subcontractor for Custer Battles, LLC, alleged widespread fraud related to two contracts, and filed a sealed complaint with the United States District Court for the Eastern District of Virginia. 

 

            While the case moved forward, many procedural hurdles complicated the lawsuit.  Initially, the Department of Justice (DOJ) failed to file a stated position as to whether claims filed with the Coalition Provisional Authority (CPA) represented a claim to a government agent within the definition of the FCA.  Eventually, the DOJ filed a brief with the court stating it believed the claims were within the definition in the statute and supported application of the FCA to claims presented to CPA employees.       

 

            The case continued to move forward and ultimately the jury returned a verdict finding Custer Battles liable for 30 false claims made to the CPA.  Despite the verdict in favor of the relators, the District Court judge threw out the case based on a procedural matter, finding that the relators failed to prove that the claims were actually presented to a government employee acting in their capacity as a government employee.   

 

            The case is currently on appeal.  However, it presents a practical problem for the FCA and the relators filing claims under the FCA.  It is my hope that this Committee will hold a separate hearing to address some necessary updates to the FCA regarding various court interpretations that are outside the original intent of the act. 

 

The original spirit and intent of the FCA is still there, but those who file cases arising out of the reconstruction of Iraq should have an opportunity to have their petitions adjudicated. Congress needs to work to address some of these procedural problems with the FCA, and ensure that any fraud or abuse taxpayer dollars is adequately enforced. 

 

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