Against the Government Maritime Procurement
The MPI is one
example of the cooperative effort between the FBI and other federal
agencies to address significant crime problems that are national
In June 1994, allegations of fraud regarding repair contracts
for work onboard United States Naval Ships (USNS) were reported
to law enforcement Agents. The allegations indicated that the
fraud was rampant and could possibly impact the seaworthiness
of these vessels. Kickbacks, false claims, and fraudulently inflated
contracts were the most flagrant violations reported.
A task force of Agents from the FBI, Defense Criminal Investigative
Service and the Naval Criminal Investigative Service was quickly
formed to investigate. The task force agreed that the most effective
approach to investigate was the use of an undercover operation
utilizing a covert contracting business. The covert business,
staffed by undercover Agents, would give investigators the ability
to gain the best evidence of fraud through direct contact with
The initial phase of the investigation corroborated allegations
that certain employees of Bay Ship Management, Inc. (BSM) were
demanding kickbacks and fraudulently inflating contracts for
certain subcontractors. In some cases, contracts were processed
for work that was never performed.
The task force learned that BSM was awarded a $200 million
privatized ship management contract for eight USNS which operate
under the direction of the Military Sealift Command (MSC). The
MSC is responsible for sustaining U.S. military forces through
the sea delivery of equipment and supplies.
As the investigation developed, the undercover business expanded,
eventually operating in Jacksonville, FL; New Orleans, LA; Houston,
TX; Norfolk, VA; and San Francisco, CA. In total, the undercover
Agents recorded more than 3,000 conversations and videotaped
dozens of meetings with subjects. The covert business processed
more than 400 contracts for repairs onboard the USNS. The majority
of these contracts were fraudulently inflated or issued for work
that was never performed.
The covert phase of the investigation concluded in August
1998 when Agents executed a search warrant at BSM headquarters
in Englewood, NJ. Simultaneously, dozens of subjects across the
country were interviewed and federal grand jury subpoenas were
issued for testimony and documents.
In August 1999, the initial charges against 21 individuals
and one company were announced to the public. The investigation
is continuing and criminal charges against other subjects are
expected. Additionally, debarment actions against dozens of companies
are underway. The debarment action will prevent these companies
from doing business with the United States government.
Archer Daniels Midland (ADM)
The Archer Daniels
Midland (ADM) investigation had been characterized by the Department
of Justice, Antitrust Division, as the largest criminal antitrust
case in United States history. Since August 1996, seven cases
have been filed against eight companies and ten individuals charging
price fixing and allocating sales volumes of lysine and/or citric
Lysine, a $600 million a year industry, is used by farmers
as a feed additive to ensure proper growth of poultry and swine.
Citric acid, a $1.2 billion a year industry, is a flavor additive
and preservative produced from various sugars and is found in
soft drinks, processed foods, detergents, and pharmaceutical
and cosmetic products. To date, eight corporate defendants and
six individual defendants have pled guilty and have been fined
in excess of $190 million. Most of the defendants have been from
or based overseas.
In October 1996, ADM was sentenced to pay a $100 million fine
for its participation in the lysine and citric acid conspiracies.
At the time, that was the largest criminal fine ever imposed
in an antitrust case. On September 17, 1998, three former ADM
executives were convicted of participating in the lysine conspiracy
following a nine-week trial . This trial was one of the Antitrust
Division's highest profile and most successful criminal cases
in recent history.
The following seven cases were filed in the Northern District
of Illinois and the Northern District of California in reference
to this investigation: U.S. v. Ajinomoto Co., et al.
(Lysine, 8/27/96); U.S. v. Archer Daniels
Midland Company (Lysine and Citric Acid, 10/15/96);
U.S. v. Michael Andreas, et al (Lysine,
12/3/96); U.S. v. Cheil Jedang, Ltd.
(Lysine, 12/3/96); U.S. v. Haarmann & Reimer, et
al (Citric Acid, 1/29/97); U.S. v. F. Hoffmann-LaRoche, et al
(Citric Acid, 3/26/97); and U.S. v. Jungbunzlauer International, et al
(Citric Acid, 3/26/97).
Crimes Chlorofluorocarbons, Vessel Pollution,
The FBI is participating in a national initiative aimed at curbing
the illegal importation and sale of ozone-depleting substances
known as CFCs, commonly referred to by their former brand name,
"Freon." By international agreement signed by over
160 countries during the Montreal Convention in 1987, the United
States agreed to completely phase out CFC production by the year
2000. Diminishing supply and continuing demand for CFCs has created
a huge black market second only to the black market for
narcotics. To date, cooperative law enforcement efforts have
resulted in the seizure of 1.5 million pounds of illegally imported
CFCs with a "street" value of $18 million.
In September 1998, environmental crimes investigations by the
FBI, EPA and other regulators in Miami and San Juan resulted
in a nine million dollar criminal fine against Royal Caribbean
Cruises, Ltd. for illegally dumping oil from three of its cruise
ships in Puerto Rico and Miami. As a result of publicity, other
cruise ship pollution cases have been initiated. In the Pacific
Northwest, the FBI is currently participating in an organized
effort by the United States and Canada to identify suspicious
on-deck cargo and aggressively prosecute incidences of ocean
dumping from ships at sea.
Lab fraud is committed by providers of environmental services.
It takes the form of fraudulent testing/analysis designed to
either show compliance and serve as the basis for false statements
to regulatory government agencies or show violations in order
to induce individuals and businesses to contract for unnecessary
services. Lab fraud cases go to the heart of a regulatory
system that relies upon accurate reporting. The Lab Fraud Initiative
is a prime example of criminal enforcement making the regulatory