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The many facets of crime . . .
criminal fraud cases

Govt Fraud




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Fraud Against the Government — Maritime Procurement Initiative (MPI)

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 scope. 

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 subjects. 

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.

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Antitrust — 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 acid worldwide. 

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).

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Environmental Crimes — Chlorofluorocarbons, Vessel Pollution, Lab Fraud

Chlorofluorocarbons (CFCs)
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. 

Vessel Pollution
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
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 system work.

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