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Managing America: Crime

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Week Ending October 12, 2007

H.R.400 To prohibit profiteering and fraud relating to military action, relief, and reconstruction efforts, and for other purposes.

The bill report notes that “Over the past 4 years, war profiteering and reconstruction fraud have become a significant problem during the engagement of United States forces in Iraq and Afghanistan.”  The US having spent over $50 billion to contract for relief and reconstruction activities in Iraq alone, with billions of these dollars unaccounted for.” The Special Inspector General for Iraq Reconstruction reported that the Coalition Provisional Authority in Iraq could not account for $8.8 billion.

Although the IG has opened 70 active investigations into contracting fraud and abuse in the war, the report notes that current law is inadequate for prohibiting such abuses. “No Federal law provides enhanced criminal punishment for fraudulent acts during times of war, or relief or reconstruction activities”

The bill creates a new criminal offense in the US Code to provide that anyone who knowingly defrauding the US government by executing a scheme to defraud the government, who is guilty of over-valuing of goods or services in connection with an overseas mission or who makes materially false statements in regard to the contracts will face fines and imprisonment.

The new law governs overseas contracting activities in any military engagement the president may be involved in, with or without congressional approval, disaster relief efforts and reconstruction efforts whether war has been declared or not.

The jurisdiction to enforce the laws is not currently extended to the geographical region where the crime is committed. The bill would change that. The venue for US law enforcement is extended to anywhere the offense or furtherance of the offense took place or where any party to the fraudulent contract or provider of the goods or service is located. The bill further expands the opportunity to prosecute by establishing that the US Government does not have to be the victim of the fraud in order to prosecute for the fraudulent behavior. Forfeiture of property by the convicted is authorized. Money laundering and racketeering are predicated by war profiteering offences.

Most contract problems involve the ‘cost-plus’ and the ‘no-bid’ contracts where errant contractors have the opportunity to pad the cost of the product they provide. The bill requires that any over-valuing of goods leading to prosecution must be done knowingly and with the intent to defraud. A contractor guilty of ‘merely negligent or innocently mistaken conduct’ would not be in violation of the law.

The ‘materially false statement’ provision is defined as  an effort to falsify, conceal, or cover up a material fact by any trick, scheme or device, to make any materially false, fictitious, or fraudulent statements or representations; or to make or use any materially false writing or document knowing it contains a false, fictitious, or fraudulent statement.

A scheme to over-value goods or services will bring a fine and / or imprisonment up to 20 years. Making a materially false statement in regard to contracts for those goods and services can bring fines and imprisonment up to 10 years. The fine would be the greater of $1 million or twice the gross profits realized by the defrauder.

Sponsor:  Rep. Neil Abercrombie (D-HI-1^st)

Vote: Passed House 375 to 3 RC 950 October 9, 2007

Cost to the taxpayers: CBO estimates that implementing H.R. 400 would have no significant cost to the Federal Government. Enacting the bill could affect direct spending and revenues, but CBO estimates that any such effects would not be significant.

Earmark Certification:   In accordance with clause 9 of Rule XXI of the Rules of the House of Representatives, H.R. 400 does not contain any congressional earmarks, limited tax benefits, or limited tariff benefits as defined in clause 9(d), 9(e), or 9(f) of Rule XXI.

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MORE INFORMATION

SECTION-BY-SECTION ANALYSIS

The following discussion describes the bill as reported by the Committee.

Sec. 1. Short title. Section 1 sets forth the short title of the bill as the `War Profiteering Prevention Act of 2007.'

Sec. 2. Prohibition of Profiteering. Section 2 creates a new criminal offense in title 18 of the United States Code for fraudulent acts involving contracts or the provision of goods or services in connection with a mission of the United States Government overseas. Such missions would include war, military actions, and relief or reconstruction activities. This would include circumstances where war was declared, or where the Executive Branch was engaged in any military action with or without congressional authorization. This would also include relief or reconstruction activities, whether or not a war or military action was undertaken. This provision applies not only to any contract with the United States government overseas, but also to any provisional authority, such as the Coalition Provisional Authority in Iraq.

An offense under this provision may be committed by engaging in fraudulent conduct or making a materially false statement. Pursuant to this provision, it is a crime to execute or attempt to execute a scheme or artifice to defraud the United States or to materially overvalue any good or service with the specific intent to defraud.

Section 2 is intended to prohibit schemes to defraud the United States, including efforts to exploit `cost plus' or `no-bid' contracts by materially overvaluing goods or services with the specific intent to defraud. On the other hand, section 2 is not intended to prohibit or punish contractors providing goods or services in the normal course of business. To that end, the legislation specifically provides that violators may only be criminally liable if they materially overvalue any good or service `with the intent to defraud.' This requirement ensures that no contractor may be prosecuted for this offense based on the contractor's merely negligent or innocently mistaken conduct. Accordingly, a person's conduct must be undertaken knowingly to constitute an offense under this provision.

The material false statement provisions make it a crime to: (1) falsify, conceal, or coverup by any trick, scheme, or device a material fact; (2) make any materially false, fictitious, or fraudulent statements or representations; or (3) make or use any materially false writing or document knowing it contains a false, fictitious, or fraudulent statement. This language is consistent with other materially-false-statement provisions under Federal law such as sections 1001 and 1035 of title 18 of the United States Code.

Section 2 explicitly provides for extraterritorial jurisdiction, and the provision is intended to extend jurisdiction for such offenses to the full extent of United States law. This is intended to ensure that offenses committed outside the United States, even by non-United States nationals, can be prosecuted. Furthermore, consistent with other Federal fraud provisions, the United States Government need not be a victim or incur any losses from an offense under this provision, provided the conduct satisfies the other requisite elements of the offense.

Section 2 establishes venue for the offense as authorized by existing Federal statutes, 6

[Footnote] including extradition, in any district where any act in furtherance of the offense took place, or where any party to the contract or the provider of goods or services is located.

[Footnote 6: See 18 U.S.C.A. Sec. 3231-3244 (2006).]

A violation of the fraud component of this provision is punishable by imprisonment for up to 20 years, and a violation of the materially-false-statement component of this provision is punishable by imprisonment for up to 10 years. All violations are subject to fines of up to $1 million, or twice the gross profits or other proceeds of the offense, whichever is greater. In addition, any unlawful proceeds may be subject to criminal forfeiture, and the new offense constitutes a predicate crime for money laundering (18 U.S.C. Sec. 1956(c)(7)) and for racketeering offenses (18 U.S.C. 1961(1)).

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