What about corporate crime?
By Philip Mattera, director of the Corporate Research Project for the Dirt Diggers Digest
The two, along with provocateur
Vivek Ramaswamy, are dressing up the prosaic act of creating an advisory
committee into something that will supposedly transform the federal government.
In a manifesto published in the Wall Street
Journal, Musk and Ramaswamy vowed that DOGE will “cut the federal government
down to size.” Saying the entity will work closely with the Trump
Administration’s Office of Management and Budget, they plan to “pursue three
major kinds of reform: regulatory rescissions, administrative reductions and
cost savings.”
At this point it is difficult to assess whether Musk and
Ramaswamy, who seem to be largely ignorant of federal regulatory and budgetary
processes, can make any of this happen. Yet what strikes me as most significant
is the issue missing from their stated agenda: federal procurement.
The DOGE principals have been taking repeated potshots at
federal agencies and civil servants but have been largely silent about the
other major player when it comes to public spending: the companies that are
paid some $759 billion each year to provide
goods and services.
Musk and Ramaswamy make passing reference to procurement in their manifesto, suggesting the issue is poor agency management of the process. Yet the real problem is contractor fraud.
A Government Accountability Office report published
in April estimated total direct financial losses to the federal government from
fraud at $233 billion to $521 billion per year. While some of this comes from
corrupt activities of individuals or criminal enterprises, a substantial
portion can be attributed to mainstream corporations, including many household
names.
When such companies are found to be cheating, they are
usually charged under the False Claims Act, an 1863 law that had its origins in
the prosecution of unscrupulous suppliers to the Union Army during the Civil
War. Today, the FCA is used to get misbehaving firms to pay a monetary penalty
without facing the risk of criminal prosecution.
In Violation Tracker we document nearly 4,000 federal and related state FCA cases over the past 25 years, with total penalties of $58 billion. Healthcare companies such as Tenet, HCA, and Centene have penalty totals in excess of $1 billion.
Pentagon contractors Boeing,
Northrop Grumman, General Dynamics, and Lockheed Martin have each paid out
hundreds of millions. Also high on the list are pharmaceutical producers such
as Pfizer and Merck as well as information technology firms such as Oracle and
Hewlett Packard Enterprise.
These penalties do not arise from isolated examples. Many of
the big firms are penalized over and over for contracting offenses. Lockheed
Martin, for example, has paid FCA penalties in 16 different cases. Large
companies are almost never debarred from continuing as federal contractors.
Pentagon contractors seem to have little to worry about from
DOGE or the Trump Administration. The president-elect reportedly plans to
nominate Stephen Feinberg to the job of deputy defense secretary. Feinberg is
the co-chief executive of Cerberus Capital Management, a private equity firm
with a history of investing in weapons producers.
It is not surprising that DOGE is choosing to target federal
employees rather than contractors. After all, Musk is the head of companies
that do a great deal of business with Uncle Sam. SolarCity Corporation,
acquired by Musk and now part of Tesla Energy, had previously paid $29 million in an FCA case.
Contractors in general are poised to thrive under Trump 2.0.
In fact, one might view DOGE not as an effort to shrink government but rather
as a way of generating more work for contractors. If the headcount of some
agencies is reduced, those functions may not disappear but instead could be
outsourced to the private sector.
That would be a boon to service contractors such as Booz
Allen Hamilton, which last year paid $377 million to settle an FCA case
involving improper billing, and Conduent, which in 2022 paid $7.9 million to settle an FCA case
involving the submission of false claims to the Department of Education.
By paving the way for more federal contracting and thus more
contractor fraud, DOGE may end up increasing rather than reducing government
waste and abuse.
