Miami Arms Dealer Had a Checkered History

Back in April, I wrote about the 22-year old arms dealer who was granted a $300 million contract to supply arms to Afghan forces and ended up dealing damaged and aged Soviet-era ammo which didn't work. Last week, the House Oversight and Government Reform Committee held a hearing aimed at determining how such a bungle was possible.

A Congressional committee revealed Tuesday that by the time the Army awarded the bid, State and Defense Department officials had canceled or delayed at least six earlier contracts with the company, AEY Inc., for poor quality or late deliveries.

But that record, including a botched $5.6 million order for 10,000 Beretta pistols for Iraq’s security forces, was either ignored or omitted from databases that American military contracting officials have used to weed out companies suspected of involvement in suspect arms deals.

You see, the State and Defense Departments have a database of contractors with poor past results, but AEY's past was either "ignored or omitted." AEY was awarded the contract, which had as many as ten companies contesting, despite failing the government several times before and being included on a list of contractors believed to be engaged in illegal arms sales. AEY also had help from within the government, in the form of Ambassador to Albania John Withers II, in covering up the illegal Chinese origins of the defective ammo it was supplying to US allies in Afghanistan.

In a startling example of government incompetence, the contract appears to have been superfluous from the start.

Congressional investigators also determined that the Afghanistan ammunition contract, which the company is also accused of mishandling, may have been unnecessary: Bosnia, Bulgaria, Hungary and Albania, the Eastern European countries from which AEY bought its ammunition, had offered to donate the type of Soviet-style rifle and machine-gun cartridges that the Afghan Army and police forces use.

The mind reels.

US: Hey, we need some arms for our Afghani friends.

Eastern Europe: Sure, take these.

US: No, thanks, we'd rather buy them through a third party. Good thought, though.

Related:

AEY bungles contract, April 15

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KBR Loses Its Monopoly

After nearly two years of wrangling, the Army has finally broken up the monopoly held by KBR for work in Kuwait, Iraq and Afghanistan. The positive signs stop there, though.

Yet even as the Pentagon begins to pull apart the enormous KBR contract, critics warn that the new three-company deal could actually result in higher costs for American taxpayers and weak oversight by the military. In fact, under the new deal, KBR and the two other companies could actually make more than three times as much as KBR has been paid each year since the war began.

Although every single past undertaking within the framework of the two theaters has seen enormous cost overruns and mismanagement, the Army would like to assure voters that they have everything under control. That proposal seems laughable when considering that if the contract managed to come in under the projection it would be the first such instance.

Critics also say they doubt that the new contract will result in significant cost savings or better services for soldiers in Iraq. The Army has built into the deal the potential for larger profits for the contractors than existed under the prior contract, and it plans to outsource much of the management and oversight of the contractors to yet another company, Serco Inc., for $59 million.

Incredibly, despite the long trail of cost overruns, corruption and mismanagement, the Army contract has outsourced the oversight of the contract, making oversight that much harder, spending another $60 million, and ensuring that any past problems involving the contractors will continue unabated.

KBR, though sure the most (in)famous of the three--KBR, Fluor, and DynCorp--it is not alone in its shortcomings.

Like KBR, DynCorp, based in Falls Church, Va., has had serious problems in past contracting work, including allegations that its employees engaged in sex trafficking in Bosnia while working on a police training contract there in the late 1990s. In addition, government auditors concluded last year that the State Department’s $1.2 billion contract with DynCorp for police training in Iraq was so badly managed that they could not determine exactly what was done for the money.

In addition to the run-of-the-mill payments for phantom services, DynCorp manages to throw in the added sex trafficking to up the ante.

A large part of cost overruns revolve around the cost-plus nature of these contracts, which stipulate "all...costs are reimbursed by the Army, as long as the compan[ies] can convince the government that they are reasonable." Invariably, "reasonable" wins, even if there's no product, as has recently been shown.

Tack-on fees are also sure to boost the costs of the contract, despite the promises. While KBR received fees up to 3 percent on top of the contract price under the previous arrangement, the new contract includes fees of up to 10 percent for the three companies. Bloated fees, cost-plus pricing, and two additional work forces are sure to add to money management issues. Issues that will receive even less scrutiny now that the task has been delivered to a British subsidiary.

Though admirable that the Army has finally broken a no-bid monopoly after 5 years, it has managed in the process to ensure, rather than prevent, further corruption and overspending. War is expensive, but paying for phantom services and placing the pricing in the hands of those doing the work is not a necessary part of the spending. To proactively structure a contract so as to all-but-guarantee that those problems will worsen instead of improving on an already-broken system is disturbing, no less so simply because it is par for the course.

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Pay First, Ask Questions Later

The US military's reliance on private contractors to perform most functions of the Iraq occupation, including combat, is well-documented, as is the favored status of KBR, a company with ties to Dick Cheney. The program is far from a success, with embarassing revelations ranging from the inane to the outrageous. Despite the obvious violations of logic and competency, the Bush administration had tried to slip wording into legislation that would have granted immunity to contractors committing fraud in the performance of overseas contracts.

Now, a recently-concluded Pentagon audit of roughly $8 billion spent on contractors in Iraq found that "none of the payments followed federal rules and...in some cases, contracts worth millions of dollars were paid for despite little or no record of what, if anything, was received."

In one case, according to documents displayed by Pentagon auditors at the hearing before the House Committee on Oversight and Government Reform, a cash payment of $320.8 million in Iraqi money was authorized on the basis of a single signature and the words “Iraqi Salary Payment” on an invoice. In another, $11.1 million of taxpayer money was paid to IAP, an American contractor, on the basis of a voucher with no indication of what was delivered.

It was hard to comprehend paying a 22-year-old for Cold War-era, degraded ammunition to supply the Afghans. It is much harder to comprehend that money is being given to anyone with a hastily-written IOU in their hands and asking nothing more.

The Pentagon report covered the money of the US tax payers, but the government proved equally adept and proficient at wasting the Iraqis' money, too.

The disclosure that $1.8 billion in Iraqi assets was mishandled comes on top of an earlier finding by an independent federal oversight agency, the Special Inspector General for Iraq Reconstruction, that United States occupation authorities early in the conflict could not account for the disbursement of $8.8 billion in Iraqi oil money and seized assets.

That $1.8 billion consisted of seized Iraqi assets and is currently unaccounted for. Doled out in cash, but to where nobody knows.

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FDA Eliminating Protections for Test Subjects

Recently, I've discussed the FDA's efforts to enforce a policy of pre-emption, which would prohibit lawsuits against manufacturers whose products had been approved by the agency. In doing so, I've stressed that the policy is extremely reliant upon the manufacturers being honest and employing scientific ethics with regard to testing and follow-up procedures.

Now the FDA is piling on, gutting rules governing clinical trials in foreign, usually developing, countries.

With 80 percent of clinical trials failing to recruit sufficient numbers of test subjects on deadline, drug companies increasingly export their trials to developing countries, where sick, undertreated patients abound. It’s faster, it’s cheaper, and it’s easier to conduct the placebo-controlled trials that companies and the FDA prefer. There is precious little oversight of these trials.

Unlike for domestic trials, the FDA does not require advance notice before drug companies take their trials outside US borders. And with 90 percent of trials failing to gain FDA approval, a massive number of trials are conducted, fail, and then vanish with no agency review at all—and little public record, if any at all.

Virtually the only thing currently regulating these overseas trials is the Declaration of Helsinki, when the FDA chooses to enforce it, which isn't often. Reading the rules, it's hard to imagine what objections the FDA could have. Essentially, it stipulates that participants must be volunteers and stand to benefit from their participation and that the research must follow basic scientific principles. Not all that stringent and, for the most part, common sense. Nevertheless, "the FDA has been agitating against the DOH since the late 1990s."

The FDA is replacing the deposed DOH with "Good Clinical Practice Rules." One can imagine how that might play out in the current environment:

Unlike Helsinki, which describes ethical principles agreed upon by the international medical community, GCP rules are bureaucratic regulations crafted by regulatory authorities and drug industry trade groups, behind closed doors.

One of the many running themes of the last 8 years. It's one thing to allow profit under an economic system. It's entirely another to allow it by taking advantage of uninformed poor subjects in developing countries and then foisting the products of those unregulated trials onto an unsuspecting American public which no longer has even the basic right to hold anyone accountable.

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More on FDA and Pre-Emption

I've written a couple of times on the issue of pre-emption, which states that manufacturers cannot be held liable for any drug or medical device approved by the FDA. This includes drugs such as Vioxx, the approval of which was in no small part contingent upon ghost-written, dishonest research publications promoting the drug, despite evidence that it may have been harmful. In another instance, Johnson & Johnson, makers of the Ortho-Evra birth control patch, withheld evidence that it released significantly more estrogen than advertised and presented a danger to patients.

If the Supreme Court were to rule in favor of pre-emption in a case it has before it, Americans who suffered as a result of manufacturers' malfeasance and dishonest practices would have no outlet, and would assume the liability themselves. The House Committee on Oversight and Government Reform held a hearing this past Wednesday on the subject, hearing testimony from Dennis Quaid, various doctors, and lawyers, with all but one opposing pre-emption. [Obviously, Henry Waxman controlled the invitations, so the discrepancy is anecdotal at best.]

William H. Maisel, M.D., M.P.H., Director, Medical Device Safety Institute, Department of Medicine, Beth Israel Deaconess Medical Center, Boston

Dr. Maisel testified about medical devices, and the specific case of Mark Gleeson, victim of a short-circuiting pacemaker. As Dr. Maisel stated, "the U.S. Food and Drug Administration regulates more than 100,000 different medical devices manufactured by more than 15,000 companies, [and] receive several thousand new and supplemental device applications annually."

That the FDA would be able to catch every flaw or questionable scientific backing in all of those devises, in addition to regulating the 11,000 drugs on the market is ludicrous.

St. Jude Medical, the manufacturer of Mr. Gleeson’s pacemaker, had become aware of the short circuit problem 2 years prior to Mark Gleeson’s pacemaker failure because other faulty pacemakers had been returned to the manufacturer. After studying the problem for over a year and validating a fix, St. Jude asked for and received FDA approval for a modified version of the device that corrected the problem. This approval came several months prior to Mr. Gleeson’s device failure although the reason for the device modification and a patient warning were not publicly provided at that time. Furthermore, St. Jude Medical continued to distribute the already manufactured potentially faulty pacemakers. Mark Gleeson was unlucky enough to receive one as his replacement device – even though corrected pacemakers had been built and were available. Eight months after receiving FDA approval for the corrected device and nearly 2.5 years after initially learning of the problem, St. Jude Medical issued a recall of 163,000 pacemakers, including Mark Gleeson’s new unit.

The timeline in this particular case should eradicate any misconceptions about the efficiency of the FDA and its ability to protect consumers. St. Jude was aware of the problem a full year ahead of providing him the first pacemaker, and had a fix several months prior. Once it did provide a fix, neither the fix nor the underlying issue were made public. Indeed, when Gleeson's first pacemaker failed, he was provided with another faulty device, despite the availability of the newer model.

All of the issues involving the short-circuiting pacemakers became publicly available only 2.5 years after the problem was discovered.

Aaron S. Kesselheim, M.D., J.D., Harvard Medical School, Division of Pharmacoepidemiology

These lawsuits are important because in the current US regulatory system, a drug’s manufacturer plays the central role in the development and dissemination of knowledge about its product, and therefore exerts considerable influence over what is known about its product and how it is used in the marketplace.

This fact, of course, places greater emphasis upon the issues surrounding Vioxx (ghost writing) and Ortho-Evra (suppression of detrimental evidence). If the manufacturers themselves are in control of what the FDA (and the public) knows about the drug, pre-emption would place them in total control both coming and going. Not only are they capable of controlling what is known, but once that drug is approved on that cherry-picked information, the public is helpless but to hope nothing bad happens.

Dr. Kesselheim also brings up the limited testing that drugs go to prior to release, "often on patients healthier than those for whom it will be prescribed." Given that the FDA doesn't have the resources to follow every drug for its lifetime on the market, it is often up to the manufacturer to track adverse events and other safety issues.

Manufacturers have a strong financial incentive to promote their drugs’ effectiveness and increase sales of their products, but manufacturers may also sometimes be faced with their own safety-related data that suggest limiting use of their product, or withdrawing it from the market altogether.

Vioxx is again held up as an example, along with Baycol. In the case of Baycol, the manufacturer intentionally failed to follow-up once the drug went to market: "A company memorandum reportedly stated 'If the FDA asks for bad news, we have to give, but if we don’t have it, we can’t give it to them.'"

Then there's the lovable sales reps:

At the same time, a drug’s manufacturer manages how the drug is promoted to physicians and patients. Numerous studies show that these promotional messages are extremely powerful in influencing physicians’ prescribing practices. However, like any sales messages, they also tend to inflate the benefits of a medication and downplay its risks. Vioxx’s manufacturer continued actively promoting its wide use even after it reportedly knew about the drug’s association with cardiovascular adverse events. Such promotional tactics included specific instructions to its retailers how to dodge questions from physicians concerned about these side effects.

David Vladeck, J.D., Professor of Law, Georgetown University Law Center

Let’s be clear about this: Under FDA’s view, consumers are forced to assume the risks of unsafe drugs and medical devices. At the same time, manufacturers of drugs and medical devices who fail to take reasonable steps to assure their drug or device is safe are immunized from liability, and, these days, essentially immune from FDA enforcement.

Thus, instead of having liability claims as a second front of protection for the consumer, an over-burdened FDA beholden to the forthrightness of the manufacturers becomes the only form of coverage. Given the track record, it is fact, not opinion, that this is an ineffective system and to the severe detriment of consumers.

But here's the real kicker. Republicans love to rail against 'activist judges' and unelected officials ruling by fiat. But only on select issues, namely those they don't agree with. Tort reform (read: elimination) is a different story:

What makes this result all the more indefensible is that the decision to wipe away state liability law was not made by Congress through legitimate, democratic means. Instead, it was made by unelected and unaccountable agency officials — many of whom worked for drug and device companies before their government service and have returned or will return via the revolving door to represent the same companies. These decisions were not made in a transparent, publicly accountable way. Rather, they were made in obscure regulatory documents, with no opportunity for public input, and with no regard for the clear-cut requirements of Executive Order 13,132, which disfavors preemption and requires agencies to consult with states, local governments and the public before making preemption decisions.

I'm sure George Bush and John McCain will come out against 'judicial activism' if the Supreme Court legislates from the bench on this issue.

The federal government has regulated the sale of drugs for one hundred years without any hint that state liability actions interfered with FDA’s ability to do its job. Nothing in the statutes FDA administers suggests that they oust state liability actions for drug products. Indeed, FDA has long taken the view that state liability litigation for pharmaceuticals is an important, independent discipline on the market. And Congress has not acted to preempt or limit state liability actions, even though Congress has long been aware of the steady procession of liability actions against drug makers — including those that pre-date FDA and its forerunners.

The issue of pre-emption isn't even close. Tactically speaking, the insinuation that the FDA is effective as the exclusive check on pharmaceutical and medical device safety is fallacious and ludicrous, given the extensive pile of evidence to the contrary.

But aside from the logistics, there remains the legal issue. If the Court were to decide in favor of pre-emption, it would do so in contradiction to a century of precedent, both within Congress and the FDA, itself.

Pre-emption would be a great coup for those in the Bush administration who will be returning to corporate jobs in 2009, many in the pharmaceutical arena. It would also take a sledgehammer to consumer protection and legitimate governance.

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Supporting the Troops Through No-Bid Contracts

Previously, I've discussed the government's commitment to supporting the troops by failing to test their body armor and equipment. Now comes more indication that, not only was the wiring in some US facilities in Iraq and Afghanistan an electrocution risk, but the government was informed of the risk and did nothing.

James Risen writes that as early as 2004, the Army warned its commanders that soldiers were at risk of electric shock due to faulty wiring installed by everyone's favorite Halliburton spin-off, KBR, which, of course, was granted no-bid contracts to do the work. Of equal clarity is that its being a subsidiary of Dick Cheney's old company is pure coincidence and the contract was awarded on merit alone. Without competition.

"We've had several shocks in showers and near misses here in Baghdad, as well as in other parts of the country," Frank Trent, an expert with the Army Corps of Engineers, wrote in the bulletin [entitled "The Unexpected Killer," {and} issued after the deaths of two soldiers.] "As we install temporary and permanent power on our projects, we must ensure that we require contractors to properly ground electrical systems."

Since that warning, at least two American soldiers have been electrocuted in similar incidents. In all, at least a dozen American military personnel have been electrocuted in Iraq, according to the Pentagon and congressional investigators.

KBR has had no shortage of warnings regarding its death traps:

American electricians who worked for KBR, the Houston-based defense contractor that is responsible for maintaining American bases in Iraq and Afghanistan, said they repeatedly warned company managers and military officials about unsafe electrical work, which often was performed by poorly trained Iraqis and Afghans paid just a few dollars a day.

One electrician warned his KBR bosses in his 2005 letter of resignation that unsafe electrical work was "a disaster waiting to happen."

Another said he witnessed an American soldier in Afghanistan receiving a potentially lethal shock. A third provided e-mail messages and other documents showing he had complained to KBR and the government that logs were created to make it appear that nonexistent electrical safety systems were properly functioning.

KBR's commitment to under-paying its laborers and accepting shoddy work as a trade-off is nothing new, having avoided nearly $500 million dollars in payroll taxes by hiring its employees through shell companies. But who needs shell companies when there's ample cheap labor and no regulations in Iraq and Afghanistan?

And lest we think that the warnings were just the work of a few disgruntled ex-employees:

KBR itself told the Pentagon in early 2007 about unsafe electrical wiring at a base near the Baghdad airport, but no repairs were made. Less than a year later, a soldier was electrocuted in a shower there.

So, if you're keeping up with the timeline, KBR and army commanders were aware of a problem by late 2004 (at least), it took until early 2007 for them to admit it, and having done nothing to rectify the problem allow another soldier to die.

Aside from the fraudulent, no-bid contracts granted to a company connected to the Vice President, contractors in Iraq and Afghanistan are only minimally accountable to the US government. Or any government, for that matter. Essentially, they answer to no one, as proven by Blackwater's seeming immunity, even in the face of massacring innocent, unarmed civilians.

As in the case of sending untested body armor to combat troops, allowing work that is known to be faulty and dangerous to go un-rectified does not mesh with the mantra of 'supporting the troops.' Rhetorical flourish aside, when it comes time to perform a duty to protect American soldiers from harm, and you fail, you no longer can hide behind the flag. KBR was warned, did nothing, and soldiers continued to die. KBR executives can slap a yellow ribbon on--or a flag pin--but it won't wash American blood off their hands.

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Yes, But Who Will Watch the Watchers?

President Bush likes to think history will remember him, and it certainly will, though probably not as he fantasizes it will. Unless blunder-prone foreign policy and economic collapses should one day become chic, in which case he may luck out.

But, for all his failings, perhaps the greatest stain his presidency will leave behind is the boot mark across the Constitution. Encouraged in his fantastical interpretations of presidential power--in practice, 'monarchy lite'--by Dick Cheney and David Addington as well as all the other usual suspects on his legal team, Bush has spent the last seven years doing his best to ensure that no President will ever have to answer to anyone again.

The problem lies not in disagreeing with the current President or opposing his policies, it lies in the understanding that the latitude and outright immunity to law Bush has claimed has unleashed the imperial presidency upon the nation, one that will still be around when someone of the opposite persuasion comes along. Thus, to acquiesce now because of agreement with Bush's policies is to simply forestall the inevitable period where someone else with whom there are sharp disagreements exerts his or her will devoid of even the slightest check.

Bush's Unitary Executive Theory--although, Cheney, not Bush is probably the impetus here--lies in the flawed concept that the writers of the Constitution were just joking when they created Congress or the Judicial branch. Believers in the theory rely principally on one passage in Federalist No. 70, while brushing aside nearly every other writing by the founders including the context from No. 70, itself.

This selective reading--paring down libraries full of text into a single passage that sort of supports their idea--has allowed them the luxury of believing that the Constitution was written by the leaders of a nation that had fought to rid themselves of a monarchy only to immediately start their own.

Indeed, one would be hard-pressed to find a single lawyer not having worked for the Bush legal team who accepts the premise of the Unitary Executive and its ominous implication of an unchecked Executive branch.

The obscure (in the general sense, not to veterans of the Nixon administration like Cheney) theory has been used almost at will by Bush to justify everything from his right to prosecute a war without Congress' consent, to suspend habeus corpus, to eliminate Congressional oversight, and to ignore torture conventions, both domestic and international.

Back in October, the House passed H.R. 928, the Improving Government Accountability Act, by a vote of 404-11. A significant margin, indeed, but the Senate bested them on April 23 by passing its own version unanimously. But, one fight was still lurking in the seemingly uneventful numbers.

Congress is close to enacting the most significant boost in three decades in the independence of the cadre of government watchdogs -- federal inspectors general -- but the lawmakers have retreated from a key change involving the U.S. Department of Justice.

The Senate on April 23 approved, by unanimous consent, S. 2324, the Inspector General Reform Act of 2008. But the bill passed only after the lawmakers agreed to an amendment by Senator Jon Kyl, R-Ariz., which, among other items, deleted a provision giving the Justice Department's Office of Inspector General (OIG) jurisdiction to investigate misconduct allegations against department attorneys, including its most senior officials.

Unlike all other OIGs who can investigate misconduct within their entire agency, Justice's OIG must refer allegations against department attorneys to the department's Office of Professional Responsibility (OPR). The latter office, unlike the OIG, is not statutorily independent and reports directly to the attorney general and the deputy attorney general.

In practice, the Kyl ammendment ensures that any investigations of top Justice officials would be done, not by an independent investigator immune from political termination, but by someone directly under the very people he or she is investigating. And nothing would legally prevent the official under investigation from having the investigator terminated.

Another significant difference between the House bill and the White House-sponsored Senate bill is that the Senate bill does not require cause for termination of an IG as the House bill does.

Under the House measure, inspectors would be appointed to seven-year terms and could only be removed from office for cause, such as neglect of duty, inefficiency, conviction for a felony or other inappropriate conduct. The House version also would require the independent watchdogs to submit their budgets directly to Congress in addition to the White House.

The White House complained that those requirements would encroach on the president’s constitutional authority to oversee executive branch employees and requests.

The new Senate bill includes no term limits for inspectors and would require the president’s budget to include how much money each inspector general requested and the amount recommended by the agency. The disclosure would allow Congress to see whether agencies are trying to hamstring inspectors by restricting budget funds.

President Bush has utilized signing statements in the past to simply wipe away parts of the law he doesn't like, but now it seems he has a few members on the front lines willing to save him the trouble.

That Bush was allowed to threaten a veto on a bill with 97.3% support in the House is outlandish, yet that's what happened. And Congress, strong-willed fellows that they are, simply asked the White House to strike from the House bill what it didn't like and include what it wished.

Somewhere, a 2nd-grade civics student is firing off an angry letter informing Congress that a 60% majority overrides a veto. 97% flies in just under the wire.

Like most erosion, the bleeding of the Constitution is a one-way street. One from which it will take a long time to recover. For Congress to continue bending to the will of a monarch wannabe is to perform a great disservice to the Republic its members are sworn to uphold. In this particular instance, it's not as if there was not enough precedent to deny the Bush administration its demands. Previous misdeeds are readily available.

President Bush personally blocked a Justice Department office from investigating the role of department lawyers in creating and overseeing the NSA's warrantless eavesdropping program, according to Attorney General Alberto Gonzales.

The revelation from the attorney general came as the department released documents sent late Monday night to Congress in which the chief of the internal unit, the Office of Professional Responsibility (OPR), repeatedly implored his bosses to grant him the security clearances to conduct his investigation.

And just in case someone might think the Bush administration was just protecting national security:

[At] the same time, "a large team of attorneys and agents" in the Department's Criminal Division had quickly been cleared to investigate the leak of information about the NSA program to the New York Times.

Further, the Civil Division, which would litigate legal and FOIA challenges involving the NSA program, got clearances for some its people; and, writes Jarrett, "Five private individuals who make up the Privacy and Civil Liberties Oversight Board" have been briefed on the program and given security clearances.

The pattern is clear. The granting of clearance had absolutely nothing to do with national security and everything to do with whose side the recipients were on. Performing oversight? No, thanks. Defending the program in defiance of law and logic? Jump on board. Have a look at some state secrets.

Those 'five private citizens' supposed to protect civil liberties? Well, of course, they are "appointed by and serv[e] at the pleasure of the President." Hardly a sign of neutrality, especially under Bush.

What's more, Bush's move was entirely without precedent:

In his April 21 memo [to Deputy Attorney General Paul McNulty, OPR chief H. Marshall] Jarrett writes [that] OPR, which was created in 1975 in the wake of the Watergate scandal, has never been prevented from initiating or pursuing an investigation, adding that OPR has conducted many "highly sensitive investigations involving Executive Branch programs and has obtained access to information classified at the highest levels."

The most recent success of Bush's perpetual push to completely eliminate even cursory oversight of the Executive branch is but one more shot across the bow of the Constitution and the Separation of Powers. Congress may have to start launching some volleys of its own if it would like to keep the Legislative and Judicial branches as more than mere window dressing.

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Contraction Retraction

Back in March, I wrote about a loophole in an anti-fraud bill that would have excluded contracts enacted overseas (where our nation-building goes on) from having that law applied to them.

On April 3, Rep. Peter Welch (D-VT) introduced legislation to close the loophole and the administration has since closed it on their own.

Although, they could have kept the reasoning to themselves:

A Bush administration official on Monday called the loophole "a drafting error" that happened when policy writers merely cut and pasted a 20-year-old Defense Department regulation into the contracting crackdown. As required under government guidelines, the updated draft calls for public comment about the new effort to close the loophole.

That's how you write a term paper, not a legal document. But, either way, a positive development and they deserve sarcastic golf claps all around.

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While You Were Out, April 15

Drug Makers Near Old Goal: A Legal Shield

In keeping with the theme of 'if we say it's okay, it is,' the Bush administration is pushing for a policy known as 'pre-emption' which would declare that pharmaceutical companies could not be sued over drugs that had been approved by the FDA.

The Bush administration has argued strongly in favor of the doctrine, which holds that the F.D.A. is the only agency with enough expertise to regulate drug makers and that its decisions should not be second-guessed by courts. The Supreme Court is to rule on a case next term that could make pre-emption a legal standard for drug cases. The court already ruled in February that many suits against the makers of medical devices like pacemakers are pre-empted.

This theory, or course, works off the assumption that if the FDA has investigated a drug and approved it and its label, the courts are in no position to rule in opposition to the medical experts of the federal agency. But that relies on the FDA being provided with all of the facts and studies of the pill, something that drug companies are demonstrably opposed to complying with.

Consider Ortho Evra, the birth control patch made by Johnson & Johnson, around which this article is centered:

Documents and e-mail messages from Johnson & Johnson, made public as part of the lawsuits against the company, show that even before the drug agency approved the product in 2001, the company’s own researchers found that the patch delivered far more estrogen each day than low-dose pills. When it reported the results publicly, the company reduced the numbers by 40 percent.

Allowing for the FDA to be the final voice on all things pharmaceutical is based on the presumption that there is no pertinent information withheld. Clearly that isn't the case. Johnson & Johnson is not the first drug maker to be outed as having held back information, and they won't be the last. The makers of OxyContin actually marketed their drug (an opiate) as non-addictive, a laughable proposition for a drug of its sort, but approved as such by the FDA nonetheless.

If we expect the FDA to act as the only oversight arm of the entire drug business, we have to be assured that its acting well-informed and as an operative of the public. That isn't happening, and if lawsuits are a vehicle toward achieving an end better suited to the needs and expectations of American citizens then pre-emption is a disastrous precedent to set.

But pharmaceuticals aren't the only area where the protective arm of pre-emption is being extended, as this AP story details.

If you think the prescription drug you took for headaches caused your heart attack, the Food and Drug Administration says you can't sue the maker for injury if it met agency standards.

The Consumer Product Safety Commission says you can't sue a mattress maker if your mattress bursts into flame despite meeting commission standards. Companies making sport utility vehicles would get similar protection from suits brought by people injured or the families of those killed in rollovers under National Highway Traffic Safety Administration proposals for stronger roofs.

Plaintiffs' attorneys call it "silent tort reform."

Tort reform has been a platform for the Republican Party in recent years, and certainly supported by Bush. But for all its clamoring about judicial activism and laws made by fiat instead of legislation, the Party seems to be quietly utilizing that very same method to achieve its own ends. Obviously, its not activist judges they're worried about, its judges who aren't activist in their direction.

Surely frivolous lawsuits abound in the United States, but eliminating them altogether removes just one more bullet in the arsenal of consumer protection in the midst of a continual volley by the Bush administration.


Supplier Under Scrutiny on Arms for Afghans

Sure, fighting terrorism costs a lot of money, but what's the price of freedom, smart guy?

If you're a 22-year old arms dealer with a massuer for VP, about $300 million.

But to arm the Afghan forces that it hopes will lead this fight, the American military has relied since early last year on a fledgling company led by a 22-year-old man whose vice president was a licensed masseur.

With the award last January of a federal contract worth as much as nearly $300 million, the company, AEY Inc., which operates out of an unmarked office in Miami Beach, became the main supplier of munitions to Afghanistan’s army and police forces.

Since then, the company has provided ammunition that is more than 40 years old and in decomposing packaging [sic]. Much of the ammunition comes from the aging stockpiles of the old Communist bloc, including stockpiles that the State Department and NATO have determined to be unreliable and obsolete, and have spent millions of dollars to have destroyed.

The ends of eliminating terrorism (however much a fantasy that may be) has always been held to justify the means of its incredible expense in the eyes of those that would have the United States police the world. Whether or not that is the case, shouldn't that expenditure come attached to a bit of research?

If it's not granting no-bid contracts to former employers of the Vice President, the Defense Department is shelling out money to a man just old enough to have finished college for worn-out arms made in China between 1962 and 1974.

The Soviet Union, which designed the ammunition that AEY bought, developed similar tests, which are still in use. But when the Army wrote its Afghan contract, it did not enforce either NATO or Russian standards. It told bidders only that the munitions must be “serviceable and issuable to all units without qualification.”

What this meant was not defined. An official at the Army Sustainment Command said that because the ammunition was for foreign weapons, and considered “nonstandard,” it only had to fit in weapons it was intended for.

“There is no specific testing request, and there is no age limit,” said Michael Hutchison, the command’s deputy director for acquisition.

In purchasing munitions, the contractor has also worked with middlemen and a shell company on a federal list of entities suspected of illegal arms trafficking.

Bang-up job, fellas. Another case that screams out for the elimination of anyone watching how the government conducts its business.


Judge dismisses challenge to lobbying disclosure law

The National Association of Manufacturers suffered a major blow Friday in its legal battle against the new ethics and lobbying law.

Judge Colleen Kollar-Kotelly of the U.S. District Court dismissed the group’s challenge to a key provision of the law. The group took issue with the clause that would require disclosure of the member companies of “stealth lobbying” coalitions.

Part of the Honest Leadership and Open Government Act, the measure would require public disclosure of members of such coalitions who gave at least $5,000 every quarter to the group and participated actively in lobbying campaigns.

On what grounds would lobbyists oppose transparency of this sort? Why, free speech protection, of course.

The NAM argued the provision was constitutionally vague, hindering protections for free association and speech, and could lead to harassment of its member companies.

Yet again we are faced with an argument centered on free speech centered not on the ability to express yourself, but rather on the ability of others to respond to that expression. The First Amendment doesn't say anything about no one being able to react to free speech, but that's essentially the position the NAM has taken here.

In regards to free association, the new law--effective April 21--again says nothing about lobbyists not being able to associate or give money. It just says people have the right to know to whom and by whom.

That there is opposition to that premise illustrates the need for it by virtue of its very existence.

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Tough Love, With Pillows

Americans have a peculiar habit of skipping from one concern to the next. That which fills hours of continuous coverage on Cable News today will be forgotten before the sun rises on tomorrow. Such is the case with corporate crime.

Back in 2002, George Bush was fully on board with the effort to crack down on shady accounting practices which brought down Enron and Arthur Anderson along with numerous other companies and not least of all the pensions of thousands of innocent employees.

Bush, upon signing the Sarbanes-Oxley Act in 2002:

This new law sends very clear messages that all concerned must heed. This law says to every dishonest corporate leader: you will be exposed and punished; the era of low standards and false profits is over; no boardroom in America is above or beyond the law.

[...]

Corporate misdeeds will be found and will be punished. This law authorizes new funding for investigators and technology at the Securities and Exchange Commission to uncover wrongdoing. The SEC will now have the administrative authority to bar dishonest directors and officers from ever again serving in positions of corporate responsibility. The penalties for obstructing justice and shredding documents are greatly increased. Corporate crime will no longer pay. CEOs who profit by betraying the public trust will be forced to return those gains to investors. And the maximum prison term for common types of fraud has quadrupled from five to 20 years.

[...]

This law gives my administration new tools for enforcement. We will use them to the fullest. We will continue to investigate, arrest and prosecute corporate officials who break the law. The Corporate Fraud Task Force I established is now hard at work, overseeing investigations of alleged fraud and insider trading. More than 200 federal prosecutors are at work detecting and punishing corporate crimes. Every corporate official who has chosen to commit a crime can expect to face the consequences. No more easy money for corporate criminals, just hard time.

Sounds good enough. Corporate accountants risk jail time for playing fast and loose with the all-too-precarious futures of shareholders and employees. Increased SEC scrutiny and audits. All around, promises that major collapses like those of 2001 and 2002 would never happen again.

But, as is often the case, Americans moved on. They moved on to more inane celebrity gossip, got wrapped up in whatever reality show was popular at the moment, or occasionally paid attention to a fleeting political faux-scandal. But mostly, they lost interest. And the tide moved out. Almost immediately.

President Bush's utilization of signing statements to undermine the effectiveness of the bills he signs into law--often effectively nullifying them entirely--is no secret. The corporate crime bill was no exception, as Bush eliminated a provision to protect whistle blowers who bring to light violations by companies not already under investigation. In other words, at the same time he was declaring a new tough stance against corporate crime, President Bush was working to ensure that the process of prosecution would be stamped out at its root.

From there, many of the other mechanisms intended to prevent another catastrophic corporate malfeasance were rolled back or put on the back burner. Kim Clark details many of those efforts in this April, 2006 article in US News. Among other things, Clark details the elimination of SEC oversight positions and illuminates the first glimpse of what would become a theme later, saying "Since 2004, federal prosecutors have struck at least nine deals with companies accused of accounting fraud, to defer prosecution or not prosecute at all. In the previous five years, the Justice Department announced just four, according to the Corporate Crime Reporter."

But that jump--from 4 over 5 years to 9 over 16 months--in deferred prosecutions was but the tip of the iceberg, as Eric Lichtblau reveals in the New York Times.

In a major shift of policy, the Justice Department, once known for taking down giant corporations, including the accounting firm Arthur Andersen, has put off prosecuting more than 50 companies suspected of wrongdoing over the last three years.

Instead, many companies, from boutique outfits to immense corporations like American Express, have avoided the cost and stigma of defending themselves against criminal charges with a so-called deferred prosecution agreement, which allows the government to collect fines and appoint an outside monitor to impose internal reforms without going through a trial. In many cases, the name of the monitor and the details of the agreement are kept secret.

While the fines levied still carry a modicum of determent by punishment, it is not nearly the substantial and public retribution promised by Bush in 2002. Bush didn't say that corporate misdeeds would merely be met with fines, he promised purveyors of magic accounting and other corporate malpractice would be greeted with "hard time."

Consider, though, that many of those shady accounting practices have made their way into today's economic framework. Much of the attention is payed to inability to pay mortgages, which decidedly misses the point. The failure of a company like Bear Stearns stemmed from lax corporate oversight which allowed companies to take poor investments (sub-prime mortgages) and pass them off further and further up the chain until the system simply couldn't handle it anymore.

And once again, it's the employees of that company that bear the brunt of the fallout. Much is made of the use of federal funds to back JP Morgan's buyout, but nary a peep about the employees whose shares were bought for $2. They pay the price with their retirement plans.

Faced with an economic downturn strongly tied to dishonest and creative accounting practices, withholding of the shaky foundations of investments, and active pushing of disastrous mortgage agreements, attention needs to be given to the role that lax oversight played.

Corporations, like children, only understand and respond to consequenses, not words. Bush spoke strongly six years ago, but his actions illustrated to accountants and bankers that they would be mostly free to practice business as usual. Deferred prosecution agreements instilled an accurate perception that shady practices could be persued with a virtual guarantee that if caught a company would be greeted with a slap on the wrist and a fine.

Proponents of these agreements say they work to "avoid the type of company-wide havoc seen most acutely in the case of Arthur Anderson." While there certainly is credence to that--bringing a company to its knees (along with its innocent employees) out of a sense of retribution does more harm than good--it effectively, as we've seen in the mortgage scene, kicks the can down the road.

Prosecuting every wrongdoing with the zeal required by the Sarbanes-Oxley Act is probably impractical, but simply laying the foundation for a regulation/oversight-free environment that comes back to bite the country cannot be a reliable substitute.

Also, those suggesting that every prosecution would wreak havoc must explain the discrepancy in numbers. Jumping from 4 deferred prosecutions over 5 years to more than 50 over three years and 35 last year alone requires explanation stretching the bounds of credibility. The implication of disaster doesn't sync with the fact that prior to the Bush administration these agreements were rare without a simultaneous rash of company failures. The reality, once again, fails to support the administration's factual maneuvering.

Deferred prosecution agreements on the scale that the Justice Department has utilized them in recent years is indicitive of a larger picture. A picure painted with broad strokes of lax regulation, failure to employ oversight, and attempts to stymie investigations at their very root. Failure on this scale has allowed an entire segment of the economy to be propped up on a foundation of popsicle sticks. Sadly, it's not an accident. The economic issues created by the poor investment practices of the banking industry are a direct result of the nod-and-wink relationship it has with the Bush administration.

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While You Were Out, March 22

A recurring section dealing with the news that happens while the media occupies itself with the horse race.

Meeting Quotas

Street vendor Israel Rodriguez went fishing last month and never came back. Two days later, his family found his body buried in a plastic bag, classified by the Colombian army as a guerrilla fighter killed in battle.

Human rights activists say the Feb. 17 death is part of a deadly phenomenon called "false positives" in which the armed forces allegedly kill civilians, usually peasants or unemployed youths, and brand them as leftist guerrillas.

A macabre facet of a general increase in "extrajudicial killings" by the military, "false positives" are a result of intense pressure to show progress in Colombia's U.S.-funded war against leftist insurgents, the activists say.

Colombia and its President, Alvaro Uribe, are supported by billions of dollars in United States military aid in its ongoing battle with leftist guerrilla group, FARC. And it is in an effort to maintain that support the Uribe government seems to be meeting (intangible) quotas through rather dubious means.

Activists in the US claim that the US is not "doing enough, as required by law, to bar US funding to Colombian military units that have drawn allegations of the killings and other human rights violations."

Sabotaging Anti-Fraud Legislation:

Last May, facing growing cases of fraud and increasing spending overseas, the Justice Department introduced plans to force companies to notify the government about evidence of contract abuse worth $5 million or more. Currently, contractors report evidence of abuse on a voluntary basis, and the number of company-reported fraud cases has declined steadily over the past 15 years.

By November, after it left the Justice Department and was published in the Federal Register, the proposed rule specifically exempted "contracts to be performed outside the United States."

The Justice Department and the Office of the Special Inspector General for Iraq Reconstruction have asked the exemption be eliminated before the rule becomes law. Additionally, Sen. Charles Grassley, R-Iowa, has threatened to block the loophole in the federal budget if the administration does not do away with it.

OMB's Office of Federal Procurement Policy has repeatedly declined to comment on the loophole or how it was added to the overall fraud crackdown.

That's right, the administration managed to slip a statute exempting overseas contracting firms from reporting fraud into a bill that was specifically designed to do just the opposite. Ballsy. Do we need any more evidence that the United States as a country isn't the primary concern for this administration? If so, more will probably follow shortly.

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