Outsourcing Fraud
by Anne-Marie Cusac
Printed in the August Issue of The Progressive magazine
Editors Note: In reading this article by Anne-Marie Cusac, it is important to keep in mind that the religious right wing outlined its discontent with the civil service system over twenty years ago. In 1986, Pat Robertson gave several steps on how to increase the power of the president. Katherine Yurica described his agenda in The New Messiahs: "... Robertson would like to see the power of the presidency increase... through greater control over the civil service system. In a throwback to cronyism and Tim LaHaye’s percentage scheme, Robertson would like to see a civil service that reflects the political ideology and views of the president. Pointing out that a new president can only replace about 3,000 out of 3 million federal employees, which his guest said is only one tenth of one percent and that the system is insulated from popular opinion and from the elected officials themselves, he called for a revamping of the civil service merit system. Although his language seemed innocuous enough, one can only guess at his intentions: We need to 'give the government officials an opportunity to retire, or dismiss those who are doing substandard work,' he said. We need to 'demand more merit.' Both features, however, exist in the present system." You may read excerpts from The New Messiahs by clicking here.
The Bush Administration is pushing privatization with a vengeance, looking to downsize government wherever it can. Hundreds of thousands of federal workers could lose their jobs as a result. The Bush assumption is that the private sector can do the work as well as, or better than, the public sector. But that assumption is faulty. This story looks at the risk of privatizing environmental watchdogs. That risk is perilously high.
On November 19, 2002, the White House Office of Management and Budget placed a notice in the Federal Register proposing that 850,000 federal "Full-Time Equivalents" could just as well be performed by private companies. As the notice points out, those 850,000 amount to half the current federal workforce. The Administration told The Washington Post that it has a goal of reaching the 15 percent mark by September 30, 2003.
All federal agencies must now "justify, in writing, any designation of government personnel performing inherently government activities." Other positions will then be considered potentially "commercial," or "a recurring service that could be performed by the private sector." These major changes took effect on May 29.
By "inherently governmental," the new policy means jobs that have "substantial discretion" to "commit the government to a course of action when . . . decision-making is not already limited or guided by existing policies, procedures, decisions, orders, or guidance."
"There ain't many folks like that," says Dr. William Hirzy, an EPA scientist who is senior vice president of the EPA office of the National Treasury Employees Union. On June 19, the union, which represents more than 150,000 federal workers, filed suit against the Bush Administration in an attempt to stop the outsourcing. The suit calls the new policy "an abuse of discretion, arbitrary, capricious, and not in accordance with the law."
Here's what this privatization push might mean for the environment: big-time fraud, and the pollution that can come with it. Environmental fraud is already a serious problem in the United States. It has flourished, some critics say, because the government already does not adequately police environmental contractors. Instead, the government often depends on contractors to monitor each other--or even themselves. This laxity is likely to proliferate. The Bush Administration proposal could contract out much of the work of the EPA regulators to some private firms that have a vested interest in protecting polluters.
Outsourcing of enforcement, scientific, and monitoring work may turn the EPA into an agency "run by the contractors for the contractors of the contractors," says Jeff Ruch, executive director of Public Employees for Environmental Responsibility, a private organization that encourages government accountability, particularly in regard to policies that affect the environment.
Every year, government agencies survey functions they could privatize. Last year, some of the nearly 600 job functions the EPA listed as "commercial" appeared to denote research, monitoring, and enforcement positions: "Risk Analysis" for the Federal Insecticide, Fungicide, and Rodenticide Act, the Food, Drug, and Cosmetic Act, and the Food Safety Advisory Committee; "Data Collection/Analysis" for solid waste, air pollution, and water pollution; "Environmental Restoration Analysis"; and "Multimedia Compliance and Pollution Prevention.""There have been a lot of attempts to privatize those positions that are supposed to serve as watchdogs for the government," says Beth Daley, director of communications for the Project on Government Oversight, which exposes instances of government corruption and fraud. "We think that's crazy, but from a contractor's point of view it makes sense because the fewer people they have overseeing whether they're cheating the government, the better."
This could happen not just at the EPA but across the government. On May 20, the National Oceanic and Atmospheric Administration proposed to fulfill part of the Bush Administration mandate by privatizing its Seafood Inspection Program. The move prompted worried letters from Senator Fritz Hollings, Democrat of South Carolina, and eighteen other Senators, who warned that privatizing the inspection program "could have a significant adverse effect on the nation's economy and public health." Representative Barney Frank, Democrat of Massachusetts, also sent a letter signed by nineteen other colleagues. "Without a reasonable system for assuring the safety of our seafood supply, the risk of serious illness and even death because of consumption of tainted food, as well as the presence of adulterated or mislabeled seafood, would be substantially increased," the Frank letter said.
The U.S. Forest Service is getting ready to outsource jobs that protect our forests. The agency will consider replacing 10,000 positions, nearly a quarter of its workforce of 44,000, by the end of fiscal year 2007. Public Employees for Environmental Responsibility provided The Progressive with a leaked U.S. Forest Service draft of a "National Leadership Team Proposal Briefing Paper," which lays out Forest Service outsourcing plans for the next three years. The work to be studied for privatization includes the agency's entire law enforcement and investigations section, its fire program, 300 resource inventory monitoring positions that do "forest health protection surveys," and 300 positions that do analyses for "decision making (formerly called NEPA)." NEPA, or the National Environmental Policy Act, requires federal agencies to consider the environmental effects of their actions and to prepare Environmental Impact Statements. The paper says the positions include "information collection and analysis for major environmental decisions."
As privatization proceeds, says Hirzy, "People will buy the science they want to buy, and we'll have to live with the result. It's the end of the civil service as we've known it for 100 years because then everything will be political."
Over the last several years, Andrew Lauterback has identified "an increasing trend in laboratory fraud cases." Lauterback, a senior criminal enforcement counsel and twenty-three-year EPA employee, says the agency doesn't have "the resources to inspect all these facilities regularly. So we have this honor system. The problem is, there are people who are dishonest."
Lauterback says that "in the past five or ten years, there's been a move toward third-party auditing"--letting private contractors inspect the work of suspected polluters. Some of those private auditors cooked their books. "If you can't rely on the information and data you're receiving, it becomes even more dangerous," he says.The country may go the way of Louisiana, where environmental fraud has already taken a toll. Like many sewage treatment companies, Johnson Properties oversaw its own cleanup in Louisiana. It was supposed to sample the liquids it released from its sewage lagoons and plants to make certain the runoff was clean. It provided the EPA and the Louisiana Department of Environmental Quality with plenty of data to show the company was keeping the public and the environment safe. The company also submitted analysis forms that displayed the name and address of the private laboratory that was auditing its work. The name of the company was Enviro-Tech Labs. But Enviro-Tech Labs did not exist.
Johnson Properties eventually ended up in court. That wasn't because the EPA caught it red-handed. It was because people got sick of hauling bags and buckets of feces out of their homes and yards.
In 1992, Paul Maeder was living in Tara, a subdivision about an hour's drive south of New Orleans, when he realized something was amiss. "I was out on my front lawn one evening, and I noticed that my neighbor across the street had two men in her front yard," says Maeder. The two men were digging a hole. After they had dug for a while, he says, a dark liquid erupted from the lawn and poured onto the street.
Across much of southern Louisiana, in the semi-rural areas, sewage was not something people flushed away and forgot. It came back . . . into the toilet bowls, dishwashers, bathtubs, floors, and lawns.
"The toilets would just overflow by themselves. It didn't have to rain. You'd go out for groceries" and it would happen, says Alice Boudreaux in Thibodaux, about fifteen miles away from Tara. "You had to sit at home and baby-sit your commode."
Eventually, the laminated planks in her hallway floor loosened. "All I had to do was touch them and they came up," she says.A few streets away, Rita Bergeron tells me that, for years, sewage threatened her house from two sides. Feces and urine often backed up six inches deep in the front ditch. Her backyard bordered a sewage lagoon, which was supposed to be 200 feet away.
Then, in 1996, the pit began to leak. Bergeron shows me photos of puddling sewage in her grass and tire ruts where a lawn mower sank instead of moving forward. Her backyard stayed flooded for more than a year, she says.
The cost was harsh. Bergeron's family had built an addition onto the back of their mobile home. "The water stayed under it all the time," she says. "We had to tear that room down."
Her garden also was devastated. "I lost trees, fruit trees, vegetables," says Bergeron.
Bergeron's husband, Clyde, sums up the years of grief and stench that Johnson Properties brought to his family. "It was disgusting," he says. "We waited all our lives to buy this little piece of property."
Two hours' drive away, near Lafayette, Louisiana, the center of Cajun country, Susan Ridge holds out a photograph. "This is my alleyway in back of my house," she says. "This is the manhole that's falling apart. That's sewage on top of it. Do you know how much sewage it takes to back up a manhole? Sewage, Tampax. All the children would play in it. They didn't know any difference. The ditches were full of it. We had dysentery. People had been on Imodium A.D. so long they had to go off of it."
Fed up with inaction from the Louisiana Department of Environmental Quality, Ridge and her community contacted the EPA. The U.S. government filed a lawsuit against Johnson Properties, which resulted in a settlement that included a consent decree. The stipulations included reductions in the layers of sludge, repairs, warning signs, upkeep, "adequate disinfection" of the waste, the administration of chlorine tablets, and "sampling and analyses."That still did not solve the problem.
Ridge organized people to watch Johnson Properties workers. "They were supposed to actually go in and take vials," she says. "They had people who drove up and sat there smoking up in their trucks for one to two hours."
"Some would actually sneak onto the property and look down into the dispenser tubes to see if they had chlorine in them," says State Representative Clara Baudoin, who had sewage in the ditches near her rural home. "None. Nobody ever saw any."In a four-day inspection, the EPA found 661 violations of the consent decree.
Residents repeatedly telephoned Johnson Properties, the Louisiana Department of Health and Hospitals, and the Department of Environmental Quality. "We got no backup from the state. None," says Boudreaux. "Why do they even have these state agencies?"
The EPA and the Department of Justice finally brought two lawsuits. One trial, in response to the violated consent decree, charged the company with inventing a fake lab to generate fraudulent data. The judge in that suit took the company away from the Johnson family. A second lawsuit resulted in felony convictions for two officials from Johnson Properties and fines of $4.3 million for Johnson and six subsidiaries. Glenn Kelly Johnson, an owner, pleaded guilty to conspiracy to violate the Clean Water Act, as well as to another charge of obstructing justice, and received a four-year federal prison sentence.
"The big issue was how they duped everybody with their fraudulent data," says Al Levron, who at the time was in charge of pollution control of Terrebonne Parish. "And quite frankly, I'd never run into that--a lab making up data or even making up a laboratory. No one thought twice."
During the final hearing of the lawsuit filed in Lafayette Parish, U.S. District Court Judge Tucker Melancon questioned Dale Givens, then secretary of the Louisiana Department of Environmental Quality, about why the agency didn't enforce the law. "We have a limited staff," Givens said. Only four did "routine water quality monitoring."
"If you look at the number of regulators compared to the number of regulated, it's grossly out of whack," says Levron, as we sit in his office in the Terrebonne Parish tower, where he now works as parish manager. "Louisiana has a history of being lax in enforcement. The rubber really hits the road in the number of inspectors."
"The potential for abuse is very, very high when you outsource," says Kyla Bennett, the director of the New England chapter of Public Employees for Environmental Responsibility.
Bennett, a biologist with a Ph.D. in ecology and a law degree, worked for EPA Region 1 for ten years, doing wetlands permit review and enforcement. "We did have issues, while I was there, of contractors being untruthful," she says. "We did have situations where consultants would lie."
In 1996, says Bennett, the Maine Department of Transportation wanted to build a port on Sears Island in Penobscot Bay. A contractor determined the site was fit for development. "They said, 'No wetlands here.' We subsequently found about 200 acres," says Bennett. "I don't know how they could have missed it; it was quite a large area."
But the EPA discovered the overlooked wetlands late. Bennett says the Maine Department of Transportation had already filled in ten acres of it.
Observing that outside environmental consultants often have a lot of private clients, Bennett says it was difficult to determine where their loyalties lay. "I would have much preferred to have the people on staff than to have to hire on outside consultants who work for the government and also work for violators of the very same laws," she says. "There's such a conflict that it doesn't feel right."
The good thing, she says, is EPA oversees a lot of these contractors directly, even though the number of enforcement officers is low, at fewer than two full-time officers to do wetlands review for all six states in Region 1. If, however, the EPA were to outsource those enforcement positions, "that would be a very different thing and a great concern," she says. Private contractors, she says, "can be very susceptible to pressure from big companies."
She states her opposition in six words: "To outsource is very, very frightening."
Caleb Brett is an independent testing company with labs all over the United States. Richard Kaminski, who eventually became president of the laboratory in Linden, New Jersey, was eager to keep his clients pleased with his work. So he made agreements to change "off-spec" data (data that did not meet legal limits for pollution) so that it appeared to be "on-spec." One result of such agreements was a conspiracy that lasted nearly ten years. Another result was air pollution.
Caleb Brett's specialty is analysis of petroleum industry products, including what is known as reformulated gasoline, or gas that has been processed to reduce the presence of ingredients that contribute to ozone pollution.
Kaminski formed close relationships with some of the businesses Caleb Brett served, taking vacations with the company representatives and showering them with gifts.
Kaminski and client Blending, Marketing, and Service, Inc., of Houston, Texas, were indicted on January 18, 2001. Kaminski was charged with conspiracy to commit fraud and with making false statements. Blending, Marketing, and Service, Inc., its president, and its operations manager were charged with conspiracy and mail fraud.
According to the EPA's indictment, Kaminski had a habit of speaking in code to his employees. For a five-year period, "on a routine and regular basis," it says, "defendant Richard Kaminski told Caleb Brett employees concerning testing of petroleum products at a Caleb Brett facility in Puerto Rico to 'Make it nice' and 'We're not testing medicine,' among other expressions, which were understood by these employees to be code expressions meaning falsify analytical test results to help certain favored customers."
Kaminski told one employee to " 'do the right thing' for defendant Blending, Marketing, and Service, Inc., and that if he 'helped' defendant Blending, Marketing, and Service, Inc., in any way he should tell them about it since there was no sense in 'helping' them if they did not know about it," the indictment says.
On September 19, 2002, Kaminski, who resigned from Caleb Brett in 1997, pleaded guilty and was sentenced to eleven months in prison and a fine of $20,000 for fraud. Six managers at Caleb Brett, as well as two executives from Blending, Marketing, and Service, Inc., also pleaded guilty. Caleb Brett was sentenced to a fine of $1 million and three months probation for attempting to block the government's investigation. Blending, Marketing, and Service got a fine of $471,000.
According to the indictment, the company and Kaminski together "caused Caleb Brett employees at the Linden facility to falsify the analytical test results for hundreds of millions of gallons" of reformulated gas. Reformulated gas is supposed to minimize carbon monoxide and benzene. Carbon monoxide is toxic to people. Benzene causes cancer in them. The fuel was marketed all over the East Coast.
Anne-Marie Cusac is Investigative Reporter for The Progressive.
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