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Government Contractors That Commit the Most Fraud Also Spend the Most on Lobbying

A handful of government contractors are responsible for paying the lion’s share of many billions in fines, settlements, and court judgments stemming from misconduct dating back to 1995, according to a new database published by the Project on Government Oversight (POGO) last month. The contractors that have paid the most in penalties to the government share another dubious distinction: they spend the most on lobbying efforts.

The POGO database is filled with roughly 2,500 resolved and pending misconduct instances committed by government contractors over the last 20 years. Since 1995, the contractors cited in the POGO database have paid at least $92 billion in fines, settlements, and court judgments. The phrase “at least” is used only because a number of the investigations were settled confidentially, or the investigations involved multiple entities with no clear breakdown of how much each entity paid.

The database uncovered 17 different types of misconduct. Labor and environmental violations led the way as the most common, both of which accounted for a combined 40 percent of reported instances that were resolved. Government contract violations, including fraud, accounted for roughly 22 percent of the reported instances that were resolved.

According to POGO, BP P.L.C. (British Petroleum) alone paid more than 37 percent of the $92 billion total. Most of the cited misconduct stemmed from the Deepwater Horizon explosion and oil spill of 2010. Not to be outdone, pharmaceutical giants GlaxoSmithKline (GSK), Pfizer, Merck, and Schering-Plough (which merged with Merck back in 2009) accounted for another 27 percent of the total. All four companies paid a combined $24.6 billion in misconduct penalties stemming from cases that accused the companies of manufacturing unsafe drugs, financial irregularities, and illegal marketing practices.

In recent years, misconduct perpetrated by fossil fuel and pharmaceutical contractors have eclipsed that of military hardware contractors in penalty amounts and in the number of cited incidents. Of course, this is not to say that defense contractors like Boeing aren’t getting into its own fair share of dirt.

According to the database, Boeing has paid over $1.4 billion in penalties since 1995. The aircraft manufacturing firm—which contracts with the government to provide military equipment—has a long list of misconduct. Boeing has overbilled the government on the KC-10 aerial refueling tanker, submitted false invoices, and an array of environmental crimes, including waterway contamination and spilling jet fuel. In total, Boeing has been identified in the POGO database 60 times for fraud or violating the terms of a government contract. Only BP, Exxon Mobil, and Lockheed Martin have more resolved misconduct charges.

How Can Government Contractors Whitewash Misconduct? The Answer Might be Lobbying

You would think that after 60 resolved cases of alleged misconduct (not to mention the 13 cases that are still pending), the government would take a hard look at increasing contract oversight with a recidivist offender like Boeing. Surely there are other contractors out there that would love to earn lucrative government contracts and wouldn’t violate the terms by stealing taxpayer money (as a matter of fact, the POGO database shows many contractors with relatively “clean” misconduct records).

So why hasn’t the contractor fallen out of favor with the government? One reason might be that Boeing is the second-largest political spender among the contractors listed in the database. In the first nine months of this year, Boeing spent a reported $16 million on lobbying efforts. Last year, Boeing spent $1.9 million in campaign contributions to candidates at the local and federal level on both sides of the aisle. This, of course, is in addition to the undisclosed amount that the company contributes to trade associations, think tanks, public relations efforts, and, last but not least, political groups that use “dark money” to influence elections. These 501(c)(6) tax entities are not compelled to disclose donor information.

Below is a list of other top government contractors and their instances of misconduct:

  • Exxon Mobil, which is the beneficiary of oil and gas contracts, has 84 instances of cited misconduct that have been resolved, according to the database. Since 1995, the company has paid $2.8 billion in penalties. As far as lobbying efforts are concerned, Exxon Mobil is the ninth-largest spender on lobbying so far this year among individual firms.
  • Lockheed Martin, the beneficiary of aerospace contracts, has 79 instances of cited misconduct that have been resolved, and the firm has paid a total of $751 million in penalties since 1995. Lockheed Martin is the seventh-largest spender on lobbying so far this year among individual firms.
  • General Electric, the beneficiary of defense contracts, has 59 instances of cited misconduct that have been resolved. GE has paid $638 million in penalties since 1995. So far this year, GE has spent more money on lobbying efforts than any other individual company.

Aside from the above government contractors, the following firms were also flagged for high political spending and high instances of misconduct:

  • BP
  • Honeywell
  • FedEx
  • Chevron
  • Halliburton
  • Shell
  • Pfizer
  • General Motors
  • GlaxoSmithKline
  • Merck

Federal Criminal Prosecutions of Corporations on the Decline

It’s difficult to quantify what lobbying can buy a company, though it appears that continued access to business affairs with the government is certainly a part of it and worth the millions being spent. The money may also go toward keeping individuals responsible for misconduct out of jail.

According to a POGO investigator, less than seven percent of enforcement actions levied against the government contractors in the database included criminal prosecutions. This finding fits nicely with the results of another study published by the Transaction Records Access Clearinghouse (TRAC), which said that over the past 10 years, federal criminal prosecutions of corporations have declined by nearly 30 percent.

This year, Deputy Attorney General Sally Quillian Yates delivered a speech about corporate enforcement that said corporate misconduct “isn’t all that different from everything DOJ investigates and prosecutes. Crime is a crime.” Yates added that it was the department’s job to hold “lawbreakers accountable regardless of whether they commit their crime on the street corner or in the boardroom.”

To Yates’s point, the Department of Justice issued a memorandum in September that outlined a new policy: to focus on specific people within corporations that commit misdeeds. It’s better late than never to make these changes, but why has there been such a long wait to do this? Why did we have to watch helplessly as the government continued to hand taxpayer dollars back to disreputable contractors?

Criminal prosecutions for corporate crime will go a long way toward stopping fraud and other misdeeds. Those who seek to steal from taxpayers will think twice about it if they were to land in prison after being caught. Now, the worst-case scenario in an overwhelming amount of cases is that the company takes a financial hit, which is often a drop in the bucket when you consider industry profits.

Will the new policy shake things up? Will we start to see more fraudsters being criminally prosecuted? Here’s hoping…

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