Catches of the Week: Contractors Abroad Face Liability for Fraud in U.S. Government Contracts

This week, we double up on the Catch of the Week, and highlight two actions involving foreign contractors doing business with the U.S. Navy.

French Concrete Contractor Pays $14.5 Million to Resolve Claims of Delivering Substandard Concrete for U.S. Navy Bases in Africa

In the first case, Colas Djibouti, a subsidiary of French contractor Colas, agreed to pay $12.5m to the U.S. government to settle criminal charges, and an additional $3.9 million to settle allegations under the False Claims Act, admitting that it supplied substandard concrete for use in U.S. Navy airfields in the east African nation.  As part of the projects, Colas Djibouti was required to certify that it supplied concrete with specific composition and performance characteristics. However, according to the Department of Justice, it created fictitious test results and made fraudulent representations regarding them: “In one particularly egregious example, in response to a request for an analysis of the water used in the concrete mix, Colas Djibouti provided an analysis for a store-bought bottle of drinking water.”  Problems with substandard concrete include early cracking, surface defects, and corrosion of embedded steel, each of which can significantly impair the concrete’s long-term durability.

The criminal case was investigated and prosecuted as part of the Africa Strike Force, an initiative by the Major Fraud and Public Corruption Section of the U.S. Attorney’s Office in San Diego, which was formed to serve an unmet need in protecting American interests from fraud and corruption as the Department of Defense provides military and humanitarian aid throughout Africa to combat the rise of violent extremism from the likes of Boko Haram, Al Shabab and Al Qaeda in the Islamic Maghreb.

Japanese Executives Indicted for Alleged Fraud in U.S. Navy Wastewater Treatment Contract

The second case takes us to other waters in which the U.S. Navy sails.  On Wednesday, a federal grand jury indicted the CEO and two managers of Kanto Kosan Co. Ltd., a Japanese company. According to the indictment, from approximately 2007 to 2020, Kanto Kosan received contracts from the U.S. Navy valued at approximately $120 million.  The contracts required the company to collect, handle, and treat oily wastewater generated by U.S. Navy ships in Japan in accordance with Japanese environmental regulations prior to discharging it into the ocean. Kanto Kosan was to perform specific environmental testing of the wastewater prior to discharge and provide those results to the U.S. Navy.

The trio was indicted in connection with an alleged long-running scheme to defraud the U.S. Navy and pollute Japanese waters by dumping contaminated water removed from U.S. Navy ships into the ocean. Kanto Kosan is alleged to have performed only minimal treatment of the oily wastewater.  To avoid detection, Kanto Kosan allegedly performed the required testing not on the wastewater, but on water from a storage tank filled with tap water, occasionally adding a bit of wastewater to the samples in order to make the results look genuine.

As we previously reported, the Navy’s law enforcement arm, the Naval Criminal Investigative Service, announced that it was investigating Kanto Kosan for this misconduct in December 2019.  According to the Wall Street Journal, which first reported on the probe, a Navy employee raised the alarm to his superiors after seeing an “oily green slick” that allegedly “seeped from one of the company’s barges.”

Waste dumping and other pollution from ships are prohibited various American and Japanese environmental civil and criminal laws. This includes the Act to Prevent Pollution from Ships (“APPS”), which contains a whistleblower reward provision that encourages workers to come forward and combat pollution, and the False Claims Act, which could be triggered if Kanto Kosan violated provisions of its contract with the U.S. Navy.  This week’s indictment, though, charged the three men with major fraud against the U.S.; submitting false claims; and conspiracy to make false claims, to commit ocean dumping, and to commit major fraud against the U.S.

This week’s indictment also continues the trend of increased settlements relating to environmental fraud and incentives for reporting environmental fraud. Whistleblowers can obtain rewards for reporting many types of environmental abuse, from misrepresentations to the government of the amount of resources extracted from public lands to overcharges on environmental cleanup projects.

Protecting the U.S. from Fraud Around the World

In announcing the COLAS Djibouti settlement, U.S. Attorney Robert Brewer in the Southern District of California was quoted as saying “Wherever our Navy goes, we go. We will continue to unwaveringly protect our American warfighters from fraud, graft and corruption as they protect us from enemies foreign and domestic.”

This week’s Catches of the Week remind us that, like all companies who contract with the U.S. government, foreign contractors are subject to many U.S. laws, even for misconduct that occurs abroad.  These cases call to mind the precedent-setting settlement that resolved False Claims Act allegations against the three South Korea-based companies brought by a Constantine Cannon whistleblower client.  In that case, SK Energy Co. Ltd., GS Caltex Corporation, and Hanjin Transportation Co. Ltd. collectively agreed to pay $236 million for their respective roles in a decade-long conspiracy to rig bids and fix prices, which overcharged the U.S. Government for fuel it bought from the companies for U.S. military bases throughout South Korea.

International whistleblowers, who are often best positioned to uncover fraudulent schemes that violate U.S. laws or affect the U.S. government, can receive whistleblower awards under all U.S. whistleblower award programs.  If you have information about fraud, please do not hesitate to contact us.

READ MORE:

• False Claims Act
• DOJ Settles with Two Additional Defendants in Ongoing Bid Rigging Investigation
• Three South Korean Companies to Pay $236 Million, Resolving Civil and Criminal Liability for Bid Rigging Alleged in Constantine Cannon Whistleblower Suit
• Constantine Cannon’s Whistleblower Team
• I Think I Have a Whistleblower Case
• Submit a Confidential Whistleblower Claim
• Whistleblower FAQs
• DOJ Enforcement Actions
• Act to Prevent Pollution from Ships
• Environmental Fraud
• Pollution Whistleblowers Can Earn Outsize Rewards

Tagged in: Catch of the Week, Contract Non-Compliance, Criminal Proceedings, Defense Contract Fraud, Environmental Fraud, FCA Federal, Government Procurement Fraud, Importance of Whistleblowers, International Whistleblowers, Ocean Dumping,