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Military Corruption

The US Defense Department seeks to guard against waste, fraud, and abuse. Misuse of taxpayer funds undermines confidence in government programs, hurts legitimate beneficiaries, and squanders scarce resources. Given the size of the Federal Government, given any project that is at the level of activity, for anyone who says that there is no waste or fraud or abuse simply doesn't realize that a little bit of an examination will sometimes turn up some interesting behavior. People who may be well-intentioned, but are involved in waste, fraud and abuse aren't always involved in criminal activity.

The US Defense Department is the largest, the most complex, the most diverse, and arguably the most important entity on the face of the Earth, bar none. With an entity like that, waste, fraud, abuse and mismanagement will never be zero, but managers have zero tolerance for it, and try to do everything that we can to minimize fraud, waste, abuse, and mismanagement. The full extent of fraud associated with Pentagon contracting cannot be fully determined at this time, due to faulty and incomplete reporting and implementation.

In 2018, DOD reported to Congress that from fiscal years 2013 to 2017, over $6.6 billion had been recovered from defense contracting fraud cases. Over the past two decades, virtually every major defense contractor in the U.S. has paid billions of dollars in fines and settlements for misconduct and fraud – all while making significant profits on government contracts. About half of the Pentagon’s budget goes directly into the hands of private contractors.

The Government Accountability Office (GAO) released a report 20 September 2021 requested by House Oversight and Reform Committee Chairwoman Carolyn B. Maloney (D-N.Y.) and Senate Budget Committee Chairman Bernie Sanders (I-Vt.) that found the Department of Defense has not finalized and implemented a comprehensive approach to combat department-wide fraud. Despite the Pentagon regularly signing contracts worth hundreds of billions of dollars, the Department’s ability to conduct fraud risk assessments and report procurement fraud risk remain incomplete and inadequate.

“The Pentagon doesn’t seem to want to get serious about combatting the fraud, waste, and financial mismanagement that has been its legacy for decades,” said Sen. Sanders. “They don’t seem to want to get serious about spending taxpayer dollars wisely and effectively. Well, I think we can all agree, that is absolutely unacceptable. Currently, the U.S. spends more on our nation’s military than the next thirteen countries combined. Meanwhile, half of our people are living paycheck to paycheck, just under 40 million Americans are living in poverty, and over 600,000 Americans are homeless including roughly 40,000 veterans. The time is long overdue for the Defense Department to be held to the same level of accountability as the rest of the government.”

“This independent report shows that the Trump Administration utterly failed to address the Pentagon’s longstanding problems with financial management, including procurement fraud,” said Chairwoman Maloney. “This failure to safeguard taxpayer dollars is completely unacceptable, and I urge the Biden Administration to quickly and fully implement GAO’s recommendations and put the Defense Department on a path to operate more efficiently and effectively, with the confidence that it is not spending money on fraudulent contracts.”

The Pentagon is the largest contracting agency in the federal government and generally accounts for about two-thirds of all federal contracting activity, obligating more than all civilian federal agencies combined. GAO’s review examined Department of Defense fraud risk management activities for the period of October 2019 through September 2020.

“Fraud poses a significant risk to program integrity and erodes public trust in the government,” according to GAO’s report. “In fiscal year 2020, DOD obligated approximately $422 billion on contracts. The scope and scale of this activity makes DOD procurement inherently susceptible to fraud.” GAO also reported that, “given the billions of dollars DOD spends annually on procurement, failing to manage and mitigate fraud effectively may ultimately adversely affect DOD’s ability to support the warfighter.”

There is a continuing threat to Government operations from individuals intentionally using the Government's acquisition system to line their own pockets at taxpayer expense, thereby risking the health and welfare of the members of the Armed Services. Procurement fraud squanders limited funds, threatens safety, cheats American taxpayers, and harms DOD efforts to obtain needed goods and services for troops. Presidential Executive Order 12731 requires all federal employees to disclose suspected waste, fraud, abuse, and corruption to appropriate authorities. Within DCMA, the Contract Integrity Center is the required and appropriate authority for referral of contractor fraud matters. In addition, staff can report other instances of internal DCMA waste, fraud, and abuse to the DCMA Hotline, DCMA Ombuds or the Office of General Counsel. Outside of DCMA, personel may make such reports to a variety of authorities, including the Office of Special Counsel and the DODIG.

Established in 1982, the Department of Defense Office of Inspector General [DoD OIG] is an independent office within the DoD that conducts oversight of DoD programs and operations. The DoD OIG is authorized “to have timely access to all records, reports, audits, reviews, documents, papers, recommendations, or other material available to [any DoD Component] which relate to programs and operations” of the DoD, as stated in section 6(a)(1) of the IG Act. The DoD OIG’s mission is to detect and deter fraud, waste, and abuse in DoD programs and operations; promote the economy, efficiency, and effectiveness of the DoD; and help ensure ethical conduct throughout the DoD. The DoD OIG carries out its mission with a workforce of approximately 1,800 auditors, evaluators, criminal and administrative investigators, attorneys, support staff, and contractors.

For the reporting period of April 1, 2021 through September 30, 2021, the DoD OIG completed multiple criminal investigations, some conducted jointly with other law enforcement organizations, resulting in 154 arrests, 139 criminal charges, 124 criminal convictions, $360.8 million in civil judgments and settlements, and $456.3 million in criminal fines, penalties, and restitution ordered. In addition, the DoD OIG completed 15 senior official, reprisal, and restriction investigations, and oversaw 152 senior official, reprisal, and restriction investigations completed by the Military Service and Defense Agency OIGs.

In the six month period from 01 October 2021 through 31 March 2022, the DoD OIG completed 301 criminal investigations, some conducted jointly with other law enforcement organizations, resulting in 125 arrests, 131 criminal charges, 159 criminal convictions, $740.5 million in civil judgments and settlements, and $189.2 million in criminal fines, penalties, and restitution. In addition, the DoD OIG completed 8 senior official, whistleblower reprisal, and Service member restriction investigations, and oversaw 155 senior official, whistleblower reprisal, and Service member restriction investigations completed by the Military Service and Defense agency OIGs.

The DoD OIG’s Defense Criminal Investigative Service (DCIS) investigates criminal matters related to DoD programs and operations. Procurement fraud investigations are a major portion of DCIS cases. Procurement fraud includes cost and labor mischarging, defective pricing, price fixing, bid rigging, and defective and counterfeit parts. The potential damage from procurement fraud extends well beyond financial losses. This crime poses a serious threat to the DoD’s ability to achieve its objectives and can undermine the safety and operational readiness of Service members.

DCIS investigates criminal and civil cases involving counterfeit, defective, substandard, or substituted products introduced into the DoD supply chain that do not conform with contract requirements. Nonconforming products can threaten the safety of military and Government personnel and other end users, compromise readiness, and waste economic resources. In addition, when substituted products are provided to the DoD, mission-critical processes and capabilities can be compromised until the substituted products are removed from the supply chain.

DCIS works with Federal law enforcement partners, supply centers, and the defense industrial base, in working groups and task forces, to investigate allegations that DoD contractors are not providing the correct parts and components to meet contract requirements. Financial crimes range from theft to fraud involving the unlawful conversion of the ownership of money or property for personal use and benefit. Financial crimes include money laundering, forgery, and counterfeiting.

A Few Examples

From June 1996 through June 2001, Robert Neal served as the Director of the Office of Small and Disadvantaged Business Utilization (SADBU) within the Office of Secretary of Defense. From this position, Neal directed policy and allocated multimillion dollar resources for DOD’s acquisition preference programs for small and disadvantaged businesses. Francis Jones served as Neal’s special assistant from May 1999 until January 19, 2001. Neal and Jones conspired to extort and to accept bribes and gratuities from companies and individuals doing business with the SADBU office. Among the items of value accepted by Neal and Jones were at least $70,000 in cash, Rolex watches, paid sexual favors from prostitutes, expenses for travel to Las Vegas and elsewhere, hotel rooms and at least $200,000 in payments to third parties intended for the benefit of Neal and Jones. They also conspired to embezzle funds which belonged to the United States government. Neal and Jones used a complex maze of companies, bank accounts and financial transactions to accomplish the objectives of the money laundering conspiracy.

On 14 March 2017 Retired U.S. Navy Rear Admiral Bruce Loveless and David Newland, chief of staff to the Commander of the Navy’s Seventh Fleet, along with seven other high-ranking Navy officers are charged in a federal grand jury indictment with acting as a team of moles for a foreign defense contractor, trading military secrets and substantial influence for sex parties with prostitutes, extravagant dinners and luxury travel. According to a federal grand jury indictment, the Navy officers worked together to help Singapore-based defense contractor “Fat Leonard” Glenn Francis and his company, Glenn Defense Marine Asia, pull off a colossal fraud that ultimately cost the Navy – and U.S. taxpayers – tens of millions of dollars. According to the indictment, the group of officers referred to themselves using various terms, such as “the Cool Kids,” “the Band of Brothers,” “the Brotherhood,” “the Wolfpack,” “the familia,” and “the Lion King’s Harem.” The officers tried to conceal their corrupt relationships by using fictitious names to create email addresses using foreign-based email services.

The defendants allegedly worked in concert to help Francis and GDMA win and keep defense contracts to provide port services to U.S. Navy ships; to redirect ships to ports controlled by Francis in Southeast Asia so he could overbill the Navy for supplies and services such as food, water, fuel, tugboats, and sewage removal; to sabotage competing defense contractors; to recruit new members for the conspiracy by spreading the “Glenn Gospel” to incoming Seventh Fleet leaders; and to keep the conspiracy secret by using fake names and foreign email service providers.

On December 22, 2021, Balfour Beatty Communities LLC (BBC) pleaded guilty and agreed to pay over $65 million in fines and restitution for defrauding the Air Force, Army, and Navy. BBC, one of the largest providers of privatized military housing, pleaded guilty to one count of major fraud, and agreed to pay over $33.6 million in criminal fines and over $31.8 in restitution to the military, serve 3 years of probation, and engage an independent compliance monitor for 3 years. Separately, BBC also entered into a False Claims Act settlement to resolve its civil liability for $35.2 million. From around 2013 to around 2019, BBC employees altered or manipulated data in property management software, and destroyed and falsified resident comment cards to falsely inflate their metrics and fraudulently induce the Services to pay performance incentive fees that BBC had not earned. As a result, Service members and their families experienced lengthy and unnecessary delays in the resolution of maintenance issues.

On February 23, 2022, food service equipment contractor TriMark USA agreed to pay $48.5 million to resolve allegations that its subsidiaries, TriMark Gill Marketing and Gill Group, Inc., improperly manipulated Federal small business set-aside contracts intended for service-disabled veteran-owned small businesses. This settlement constitutes the largest-ever False Claims Act recovery based on allegations of small business contracting fraud. Former TriMark executive Kimberley Rimsza also agreed to pay an additional $100,000 as an individual civil penalty for her conduct in connection with the scheme, which resulted in Federal agencies improperly awarding Government set-aside contracts.