Congress Halts Oil Reserve Program, Opens Window for Reforms

Recent action by Congress to halt oil shipments to the Strategic Petroleum Reserve offers a great opportunity for government to reassess this troubled program. The legislation by Representative Peter Welch (D-VT) that overwhelmingly passed in Congress on Tuesday will stop the fill program until the end of this year. Although the President has ardently opposed similar measures in the past, he has already stated that he won't veto the bill.

Energy experts tend to agree that placing oil headed for the reserve back into the market will have a minimal effect on lowering gasoline prices. In real terms, it amounts to only 77,000 barrels a day out of the projected 86.8 million barrels that the world will consume each day this year. As an attempt to counter high gas prices, it is most likely a symbolic gesture.

However, there are other concerns about the fill program besides its effect on gas prices. Several Congressman - notably Rep. Welch, Senate Energy Committee Chair Jeff Bingaman, and Senate Investigations Subcommittee Chair Carl Levin - have opposed filling the reserve when oil prices are at record highs because doing so costs more for taxpayers.

The Government Accountability Office agrees with them. It has stated repeatedly, most recently in testimony to Congress last month (pdf), that the fill program should use a "steady dollar value" standard instead of a "steady volume" one. This would mean that the Department of Energy would fill the reserve when oil prices are relatively low and use heavy crude instead of higher-priced light, sweet crude.

Internal problems with the program have also been discovered. The reserve uses royalty oil received by the Department of Interior from offshore drillers in the Gulf of Mexico. This royalty oil is transported from oil rigs to onshore marketing centers, where it is then swapped out for higher grade oil that the Department of Energy then deposits in the reserves.

In a January audit report (pdf), the Energy Inspector General found that poor recordkeeping of this process had resulted in discrepancies between the barrels of oil that Interior had agreed to ship and the barrels that Energy had actually received. For a four-month period in 2005, this amounted to 308,000 missing barrels. The Inspector General was ultimately able to account for 276,000 of these, but its findings demonstrated that serious flaws existed in the fill program.

Likewise, a source within Interior has told POGO that similar discrepancies exist for royalty oil shipped from offshore rigs to onshore marketing centers. The source found that less oil was reaching the marketing centers than originally intended. The Interior Inspector General has stated that it will soon launch an investigation into Interior's side of the fill program.

The question is this: How many total barrels have gone missing and how much of a loss does this amount to for taxpayers?

Finally, the Government Accountability Office has argued that relying on royalty oil to fill the reserve may not be the best option. Its April testimony to Congress concluded (pdf):

Purchasing oil to fill the SPR--as DOE did until 1994--is likely to be more cost-effective than exchanging oil from the royalty-in-kind program for other oil to fill the SPR. The latter method adds administrative complexity to the task of filling the SPR, increasing the potential for waste and inefficiency.

Now that Congress has voted to halt the fill program, they and the affected agencies should take a harder look at it, with an eye towards ensuring transparency and minimizing costs to taxpayers. Then once the program resumes next year, it will be an improved one.

-- John Pruett   

GAO Says Bajagua Project Has Many "Unresolved Issues"

A report released by the Government Accountability Office (GAO) last Thursday substantiated many of POGO's findings from our 2006 report on the Bajagua project.

The GAO report detailed numerous aspects of a questionable sweetheart deal to use federal funds to pay a private U.S. company, Bajagua, LLC, for a wastewater treatment plant in Mexico.  Bajagua's proposal faces numerous technical, regulatory and financial challenges.

The report found "that the Bajagua, LLC project includes more unresolved issues than the [South Bay International Wastewater Treatment Plant] upgrade, such as the need to obtain over 30 permits, approvals, and concessions from both U.S. and Mexican authorities; the need to resolve significant issues in its draft fee-for-services agreement with the USIBWC; and other legal and technical issues which could delay its schedule."

The Bajagua project would cost an estimated $200 million more in taxpayer dollars over twenty years than an alternative proposal put forth by the government.

All in all, the GAO's report confirms that the Bajagua project is a stinky deal that is bad for taxpayers and the environment of Southern California.

In 2007, POGO's report also generated investigative pieces in the Wall Street Journal and San Diego Magazine.

-- Nick Schwellenbach

Mineral Royalties Hearing: Data Reliability is a Major Risk Factor

One fundamental conclusion could be drawn from Tuesday's House subcommittee hearing on federal oil and gas royalties - the Department of Interior cannot certify the reliability of information used to determine royalty payments. In testimony before the subcommittee, the Government Accountability Office (GAO), Interior Inspector General (IG), and North Dakota auditor and State and Tribal Royalty Audit Committee Chairman Dennis Roller all agreed that serious flaws exist in the Minerals Management Service's (MMS's) computer systems used to process federal lease production data and determine royalties owed to the government. This could render MMS's plans to institute a risk-based auditing and compliance strategy virtually meaningless since a lack of reliable data would make accurate risk determinations impossible.

The GAO also revealed some preliminary findings (pdf) from its investigation of the royalty collection program. Nick Snow, with the Oil and Gas Journal, reported:

Franklin Rusco, acting director of GAO's natural resources and environment program, said that data management problems and reliance on data reported by the lessees themselves has put MMS royalty collections at risk. Financial management systems are inadequate and lack key internal controls, he said, while compliance efforts do not consistently examine data from third parties to verify whether self-reported royalty-in-value payments are complete and accurate.

Not only do companies self-report royalty-in-value payments, which could hypothetically be sufficient if they were checked against various source data, but, as Rusco described at the hearing, companies also have the ability to enter MMS computer systems and change royalty amounts for up to six years. If the amounts are decreased, then MMS is required to payback the difference with interest. Furthermore, the system has long been unable to detect missing royalty reports.

MMS has spent the past eight years attempting to implement an automated computer system after awarding a contract to Accenture for the task in 1999. Accenture has since received $150 million and may have the contract extended for 10 more years, despite the fact that the current system was launched in 2001. If a private company were to face a similar situation, it would have long ago closed its doors, unable to accurately determine its revenues.

Most private companies would also depend on independent auditors to certify that their books are accurate and in order. This serves as a back-end check on operations. However, at the Department of Interior, the royalty auditing division is placed under the same leadership that leases to companies and markets royalty oil and gas. POGO has recommended, in prepared testimony submitted to the subcommittee, that all auditing and compliance functions be relocated to a new bureau independent of MMS in order to curtail possible interference and conflicting priorities.

-- John Pruett

Congress Turns Its Attention to Royalty Collection

The Department of Interior will soon be implementing a host of new changes to its program to collect royalty revenues from companies producing oil and gas on federal lands. In a report released last December, the agency's independent Subcommittee on Royalty Management detailed over 100 recommendations to improve the program.

Now members of Congress are starting to weigh in. The Senate Appropriations Subcommittee for Interior met on February 26 to hear testimony from agency officials and the co-chairs of the Subcommittee on Royalty Management. Tomorrow, the House Natural Resources Subcommittee on Energy and Minerals will also hold a hearing to examine the recommendations and the royalty program in general.

POGO submitted written testimony for tomorrow's hearing which concludes that, although many of the Subcommittee's proposed changes are long overdue, the recommendations still do not go far enough to correct many fundamental concerns. To address these concerns, POGO included additional reforms that should be considered:

1. Presidential appointment and Congressional confirmation for the Director of the Minerals Management Service would provide additional oversight and scrutiny of the agency, as well as elevate the status of one of the largest non-tax revenue operations within the federal government.
2. Moving the compliance and audit function out of MMS is a critical step to improving the independence of the agency from oil and gas companies and reducing conflicts of interest within the agency. The same people responsible for working with companies to see that federal lands are used to their greatest leasing potential and working in partnership with those companies to sell royalty oil should not also be in charge of auditing those companies.
3. Transparency of MMS leases, contracts, documents, and procedures is paramount to reducing opportunities for fraud and increasing public confidence in the agency.
4. An independent and public study of the royalty in kind program and its use to fill the nation's Strategic Petroleum Reserve should be commissioned to determine if this is in the best interest of the taxpayers. While this program may have many benefits, evidence is mounting that it compromises the integrity of the agency and squanders taxpayer money through inefficiencies.

The Subcommittee's report received little debate when the Royalty Policy Committee voted on January 17 to send the recommendations to Secretary Kempthorne, despite a letter from POGO to the Committee stating that the report did not address basic, systemic royalty concerns. The Secretary accepted the report a week later and ordered that all administrative recommendations must be implemented. POGO commends Congress for taking an active role in response to the Subcommittee's report and hopes that this will be a catalyst for future action to improve royalty collections and look out for taxpayers.

-- John Pruett

35 Ways to Say "Corrupt": Rep. Renzi Indicted for Insurance Fraud and Shady Land Deals

Hats off to our friends at Taxpayers for Common Sense (TCS), who helped uncover and publicize the dubious land exchange that led to Rep. Rick Renzi's (R-AZ) recent indictment.  In case you missed the news over the weekend, Rep. Renzi was indicted late last week by a federal grand jury on 35 counts of corruption.  As reported by the New York Times and Washington Post, Rep. Renzi was under investigation for stealing money from his insurance company's clients and orchestrating a federal land swap that benefited himself and a former business partner, among other crimes. 

As a Member of the House Natural Resources Committee, Rep. Renzi essentially forced his constituents to purchase land owned by his former business partner, James Sandlin, who owed Rep. Renzi money from a previous land swap.  According to the indictment, Rep. Renzi received $733,000 from Sandlin for helping to engineer the deal, and in the process, "deprived the citizens of Arizona of his honest services as a United States elected representative." 

TCS has frequently criticized this type of legislated land exchange, which leaves little room for public oversight and tends to benefit private interests. 

-- Michael Smallberg

Trials and Tribulations

Yesterday, a federal jury ruled against POGO in the DOJ's civil case that alleged we unlawfully supplemented a government employee's salary.  This case began a decade ago when POGO shared with two government whistleblowers our lawsuit recovery that resulted from POGO’s suit against fifteen of the world's biggest oil companies.  We shared the lawsuit proceeds as a public service award for the whistleblowers' long-time efforts to expose the oil industry's ripping off the taxpayer when drilling on public land.  The DOJ's case was based on a philosophical disagreement between it and POGO about whether organizations such as ours can have whistleblowers act as shadow relators in litigation to fight government fraud.  During the trial, the DOJ argued that under no circumstances can federal employees accept an award for their work as a federal employee and that DOJ has discretion in pursuing such violations.

In case you aren't familiar with the history of the case: In June 1997, POGO and others filed a qui tam False Claims Act lawsuit against the biggest oil companies.  POGO asked two government whistleblowers to join the lawsuit (the law allows government employees to do so).  Fearing retaliation, the whistleblowers declined.  The DOJ ultimately intervened in the qui tam suit against fifteen of the companies.  In August 1998, the Mobil Oil Company settled the False Claims litigation for $45 million, of which POGO received $1.2 million.  POGO and its Board of Directors shared the settlement with the two whistleblowers for their courage in trying to hold Big Oil accountable for defrauding American taxpayers.  Ironically, during the trial, DOJ accused POGO of keeping our sharing with the whistleblowers a secret. In fact, at the time DOJ asked POGO not to hold a press conference (so we did not), and indicated no concern with our sharing with the whistleblowers.  Ultimately, the federal government recovered nearly $440 million in settlements against the major oil companies, and the Department of Interior was forced to collect oil royalties more rigorously.

The oil industry and its allies in Congress struck back, harassing POGO with invasive subpoenas, then attempting to hold POGO in contempt of Congress.  Oil-funded Members of Congress then pressured DOJ to investigate and the result was DOJ charging POGO with supplementing the income of one of the whistleblowers.

POGO continues to believe that we did the right thing in sharing the settlement, and certainly did not violate the law.  We believe that the DOJ's case mischaracterized the facts and misinterpreted the law.  In addition, the jury was not allowed to consider the fact that POGO had notified the Justice Department of our intentions before we presented a share of the lawsuit recovery as a public service award; nor the fact that oil industry-funded Members of Congress wrote to DOJ demanding an investigation of POGO; nor was POGO allowed to explain our intent in sharing with the whistleblowers.  POGO plans to present additional arguments to the Court related to the assessment of civil damages.  Further, we are considering an appeal.

So this morning, we had to laugh when we opened the Washington Post Express: There before us was a half-page ad for the Partnership for Public Service "Service to America Medals" award for "extraordinary federal employees" and each award is accompanied by a cash prize from $3,000 to $10,000.  The ad asks readers to "Honor America's Unsung Heroes. Nominate a fed who is doing remarkable work for a Service to America Medal."

Hmmm.  We love this idea, and are glad the Partnership is doing this, but why has DOJ spent ten years harassing POGO for doing essentially the same thing?  Could it be that DOJ is more comfortable with awards that are sponsored by such government contractors as CH2MHill and Acquisition Solutions, and, drum roll please--CHEVRON--than when it is the work of POGO and whistleblowers?

At any rate, all of us at POGO would like to thank all of our friends who sent emails, calls, and even a few notes cheering us on during this pretty grueling process.  We've been touched by those who have encouraged us to stand up against the government's harassment.  This case has taken its toll on us.  But, to quote Kanye West's take on the old adage "...that that don’t kill me, can only make me stronger..."  We couldn't agree more.  Now, we at POGO can get back to work full-steam.

-- Danielle Brian

Editor's Note: After hearing from our friends at the Partnership for Public Service, they asked us to clarify that we were not suggesting there is anything wrong with their Service to America medals awards program.  They tell us it operates pursuant to a well-recognized exception to the general ban on gifts to federal employees for bona fide awards programs.  And they wanted people to know that the Office of Government Ethics blessed the program without knowing who the corporate sponsors were.  As I said in the original post, we love this idea and we are glad the Partnership is doing this.  If you want to nominate a federal employee for outstanding achievement, go to www.servicetoamericamedals.org.

Transparency up North

This week, the state of Alaska launched a website that tracks every state expenditure of over one thousand dollars, as reported on today's NPR Morning Edition.   This makes Alaska the tenth state government to provide such a service to its taxpayers.   On a side note, Alaska also has the lowest individual tax burden of any state in the U.S.

Alaska calls its website "Checkbook Online."   According to the state, this service "...is part of a national trend for governments to develop websites that allow constituents to view financial information in searchable formats.  Such websites are widely considered to improve transparency into the financial operations of government."

We at POGO truly hope this trend continues and expands to governments, ahem Federal, that take in considerably more tax dollars than Alaska.

-- Jake Wiens

Day in Court

This week, POGO will finally get our day in court. 

For the last decade--yes, decade--the government has been badgering POGO over its decision to share with a government whistleblower the proceeds of a False Claims Act case against the oil industry.  (That case, filed by POGO and others, ultimately resulted in the recovery of nearly half a billion dollars to the taxpayers).  We informed the Department of Justice (DOJ) of our intentions to share our recovery with the whistleblower at the time, and the DOJ's only response was to tell us not to hold a press conference.  So we didn't.  After oil industry-funded Members of Congress, led by Rep. Don Young (R-AK), failed in their effort to bring a Contempt of Congress action against POGO, they harangued DOJ into filing suit against us.  The DOJ is now trying to force POGO to give the government the amount of money we shared with the whistleblower from our lawsuit settlement.

We are looking forward to finally being able to present our case to the jury. 

Dept. of Interior IG Aims to Increase Mineral Royalties Oversight

The Department of Interior’s Office of the Inspector General (OIG) has revealed its intentions to create a new division to provide “more oversight of royalties” collected from mineral production on public lands, according to OIG Central Regional Audit Manager Jack Rouch, who will be responsible for the division. Mr. Rouch announced the plans at the most recent meeting of the State and Tribal Royalty Audit Committee on January 16-17 in Sacramento, California.

The new division’s priorities and workload are still being determined, but Mr. Rouch indicated that they would include a balance between additional oversight of royalty collections and auditing of the companies that owe royalties to the government. However, he stated that it’s “not [the OIG’s] intent to duplicate audits already being done” but, instead, to “establish more oversight and dedicate more resources” to the area of royalty management.

The OIG’s current plans place the new division at Mr. Rouch’s Central Region audit office in Lakewood, Colorado. The division will initially include six staff employees. Three of these employees are presently working to complete an OIG study of the Minerals Management Service’s (MMS) royalty-in-kind (RIK) oil program, and the remaining three will be added through a hiring process.

The division’s operating budget has not yet been made public, but this year’s activities will be funded from an FY 2008 congressional appropriations increase of almost $6 million over last year. The appropriations increase amounted to over $2 million more than the President’s budget request for FY 2008 (pdf).

This development comes in the wake of heightened scrutiny of MMS’s royalty management program. Much of the recent scrutiny has been in response to revelations that royalty measures were inappropriately omitted from offshore oil and gas leases. The OIG investigated the issue (pdf) last year. The OIG has also recently reported on problems with MMS’s royalty compliance review process (pdf) and on agency retaliation against whistleblowers (pdf).

Also, last month, an independent subcommittee with Interior’s Royalty Policy Committee (RPC) released an extensive report detailing recommendations for improving royalty management. On January 25, Interior Secretary Dirk Kempthorne announced that the agency will “immediately” implement the subcommittee’s administrative proposals. POGO’s statement to the RPC addressing the recommendations can be found here.

-- John Pruett

FCMD Contractor In the News – BP’s Bad Day

In compiling POGO’s Federal Contractor Misconduct Database, it is rare to find a contractor involved in more than one misconduct instance in a single week. Needless to say, we were astounded last week when we found a contractor involved in six instances – all in one day.

October 25, 2007 was just another day for most of us, but to the officers, directors and shareholders of energy giant BP Amoco P.L.C. (now BP P.L.C.), it might earn the nickname “Black Thursday.” On that day, it was announced that various divisions of BP racked up over $380 million in criminal and civil fines and restitution in five separate instances involving federal regulators and prosecutors. In the sixth instance, a federal grand jury indicted four former employees.

Here’s a quick rundown of BP’s very busy day:

    * The Federal Energy Regulatory Commission (FERC) assessed a $7 million civil penalty on BP Energy Company for violating FERC’s capacity release policy.

    * BP Products North America pleaded guilty to violating the Clean Air Act and agreed to pay a $50 million criminal fine and serve three years of probation.

    * British Petroleum Exploration pleaded guilty to violating the Clean Water Act and agreed to pay $20 million in fines and restitution and serve three years of probation.

    * A former gasoline trader for BP Products North America paid a $400,000 civil penalty to settle charges of violating the Commodity Exchange Act.

    * The Department of Justice agreed to defer prosecution of BP Products North America for violating the Commodity Exchange Act in exchange for $303 million in fines and restitution and cooperating with the government’s ongoing investigation. That day, a federal grand jury in Chicago indicted four former BP America employees in the matter.

It would almost break your heart, were it not for the fact BP boasted $22 billion in profits last year, and oil is currently trading at over $90 a barrel. If paying exorbitant gas prices alone doesn’t elicit your sympathy, consider that BP is one of the federal government’s largest contractors, scooping up over a billion dollars in contracts each year despite regularly committing infractions like the ones described above.

With the addition of these six instances, BP now has the second highest misconduct penalty dollar amount with $1.1 billion. It ranks behind another oil company, Exxon Mobil, with a penalty amount over four times larger. That amount could grow significantly if the Supreme Court, which today agreed to hear a case involving the 1989 Exxon Valdez oil spill, upholds the $2.5 billion punitive damages award.

-- Neil Gordon

Interior Dept. Watchdog Slams MMS

In case you missed the front page of the New York Times today, the Department of Interior Inspector General has completed yet another report documenting more evidence that the federal government's oil and gas drilling programs are riddled with "conflicting roles and relationships with the energy industry," "ethical lapses," and "mismanagement." POGO has a copy of the report on line now, it's not available anywhere else.

-- Beth Daley

Legislation to Boost False Claims Act Introduced

The fraud-fighting False Claims Act got a boost yesterday when Senator Charles Grassley (R-IA), Senator Richard Durbin D-IL), Senator Patrick Leahy (D-VT), and Senator Arlen Specter (R-PA) introduced legislation to close several loopholes in the Act. Below is their release and floor statements by Senators Grassley and Durbin. Companion legislation will reportedly be introduced in the House of Representatives by Rep. Howard Berman. Senator Grassley, who has been the leading light on this issue expressed his concerns about the state of the False Claims Act back in July, 2007 when he made a floor statement.

POGO commends the Senators and Representative Berman for their leadership on addressing the loopholes which have unnecessarily resulted in tens, if not hundreds, of millions of dollars being lost to the government.

Among improvements proposed, the Act will clarify that government employees can have standing to sue. This issue has inexplicably perplexed the courts, despite the plain language of the act which says that any "person" can file such suits. Some courts have bought the tired line that government employees should not have standing from lawyers representing those corporations who are the target of False Claims Act lawsuits as well as a Department of Justice which takes a ridiculously hostile approach to government employee fraud suits.

For example, in January 2007, a former Department of Interior Minerals Management Service auditor Bobby Maxwell prevailed in a lawsuit against Kerr-McGee with a jury trial finding the company underpaid by $7.5 million to the federal government in oil drilling fees, a verdict that could ultimately bring as much as $40 million when penalties are included. The Department of Justice (DOJ) refused to intervene in the case which is now floundering on a technicality. DOJ has also refused to intervene in the lawsuits filed by three additional Minerals Management Service auditors who documented an estimated $20 million in underpayments by oil giants including Shell. An independent investigative report is expected imminently which will likely vindicate the concerns raised by the whistleblowers filing these suits. Still, DOJ is sitting on the sidelines, putting the taxpayers' recoveries of tens of millions of dollars at grave risk.

The legislation introduced yesterday will also seek to address issues raised by the Custer Battles False Claims Act case. Like the Maxwell case, DOJ also dropped the ball on the much publicized Custer Battles case when it failed to intervene. A jury verdict found a total award of $10 million in the case. Then, in a technical dodge, the Judge threw the case out by finding that the Coalition Provisional Authority was not part of the U.S. Government and so therefore could not be sued under the False Claims Act.

-- Beth Daley

                   

For Immediate Release

September 12th, 2007

GRASSLEY, DURBIN, LEAHY, SPECTER SPONSOR LEGISLATION TO FORTIFY TAXPAYERS AGAINST FRAUD

WASHINGTON --- Sens. Chuck Grassley and Dick Durbin are sponsoring new legislation in response to recent federal court decisions that threaten to limit the scope and applicability intended by Congress with its highly successful 1986 update of the False Claims Act, which has recovered $20 billion for the U.S. Treasury that would otherwise be lost to fraud. The False Claims Act Correction Act of 2007 has the support and cosponsorship of Judiciary Committee Chairman Patrick Leahy and Ranking Member Arlen Specter. Companion legislation will be introduced in the U.S. House of Representatives by Rep. Howard Berman. Grassley and Berman were the sponsors of the 1986 amendments to the False Claims Act. Those amendments breathed new life into what is known as Lincoln 's Law by empowering qui tam relators to act as private attorneys general and file suit against those who defraud the federal government. "It's been proven time and again that without the courage and willingness of these individual citizen whistleblowers, the federal government would not have known what was going on or been able to pursue successful cases against those who defrauded the government, including contractors and state and local governments. These settlements have returned tens of billions of dollars that would otherwise be lost and gone forever," Grassley said. "Our new legislation works to make sure recent court decisions won't weaken the government's ability to recover tax dollars lost to fraud, whether its in health care, defense or another areas of spending." "President Lincoln signed the False Claims Act into law in 1863 to prevent war profiteers and others from defrauding the government and the nation's taxpayers.  Sadly, 144 years later, ' Lincoln 's Law' is still needed," Durbin said.  "This bipartisan bill modernizes and strengthens the False Claims Act, and will help "Lincoln's Law" continue to serve as an effective tool against fraud." "This bipartisan bill strengthens and restores the False Claims Act as one of our most powerful and effective tools for combating fraud, waste, and abuse in government," said Senator Leahy. "These protections are more important than ever as unscrupulous contractors in Iraq and elsewhere have defrauded American taxpayers of billions of dollars and undermined our troops fighting overseas."  "This legislation is as important today as it was when it was enacted during the Civil War in 1863," stated Senator Specter.  "We must continue to combat fraud and abuse of government programs and waste of taxpayer dollars.  One way to do that is to encourage and protect employees who step forward to identify fraud.  This legislation would ensure that the law continues to do both.  President Abraham Lincoln sought the False Claims Act during the Civil War in response to war profiteering that defrauded taxpayers. The 1986 updates to the law are today the government's most effective weapon against fraud. The False Claims Act Correction Act of 2007 would make the following corrections to the False Claims Act. · Makes corrections to 31 U.S.C § 3729 removing the requirement that false claims be presented to a government employee. This section corrects longstanding problems with the requirement that false claims be presented directly to government employees, instead applying liability directly to any false claim regarding government money or property. This correction ensures that any government money lost to fraud, waste, or abuse can be recovered using the FCA regardless of whether the individual making the false claim directly represents such a claim to a government employee. This problem arose following the D.C. Circuit Court of Appeals decision in U.S. ex rel. Totten v. Bombardier Corp, 380 F.3d 488 (2004) which held that false claims to government grantees (here Amtrak) were not "presented" to a government employee and barred government recovery of government funds lost to fraud. · Amends the FCA to clarify the dismissal of parasitic claims filed based upon publicly disclosed information. Commonly referred to as the public disclosure bar, the FCA currently allows for the dismissal of FCA cases brought based upon publicly disclosed information unless the relator is the "original source" of the public information. This complex area of FCA law was further complicated when the Supreme Court decided Rockwell Int'l Corp. et al. v. United States, 549 ___ (2007). This decision held that the public disclosure bar requires a qui tam relator to be an original source for all claims that are ultimately settled or upon which a verdict is rendered. Absent this original source, a relator is barred from recovery. This decision dramatically limits the FCA by restricting legitimate qui tam relators who often bring fraud to the attention of DOJ with information DOJ expands and ultimately settles on other grounds. This correction also clarifies it is the exclusive right of DOJ to dismiss relator claims on public disclosure grounds, and not a jurisdictional defense of those who defraud the government. · Clarifies that false or fraudulent claims against non-U.S. Government funds under the trust and control of the U.S. Government are subject to recovery under the FCA. This clarification would ensure funds administered by the U.S. Government on behalf of third party nations or other entities are protected from fraud, waste, or abuse by extending FCA liability to those funds. This clarification addresses concerns raised by the Federal District Court for the Eastern District of Virginia in United States ex rel. DRC, Inc. v. Custer Battles, LLC, 2006 WL 2388790 (E.D. Va. Aug. 16, 2006), dismissing a jury verdict finding FCA violations for funds allocated to contractors operating on Iraqi funds administered by the U.S. Government. · Clarifies a split between Circuit Courts of Appeal as to when a government employee may act as a qui tam relator under the FCA. This clarification would explicitly state in statute the original legislative intent of the 1986 amendments to the FCA allowing government employees to act as qui tam relators in limited circumstances when they have reported activities up the chain of command, to the Inspector General, to the Attorney General, and only if no action was taken after 12 months. · Makes technical and clarifying amendments to the statute of limitations in FCA cases, as well as technical edits to the Civil Investigative Demands authorized under the current FCA. Grassley and Durbin are senior members of the Judiciary Committee. The text of the floor statements they delivered today marking introduction of the False Claims Act Correction Act of 2007 follows here. False Claims Act Correction Act (as introduced) with hand written edits Floor Statement of U.S. Senator Chuck Grassley of Iowa Introduction of the False Claims Act Correction Act of 2007 Tuesday, September 11, 2007      Mr. President, for 27 years I have come to the Senate floor to discuss legislation that will help the Federal government run efficiently and effectively.  I've been an outspoken advocate for whistleblowers who, in good faith, bring forth information about waste, fraud, and abuse of taxpayer dollars.  I have championed oversight efforts and have spent my time in the Senate asking the tough questions of government bureaucrats in order to expose problems.  One thing that I've learned from oversight is that no matter how engaged the Congress may be, there are just not enough hands to find all the waste, fraud, or abuse in government programs.  Instead, we must rely on courageous individuals who speak out and blow the whistle when a government program is not working and taxpayer dollars are being lost. By sticking their necks out, these individuals often risk everything to fix problems with our government, and for doing so they are as welcome as a skunk at a picnic.  However, pointing out fraud is one thing, getting results, fixing the problem, and recouping taxpayer money lost to fraud, waste, and abuse is another.  The key to recouping these lost funds is ensuring we have effective laws on the books.  One such law is the federal False Claims Act.  The False Claims Act, which is also known as " Lincoln 's Law," was originally passed by Congress to combat war profiteering by government contractors during the Civil War.  The FCA allowed individual citizen whistleblowers to go to court to collect government money that was lost to unscrupulous contractors who were selling false or fraudulent goods to Union troops.  This legal mechanism, known as qui tam, is the key component to the False Claims Act, allowing individual citizens to act as private Attorneys Generals to help unearth fraud and recover lost money.  However, following World War II, the FCA was weakened by an act of Congress which lowered the penalties limiting the money the government could recover from fraud.  This remained the state of the FCA until 1986, when I authored amendments to the Act which restored the teeth and breathed new life into a law that was designed to protect all American taxpayers.  I'm happy to report that in the 20 years since I introduced and Congress passed the 1986 amendments, the Federal government has used the FCA to recover over $20 billion from those who defraud the government.  That's $20 billion that would otherwise be lost and gone forever.  More importantly, this $20 billion serves as a deterrent reminder to those who wish to steal from the government.  Today, the FCA again faces a situation where it may not be as effective as intended.  Recent decisions by federal courts have limited the FCA in a way that was not envisioned when I authored the 1986 amendments. These decisions threaten to undermine both the spirit and intent of the 1986 amendments to the FCA.  The first case ex rel. Totten v. Bombardier Corp, held that false claims presented to government grantees, in this case employees at Amtrak, were not actually presented to the federal government.  As a result, the government was precluded from recovering money lost to fraud and abuse perpetrated against Amtrak.  The second case, Rockwell International Corp. et al. v. United States, was decided earlier this year by the U.S. Supreme Court.  In this case, the court interpreted an area of the False Claims Act, known as the "public disclosure bar," which prohibits a FCA case from moving forward if the case was based upon publicly disclosed information, such as a government report, unless the whistleblower filing the case was the "original source" of the information.  Here, the Supreme Court held that a qui tam whistleblower was barred from receiving a share in any money recovered unless they were the "original source" of all claims ultimately settled.  This may not sound like a troublesome decision.  However, the impact is that often times a case is brought by a whistleblower on a certain set of facts and then expanded by the Department of Justice who ultimately settles on other grounds.  As a result, this case creates a disincentive for a whistleblower to bring forth information about fraud as they may not get to share in any part of the recovery. Finally, the third case that challenges the intent of the FCA is ex rel. DRC, Inc. v. Custer Battles, LLC, decided in 2006.  In this case, a jury found that a defense contractor in had defrauded the government of $10 million.  However, the judge overturned the jury verdict finding that the money lost was not U.S. Taxpayer money, but was instead Iraqi money under the control of the U.S. Government.  As a result of this case, the U.S. Government may not recover for any fraud committed against the U.S. Government if the funds are not American funds, even if the U.S. Government has been entrusted with the management of those funds. Mr. President, these decisions are contrary to the spirit and intent of 1986 amendments.  So today, I am here, joined by Senator Durbin as the lead cosponsor along with Senators Leahy and Specter to introduce the False Claims Act Correction Act of 2007.  This bill seeks to correct these judicial interpretations damaging the FCA and is narrowly tailored to ensure that the intent of Congress in the 1986 amendments is upheld. The False Claims Act Correction Act would correct these three judicial interpretations in addition to making technical and correcting amendments.  First, the bill would address the Totten decision by removing the requirement that false claims be directly presented to the government official, instead tying the liability directly to government money and property.  Next, the bill would address the Rockwell decision by requiring the Attorney General to file a timely motion to dismiss claims that violate the public disclosure bar.  By allowing the Attorney General to present to the court information about public disclosures up front in a case, the bill would eliminate procedural uncertainties that exist now by allowing public disclosures to be addressed at any time in the case.  The False Claims Act Correction Act also clarifies that non-taxpayer funds under the trust and administration of the U.S. Government subject to fraud are actionable under the FCA.  Thus, monies directly under the control of the U.S. Government subject to fraud that are currently outside the scope of the FCA would now be covered.  This would correct the problems that have arisen following the decision in ex rel. DRC, Inc. v. Custer Battles, LLC. Additionally, the bill clarifies a split between Federal Circuit Courts of Appeal that currently exists regarding whether a government employee may file a FCA case.  More specifically, the bill provides that a government employee would be able to bring a FCA case based upon information learned in the course of their employment, only when the employee: (1) discloses the fraud to their supervisors, (2) discloses the fraud to the Inspector General of their agency, (3) discloses the fraud to the Attorney General, and then waits 12 months without the government acting.  After these conditions are met, then and only then, may a government employee act as qui tam whistleblowers.  Finally, the bill makes two technical corrections to the FCA.  The first is a technical correcting amendment that clarifies the statute of limitations.  The second is a technical amendment to the Civil Investigative Demands that the Department of Justice is already authorized to issue.  These technical corrections will streamline the procedures for filing and prosecuting FCA cases by both qui tam whistleblowers and the Department of Justice.  Mr. President, the False Claims Act Correction Act is a narrowly tailored bill that seeks to ensure that the legislative intent of the 1986 amendments is truly understood.  This is not a Democrat or Republican issue.  This is an American taxpayer issue.  And I'm proud to say that this bill has strong bipartisan support, as I am joined by Senator Durbin as the lead Democratic cosponsor along with Senators Leahy and Specter as other original cosponsors.  I'm glad we have a bipartisan coalition ready to work to fix the FCA with these narrowly tailored corrections.  But I encourage my colleagues to not bow to special interests groups who have worked to weaken the #1 tool for recovering government dollars lost to fraud.  American taxpayers deserve a law that detects, prevents, and recovers money lost to fraud.  The FCA works and has recovered $20 billion in the last 20 years.  However, the FCA can work better.  The False Claims Act Correction Act will provide necessary, narrowly tailored corrections to ensure that the FCA works to protect taxpayer dollars into the future. I urge all my colleagues to support this important legislation.  Mr. President, I yield the floor.   Floor Statement of Sen. Richard Durbin of Illinois Introduction of the False Claims Act Correction Act of 2007 Tuesday, September 11, 2007   Mr. DURBIN. I am pleased to join my colleague Senator Grassley in introducing the False Claims Act Correction Act of 2007. This bipartisan legislation takes important steps to modernize and strengthen the federal False Claims Act and will help protect the government and taxpayers from waste, fraud and abuse of government funds.    During the Civil War, President Abraham Lincoln saw the need for a law that would prevent war profiteers and other unscrupulous government contractors from defrauding the government and the nation's taxpayers.  Lincoln urged the passage of legislation that would allow the government to seek damages and penalties against perpetrators of fraud, and that would permit whistleblowers with information about false or fraudulent claims to file qui tam lawsuits on the government's behalf in exchange for a share of the recovered funds. In 1863, Congress heeded Lincoln's call and enacted the federal False Claims Act (FCA), which became known as " Lincoln 's Law."   Lincoln 's Law is still in effect today and it is still much-needed. In recent years, there have been alarming reports of waste, fraud and abuse of government funds in the war and reconstruction effort, in the recovery from Hurricane Katrina and other disasters, in military and homeland security procurement contracts, and in federal healthcare programs. We need strong laws that can expose and root out such fraudulent practices.     The last major update of the FCA took place in 1986, when Senator Grassley and Congressman Berman sponsored amendments that revitalized the FCA and its qui tam provisions in response to widespread reports of defense contractor fraud. Since 1986, the federal government and qui tam relators have worked together to recover over $20 billion in monies that would otherwise have been lost to fraud, waste or abuse in government programs. The recovery of this enormous sum is a victory for taxpayers, and a demonstration of the success of the FCA and its qui tam model.     It has now been twenty-one years since the enactment of the 1986 FCA amendments, and during that time changes in the interpretation of the Act and in the nature of government contracting have threatened to limit the FCA's effectiveness. In particular, several recent court decisions have weakened the intent and application of Senator Grassley's 1986 amendments to the FCA and have limited the FCA's ability to reach certain types of fraud and abuse involving government programs.    The False Claims Act Correction Act seeks to correct these court decisions and to ensure the FCA's utility as an effective tool against fraud. It does so in several ways.     First, the False Claims Act Correction Act clarifies the "presentment requirement" in the FCA. In 2004, the D.C. Circuit Court of Appeals held that liability under the FCA can only be found if the allegedly fraudulent claim is "presented to an officer or employee of the United States Government." This interpretation has been used by courts to dismiss a number of FCA cases where abuses of federal government funds were clearly evident but where the false claims were submitted to grantees or agents of the federal government (such as the Iraq Coalition Provisional Authority) and not directly to government employees. Our legislation would make clear that FCA imposes liability if a person presents a false or fraudulent claim for federal government money or property, and that the claim need not be directly presented to a government employee.     Our legislation also clarifies the applicability of the FCA's "public disclosure bar." The FCA currently allows a relator's FCA case to be dismissed if the case is based on information that was publicly available at the time of the filing, unless the relator was the "original source" of the public information. In its 2007 decision in Rockwell Int'l Corp. et al. v. United States, the Supreme Court held that the public disclosure bar prevents a relator from recovering money unless the relator was an original source for all the claims that are settled or upon which a verdict is rendered. The Rockwell holding is troubling because relators often file actions based on facts which prove to be the tip of the iceberg, and upon further investigation DOJ discovers more fraud and ends up settling or winning the case on the grounds of the latter fraud.    The Rockwell court's interpretation of the public disclosure bar might discourage whistleblowers from filing legitimate FCA cases and alerting DOJ to fraud. Our legislation would preclude a relator from recovery under the public disclosure bar only where the relator derived knowledge of all essential elements of the claim from public disclosure. Thus, only relators who truly contributed no new information to the case would be barred.   Among its other provisions, the False Claims Act Correction Act resolves a split among the federal circuit courts by allowing a government employee to act as a qui tam relator when the employee learns of fraudulent conduct on the job, provided that the employee has first taken steps to report the fraud internally. Our legislation also strengthens the protections in the FCA for whistleblowers, so that whistleblowers who are government contractors and agents can receive the same anti-retaliation protection as employees of the company perpetrating the alleged fraud. Our bill further simplifies the FCA statute of limitations with a clear 10-year standard for all cases, and also makes technical changes to enhance DOJ's usage of the civil investigative demand process in DOJ investigations of potential FCA violations.    The changes that our legislation would make to the FCA are narrowly tailored, and are designed to clarify the FCA's scope in keeping with the intent of the authors of the 1986 FCA amendments.