False Claims Act

In the war between the North and South corrupt profiteering was epidemic. Gunpowder was frequently adulterated with sawdust. Rifles didn't fire. At the start of the Civil War, Union uniforms exposed to rain would often dissolve and fall from the wearer in clots of sodden fiber.

The reason this happened to the uniforms was that often, instead of being woven, the cloth was held together with glue. The fabric was made from old materials that had been shredded, pounded to a pulp, mixed with a water-soluble sizing, and then rolled out like blotter paper. In the cotton- starved North, the resulting product, called "shoddy," was far cheaper to make than woven cloth. It could be cut and sewn and even ironed, and it gave a false appearance of reasonable quality. But under minimal stress or moisture, it lost all of its integrity and strength, and in a heavy rain it would quickly turn to oatmeal.

Shoddy was a word that soon came to be applied to almost anything that didn't hold together or do its intended job. It described soldiers' shoes so poorly made that they fell apart after the first week's wear, army blankets that lost their fibers after just a few nights in the field, and military overcoats that tattered in the first brisk wind.

In the American Civil War, the plague of shoddy craftsmanship went far beyond what soldiers wore or what kept them warm. In the early days of mobilization, heartless profiteering was viewed by many as almost a form of sport. The United States had existed for only eighty-seven years when the conflict began, the length of a long lifetime, and many citizens on either side of the Mason-Dixon line descended from parents or grandparents who had been born in a British colony and started life as subjects of a foreign power. In the old world, one class of society typically did the fighting, and another class would reap the profit.

The concept of a true, class-blind sharing in responsibility for the common good had been tested during the Revolution, but had lain relatively fallow in the years that followed independence. "We have changed our forms of government," Benjamin Rush, a signer of the Declaration of Independence, wrote in 1786, "but it remains yet to effect a revolution in our principles, opinions and manners so as to accommodate them to the forms of government we have adopted."

In the subsequent expansion of its frontiers, the new country seemed to place less value on public-spiritedness than on the adaptive skills of gifted loners. Title characters in the novels of James Fenimore Cooper, who died just a decade before the Civil War, included the solitary Spy, Pathfinder, and Deerslayer. On the darker side of human nature, another mid- century literary figure, first appearing as Melville's Confidence Man and evolving into the later river denizens of Mark Twain's Mississippi, paid wry, sardonic tribute to the sharp operator, the exploiter, the outsider who prospered by his wit and wile, usually at the expense of the law-abiding and righteous. By those lights, selling the same horse twice, or fleecing the gullible government with clothing that melted off its wearer's back, was almost a right of citizenship.

It was hardly practiced in secret. When the government bought carbines that didn't shoot, instead of forcing the makers to fix them, it sold them off in wholesale lots for $2 apiece just to get them out of inventory. The speculators who bought the defective weapons did nothing to repair them either, but instead turned around and sold them back to cooperative quartermasters at other locations-for eleven times the price they had paid for them as junk. Robber baron Jim Fisk, who made millions supplying worthless, moth-eaten blankets to the military, boasted, "You can sell anything to the government at almost any price you've got the guts to ask."

In the early days of the Civil War, the corruption extended all the way up to the secretary of war, a pinched, tweedy, white-thatched Pennsylvanian named Simon Cameron. Known behind his back as the "Winnebago Chief" for his alleged bilking of an Indian tribe before he came to Washington, Cameron enfranchised two cronies, New York governor Edwin Morgan and a former legislative aide named Alexander Cummings, to disburse millions of dollars on military contracts. Both Morgan and Cummings were involved in the carbine fraud, and the latter's excesses included $140,000 in public funds for the rental of a yacht and the squandering of another quarter million for such personal perks as linen pantaloons, herring, pickles, ale, and porter. Other Cameron cohorts were awarded contracts for a thousand cavalry horses at double the going rate. When the animals were delivered to Louisville, Kentucky, nearly half were found to be "blind, spavined [lame] ... and with every disease horseflesh is heir to."

Six months into the war, and in only the eighth month of his presidency, Abraham Lincoln criticized Cameron as "utterly ignorant and regardless of the course of things." That may have sounded harsh to some, but to others who knew the secretary of war to be equally as generous with himself as with his cronies, it seemed too kind. Cameron was hardly ignorant, for example, in repeatedly favoring two railroads in which he had direct financial interests, the North Central and the Pennsylvania, for the routing of Union war materials and troops. By January, Congress tired of the blatant abuses and voted to censure the errant secretary. But Lincoln, aware of Cameron's continuing political clout in strategically critical Pennsylvania, settled for kicking him out of the cabinet and into an ambassadorship. The disgraced Cameron left Washington in the middle of that winter for far-off frozen Russia.

Many of the congressmen who voted for Cameron's censure were themselves guilty of the same type of offense. Several, for example, made a regular practice of charging government suppliers a $50,000 "broker's fee" on every million dollars in contracts let within their sphere of influence. Edwin Stanton replaced Cameron in the cabinet, but the corruption and incompetence continued unabated. Gen. George McClellan, Union commander of the Army of the Potomac, held shoddy goods and services partly responsible for the failure of the campaign to capture Richmond in the spring of 1862. For one example, defective artillery shells frequently failed to detonate on impact or blew up prematurely in the cannons, killing Union troops. For another, the army's mobility was impaired by the low quality of thousands of cavalry and draft horses used in that campaign. "Worse than traitors in arms" was how a March 3, 1863 report from the House Committee on Government Contracts described "men who pretend loyalty to the flag, [but] feast and fatten on the misfortunes of the nation, while patriot blood is crimsoning the plains ... and bodies of their countrymen are moldering in the dust."

There was no Justice Department in those days, and no effective national law enforcement agency. But not all the nation's leaders were crooks or plunderers, and as the predatory few continued to feast and fatten, the incensed majority searched for ways to purge this enemy from within their ranks. A Republican senator from Michigan, Jacob Howard, emerged as the leader of this effort. The ideal solution, Howard reasoned, would be legislation offering financial incentives to private citizens who took action against individuals and companies they knew were stealing from the government, a law that would make integrity almost as profitable as theft.

Howard was particularly indignant that the rifle recyclers and gunpowder adulterers had escaped punishment, and that Cameron had been rewarded with an ambassadorship rather than sent to prison. Defending his bill from the Senate floor, he railed against "frauds of a very gross character ... in the purchase and selling of small arms for the use of the Army." Lincoln, perhaps still smarting from criticisms of his leniency toward Cameron, embraced the new legislation with such enthusiasm that it quickly became known in the press as "Mr. Lincoln's Law."

Its official name was the False Claims Act, but the law was also frequently identified by the feature that allowed citizens to sue on the government's behalf, described in the Latin phrase "Qui tam pro domino rege quam pro se ipso in hac parte sequitor" ("Who brings an action for the king brings it for himself"). Qui tam laws had an ancient ancestry, tracing back to the thirteenth-century British courts of Henry III. It was a time when a large part of the civilized world was just emerging from the Dark Ages, there were virtually no police forces, and an otherwise obscure Yorkshire yeoman, taking the law into his own hands to right a financial wrong, gave rise to the legendary figure of Robin Hood. The main difference between Robertus Hood, fugitivus, listed on the Pipe Roll of 1230, and the first qui tam litigants of that same era was that the latter worked within the law and with the open encouragement of the king.

Statutes providing for qui tam suits stemming from old English law were imported to America and enacted by the first Congress. But once the new nation was up and running, these laws experienced a slow erosion and eventually were vitiated by the special interests they were intended to control. By fifty years before the Civil War, they had become so weak as to be useless. Jacob Howard hardly invented the concept, but he restored some of the weakened or deleted provisions to give qui tam law new teeth.

Actionable offenses under the law included the filing of a false invoice or voucher, conspiring to defraud, stealing, embezzling, concealing property, and delivering bogus receipts. Each individual act was punishable by a fine of $2,000-astronomical for its time-and in addition the offender had to repay two dollars for every dollar stolen, as well as all court costs incurred by the government or the private litigant acting on the government's behalf Any such citizen who filed a successful false claims lawsuit was allowed to keep half of whatever was recovered, with the other half going to the federal treasury. The law also carried criminal penalties with a maximum fine of $5,000 and up to five years in prison. Not all such suits would be certain to prevail, of course, so a qui tam action was not without risk for the litigants on both sides.

By the time of the Spanish-American War, corruption in government contracting had once again become rampant. More United States soldiers in that conflict, quite literally, died in the mess hall than on the battlefield, the victims of poisoning by American beef that had been preserved in deadly formaldehyde by unscrupulous civilian contractors. Even Teddy Roosevelt, the "Hero of San Juan Hill," attested to the awful consequences of eating the tainted meat, and once again the result was an outpouring of public outrage. But this time, that was as far as it went. A military court of inquiry was convened, and after several days of often sickeningly graphic testimony the matter was dismissed without a single finding of culpability. Not one party to the conspiracy, either military or civilian, was ever held to account for a fraud that resulted in more deaths than from the entire Spanish arsenal.

Between 1863 and the start of World War II, the number of recorded qui tam cases stands at only ten, although it's possible, because of out-of-court settlements and a lack of publication, that the actual count is higher. By the time of the Japanese attack on Pearl Harbor, the feeding frenzy among unscrupulous contractors had resumed. The False Claims Act, designed to protect against such abuse, was unknown by the great majority of Americans, and viewed by most of the rest as irrelevant and arcane.

The firm of Curtiss-Wright, bearer of two of the proudest names in aviation, was caught selling the government defective engines for combat aircraft. The Glenn L. Martin Company, once builders of the giant flying boats that had flown some of the earliest commercial routes across both the Atlantic and Pacific, now knowingly built B-26 medium bombers with wings that were too short. In January 1943 the tanker Schenectady, built of substandard materials supplied by United States Steel and its subsidiary, Carnegie-Illinois Steel, broke in two shortly after launching. A special Senate investigative committee, chaired by Harry Truman of Missouri, was formed to look into these abuses, but its focus was more on maintaining the efficiency of the war machine than on the jailing of felons. Truman did manage to recover several billion dollars in a three-year period (the 1942 military procurement budget totaled $400 billion), but those responsible were routinely let off the hook.

In 1943, the federal government accused several defendants in the Pittsburgh shipyards of rigging bids. An enterprising attorney who had no prior knowledge of the conspiracy picked up a copy of the indictments at the courthouse and used them as the basis for filing a qui tam lawsuit on his own behalf Certainly there was no intention in the law to offer a free ride to opportunists quick enough, and venal enough, to piggyback on government litigation-but neither was there anything in the law that said they couldn't. The Justice Department moved to dismiss the attorney's claim, and the battle went all the way to the Supreme Court. In one of those decisions where justice and strict adherence to the law go separate ways, both the government and the attorney won. Money was returned to the Treasury that would not otherwise have been recovered, and the court ruled that the relator was entitled to half of the recovered money, about $157,000, even though he knew nothing whatever about the fraud beyond the information contained in the government's indictments.

Predictably, lawyers all over the country began getting up earlier and reading the newspapers with new enthusiasm, looking for stories of federal indictments that might lead to similar opportunities. The Justice Department, never enthusiastic about qui tam law even before this latest assault, described the spate of suits that followed as "parasitic."

Almost as quickly, Congress set about to amend the False Claims Act, ostensibly as a response to this highly visible misuse of the qui tam provision, but also under far less visible pressure from industry. Most military contractors were anxious to remove this incentive to the reporting of corporate misfeasance and the launching of privately initiated lawsuits. The Justice Department, never comfortable with civilian competition in the prosecution of government cases and jealous of the large rewards, was eager to cooperate, advocating that the qui tam provisions, which both empowered and rewarded the whistle-blower, simply be eliminated from what remained of the False Claims Act.

Congress was willing to go only partway. The relator's share was cut from half to no more than 10 percent in those cases where the government joined in the suit. In the unlikely circumstance that the government declined to participate and the litigation was successful anyway, the relator's share could go as high as 25 percent-still only half the amount provided for in the original law. And there was no minimum-share guarantee, so relators ran the risk of getting nothing for their efforts.

A key feature of the revisions eliminated exploitation of qui tam law by suits based on public information; a "government knowledge barrier" banned such litigation based on evidence already in the government's possession. Although aimed at the "parasitic" suits, it also had the effect, perhaps unintentionally, of precluding meritorious qui tam cases that were essentially unknown to anyone in the government responsible for fraud investigations. Some courts went so far as to conclude that if the information were anywhere in the government's possession-even if unread or buried somewhere in a dusty file and completely ignored - a qui tam lawsuit could not be brought.

As a result, although there were about a hundred qui tam cases between the date of those revisions in 1943 and the next substantial rewriting of the law in 1986, virtually all of them failed. When Wisconsin found that a nursing home was cheating both the state and federal governments, for example, the Seventh Circuit Court of Appeals threw out the state's qui tam suit because the federal government already knew about the theft. Wisconsin argued that the only reason that was true was because the Wisconsin investigators had told Washington about it.

The court's response suggested that the flaw was not in what the state had done, but in the law itself. The steady erosion had taken its toll. The False Claims Act had been worn back down to its gums.

By the start of the Reagan presidency, a new generation of predatory contractors had a virtual passkey to the government henhouse. The renewed emphasis on military spending saw hundreds of billions of dollars voted into the Pentagon sieve, with fraud and abuse attaining levels equal to the worst excesses of the Civil War. Fresh scandals aired almost nightly on the network news, most of them the result of tips to the press by disgusted insiders who had no other place to take their complaints than to the court of public opinion. Reports of venal horror stories, each more shameless than the one before it, became a form of popular entertainment.

On the B-52 bomber, a small plastic cap for the navigator's stool, worth approximately 17 cents, was sold to the government for $1,118.26, or 6,578 times as much as it actually cost. The CS-A transport carried a ten-cup coffee maker, easily replaceable at Woolworth's, for which the American taxpayer was billed $7,622. When the navy needed an ordinary claw hammer, instead of going to the hardware store and buying it off the shelf for $7.66 retail, it paid a defense contractor $435 for the exact same product.

The most famous such revelation, rising instantly to the level of a popular metaphor, was the flying toilet seat, a distinctly low-tech accessory for the P-3 subhunting aircraft that sold to the government for a highflying $640. After that one made headlines, Washington Post editorial cartoonist Herblock regularly included a toilet seat in his caricatures of Caspar Weinberger, hanging it around the defense secretary's neck like a farcical albatross with the price tag flapping. Not all of these stories were limited in their implications to comic-opera extravagance, waste, or simple stealing. In some of them, the bottom line was life or death.

For a year, the army systematically concealed deficits in the aiming mechanism for the Sergeant York, a mobile gun being developed for shooting down low-flying enemy aircraft. Named after the eagle-eyed Tennessee sharpshooter of World War I, the Sergeant York had a radar system that was so easily confused, the weapon might more accurately have honored the nearsighted Mr. Magoo. In one test of its effectiveness-a last one, as things turned out-when aimed at an incoming "enemy" helicopter, its radar and computers locked onto another target in the same general direction, which happened to be the whirring ceiling fan in a portable field toilet. This was too good a story to keep out of the papers, and in short order it was being told all over America. The Pentagon, already smarting from the exemplary potential in a simple toilet seat and anxious to avoid a similar association with an entire outhouse, quickly decided to cut its losses and scrap the project.

The misbegotten Bradley Fighting Vehicle had in common with the Sergeant York mobile field gun the fact that its name co-opted the reputation of an authentic American war hero, and that by the time the epic scope of the fiasco became public knowledge, the honoree was safely dead and therefore not likely to be represented by counsel. Designed for ambiguous and sometimes contradictory roles, the aluminum-armored hybrid was a mechanical crossbreed between an armadillo and a roadrunner. Its crew was sandwiched in above an arsenal of machine gun ammunition and antitank missiles and below huge plastic bladders containing the vehicle's fuel. A single hit by anything larger than a twenty-millimeter shell could produce instant and catastrophic results, potentially incinerating the crew or blowing them to pieces. True, the Bradley was equipped with a state-of-the-art halon fire suppression system, but that too was long on liabilities and short on assets; it couldn't put out the fire from burning ammunition, and the halon was so toxic that it either asphyxiated the occupants or forced them outside the vehicle to face enemy gunfire.

But unlike its strategic withdrawal from the Sergeant York, even after devastating footage on national television showed the Bradley burning like the Hindenburg in simulated combat trials and sinking like an anvil in the attempted amphibious crossing of a river, the Pentagon stood by its huge investment-by then in the billions-and paid little more than lip service to the vehicle's many defects. What was at stake was worth more than winning wars or saving lives; for the defense contractors who had produced it, the Bradley was one of the most productive cash cows in military history, at least in that one respect exceeding its designers' highest expectations.

If the Bradley was hard for taxpayers to swallow, the army's MRE (Meals Ready to Eat) program was literally nauseating. Intended to replace venerable C rations, by then in their forties, the space-age MREs came in convenient plastic packs that could be heated in boiling water or opened cold in combat conditions. There were two unexpected but frequent variations on the standard pouch, however, which were quickly dubbed "bloaters" and "leakers." Bloaters were MRE containers that blew up into putrid, gas-filled balloons as the result of microbial contaminants in the pouch. Some leakers may have experienced a brief midlife as bloaters, but the package had then ruptured, or had a hole to start with, and emitted foul fluids and noxious odors.

One shipment of MREs was returned to its plant of origin in Texas when the army discovered that the pouches were filled with maggots. The stench was so potent, even workers wearing masks became ill just disposing of them. But it was only after a story on the bloaters and leakers appeared on a national television newsmagazine that the army admitted, some eighty years after the formaldehyde-beef scandal of the Spanish-American War, that a number of soldiers had likewise been hospitalized with poisoning from the contaminated MRE rations. And only then were the first steps taken to remedy the problem at its cause.

A similar cover-up was orchestrated by the navy in defense of its enormously complex Aegis project. An amalgam of sophisticated seaborne radar, computers, and surface-to-air rockets ten years in development, Aegis was built to simultaneously track up to two hundred aerial targets and to control thirty killer missiles. But in sea tests against sixteen easy targets-easy because they were lobbed in one after another instead of all at the same time, as they would arrive in combat-the supershield missed all but five.

The navy was far more efficient than its dubious weapon, at least for a short time, in protecting itself against the cramping effect of congressional scrutiny or the potential embarrassment of publicity. The results of the sea trials were immediately classified, ostensibly for reasons of national security, and it was announced that the tests had been successful. When congressional overseers eventually learned they had been duped-again because not everyone involved in the fiasco interpreted "patriotic duty" as "staying silent"-the Aegis program was very nearly scuttled.

Henry Scammell. . Atlantic Monthly Press. 2004.

The Pentagon Wars Find out what happens when the Pentagon spends 17 years and billions of dollars developing a high-tech tank...and it doesn't work. Colonel Cary Elwes sets out to expose the scandal that general Kelsey Grammer has spent years covering up. Olympia Dukakis and Richard Benjamin (who also directed) co-star in this satire based on James Burton's novel.

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