Steve Lewis: When you have to fill your car with gas, you probably consider a few things like price, quality, availability, convenience, and trustworthiness. The same calculus goes into just about every household purchase you make, from buying groceries to hiring a contractor to paint a room.
It’s no different for the federal government, which spends billions every year on contracts for goods and services. The money filters through every level of government and across the economy, funding roads, military bases, health care, and countless other discretionary costs. In the last full fiscal year before the pandemic, the budget for that was more than $580 billion.
So, when cheaters conspire in their bids for federal contracts or collude with each other to set inflated prices to try to game the system, it’s an expensive problem.
Richard Powers: It’s just a lot of money.
Lewis: That’s Richard Powers, a deputy attorney general who leads criminal enforcement efforts in the Department of Justice’s Antitrust Division.
Powers: There’s a study out there that said roughly 20% of all procurement spending is lost to bid rigging. So, if you take that, that sort of $580 billion number, and you think about it in the context of how much money is being lost to bid rigging, it sort of says, okay, this is a problem, and we need to try to save the taxpayer money, and we think we have a model for making it work.
Lewis: On this episode of Inside the FBI, our host J.C. joins Richard Powers in talking about the novel approach federal investigators and prosecutors are taking to deter antitrust crimes before they happen and detect and prosecute them when they do.
I’m Steve Lewis and this is Inside the FBI.
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J.C.: Richard Powers is one of the architects behind the Procurement Collusion Strike Force, which formed in November 2019 to focus anew on fraud in the federal procurement process.
The initiative has grown since then to include 22 U.S. Attorney’s Offices and more than a half-dozen federal investigative agencies like the FBI. Their combined efforts—which include training and working with state and local agencies and hundreds of procurement personnel in the U.S. and overseas—have resulted in the recovery of millions of dollars in losses and criminal charges against individual conspirators.
Powers says the strike force is a model for deterring, detecting, and pursuing fraudsters targeting federal procurement funds—an essential lifeline of money, especially during the pandemic.
He describes how the strike force was formed and how it is carrying out its mission despite—and in light of—the COVID-19 challenges.
Powers: The idea was to leverage the combined capacity and expertise of each of the partners. And to do that towards two core objectives.
The first is to deter and prevent antitrust and related crimes on the front end of the procurement process through outreach and training. So, this includes providing training to what we refer to as the “buy side” of the procurement process—so, you know, federal, state, and local procurement officials—and helping them identify or spot what we refer to as the “red flags” of collusion and fraud. And those are sort of the indicators that there might be something going on.
As well as focusing on the “sell side,” too—so the contractors, the procurement officials, and folks like that. So, you know, the deterrent side of this is step-one for the strike force and what it’s been trying to do in the first year.
And then the second side, of course, is detect, investigate, prosecute anything that comes up through better coordination among the partners.
J.C.: The crimes the strike force is trying to prevent and prosecute are not new.
Illegally tilting the playing field to gain advantage has been around for more than a century, if not much longer. The country’s guiding law, the Sherman Antitrust Act, was enacted in 1890 specifically to prohibit activities that restrict interstate commerce and competition. In recent years, however, certain crimes have become a more-or-less regular occurrence in federal case files and court dockets.
Powers: From the Antitrust Division’s perspective, if you go back over 20 years, bid rigging in procurement cases is a staple of our prosecution. We see it all the time. At the time we rolled out the strike force, for example, I would say about one third of our investigations related to procurement or government funds issues. And so, it’s really sort of historically we've seen this issue.
J.C.: The crimes the strike force is focused on fall roughly into three baskets. Here’s how Powers describes each. The first one is price fixing.
Powers: Two of the biggest tuna sellers in the country got together and decided that they were gonna sell tuna fish at $2 a can instead of $1 a can, you know? That’s an example of price fixing, right? They agree instead of competing on price, they're gonna agree to raise the price.
J.C.: Next, bid rigging.
Powers: Bid rigging is really, you have a contract, a government contract that is being let out. The competitors decide, “Well, wouldn't it be better if we had an agreement?” You know, “I'll win this one, you get the next one, and then we can both charge more.”
J.C.: And the last one is market allocation.
Powers: So I'll use the territorial allocation example, but let’s say that you have two competitors—two companies that compete for contracts or something nationwide—and one says, “Listen, let’s stop cutting each other’s throats. How about you take everything west of the Mississippi, and I'll take everything east of the Mississippi?” So, there, they’ve divided up the markets.
J.C.: Antitrust crimes can take a long time to investigate and prosecute. A case that helped inspire the creation of the new strike force was a bid rigging investigation against a handful of South Korean companies. They conspired to fix prices for fuel contracts at U.S. military bases in South Korea.
Powers: So, instead of the military sort of reaping the benefits of competition, right—you know, getting a competitive price from the fuel suppliers—what they'd got were collusive bids, bids that were submitted after the competitors got together and decided who was gonna win what and at what price.
J.C.: The conspiracy went on for more than 10 years until a whistleblower called in a tip. Investigators and prosecutors from multiple agencies ultimately charged five companies and seven individuals in the scheme.
Powers: At the end of the day, the companies ended up paying about $362 million in fines, penalties, and damages. So, the, you know, the loss to the government there was really, in, you know, hundreds of millions of dollars, and we were able to recover that for the taxpayers.
J.C.: To get out in front of the problem, the strike force is training thousands of people who work in procurement roles on how to recognize red flags of potential crimes. They have shown more than 400 data scientists how to recognize troubling patterns in voluminous procurement data. And they have trained more than 1,000 investigators, fraud auditors, and analysts to recognize potential conspiracies. All of this was happening even as the COVID-19 pandemic was settling in.
Powers: And what we found during the pandemic is that, where we might’ve done those as in-person trainings before, we are now able to do them virtually, and we were able to get, I think, probably in some ways a larger audience. And so I think our total number of people trained in terms of procurement officials, data scientists, I mean, you name it—a whole spectrum of, you know, investigators—and, like, it’s somewhere around 8,000.
J.C.: The initiative has already led to more than two dozen grand jury investigations. Awareness of the initiative and its success is, in part, why it expanded so quickly from 13 U.S. Attorney districts when it launched to 22 today.
Powers: I think it’s the districts and the agencies wanting to be proactive—but wanting to be proactive because they see the conduct, because they’re coming across it in their work, you know, and whether that’s a district that, you know, sees a lot of emergency funds or an agency that all of a sudden has a lot of money to spend and is letting out a lot of contracts, they’re seeing the issues.
And, you know, what we saw once we launched the strike force was just a tremendous amount of interest from federal agencies and state and local, and reaching out and saying, “Hey, look, we wanna work with you. I mean, whether we’re a part of it or not, you know, whatever, we wanna work with you all on this. We think this is important. We wanna protect our integrity of our procurement process. You know, we wanna work with you.” And from our perspective, of course, that’s great. That’s what we wanna do. That’s why we're here.
J.C.: Having so many agencies in a coordinated effort across wide swaths of the country is likely to generate more tips and investigative leads. The FBI alone has 56 field offices and hundreds of smaller satellite offices peppered across the country. And dozens of other offices overseas.
Dave Scott: All of these federal agencies bring in unique skills and capabilities, and a lot of it’s through geographic presence. You know, just with the FBI alone, our geographic footprint across all the 50 states and the U.S. territories, it’s been—it’s proven invaluable to the strike force over the last year.
J.C.: That’s Special Agent Dave Scott, a section chief in the FBI’s Criminal Investigative Division who helps lead the Bureau’s efforts with the strike force.
Scott: So, when you add that worldwide geographic presence of the FBI and our partner agencies with the regional teams, Antitrust Division attorneys—it just provides us additional tremendous capability to meet the threat at each area of responsibility.
J.C.: The strike force has a public website for tips. They expect to see complaints about procurement contracts related to the pandemic.
Scott cited markets that may be particularly susceptible right now to collusive behavior, including real estate, financial, construction, and food.
Richard Powers said the risks for illegal activity are especially high with so much money flowing into markets to support the economy. It’s even more important, he says, that would-be fraudsters understand the penalties they risk: jail time for individuals and tens of millions of dollars in fines for their companies.
Investigators have seen this type of activity before, like with 2008’s Troubled Asset Relief Program, or TARP.
Powers: It’s something that my colleagues here at the FBI, we talked about at the onset of the pandemic. And when we saw that the stimulus money was coming out, we said, you know, from our experience, I mean, for us, you know we—I’d say we could go back 10 years with the TARP program and those types of programs. You know, we did similar—we undertook similar efforts back then in terms of outreach, because anytime that you have a significant amount of federal dollars coming out at one point in time, I mean, especially under exigent circumstances, the risks are high for both collusion and fraud.
You know, these are the moments when federal funds are frankly at their greatest risk because, you know, there’s just so much of it.
J.C.: It can be easy to shrug off someone else’s millions or billions in losses when you’re struggling to make your rent, gas up the car, and put food on the table. But this kind of crime is particularly insidious because it affects everyone. It’s your money—for your roads, hospitals, food, and even gas—that’s being siphoned away through rigged bids and fixed prices.
And thanks to the strike force’s efforts, the momentum for combating these crimes is growing.
Powers: My sense is we’ll see, you know, more of these investigations being opened just by virtue of the fact of the number of people we’re getting in front of. And we’ll start to see cases come in, but, you know, these are white-collar criminal cases. They take, you know, some time to investigate and prosecute. So, I think it’ll be—this is one of those efforts that you really wanna measure in months and years, because just the nature of the investigations.
J.C.: Getting a full measure of the initiative’s success isn’t easy. How do you calculate how much money is saved by deterring crimes from ever happening?
But a string of indictments and millions of dollars in potential fines will hopefully make criminals reconsider trying to game the federal procurement system. Powers said that was top of mind when they first rolled out the initiative.
Powers: I think how we measure success is really our ability to get the message out, make sure everybody understood we were on the scene and this was something we were going to be focused on, so that the bad actors out there would think twice before undertaking the conduct.
J.C.: To learn more, visit fbi.gov/pcsf, where you can also find links to submit complaints. As Dave Scott warns, procurement fraud can turn up anywhere. And your tips could be vital in preventing or stopping it.
Scott: You can take steps to prevent this type of illegal behavior in your own neighborhood. And if you're aware of what happens in your community, you’re on the lookout for suspicious activity which may indicate the red flags of collusion that we spoke about. Ultimately, bid rigging, price fixing, and market allocation all directly harm consumers and impact the economy. And by being aware, you can make a difference in preventing that from happening.
J.C.: This has been another production of Inside the FBI. I’m J.C. with the FBI’s Office of Public Affairs. Thanks for tuning in.
More than 360 investigators, analysts, and data scientists are working across dozens of agencies as part of the Procurement Collusion Strike Force to deter and detect crimes involving federal money.