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Calendar No. 148 Calendar No. 148 110TH CONGRESS REPORT " ! 1st Session SENATE 110–66 WAR PROFITEERING PREVENTION ACT OF 2007 Mr. LEAHY, from the Committee on Judiciary, submitted the following R E P O R T together with ADDITIONAL VIEWS [To accompany S. 119] [Including cost estimate of the Congressional Budget Office] The Committee on the Judiciary, to which was referred the bill (S. 119) to prohibit profiteering and fraud relating to military ac- tion, relief, and reconstruction efforts, and for other purposes, re- ports favorably thereon with amendments, and recommends that the bill, as amended, do pass. CONTENTS Page I. Purpose of the War Profiteering Prevention Act of 2007 ........................... 1 II. History of the Bill and Committee Consideration ....................................... 4 III. Section-by-Section Summary of the Bill ...................................................... 5 IV. Cost Estimate ................................................................................................. 6 V. Regulatory Impact Evaluation ...................................................................... 7 VI. Conclusion ...................................................................................................... 7 VII. Additional Views of Senator Sessions .......................................................... 7 VIII. Changes in Existing Law Made by the Bill as Reported ............................ 10 I. PURPOSE OF THE WAR PROFITEERING PREVENTION ACT OF 2007 Chairman Patrick Leahy introduced the War Profiteering Pre- vention Act of 2007 on January 4, 2007, which was cosponsored by Senators Bingaman, Kerry, Harkin, Rockefeller, Dorgan, Wyden, Schumer, Nelson of Florida, Clinton, Lautenberg, and Menendez. Senators Feinstein, Feingold, Durbin, Landrieu, Mikulski, Boxer, Cardin, and Byrd have since joined as cosponsors. This legislation strengthens the tools available to federal law enforcement to com- bat contracting fraud during times of war, military action, or relief 59–010 VerDate Aug 31 2005 00:57 May 17, 2007 Jkt 059010 PO 00000 Frm 00001 Fmt 6659 Sfmt 6602 E:\HR\OC\SR066.XXX SR066 cprice-sewell on PRODPC74 with HEARING 2 or reconstruction activities. This legislation also extends the extraterritorial jurisdiction for these frauds to the full extent of the law in order to reach fraudulent conduct wherever it occurs. The legislation creates a new criminal fraud offense in title 18 of the United States Code to prohibit fraudulent acts involving the provision of goods or services in connection with a war, military ac- tion, or relief or reconstruction activities. It also makes this new of- fense a predicate crime for criminal and civil forfeiture, as well as for federal money laundering and racketeering offenses. A. BACKGROUND Efforts to combat war profiteering have a long history in this na- tion. During the Civil War, President Abraham Lincoln fought against war profiteers, denouncing them as ‘‘worse than traitors.’’ He signed the first civil laws curbing this abuse. In World War II, President Franklin Delano Roosevelt spoke out against ‘‘war millionaires’’ who made excessive profits exploiting the calamity of war. President Harry Truman, when he served in the Senate, held historic public hearings to expose gross fraud, waste and abuse by military contractors. Over the past four years, war profiteering has again plagued this nation during the engagement of U.S. forces in Iraq and Afghani- stan. The United States has devoted hundreds of billions of dollars to military, relief, and reconstruction activities in Iraq and Afghan- istan, including more than $50 billion to relief and reconstruction activities. Private contractors have been used to a greater extent during these war-time activities than at any time in our history. The exigencies of war overseas, however, often make oversight of these contractors more difficult, and expenditures are often made with fewer audit and other controls than during normal govern- ment procurement. As a result, the provision of goods and services during these military actions, as well as during relief and recon- struction activities, are more vulnerable to acts of fraud and abuse. Inspectors General overseeing the provision of goods and services in Iraq and Afghanistan have found that billions of dollars spent in Iraq are unaccounted for and may have been lost to fraud or other misconduct. These Inspectors General have opened hundreds of investigations into fraud, waste, and abuse in Iraq, Kuwait, and Afghanistan involving, among other things, illegal kickbacks, bid- rigging, embezzlement, and fraudulent over-billing. These inves- tigations have uncovered crimes committed by employees of large and small government contractors in Iraq and Afghanistan, and many of these investigations involve abuse of the ‘‘cost-plus’’ and ‘‘no-bid’’ contracts used during times of emergency, such as mili- tary, relief, or reconstruction activities. B. NEED FOR LEGISLATION There is no federal criminal law specifically targeted at prohib- iting contracting fraud during times of war, military action, or re- lief or reconstruction activities. The current regime of federal fraud statutes does not provide an offense for those who take advantage of the exigent circumstances created by these times of extreme emergency. Moreover, no federal law provides enhanced criminal punishment for fraudulent acts during times of war, or relief or re- construction activities. VerDate Aug 31 2005 00:57 May 17, 2007 Jkt 059010 PO 00000 Frm 00002 Fmt 6659 Sfmt 6602 E:\HR\OC\SR066.XXX SR066 cprice-sewell on PRODPC74 with HEARING 3 In addition, none of the current fraud statutes explicitly extend extraterritorial jurisdiction for fraud offenses during times of war, military action, or relief or reconstruction activities. While in some cases courts have implied extraterritorial jurisdiction for fraud of- fenses, the common law suggests that extraterritoriality in a crimi- nal statute should be clearly asserted and, without such a provi- sion, there is a presumption against extraterritorial application. This bill addresses all of these gaps in existing federal criminal law. C. THE WAR PROFITEERING PREVENTION ACT OF 2007 The War Profiteering Prevention Act of 2007 creates a new crimi- nal offense in title 18 of the United States Code for fraudulent acts involving contracts or the provision of goods and services in connec- tion with war, military actions, and relief or reconstruction activi- ties. This new offense provides a significant new tool for federal law enforcement, as well as creating a strong deterrent to those who would contemplate exploiting the exigencies of war, military actions, relief or reconstruction activities to commit fraud and prof- it thereby. The new offense may be committed in two ways: (1) by commit- ting fraud or (2) by making a materially false statement. The fraud provisions would make it a crime to execute or attempt to execute a scheme or artifice to defraud the United States or to materially overvalue any good or service with the specific intent to defraud. These provisions are designed to prohibit schemes to defraud the United States, including efforts to exploit ‘‘cost plus’’ or ‘‘no-bid’’ contracts by materially overvaluing goods or services with the spe- cific intent to defraud. These provisions are not intended to pro- hibit or punish contractors providing goods or services in the nor- mal course of business, and the legislation specifically requires that violators may only be criminally liable if they materially overvalue any good or service ‘‘with the specific intent to defraud.’’ This provi- sion has been included to ensure that no contractor shall be pros- ecuted under this offense for mere negligent or mistaken conduct. The material false statement provisions would make it a crime (1) to falsify, conceal, or covering up by any trick, scheme or device a material fact, or (2) to make any materially false, fictitious, or fraudulent statements or representations, or (3) to make or use any materially false writing or document knowing they contain a false, fictitious, or fraudulent statement. This language is consistent with other material false statement provisions under federal law, such as 18 U.S.C. §§ 1001, 1035. The new offense also requires that con- duct be done knowingly and willfully to be a criminal violation. The new offense would require that any fraud or material false statement be in connection with any war, military action, or relief or reconstruction activities. This would include circumstances where war was declared, or where the executive branch was en- gaged in any military action with or without congressional author- ization. This would also include relief or reconstruction activities, whether or not a war or military action was undertaken. This new offense is intended to deter fraud and material false statements committed in connection to any of these emergency circumstances. The new offense also requires that the conduct be subject to the jurisdiction of the United States. This term is to be interpreted VerDate Aug 31 2005 00:57 May 17, 2007 Jkt 059010 PO 00000 Frm 00003 Fmt 6659 Sfmt 6602 E:\HR\OC\SR066.XXX SR066 cprice-sewell on PRODPC74 with HEARING 4 broadly consistent with the jurisdictional scope of the federal mate- rial false statement statute, 18 U.S.C. §1001. In addition, the new offense explicitly provides extraterritorial jurisdiction and is in- tended to extend jurisdiction for this offense to the full extent of U.S. law. This provision has been included to
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