Congress has introduced a bill that, if enacted, would significantly elevate the financial and legal risks for overseas government contractors and increase the penalties for fraud and abuse in Iraq.
On January 4, 2007, Sen. Patrick Leahy [VT] introduced S.119, “War Profiteering Prevention Act of 2007,” which is touted as a bill to “prohibit profiteering and fraud relating to military action, relief, and reconstruction efforts.” S.119 is co-sponsored by seventeen other senators. Similarly, Rep. Neil Abercrombie [HI-1] introduced an identical bill - H.R. 400 - in the House of Representatives on January 11, 2007.
Passage of the War Profiteering Prevention Act of 2007 (Act) would amend the United States criminal code to make “materially overvalu[ing] any good or service with the specific intent to defraud and excessively profit from the war, military action, or relief or reconstruction activities” a felony and subject a liable contractor to up to 20 years in prison and fines of $1 million or twice the illegal gross profits. Additionally, the Act would require a contractor who “makes any materially false, fictitious, or fraudulent statements or representations” or makes or uses “any materially false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry” to be imprisoned up to 10 years and fined the greater of $1 million or twice the illegal gross profits.
The Act’s broad language and severe penalties would subject overseas contractors to greater scrutiny and more expansive liability than they face today. Currently, the criminal false statements statute [18 U.S.C. § 1001] generally subjects a contractor to prison for five years, as opposed to the ten years proposed by the War Profiteering Prevention Act for making a false statement. Additionally, while a contractor may currently be liable for monetary damages under the False Claims Act, the War Profiteering Prevention Act imposes criminal penalties on a contractor of up to 20 years in prison for overvaluing a good or service with the intent to defraud and excessively profit. More important, the broad language of the War Profiteering Prevention Act would likely encompass certain contractor actions that do not currently rise to the level of liability under the false statements statute, False Claims Act, and other related statutes. Indeed, as Sen. Patrick Leahy stated in his introductory remarks:
There is growing evidence of widespread contractor fraud in Iraq, yet prosecuting criminal cases against these war profiteers is difficult under current law.... The measure …addresses weakness in the existing laws used to combat war profiteering, by providing clear authority for the Government to seek criminal penalties and to recover excessive profits for war profiteering overseas. These are strong and focused sanctions that are narrowly tailored to punish and deter fraud or excessive profiteering in contracts, both at home and abroad.
The War Profiteering Prevention Act was initially introduced by Congress in 2003, but was ultimately rejected by Republicans in the Committee on Foreign Relations. It is possible, however, that the bill may be enacted in the 110th Congress under the Democrats’ control.
Gibson, Dunn & Crutcher’s Government and Commercial Contracts Practice Group is monitoring the development of this legislation. For further information, please contact the attorney with whom you work or Joseph D. West (202-955-8658, email@example.com), Karen L. Manos (202-955-8536, firstname.lastname@example.org) or Christyne K. Brennan (202-955-8685, email@example.com) in the firm's Washington, D.C. office or Timothy J. Hatch (213-229-7368, firstname.lastname@example.org) in the Los Angeles office.
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