Tag Archives: Government corruption

The 37 Year Tax-Day Impact Of The Project on Government Oversight (POGO)

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POGO and Your Taxes

“POGO”

“POGO exposed the fact that the Pentagon was buying $7,600 coffee makers and $435 hammers.  [POGO works] with government insiders in order to sound the alarm on wrongdoing by government contractors and workers and to save taxpayer dollars—all on behalf of the public.

[POGO] investigations have found billions of dollars in actual and potential savings. Here are some of the highlights.”

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“In a 1999 report, POGO pointed out that if contractors could inflate the price of everyday items like coffee makers and hammers, how much were they overcharging for things taxpayers didn’t understand, like high-tech weapon systems? Our investigations have found billions of dollars in actual and potential savings. Here are some of the highlights.

POGO publicized over $893 billion in improper payments.

The American taxpayers lose hundreds of billions of dollars every year because the federal government makes payments to the wrong people or institutions, or in the wrong amount. For example, the government sometimes sends benefits to individuals who are deceased, or FEMA pays fraudulent claims following disasters like hurricanes. Unfortunately, the government doesn’t do enough to address the problem. In 2016, POGO completed a set of reports that publicized $893 billion in improper payments between FY 2008 and 2015. In our reports, we provided recommendations to identify and recover improper payments that potentially could save the government billions of dollars. Currently, POGO is advocating for a bipartisan bill, the Stopping Improper Payments to Dead People Act. This act would allow the Social Security Administration to share its database of deceased people with many other government agencies to reduce inaccurate payments to dead people.

In 2001, POGO’s reporting causes military to stop two wasteful weapons projects, saving $49 billion.

In a blistering set of reports sent to the White House in 2001 on the defense weapon acquisition process, POGO exposed how multiple weapon systems wasted taxpayer money and ultimately made us less safe. One example was the Crusader howitzer cannon, which entered into the acquisitions phase before United Defense finished its preliminary design. Our analysis cited a Government Accountability Office report that found the Crusader weighed too much, underwent shortcuts in testing, and was behind schedule. Another example was the RAH-66 Comanche helicopter, which suffered from many of the same problems. While military planners designed the helicopter to be inexpensive, the cost quickly ballooned from $12.1 million to $58.9 million a copy as the development cost increased and the testing schedule was delayed.

POGO investigation into F-35 leads to $21 billion to $40 billion in taxpayer savings.

Multiple POGO investigations have found serious problems in the F-35 program. In one report last year, we discovered that the Air Force wanted to leave several older F-35s unfinished because paying to update them would make it harder to buy new fighters. The Air Force bought the F-35s while still designing and testing the aircraft—a decision POGOand the Government Accountability Office have independently labeled as a major driver of increased cost. After POGO published its report, the Air Force decided to stop the plan, preventing between $21 billion and $40 billion in waste.

POGO investigations help get the Deepwater contract cancelled, saving $24 billion.

In 2007, POGO investigated a $24 billion Lockheed Martin and Northrop Grumman project to update the U.S. Coast Guard’s equipment that resulted in millions of wasted dollars. To save money, the Coast Guard initially allowed the two private contractors to oversee and manage the project. Relying on private contractors to conduct inherently governmental functions ultimately cost the Coast Guard millions, because the contractors made numerous design and technical mistakes. After POGO’s investigation, media attention, and several high-profile disasters, the Coast Guard took back management of the project, and later asked for a $96 million refund.

POGO reporting helps shut down the wasteful Superconducting Super Collider, saving $11 billion.

POGO led the way in campaigning to cancel the Superconducting Super Collider, a grossly over budget project run by contractors that took advantage of weak oversight and permissive spending guidelines to overcharge the federal government. According to invoices obtained by POGO, the principal subcontractor charged the government $21,369 for office plants in a year and $1,107 dollars for Christmas cards, among other waste. POGO’s investigation turned the Super Collider into the largest government project ever cancelled at that time, saving taxpayers roughly $11 billion dollars.

Our investigation into Boston’s “Big Dig” helps save taxpayers roughly $11 billion.

Even before Boston’s Harbor Tunnel Project, known as the Big Dig, became a national embarrassment, POGO investigated the devastating impact of private contractors spending billions of tax dollars to build a highway project with little federal or state oversight. The Big Dig started with a $2.3 billion budget but, with contractors given a free rein, it ballooned to around $24.3 billion as the project suffered from delays, bad planning, and mismanagement. Initially, federal taxpayers were on the hook for 80% of the funding, but POGO’s investigation helped reduce losses by getting Congress to freeze federal spending at $8.6 billion, saving federal taxpayers roughly $11 billion.

POGO helps cancel the F-22, saving $4.268 billion in one year.

Much like the F-35, the F-22 cost much more than advertised and drained resources from other critical Air Force priorities—like training pilots. Also like the F-35, POGO campaigned heavily to end the program. After almost a decade’s worth of reportspress releases, and conversations with Members of Congress and their staff, POGO finally succeeded in helping get the program shut down—thanks in large part to Senators Carl Levin (D-MI) and John McCain (R-AZ). Cancelling the production of 240 F-22s saved taxpayers $4.268 billion that year alone.

POGO helps the government collect over $1 billion in additional oil royalties to date.

During the late 1990s, POGO investigators uncovered how the Interior Department ignored the fact that several oil companies chronically underpaid the Federal Treasuryon royalties they owed for oil they extracted from public lands. In 1997, POGO filed a False Claims Act lawsuit against 16 major oil companies. By 2001, the companies settled the lawsuit. The U.S. Treasury recovered nearly half a billion dollars in unpaid royalty revenue, and began collecting $67 million more per year in royalties owed to the public.

POGO reporting causes Air Force to suspend bad Hamilton Sundstrand contract, saving $664 million.

Every year, POGO warns the government about no-bid contracts fleecing American taxpayers. In 2006, POGO investigators published a previously not-public Department of Defense Inspector General report finding that defense and aviation contractor Hamilton Sundstrand raised the price of several mechanical parts by nearly 900 percent with no reasonable justification. We wrote to Congress showing how contractors were taking advantage of acquisition regulation loopholes to reduce oversight. Our work led the Air Force to suspend the 9-year, $860 million dollar contract, saving taxpayers $664 million dollars.

POGO advocates for bipartisan compromise to reduce contractor compensation, saving $200 million per year.

Prior to 2013, an outdated law that was used to determine contractor compensation packages allowed some companies to receive excessively high executive salaries and benefits—at the expense of taxpayers. This system allowed contractors to receive more money than comparable employees in the federal government. After years of work by POGO, a bipartisan group of legislators voted to reduce the cap from $952,308 to $487,000, saving taxpayers $200 million per year.

POGO investigation helps Air Force save $168 million on C-130J military airlift contract.

The C-130J was a mechanically flawed cargo plane that cost more than expected and the Pentagon didn’t want. A 2005 POGO report highlighted that the Air Force dubiously labeled the C-130J a “commercial” item in order to decrease oversight, a decision that ultimately led to many of the C-130J’s problems. After the Pentagon said they didn’t need the plane, a group of influential military contractors and U.S. Senators lobbied hard to preserve the unnecessary aircraft. POGO worked with Senator McCain and other Members of Congress to restructure the C-130J contract and save taxpayers $168 million.

POGO helps publicize $100 million in fraud by Northrop Grumman.

In 2014, POGO investigators made public a Defense Department Inspector General report that found Northrop Grumman knowingly overcharged the federal government around $100 million for an anti-terrorism program. The U.S. Army contracting agency tasked with overseeing the contract was not conducting proper oversight—until whistleblowers, POGO, and the Defense Department Inspector General got involved. We highlighted how Northrop Grumman and its subcontractor DynCorp defrauded the government in multiple ways. They billed the government for more labor hours than there are in a day and for employees who lacked required education qualifications. They also classified one employee for seven different positions including “depot aircraft mechanic, a senior general engineer, an integrated logistics manager, a quality assurance manager, a program manager, a senior pilot, and a senior technical writer.”

POGO’s investigations into waste, fraud, and abuse of power by the federal government are a core part of the organization’s mission.”

http://www.pogo.org/blog/2018/04/pogos-outsized-tax-day-impact.html

 

 

 

 

 

 

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The “Government-To-Contractor Revolving Door” In Ohio

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   Ohio-State-Capitol-Building-in-Columbus-Ohio-at-dusk-L177213015   Old-Revolving-DoorCVS Hip2Save

Images: “Have Camera Will Travel” – “Preferred Window and Door” and “Hip 2 Save”

“COLUMBUS DISPATCH”

“Margaret Scott had responsibility over the Ohio Department of Medicaid’s pharmacy program until she departed last fall.

Within a month, she was working for a company that is receiving billions of pharmacy dollars from Ohio’s Medicaid managed care programs.”


“Scott and the contractor, pharmacy giant CVS, aren’t answering questions about what happened. But the state’s ethics watchdog — while not speaking specifically about Scott’s situation — said it’s illegal for a state employee to continue to be involved in decisions that might affect an outside business while negotiating a new job with that business.

Scott’s case might be of particular interest because CVS’s “pharmacy-benefit manager” contracts with Medicaid managed-care organizations are drawing scrutiny from legislative leaders. The Dispatch on Tuesday reported on accusations by independent pharmacists that CVS — which holds four of the five such contracts in Ohio — is charging an excessive price from taxpayers for drugs and reimbursing retail pharmacies with lowballed rates in an attempt to push out competition.

According to her LinkedIn page, Scott was with the Department of Medicaid from 2004 until last October. Then in November, she was a clinical adviser for CVS.

Melissa Ayers, a spokeswoman for the Department of Medicaid, said Friday the agency is still looking into the matter. But she said that Scott did not have authority over the CVS pharmacy-benefit manager contracts because those were between CVS and the managed-care companies that contract with the state.”

ww.dispatch.com/news/20180316/one-month-shes-supervising-state-drug-program-next-month-shes-with-cvs

 

 

Have We Kept Madison’s Republic?

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Illustration by POGO.

“THE PROJECT ON GOVERNMENT OVERSIGHT”

“Though it is apparent that we have strayed from our Founders’ vision, we are never far from remedy. It is the right and responsibility of citizens to demand accountability from their government.

Madison helped design a government beholden to the people; it is up to us to use our power. To paraphrase Benjamin Franklin at the closing of the Constitutional Convention: We have a republic, if we can keep it.”


“Over 200 years ago, our Founding Fathers faced a question: How could they build a democracy to withstand the trials of time and survive the pressures that destroyed those that came before?

Ultimately, the reasoned voice of James Madison, the “Father of the Constitution,” prevailed. So how is our republic holding up? Would Madison recognize our elected representatives as the guardians against factional governance that he had imagined? The short answer is no.

Madison advocated for a country led by representatives whose “wisdom may best discern the true interest of their country,” and whose “patriotism and love of justice” would moderate the passions and whims of the public. Elected representatives should be above the influence of “factions” — special interests and rival parties — whose interests are often adverse to the common good.

While elected officials rarely show all-encompassing virtue, Madison would observe that, today, many appear to be controlled by the same outside interests that a representative democracy was intended to weaken. Today, our country is one where lobbyists spend $3.36 billion in a year, where the private sector’s sphere of influence in the public sector increases with every spin of the revolving door, and where major donors are rewarded with multi-billion dollar contracts.

Not only has our government been overrun by special interests but it has also been corrupted by partisan conflict. Madison would surely be appalled that, in the face of a foreign adversary’s unprecedented intervention into our elections, the members of the House of Representatives tasked with examining this interference instead dedicated themselves to partisan squabbles — placing partisanship above protecting our democracy.

Gridlock has expanded to an inability to fulfill some of Congress’s most basic constitutional duties. For example, despite many military engagements, Congress has not declared war — an authority granted solely to Congress — in nearly 80 years. Instead, Congress passes vague Authorizations for Use of Military Force (AUMF) and then looks the other way while the executive branch interprets them as blank checks to wage unofficial wars in perpetuity.

The ability to declare war was not vested in the legislature by accident; the Constitution grants the power “fully and exclusively” to the Congress specifically because the Founders believed that the president would be too inclined toward war.

Madison, who believed that “no nation can preserve its freedom in the midst of continual warfare,” would be incensed to discover that the 2001 AUMF authorizing force against the perpetrators of the September 11 terrorist attacks has been used to justify military operations in 14 countries over 16 years. While some members aren’t pleased about this, Congress hasn’t had the will to act. Madison would undoubtedly condemn this shirking of responsibility.

How has our republic found itself in such ill health? Most obviously, Madison would observe that many of our elected officials have been co-opted by moneyed interests and are rarely held to account for their decisions. Representatives now rely on wealthy individuals, corporations and associations — Madison’s dreaded “factions” — to mount successful campaigns for office. Special interests then use their purchased influence to persuade elected representatives to value the good of the faction above that of the public.

But Madison was convinced that because representatives have to win a majority of citizens’ vote in order to be elected, the electorate would serve as a crucible — filtering out “unworthy candidates” in the election process to reveal the deserving. Instead, the voters have become enablers of the mischief that Madison sought to expel. We have given factions carte blanche to propel chosen candidates into perpetual office in districts drawn specifically to support incumbents.

A deep cynicism now pervades the electorate’s attitude about our political process. Our representatives, in the course of campaigning and governing, are frequently predisposed toward special interests and pander to the measly 54 percent of us who vote in general elections (36 percent in midterms, and 28 percent in primaries). Once elected by a minority of the citizenry, members of Congress then have little political incentive to participate in bipartisan compromise.

Though it is apparent that we have strayed from our Founders’ vision, we are never far from remedy. It is the right and responsibility of citizens to demand accountability from their government. Madison helped design a government beholden to the people; it is up to us to use our power. To paraphrase Benjamin Franklin at the closing of the Constitutional Convention: We have a republic, if we can keep it.”

http://www.pogo.org/blog/2018/03/have-we-kept-madisons-republic.html

Guide to Help Feds Protect Themselves Against Political Misconduct

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IMAGE: THE SCIENTIST.COM 

“GOVERNMENT EXECUTIVE”

“Carefully documenting events as they occur is one of the most important means for holding government officials accountable.

Any federal employee who suspects wrongdoing, or even feels uncomfortable in the workplace, can help ensure corrective action. A detailed, authentic record is an essential tool in the whistleblower toolbox.”


“Federal scientists should write down all instances of agency personnel interfering with their work, a group of government watchdog and employee advocate groups warned this week. It will help them protect both themselves and their work.

Documenting potential abuses is particularly important “in a hostile environment for science,” the groups said, and will enable employees to protect their own careers and “uphold scientific integrity.” The groups issued a guide to federal scientists to prevent political misconduct titled “How Federal Scientists Can Protect Science for the Public Good,” in which they emphasized the importance of recording notes.

One key recommendation in the report is for federal employees to take contemporaneous notes, be it in meetings, on calls or as part of policy research or proposals. Those notes should be as detailed as possible, the groups said, and be dated and backed up to personal devices as long as the information is not classified.

» Get the best federal news and ideas delivered right to your inbox. Sign up here.

The groups issued the guide after hearing from their members and in the media about the Trump administration tightening restrictions on the federal scientific community. Agencies have reportedly instructed employees not to use certain words, disbanded scientific advisory commissions and reassigned employees who speak out about issues the administration is no longer prioritizing.

“We’ve been hearing a lot of stories about people being told not to take notes, not to use certain words, not to have a paper trail,” said Andrew Rosenberg, a former regional director for the National Oceanic and Atmospheric Administration and current director of the Center for Science and Democracy at the Union of Concerned Scientists, which helped write the guide. Keeping records of what was discussed and when it was discussed is particularly important, Rosenberg said, when there is a “concerted effort” to undermine scientists across government. Last week, according to Mother Jones, a scientist at the U.S. Geological Survey resigned because he said Interior Secretary Ryan Zinke was given access to economically sensitive data before it was released to the public, a violation of the scientist’s understanding of USGS policy.

“We are not suggesting that people subvert the process, Rosenberg said, “but simply that they keep a clearer record.”

Doing so, he said, will help feds rebut claims that they provided bad advice or did not present certain relevant information involved in a policy decision. If political leaders are involved in a “manipulation of the science,” Rosenberg added, contemporaneous note taking would help expose it. He explained that scientists in government are at risk of being scapegoated—“it’s not exactly unheard of,” he said—and detailed records would help protect both themselves and their research.

“Carefully documenting events as they occur is one of the most important means for holding government officials accountable,” said Louis Clark, executive director and CEO of the Government Accountability Project, a group that advocates for whistleblowers and another author on the guide. “Any federal employee who suspects wrongdoing, or even feels uncomfortable in the workplace, can help ensure corrective action. A detailed, authentic record is an essential tool in the whistleblower toolbox.”

To help create a paper trail, Rosenberg said employees can send meeting notes to colleagues or to supervisors to describe their takeaways, provided the supervisor did not specifically instruct them not to take notes. The guide advised employees to separate personal notes from agency records if they have any concerns about them becoming public or their managers seeing them. If an issue becomes problematic enough for an employee to share it with a scientific integrity office, a union, a journalist or another outside organization, notes can help demonstrate whether agency decisions were “arbitrary, capricious, politically driven or inadequately informed by the science.”

“Government scientists need to understand that they are protected by the same laws as other federal employees and can blow the whistle on censorship of science that creates a specific and substantial risk to health and safety,” said Danielle Brian, the executive director of the Project on Government Oversight, which also helped write the recommendations.

Rosenberg noted that concerns about the Trump administration crackdown on the scientific community is not isolated to any one agency.

“It goes across government to all the places where experts or scientists work, which is pretty much everywhere,” he said. “We’re hearing concerns.”

http://www.govexec.com/management/2018/02/watchdog-groups-create-guide-help-feds-protect-themselves-against-political-misconduct/146180/

 

Revolving Door Between Pentagon And Contractors Spins Faster

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“BLOOMBERG GOVEERNMENT”

“The former principal undersecretary of the Air Force for acquisition left her job in 2003 to work for Boeing, after the Air Force announced it had awarded Boeing a 10-year tanker lease.

Soon after, she pleaded guilty to inflating the price of the contract – while she was in negotiations for her $250,000-per year Boeing job. For his role in hiring Druyun, Boeing’s then-chief financial officer Michael Sears was fired and in 2005 was sentenced to four months in prison.”


“Ties between the Pentagon and the defense industry have deepened under President Donald Trump, prompting renewed concern about conflicts of interest that could result in favoritism toward top military contractors.

More than 80 percent of top Defense Department officials under Trump have defense contractor work experience – in many cases extensive – compared with roughly half of those President Barack Obama appointed to the same jobs, a Bloomberg Government analysis found.

Defense industry supporters say contractor work experience is a highly valuable asset for Pentagon officials, especially those who are part of the acquisition process.

But key senators of both parties worry about the ethics problems that could arise by putting these former corporate executives in the highest Defense Department posts where they oversee the awarding of billions of dollars of contracts.

Corporate Conflicts

“The Defense Department’s job is to protect our national interests, not the financial interests of defense contractors,” Sen. Elizabeth Warren (D-Mass.), a member of the Armed Services Committee, told Bloomberg Government in a written statement.

Armed Services Chairman John McCain (R-Ariz.) echoed those concerns during the confirmation hearings of a number of Pentagon nominees, including Deputy Defense Secretary Patrick Shanahan, a former Boeing Co. senior vice president for supply chain and operations, who left after 31 years with the company.

Over the course of his Boeing career, Shanahan oversaw several noteworthy military projects, including Army helicopters, a ground-based missile defense program, and the V-22 Osprey aircraft.

During Shanahan’s June 20 confirmation hearing before the Senate Armed Services Committee, McCain said that 90 percent of defense spending “is in the hands of five corporations, of which you represent one. I have to have confidence that the fox is not going to be put back into the henhouse.”

Shanahan promised to divest “all ties” with Boeing, with the exception of his executive retirement savings. “For the duration, if I’m confirmed, I will not deal with any matters regarding Boeing unless cleared by the office of ethics,” he said. Shanahan also committed to make public any recusal waivers he may seek.

Of the 17 top, Senate-confirmed Pentagon posts, including those overseeing defense acquisition, 14 are filled with Trump picks who have worked for defense contractors. By contrast, Obama’s first confirmed picks for the same posts included nine with industry backgrounds, or 56 percent, and seven without. There were 16 comparable positions under Obama at the time, as the acquisition, technology and logistics undersecretary position had yet to be split into two jobs.

By the end of Obama’s second term, a total of only 16 of 35 of Obama’s confirmed appointees for the same jobs, or 46 percent, had direct experience working for contractors before moving to the Pentagon.

The revolving door is working both ways as 19 of 35 of Obama’s top DOD officials have joined or rejoined the defense industry, including taking seats on contractor boards of directors.

During three contentious confirmation hearings last year, McCain and Warren took issue with the nominees’ “rotating back and forth between government” and several of the “big five” largest-grossing defense contractors – Lockheed Martin Corp., Boeing, General Dynamics Corp., Raytheon Co., and Northrop Grumman Corp.

“I will not vote to confirm nominees from industry who do not recuse themselves from matters involving their former employers for the duration required by their ethics agreements,” Warren said, “without waiver and without exception.”

Eisenhower Warning

Worries about too-cozy ties between the military and defense contracting giants aren’t new.

“In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex,” President Dwight Eisenhower, himself a retired general, warned just before leaving office in 1961. “The potential for the disastrous rise of misplaced power exists and will persist.”

There remain few ironclad protections against conflict-related abuses, government watchdogs say. The Trump White House prohibits senior officials hired into the Pentagon and other agencies from working on matters involving their former employers for two years – but officials can ask for recusal waivers, and such discussions, including whether the waivers have been granted, are kept secret.

“It’s clear that this administration values the experience of business executives over that of career civil servants,” Mandy Smithberger, director of the Straus Military Reform Project for the Project on Government Oversight, a Washington nonprofit group, told Bloomberg Government.

The shift has spurred an increased risk of abuse, Smithberger said. “The lack of transparency is a real concern,” she said. Without proper management of conflicts of interest, unfair competition can result, she said.

Worst-case scenarios could include everything from awarding contracts worth billions of dollars to a former employer, to not properly overseeing a program, to failing to account for cost overruns, she said. When contractors fail to deliver a promised system, or deliver an ineffective plane or ship that doesn’t meet national security needs, significant sums would be wasted.

Defense Secretary James Mattis – who was elected to a board seat with General Dynamics in 2013, and received at least $276,000 in fees from the company since then – has taken several steps to avoid actual and perceived conflicts.

Mattis stepped down from his board seat as a condition of confirmation. In his government ethics agreement made public a year ago, he also agreed to recuse himself, for a year, from participating “personally and substantially in any particular matter involving specific parties in which I know General Dynamics is a party or represents a party,” unless otherwise authorized to participate.

Shanahan set up a unique system to try to avoid conflicts, Bloomberg News reported last August. He signed a so-called “screening arrangement” to notify Mattis of issues involving Boeing.

The conflict alert system was set up to instruct both Mattis and Shanahan’s staff to refer “certain matters to another official” for decisions, the Bloomberg story said.

McCain pressed the conflict issue during November 2017 hearings for John Rood, the nominee for defense undersecretary for policy who previously worked as senior vice president with Lockheed Martin International, and Mark Esper, the Army secretary nominee who was Raytheon’s top lobbyist in Washington from 2010-17, earning more than $1.5 million from the company in his last year there, according to news reports.

Warren asked Rood if he would commit to forgo seeking a waiver from his two-year White House recusal pledge regarding Lockheed projects. McCain followed up, telling Rood, “You should not be making decisions that are related to your previous employment, or would affect the fortunes of one of them. So, I don’t like your answers. Most of us don’t like your answers.”

On Jan. 3, the Senate confirmed Rood by an 81-7 margin. McCain, who has been battling brain cancer, missed the vote. Warren voted no.

Valuable Expertise

Many Pentagon and contractor officials say the main benefit of drawing talent from industry is clear: contractor officials have direct experience designing and building weapons systems and related services.

“Just as it’s good to have former military personnel in Congress providing oversight over the military, it’s good to have former industry people in government providing oversight over industry,” John Luddy, the Aerospace Industries Association’s vice president for national security policy, told Bloomberg Government in a written statement. “They have the experience to know what is and is not reasonable in industry offerings. They know which questions to ask.”

The AIA includes as members the big five defense contractors, each of which declined to comment for this story.

Such experience allows officials to better calculate and manage risk, and realistically assess weapons project schedules, Andrew Hunter, director of the Defense-Industrial Initiatives Group at the Center for Strategic and International Studies, said in an interview.

Industry expertise is difficult to replicate in the other fields presidents often draw from when looking for defense leadership, such as think tanks, Capitol Hill staff and military officers and civilian staff, Hunter said.

Exit to Industry

Since Trump took office, several Obama-appointed defense officials have taken a time-honored path. They’re now working for the contractors whose weapons programs the Pentagon oversaw under their watch.

Former deputy secretary of defense Robert Work was elected to Raytheon’s board of directors about a month after leaving the Pentagon. Work praised Raytheon in December 2016 as a company that boasts “the best missileers in the world,” Defense News reported.

Frank Kendall, former undersecretary for acquisition, technology and logistics, was appointed to defense contractor Leidos’s board.

Former undersecretary for intelligence Marcel Lettre II is now vice president, national security, for Lockheed Martin.

Deborah Lee James, the former Air Force Secretary, joined Textron Systems’ board of directors.

Most recently, former assistant secretary of the Navy for research, development and acquisition Sean Stackley became a corporate vice president for L3 Technologies.

Former senior defense officials are subject to a range of restrictions involving working or lobbying on programs that they, or others within their company, handled while in the government.

The 2018 National Defense Authorization Act (Public Law 115-91) further tightened the rules for high-ranking former military officers and counterpart civilian Pentagon officials. Under the new defense authorization, former Executive Schedule III officials and higher – who include Work, Kendall, Lettre, and James – are subject to a two-year “cooling off” period, during which they can’t lobby Pentagon officials regarding any department projects.

In the wake of the Druyun case, the Pentagon made several regulatory and policy changes, Defense Department spokesman Patrick Evans told Bloomberg Government in a written statement. Among the changes: a requirement that all public financial disclosure filers certify annually to confirm their review and understanding of the federal post-government employment laws, and a mandate that post-government employment be included annual ethics training.

Senate-confirmed appointees must sign a White House ethics pledge, enter into an Office of Government Ethics-approved agreement that outlines steps taken to avoid conflicts, and divest of any Pentagon contractor stock, Evans said.

Mattis has instructed Pentagon leaders “to engage and work collaboratively with private industry – in a fair and open manner – to find ways to maintain the competitive advantage needed to fight and win the next war, as well as be good stewards of the money entrusted to us by U.S. taxpayers,” Evans said.”

https://about.bgov.com/blog/revolving-door-trump-pentagon-contractors-spins-faster/

 

 

The Dark Side of the “World’s Most Admired” Companies

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(Illustration modified from Jared Rodriguez / Truthout)

“THE PROJECT ON GOVERNMENT OVERSIGHT (POGO)”

“Fortune magazine recently released its 2018 list of the World’s Most Admired Companies. From a pool of roughly 1,500 candidates, Fortune picked the 50 “best-regarded companies in 52 industries.” 

Overall, these 50 companies have racked up thousands of misconduct instances and billions of dollars in penalties for a wide range of misbehavior including defective medical equipment, consumer fraud, unsafe workplaces, foreign bribery, environmental violations, and submitting false invoices on government contracts.”


“Apple topped the list for the eleventh year straight. General Electric plummeted in the last year from number 7 to number 30. Lockheed Martin and Adidas both cracked the top 50 for the first time.

Of course, Fortune’s ranking is somewhat skewed and self-serving. It is based on a survey of corporate executives and financial analysts. “Admiration” is measured according to criteria that emphasize companies’ financial shape over their track record of integrity and business ethics.

So, we took it upon ourselves to document the dark side of the world’s 50 most admired companies. Ten of the companies are in our Federal Contractor Misconduct Database (FCMD), which includes civil, criminal, and administrative misconduct instances dating back to 1995 for 220 of the federal government’s largest contractors. All but 3 of the top 50 are in Good Jobs First’s Violation Tracker corporate misconduct database, which includes enforcement data from the federal regulatory agencies and the Justice Department dating back to 2000 for over 2,800 companies. Both databases show that most of the companies have multiple instances of misconduct for which they paid millions of dollars in fines, penalties, judgments, and settlements.

Click on dollar figures in the table to go to the company’s summary page in the FCMD and Violation Tracker:

Fortune Rank Company FCMD Instances FCMD Misconduct Dollar Amount Violation Tracker Records Violation Tracker Penalty Total
1 Apple 1 $32,500,000
2 Amazon 26 $5,022,375
3 Alphabet 4 $541,507,657
4 Berkshire Hathaway 1 $896,000 2,205 $388,557,922
5 Starbucks 15 $4,204,571
6 Walt Disney 32 $9,503,247
7 Microsoft 1 $5,855,841
8 Southwest Airlines 289 $18,440,515
9 FedEx 58 $759,688,721 168 $16,841,391
10 JPMorgan Chase 77 $29,459,586,865
11 Netflix
12 Facebook 1 $5,600
13 Costco 35 $15,149,903
14 American Express 16 $350,226,556
15 Salesforce.com 1 $11,009
16 Nike 1 $24,040
17 Johnson & Johnson 23 $3,005,373,378
18 Coca-Cola 85 $7,061,416
19 BMW 4 $5,250,769
20 USAA
21 3M Company 56 $6,287,531
22 Home Depot 123 $14,631,028
23 BlackRock 4 $14,265,350
24 Marriott International 64 $2,560,108
25 Boeing 68 $1,456,813,493 51 $798,109,276
26 Walmart 235 $174,764,973
27 Goldman Sachs 21 $9,526,227,860
28 Nordstrom 7 $757,935
29 Toyota 22 $1,322,336,919
30 General Electric 62 $648,594,796 132 $325,158,028
31 Delta Air Lines 584 $278,282,059
32 Singapore Airlines 7 $48,082,000
33 UPS 18 $389,305,420 243 $75,052,672
34 Procter & Gamble 28 $837,281
35 IBM 26 $916,069,818 9 $20,453,203
36 Exxon Mobil 97 $3,242,127,429 248 $1,023,262,058
37 McDonald’s 19 $636,136
38 Target 57 $5,817,664
39 CVS Health 118 $738,534,720
40 Accenture 9 $124,219,559 1 $63,675,000
41 PepsiCo 108 $7,115,748
42 Adidas 2 $26,000,000
43 Caterpillar 70 $3,874,043
44 Unilever 16 $4,806,905
45 Intel 2 $894,000
46 Visa
47 Nestlé 58 $9,189,176
48 Lockheed Martin 85 $767,331,643 74 $158,774,793
49 AT&T 22 $311,615,102 164 $433,474,022
50 Charles Schwab 4 $118,441,800
Totals 445 $8,616,661,981 5,511 $49,067,425,343

Alphabet (#3) is the parent company of Google.

Berkshire Hathaway (#4) is a multinational conglomerate consisting of dozens of subsidiaries, including BNSF Railway Company. The vast majority of Berkshire Hathaway’s records in Violation Tracker are BNSF railroad safety violations. We are aware of only one misconduct incident involving the Berkshire Hathaway corporate entity itself: an $896,000 settlement with the Federal Trade Commission in 2014 over a financial reporting violation.

Two of the companies in the top 50 were in the news recently for questionable business conduct. Accenture (#40) paid $1.7 million to settle charges of overbilling the U.S. Army. Lockheed Martin (#48) agreed to a $4.4 million deal resolving allegations that it provided defective communications equipment to the U.S. Coast Guard.”

http://www.pogo.org/blog/2018/01/the-dark-side-of-the-worlds-most-admired-companies.html

Military Kills Recruiting Contracts for Hundreds of Immigrant Recruits

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Thirty-seven service members from 22 different countries take the Oath of Allegiance during a naturalization ceremony held at Bagram Air Field, Afghanistan on July 4, 2013. (Army/Sgt. Anita VanderMolen)  

“WASHINGTON POST”

“Many of these enlistees have waited years to join a troubled recruitment program designed to attract highly skilled immigrants into the service in exchange for fast-track citizenship.

U.S. Army recruiters have abruptly canceled enlistment contracts for hundreds of foreign-born military recruits since last week, upending their lives and potentially exposing many to deportation, according to several affected recruits and former military officials familiar with their situation.

Now recruits and experts say that recruiters are shedding their contracts to free themselves from an onerous enlistment process, which includes extensive background investigations, to focus on individuals who can more quickly enlist and thus satisfy strict recruitment targets.

Margaret Stock, a retired Army officer who led creation of the immigration recruitment program, told The Washington Post that she has received dozens of frantic messages from recruits this week, with many more reporting similar action in Facebook groups. She said hundreds could be affected.

“It’s a dumpster fire ruining people’s lives. The magnitude of incompetence is beyond belief,” she said. “We have a war going on. We need these people.”

The nationwide disruption comes at a time when President Trump navigates a political minefield, working with Democrats on the fate of “dreamers” — undocumented immigrants brought to the country as children — while continuing to stoke his anti-immigrant base. It was not immediately clear whether Pentagon officials have taken hard-line immigration stances from the White House as a signal to ramp down support for its foreign-born recruitment program.

Stock said a recruiter told her there was pressure from the recruiting command to release foreign-born recruits, with one directive suggesting they had until Sept. 14 to cut them loose without counting against their recruiting targets, an accounting quirk known as “loss forgiveness.”

The recruiter told Stock that the Army Reserve is struggling to meet its numbers before the fiscal year closes Sept. 30 and that canceling on resource-intensive recruits is attractive to some recruiters, she said.

On Friday, the Pentagon denied ordering a mass cancellation of immigrant recruit contracts and said there were no incentives to do so. Officials said that recent directives to recruiters were meant to reiterate that immigrant recruits must be separated within two years of enlistment unless they “opt in” for an additional year.

But some recruits among half a dozen interviewed for this article said they were not approaching that two-year limit when their contracts were canceled, sowing confusion about the reason they were cut loose. The Pentagon declined to address whether messages to recruiters contained language that could have been misinterpreted.

Lola Mamadzhanova, who immigrated to the United States from Kyrgyzstan in 2009, said she heard that Army recruiters in Evanston, Ill., texted immigrant recruits last week asking whether they still wanted to enlist, with an unusual condition: They had 10 minutes to respond. She never received the text message.

“The recruiters did some dirty trick just to get me out so I won’t be trouble anymore,” Mamadzhanova, 27, told The Post on Thursday. Her active-duty contract was canceled Sept. 7, according to a separation document obtained by The Post that said she “declined to enlist.” She later learned the recruiters used a wrong number to text her.

The senior recruiter at Mamadzhanova’s station contacted by The Post declined to comment and called Mamadzhanova seven minutes afterward to reverse previous guidance, saying her unlawful immigration status was the reason she was released. She enlisted in December 2015, which puts her three months outside the two-year limit.

Mamadzhanova was assured by other recruiters that her status would not be an issue and that she would ship for training soon after her immigration status slipped, around her enlistment date. Mamadzhanova, who is fluent in Russian, said the shifting and unclear rules have blindsided her.

“Joining the Army was a dream of mine since America has treated me so well,” she said. She applied for asylum in April, joining other recruits who have sought asylum or fled.

Some anti-immigration sentiment has swirled in the Pentagon for years, former staffers have said, with personnel and security officials from the Obama administration larding the immigrant recruiting process with additional security checks for visa holders already vetted by the Departments of State and Homeland Security.

“Immigrant recruits are already screened far more than any other recruits we have,” Naomi Verdugo, a former senior recruiting official for the Army at the Pentagon, told The Post.

“It seems like overkill, but there seems to be a sense that no matter what background check you do, it’s never enough,” she said. Verdugo, along with Stock, helped implement the recruitment program.

One Indian immigrant, a Harvard graduate and early recruit who is now a Special Forces soldier, was called back to undertake the updated security checks, she said.

“Even though you’re in the Army, even though you’re naturalized, these policies say ‘we’re not going to treat you like any other soldier,’” Verdugo said of the concerns over immigrants held by some at the Pentagon.

Internal Pentagon documents obtained by The Post have said the immigrant recruitment program, formally known as the Military Accessions Vital to National Interest (MAVNI) program, was suspended last fall after the clearance process was paralyzed and officials voiced concern over foreign infiltrators, though it remains unclear whether any threats have ever materialized.

Experts say the relatively small number of recruits in the MAVNI program possess skills with outsize value, such as foreign languages highly sought by Special Operations Command. The program has rotated 10,400 troops into the military, mostly the Army, since its inception in 2009.

Although the military says it benefits from these recruits, they can generate a disproportionate amount of work for recruiters who must navigate regulations and shifting policies. The layered security checks can add months or years to the enlistment process, frustrating recruiters who must meet strictly enforced goals by quickly processing recruits.

In a summer memo, the Pentagon listed 2,400 foreign recruits with signed contracts who are drilling in reserve units but have not been naturalized and have not gone to basic training. About 1,600 others are waiting to clear background checks before active duty service, the Pentagon said.

The document acknowledges 1,000 of those troops waited so long that they are no longer in legal status and could be exposed to deportation. That number probably has climbed since the memo was drafted in May or June. Lawmakers have asked Trump and Defense Secretary Jim Mattis to intervene on behalf of those recruits.

Sens. Kamala D. Harris (D-Calif.) and Richard J. Durbin (D-Ill.) filed an amendment in the defense authorization bill Tuesday to retain MAVNI recruits until their lengthy background investigations are finished.

“These brave men & women enlisted & the Administration turns its back on them,” Harris tweeted Friday. “We must pass Sen. Durbin’s & my bill to protect these recruits.”

During July 19 testimony in a lawsuit filed by recruits who said the federal government unlawfully delayed their naturalizations, Justice Department attorney Colin Kisor assured a district court in Washington that recruits would see their contracts canceled only if “derogatory” information was found in extensive background investigations.

Mamadzhanova and others said their screenings, which take months to complete, have begun recently and could not have returned results.

Meanwhile, confusion reigned for recruits in multiple states.

At one office in Illinois, a senior recruiter restored a contract less than two hours after The Post inquired about a case. In Texas, a recruiter did the same 12 minutes after a call seeking to confirm whether a recruit’s contract was canceled.

An immigrant recruit who came to the United States in 2006 and enlisted in Virginia said her contract was canceled Tuesday after she had waited for two years, just as her legal immigration status expired. She asked to opt-in for another year, but her contract was dissolved days later, she said.

Recruiters had assured her, saying her contract was a shield from federal immigration authorities, she said. She spoke on the condition of anonymity for fear of retribution.

She now fears deportation to her native Indonesia, which strips native-born people of citizenship if they enlist in a foreign military or pledge loyalty to another country, as she has done.

“I feel devastated,” she said. “The Army was my only hope.”

Disaster Relief Needs Oversight to Stop Waste and Fraud

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Katra Fraud Image FBI.gov

Image:  FBI.gov

“THE PROJECT ON GOVERNMENT OVERSIGHT (POGO)”

“Better oversight on the front end can prevent fraud and keep the government from doing business with dishonest or under-qualified contractors.

Congress and the administration must ensure that our money is responsibly spent on assistance to communities in need rather than lining the pockets of disaster profiteers or otherwise wasted.”


“In the wake of Hurricane Harvey, Houston and vast swaths of south and east Texas have been devastated. Wildfires currently rage in Oregon and Washington State, leading to mandatory evacuations in some communities. Hurricane Irma in the Atlantic has strengthened to a powerful Category 5 storm; it threatens U.S. territories in the Caribbean, as well as Florida and the southeastern United States.

Despite an outpouring of community support and neighborly charity, large natural disasters require billions of dollars in aid from the federal government for short-term and long-term needs such as housing, cleanup, and infrastructure rebuilding. The aid is spent directly by federal agencies like the Federal Emergency Management Agency (FEMA), funneled to state and local governments, and outsourced to contractors.

Congress is rightfully planning on passing legislation to provide disaster relief.  For guidance on how to implement robust disaster aid oversight, policymakers might want to read POGO’s 2006 report on lessons from Hurricane Katrina, or the final report of Congress’s Select Bipartisan Committee to Investigate the Preparation for and Response to Hurricane Katrina.

The potential for waste and fraud is great. In an annual report issued in 2012, the Justice Department’s Disaster Fraud Task Force stated that, “In cases related to Hurricanes Katrina, Rita and Wilma alone, the task force through FY 2011 prosecuted 1,439 individuals in 47 federal districts throughout the country. These prosecutions involved a wide variety of fraudulent activity, including charity scams, government and private-sector benefit fraud, identity theft, contract and procurement fraud, and public corruption.”

The Justice Department continues those efforts. Its National Center for Disaster Fraud is based in Louisiana and is run by Corey Amundson, the Acting U.S. Attorney for the Middle District of Louisiana. He recently spoke with NPR about the risks of fraud in the wake of Hurricane Harvey.

“It starts with charity fraud, contractor fraud, emergency assistance fraud. And it evolves into program fraud as the monies come from the federal government,” Amundson said. He predicted that “this will likely be a 5- to 7-year odyssey and war against this fraud in its various iterations.”

False Claims Act case prosecuted by Amundson’s office 5 years after Hurricane Katrina highlights how these fraud schemes work and provides lessons on how to prevent similar situations from occurring.

Less than a week after Katrina made landfall in Louisiana in 2005, C. Henderson Consulting, Inc. (CHCI), a small consulting company in Texas, won a $5.2 million contract from FEMA to provide ambulances to help medical personnel evacuate hospitals and nursing homes dealing with the flooding and devastation wrought by Katrina. The FEMA contract was awarded through the General Services Administration (GSA), initially for a period of 60 days. With subsequent amendments to the contract, its value shot up to nearly $19 million. The company would earn $3,100 per day for each ambulance provided.

CHCI was supposed to provide roughly half of the 100 ambulances FEMA contracted to help with the evacuation. Yet the company and its owners, Charles Henderson and Richard Bell, “had never before been in the ambulance business, and had no prior experience providing this type of service,” according to the complaint the U.S. Attorney’s office filed in the case.

“Despite this lack of experience, Henderson held himself out to GSA and FEMA as the owner of an ambulance company, i.e., (CHCI) and able to provide properly equipped ambulances and qualified staff to operate them,” the complaint alleged. According to the government, after winning the FEMA contract Henderson and his company quickly cobbled together relationships with subcontractors who were able to provide some ambulances and personnel, but not enough of either. However, CHCI proceeded to bill FEMA for ambulances it never provided. On September 4, 2005—six days after Katrina struck New Orleans—CHCI billed for 19 ambulances when it actually provided 11. On September 10, CHCI charged FEMA for 66 ambulances but only provided 27.

FEMA took them at their word and overpaid, according to the lawsuit. The government accused CHCI of bilking taxpayers of nearly $2 million.

Charles Henderson settled the lawsuit in 2011 by agreeing to pay the government nearly $3 million.

After Katrina, there was a widespread ambulance shortage in the region. Thus, disaster relief fraudsters not only put taxpayer dollars at risk, but lives as well.

Congress’s investigative arm, the Government Accountability Office (GAO), referred to the CHCI contract and other egregious instances of fraud and waste in a 2006 report that recommended ways to improve federal disaster recovery contracting practices.

“Our fieldwork identified examples where unclear responsibilities and poor communications resulted in poor acquisition outcomes,” the GAO reported. “FEMA tasked GSA to write three contracts in Louisiana for base camps, hotel rooms, and ambulances, with a total value of over $120 million. GSA contracting officers awarded the contracts, but could not tell us which FEMA officials would be responsible for overseeing contractor performance. The FEMA official identified as the main point of contact by GSA did not have any knowledge of these contracts or who was responsible for oversight.” [emphasis added]

In our 2006 report on Hurricane Katrina, POGO observed that “poor oversight in the award and monitoring stages of contracting is one of the most recurrent problems in the federal government’s response to Hurricane Katrina.” In an era of Yelp, Angie’s List, and online Better Business Bureau listings, not to mention the government’s own digital databases on past performance and contractor responsibility, there is no excuse for awarding multi-million dollar contracts without performing adequate due diligence beforehand, even in the midst of an ongoing disaster.

On the back end, oversight offices such as the Department of Homeland Security’s Office of Inspector General (DHS OIG) are critical to catching bad actors. While the Justice Department prosecuted the CHCI ambulance fraud case, it was DHS OIG that investigated the matter and arrested the company’s owner, according to the Disaster Fraud Task Force’s 2012 report. According to the report, “through the efforts of DHS OIG, 81 persons were indicted or otherwise criminally charged, and 143 individuals were convicted, in disaster fraud investigations.”

But DHS OIG’s budget may be facing a cut, even as disaster-related spending at FEMA, in addition to spending on border security and immigration enforcement at other DHS offices, is ramping up.

As Congress appropriates disaster relief funds to help communities in need, it must put a high priority on oversight. A dollar lost to fraud or waste is a dollar that isn’t helping Americans struggling in the wake of a disaster.”

http://www.pogo.org/blog/2017/09/disaster-relief-needs-oversight-to-stop-waste-and-fraud.html

General Mattis and Special Inspector General Sopko Agree on “Spoils of War”

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Mattis and SIGAR

“THE PROJECT ON GOVERNMENT OVERSIGHT”

“When the head of an agency actually listens to the findings of an Inspector General (IG), great things can happen.

June 2017 report by the Special Inspector General for Afghanistan Reconstruction (SIGAR) prompted Secretary of Defense Jim Mattis to acknowledge and denounce the Department of Defense’s (DoD) dismissive attitude towards reigning in its overspending of taxpayer dollars, and to highlight the good work done by SIGAR.

The official memo to DoD leadership, dated July 21, discusses SIGAR’s report on camouflage uniform misspending in Afghanistan, while also pointing out and decrying DoD’s “complacent mode of thinking” when it comes to spending in general. Mattis found that SIGAR’s report highlighted two truths about DoD work:

1) Every action contributes to the larger missions of defending the country

2) Procurement decisions have a lasting impact on the larger defense budget

Mattis uses these truths to reinforce the importance of effective spending at DoD, and wants to use SIGAR’s report and the instances of misspending it found as a “catalyst to bring to light wasteful practices – and take aggressive steps to end waste in [DoD].”

While this is potentially great news and a marked shift in DoD rhetoric, it is important to note that stating a problem exists is not the same as taking concrete action to fix it. Just last year, DoD was working to discredit SIGAR over a report on a $43 million gas station in Afghanistan, rather than working to fix the problem. Moreover, the $28 million in misspending that this most recent SIGAR report focused on and that drew Mattis’s attention is nothing compared to the waste, fraud, and abuse occurring in the larger defense budget (over $300 billion of which was spent on goods and services in 2016). It is important to remember that DoD is not known for its willingness to proactively address its spending issues, but is rather known for actively resisting efforts to increase transparency and accountability. (See, for instance, POGO’s work on DoD’s reluctance to examine its contracts for improper payments & DoD still not being able to pass an audit.)

It will take more than this memo for DoD to change the way it spends taxpayer money, but publically acknowledging the truth of SIGAR’s findings and trying to leverage that work for change—rather than fighting against and resisting the IG at every turn—is an important first step.

It is even more important, however, that DoD truly works towards achieving effective spending on an agency-wide scale.”

http://www.pogo.org/blog/2017/07/secdef-mattis-commends-ig-efforts-highlights-dod-shortcomings.html

The US Military’s Iran Connection?

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Military and IRAN

(Photo: KGL Logistics logo, Iran rials by Serova / Flickr)

“THE PROJECT ON GOVERNMENT OVERSIGHT”

“The chairman of a key US military contractor in the Middle East was recently charged with multiple felonies in a major fraud, money laundering, and public corruption scheme.

Fraud and money laundering charges are only the latest in a string of KGL controversies in recent years.

There have been accusations of business ties to Iran in violation of US sanctions, and of systematic leaking of sealed and privileged federal court documents and other sensitive material to KGL’s Washington lawyers by the Defense Logistics Agency (DLA), the DoD component that oversees KGL’s US military contracts.

According to court papers in Kuwait, where the charges were filed, misappropriated investor money so far totals more than $160 million, a figure that could go higher, the Project On Government Oversight (POGO) has learned. The contractor, Kuwait and Gulf Link Transport, better known as KGL, is a publicly traded conglomerate with hundreds of millions of dollars in US military contracts. The criminal charges, together with other court documents and unreported revelations made by former executives of a KGL affiliate in a US lawsuit, involve KGL’s possible violation of US sanctions against Iran, and accusations of potentially illicit flows of cash from Russia, Iran, and Syria. Taken together, the allegations raise troubling questions about the American military’s heavy reliance on the firm.

The 2017 criminal indictment by Kuwaiti prosecutors points specifically to a KGL affiliate, called KGL Investments (KGLI), as the alleged nexus of fraud and money laundering inside company headquarters from 2007 to 2015.

Two former KGLI executives have also made related allegations in little-noticed 2013 sworn statements filed in a US lawsuit. One executive said he was told by his KGLI boss that Iran’s state-owned shipping company, sanctioned by the United States in 2008 as a nuclear proliferator, was “KGL’s vehicle to Iran and she further told me that…[it] made a lot of money for KGL.”

The executive also said, “Specifically, it appeared to me that KGLI was engaged in money laundering, and presenting false financial information to investors.”

A spokesperson for KGL told POGO that, “Notwithstanding the name, KGL Investments is neither owned nor controlled by any of the KGL group of companies. No KGL entity is a party to the legal proceedings in Kuwait. The Kuwait courts will address and resolve the disputed allegations.” KGL has long denied it has ever violated US sanctions in any way.

However, KGL Investments, KGL, and many of its subsidiaries are co-located in the same office building and directed, in part, by KGL’s just-indicted chairman, who is also a director of KGLI, according to court papers. The indictment says that a portion of the embezzled funds was channeled to KGL component companies.

Also targeted in the criminal complaint against KGL’s chairman is the Vice-Chairman of KGLI. Convictions could result in jail sentences. Court documents list victims of the alleged fraud as key government departments: Kuwait’s Public Institution for Social Security and its Ports Authority. The Ports Authority serves as a staging area for America’s ongoing military involvement in Iraq, and was indispensable to US Central Command (CENTCOM) in both the first and second Gulf Wars and occupation of Iraq.

According to an official in Kuwait, senior US military personnel at the American embassy and at Camp Arifjan, a large American base in Kuwait, were officially informed of the criminal indictment, and received written copies of the details. This was done, the official said, because the indictment targets executives related to a major US military contractor, allegedly involved in stealing from important Kuwaiti institutions. In a separate dispute, the Ports Authority recently banned KGL from operating in the port. It remained unclear what action, if any, the US military might take in response. Spokespersons at CENTCOM, the Department of Defense, and the US Army’s Contracting Command all declined to comment.

What Happens Next?

Further revelations about KGL or its subsidiaries, or a conviction of one or both of the indicted executives, could call into question the conglomerate’s grip on sizable US military contracts, and its eligibility to receive future awards. Beyond the large contracts it already has, KGL is currently in line for a sizable share of the new so-called Heavy Lift VIII (HL8), a $200 million transportation-services deal that the US military could assign by August. But there is the possibility the award could run afoul of federal contracting rules, which require ethical conduct and the avoidance of serious crimes.

According to contracting rules, officially known as the Federal Acquisition Regulation (FAR): “Purchases shall be made from, and contracts shall be awarded to, responsible prospective contractors only.” The FAR goes on to specify that, “… To be determined responsible, a prospective contractor must … have a satisfactory record of integrity and business ethics.” The regulation notes that contractors may be subject to debarment, suspension, or ineligibility if they are convicted or face a civil judgment for fraud, embezzlement, or “any other offense indicating a lack of business integrity or business honesty that seriously and directly affects the present responsibility of a Government contractor or subcontractor.”

In December, the Iran Sanctions Act was extended by 10 years on a 99-0 vote in the Senate, and a 419-1 vote in the House of Representations. The law states that the federal government “shall terminate a contract with such person or debar or suspend such person from eligibility for Federal contracts for a period of not less than 2 years” if they are found to have falsely certified to be in compliance with US sanctions against Iran.

KGL has repeatedly said it complied with provisions of the FAR.

A Hearing in Court

The criminal charges against KGL executives are the result of a four-year probe by Kuwait’s national security police. A court hearing on the matter in Kuwait was held on May 21, and another is scheduled for June 11. Among other records, POGO obtained a 21-page copy of a charge sheet dated May 9, 2017 (in Arabic).

The document names three defendants. Saed Dashti, 61, is chairman of KGL. Maria [Marsha] Lazareva, 44, is Vice-Chairman and Managing Director of KGLI, where Saed Dashti also serves as a director. A third defendant, Mohamed Al-Asfour, 71, is a senior public official: the executive vice-chairman of Kuwait’s Ports Authority.

Documents describe Lazareva as a Russian national. She was educated at the Wharton business school and public records associate her with real estate ownership in the Philadelphia area. According to news accounts, she showed up in court for the May 21 hearing, protesting her innocence.

The indictment says Dashti and Lazareva transferred large sums of investors’ money to their own private accounts and to a variety of KGL subsidiaries or related companies between 2007 and 2015. They did this, court documents say, partly using a network of financial institutions including the Hong Kong and Shanghai Banking Corporation (HSBC) and one of its branches in the Cayman Islands. The bank also has branches in the United States, Kuwait, Asia, and other parts of the world. It’s unclear whether any of the allegedly embezzled funds passed at some point through the American financial system, which could trigger a US investigation.

A civil lawsuit involving KGL in Pennsylvania has brought to light accusations that could bear directly on the alleged fraud and money laundering scheme in Kuwait. The lawsuit, brought by KGL, charges the firm’s principal competitor, Agility Public Warehousing Co., with defaming KGL’s reputation by falsely claiming it had ties to Iran.

Saed Dashti and Marsha Lazareva

Saed Dashti and Marsha Lazareva (Source: Instagram)

 

Testimony in the Pennsylvania case—which is ongoing—includes declarations sworn in 2013 by a pair of former executives of KGL Investments, as part of Agility’s defense. Both said Dashti and Lazareva misinformed investors about KGLI’s financial condition, and one of the executives reported they had made repeated trips to Russia, Iran, and Syria in an apparent attempt to shore up KGLI’s faltering finances.

The two former KGLI executives testified that Dashti and Lazareva occupied offices on the same floors and hallways at KGL’s headquarters in Kuwait along with other subsidiaries.

One of the executives who testified, Ahmed Mabrouk, is an American citizen currently employed in the US financial industry. Court records identify him as former KGLI Vice-President Investments, a job where he testified he spent 18 months in 2008 and 2009 (a period covered by the 2017 criminal indictment) helping to analyze KGLI’s so-called “Port Fund,” an entity that invested in marine facilities around the Middle East and elsewhere. Under oath, Mabrouk said:

“Ms. Lazareva described to me the Islamic Republic of Iran Shipping Lines (IRISL) as KGL’s vehicle to Iran and she further told me that IRISL made a lot of money for KGL. When I was employed at KGLI, I observed Ms. Lazareva in her office reviewing documents related to IRISL, which bore the logo of IRISL, as well as the Iranian emblem.”

The declaration of Mabrouk, who could not be reached for comment, did not include documentary or other evidence to support his statement.

The United States, European Union (EU), and United Nations (UN) have all imposed sanctions on IRISL, Iran’s state-owned shipping company and a former joint-venture partner with KGL. Referring to US sanctions, applied in 2008, then-Treasury Under Secretary for Terrorism and Financial Intelligence Stuart Levey explained:

“Not only does IRISL facilitate the transport of cargo for U.N. designated proliferators, it also falsifies documents and uses deceptive schemes to shroud its involvement in illicit commerce. IRISL’s actions are part of a broader pattern of deception and fabrication that Iran uses to advance its nuclear and missile programs.”

In his declaration, Mabrouk said, “I reviewed KGLI’s internal financial statements and observed that KGLI consistently had a negative cash flow.” Mabrouk also testified that he looked at “…financial statements that had been provided to investors. The financial statements provided to investors consistently, and in bad faith, misrepresented financial data regarding KGLI and its portfolio companies’ actual financial condition.”

Concern about KGLI’s financial condition, according to Mabrouk, caused KGLI’s banks to stop lending it money, creating a cash squeeze. And that led to “fundraising” trips by Dashti and Lazareva, he said:

“I understood that Ms. Lazareva and Saeeed (sic) Dashti took a number of trips on private planes to, among other places, Iran, Syria and Russia. Following each trip, I observed in KGLI’s internal financial statements an influx of funds into KGLI’s accounts. Ms. Lazareva told me and others at KGLI that these trips were for ‘fundraising;’ however, to my knowledge, such fundraising was not tied to any formalized investment process.”

Mabrouk did not say what, if anything, KGL Investments did in exchange for the money it allegedly received, or that he knew specifically that inflows had come from Iran, Syria, and Russia, even though he said the pair had travelled there.

Mabrouk did specify that Lazareva at one point asked him to travel to Syria to “review a potential investment in a port,” but he refused because that country was under US sanctions. Because Mabrouk also holds an Egyptian passport, he said Lazareva told him to use that travel document instead of an American passport. When he refused a second time, it set off a chain of events which, he said, led to his departure from the company.

Another KGLI executive also offered testimony in the same Pennsylvania court case. Wael Salam, an American citizen who worked for KGLI both in Kuwait and in Atlanta, said he was the firm’s Chief Investment Officer. He said both Dashti and Lazareva were directly and deeply involved in decision-making at the firm. He also reported that KGL funded KGLI with money from its subsidiaries as well as seeking contributions from outside investors.

Salam said that, from his perspective as an insider at the company, making profits did not appear to be KGLI’s principal goal, at least given its decision to sink its money and assets from its “Port Fund” into a variety of failing or near-bankrupt facilities in Egypt, Pakistan, and other countries.

Four years before the criminal indictments in Kuwait, Salam testified that he wanted to leave KGLI “…because I believed it was engaging in illicit activities … Specifically, it appeared to me that KGLI was engaged in money laundering, and presenting false financial information to investors.” His statements also show that Salam was trying to raise money to start his own investment fund after he left KGLI, which the company cited as one of the grounds for his dismissal. He could not be reached for comment.

Salam said Lazareva asked him on multiple occasions to visit Iran, sometimes without explanation and at other times to evaluate a port investment. When he refused because Iran was under US sanctions, she suggested that he, too, use his Egyptian passport. He again refused to go and, following a series of disputes and alleged high-pressure tactics by the company, was fired.

A KGL representative declined to comment to POGO on the testimony of Mabrouk or Salam.

More Ties to Iran

The Pennsylvania court case recently provided additional information about KGL’s relationship with Iran, a controversy that stretches back into the Obama Administration. As evidence emerged indicating possible sanctions violations by KGL in its joint ownership of ships with IRISL, Ashton Carter, then Under Secretary of Defense for Acquisition, Technology and Logistics and later Secretary of Defense, wrote to US lawmakers who had inquired about the situation.

In letters to Senators Claire McCaskill, Robert Menendez, Mark Kirk, Robert Bennett, and others in 2011, Carter wrote that DoD could find “no substantial information” that KGL had continuing ties to Iran that would prevent it from holding US military contracts. By that time, the company had publicly announced its decision to end all business dealings with Iran in compliance with US law.

Since then, however, as part of legal discovery in the Pennsylvania court case, KGL has divulged emails and documents, and offered testimony from one of its former executives that appear to show it did have business with IRISL—at a time when Under Secretary Carter was telling Congress just the opposite. At least that is the argument set forth in an extensively documented summary of KGL’s own internal records filed by KGL’s adversary in the Pennsylvania case. Among other things, the summary cites those KGL records showing that its joint venture with IRISL made “at least 63 financial transactions” with the Iranian shipper after US sanctions had been imposed. In another example from the summary, a former KGL executive, Allan Rosenberg, gave the court a statement describing how he set up a “ghost structure” email system that resulted in the concealment of KGL’s continuing business with the Iranian-owned company.

A KGL spokesperson declined to comment on the summary or on Rosenberg’s statement.

Airplane Parts for Iran?

In May last year, Fuad Dashti, a brother of the recently indicted Saed Dashti—both members of the wealthy Kuwaiti family that controls KGL—was arrested at San Francisco International Airport. He was charged with involvement in illegally selling aircraft parts to Iran, according to a senior US official, and brought to Washington, DC, apparently for questioning by the FBI. One official at the time described him as, “singing like a bird” while in US custody. Fuad Dashti has since been allowed to leave the United States and was photographed some months ago in Doha, Qatar. At the time of his arrest, a KGL spokesman told POGO that “the alleged conduct [of Fuad Dashti] does not involve KGL or any of its affiliates and that Mr. Fuad Dashti was not acting as a KGL employee or representative.”

However, Fuad Dashti maintains ongoing financial ties to KGL, and has been listed as a top executive and part owner of National Cleaning Company, which is partly owned by KGL. According to the recent indictment in Kuwait, Saed Dashti also owns a share of National Cleaning, though it is unclear whether misappropriated funds were diverted to the company. There was no reply to POGO’s repeated attempts to reach Fuad Dashti, including a message left at a California house where he is listed as owner.

Key Questions Remain

The criminal indictment of KGL’s chairman adds to a growing roster of unresolved issues swirling around the company and its role as a contractor with hundreds of millions of dollars in business with the US military. Questions surrounding the company’s possible financial ties to Iran, and even Syria and Russia, raise national security concerns at a time when those countries are actively engaged in confronting American interests.

America’s federal acquisition regulations require ethical conduct from companies and their leaders. The large body of evidence in Kuwait’s extensively documented fraud and money laundering case raises doubts whether that requirement is being met.

So, too, does the arrest of Fuad Dashti, long a key figure in KGL’s controlling dynasty, on charges of commercial dealings with Iran. Yet the US government has made virtually no public statements about the matter. The fact that KGL, as long ago as 2011 and perhaps earlier, has been the focus of a probe led by the FBI into its ties with Iran only adds to the doubts. Again, no result of that investigation has ever been made public. And the same is true of the US official response to a well-documented pattern of leaks to KGL’s Washington lawyers by the Defense Logistics Agency. Senior US officials have told POGO that the DoD’s Office of General Counsel and its Defense Criminal Investigative Service have looked at or been made aware of the matter. Yet neither has made a public statement about the issues.

Indeed, years of requests for information about KGL from agencies ranging from DoD to the Treasury’s Office of Foreign Assets Control have been met with incomplete answers and, on occasion, with apparently inaccurate information. Given that result, Congress needs to clear up what is going on with KGL and its huge government contracts, because federal agencies appear unable or unwilling to shed light on the issue, or credibly resolve it.

Given the new criminal charges lodged against KGL’s chairman, the American public needs to know whether the company is a responsible and deserving recipient of US taxpayer funds. To find out, Congress should look into what the FBI and other agencies have learned after years of investigating the company’s conduct, and inform the public of what it learns.

Of course KGL is not the only logistics contractor the US military could rely on. Its principal competitor, and one of the largest single US contractors in the Iraq war, is Agility Public Warehousing Company. Yet Agility, too, has faced its share legal problems: the Department of Justice recently settled criminal, civil, and administrative charges against it. In the criminal case, which began in 2009, DOJ sought hundreds of millions of dollars in compensation for alleged overcharging.  In the end, Agility was only required to “pay a maximum of $551…in restitution.” In the civil case, the company agreed to pay $95 million, ending its suspension and allowing it to bid once again on US government contracts.

Taken together, Agility’s recently resolved legal problems and the new criminal charges against KGL’s chairman highlight the need for Congress and the Defense Department to reevaluate a contracting framework that has made America’s military the captive of two giant companies in one of the most strategic parts of the globe, an area where US forces cannot operate without extensive logistical support. As an alternative to this dysfunctional system, Congress and the Defense Department should examine how to foster more competition by explicitly encouraging the Pentagon to make deals with a wider variety of market participants.”

http://www.pogo.org/our-work/articles/2017/us-top-militarys-iran-contracting.html