U.S.

Department of Transportation Office of Inspector General Investigations

SA Ryan Lefort
USDOT-OIG, JRI-4 NOLA

OIG Investigations Division

www.oig.dot.gov
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U.S. DOT and OIGs Mission Authority Role of OIG Investigations Division Investigative Regions Investigations Breakdown Enforcement Mechanism/Tools USDOT Modes Enforcement Priority Areas Antitrust/Bid Rigging Defined Case Examples DOT/OIG Hotline Contacts

U.S. DOT Mission

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Serve the United States by ensuring a fast, safe, efficient, accessible and convenient transportation system that meets our vital national interests and enhances the quality of life of the American people, today and into the future.

U.S. DOT/OIG Mission

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To conduct objective audits and investigations of DOTs programs and operations To promote economy, effectiveness, and efficiency within DOT To prevent and detect fraud, waste, and abuse in the Departments programs To review existing and proposed laws or regulations affecting the Department and make recommendations about them To keep the Secretary of Transportation and Congress fully informed about problems in departmental programs and operations

OIG Authority
The Inspector General Act of 1978

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Establishes the OIG as responsible for

conducting criminal, civil and administrative investigations concerning allegations of fraud waste and abuse against DOT programs, operations and personnel.

Establishes a Hotline Center to receive and

coordinate complaints of fraud, waste and abuse from employees and public citizens.

OIG Authority (contd)

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Gives the Office of Inspector General

autonomy to do its work without interference.

Requires the IG to keep the Secretary of

Transportation and Congress informed of findings.

Role of OIG Investigations Division

Conduct investigations of allegations and complaints regarding fraud, waste, and abuse. Coordinate with other Federal & State law enforcement agencies. Refer matters for criminal and civil prosecution or suspension/debarment action. Conduct pro-active reviews unrelated to any investigation.

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DOT-OIG Criminal Investigative Regions

Alaska

North Dakota Washington Montana

Vermont
Minnesota NH Mass

Maine

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South Dakota Oregon Idaho

Wisconsin

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California

Wyoming Nebraska

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Arkansas

New York Michigan Iowa Ohio Pennsylvania

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Rhode Island Connecticut

Nevada Kansas Illinois Missouri Indiana

New Jersey West Virginia Maryland Delaware

Utah

Colorado

Kentucky

Virginia

Arizona

Oklahoma New Mexico

Tennessee

North Carolina

Hawaii

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Texas

(Includes Wake, Samoa, and Guam)

M South i Carolina s s Alabama Georgia Louisiana

Florida

(Includes Puerto Rico, Virgin Islands)

Enforcement Mechanism/Tools

www.oig.dot.gov

Code of Federal Regulations (CFR 49) IG Subpoenas Federal Search Warrant Federal Grand Jury Subpoenas Federal Criminal Code (Titles 18 and 49, U.S. Criminal Code) Undercover Operations Consensual Monitoring

Federal Criminal Statutes

www.oig.dot.gov

18 USC 287/286 Criminal False Claims/Conspiracy 18 USC 371 Conspiracy to Defraud the U.S. 18 USC 1001 False Statements (including on USDOT contracts/grants) 18 USC 1020 Highway Projects False Statements 18 USC 1341 Mail Fraud

18 USC 1343 18 USC 1519

Wire Fraud Obstruction of Justice

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Federal Criminal Statutes

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18 USC 201 Bribery 18 USC 207 & 208 Conflict of Interest 18 USC 209 Gratuities 18 USC 641 Theft of Government Property 18 USC 666 Theft or Bribery Concerning Programs Receiving Federal Funds 18 USC 1505 Obstruction of Proceedings before an Agency or Department 18 USC 1510 Obstruction of Criminal Investigation 18 USC 1516 Obstruction of a Federal Audit (must be of program receiving more that $100K)

USDOT Modes

Federal Aviation Administration Federal Motor Carrier Safety Administration Federal Highway Administration Federal Railway Administration Federal Transit Administration Maritime Administration National Highway Traffic Safety Administration Saint Lawrence Seaway Development Corporation Research and Special Projects Administration

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Enforcement Priority Areas

Transportation Safety
Aviation Safety and Security Motor Carrier Safety HazMat Violations

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Contract & Grant Fraud

DBE Fraud Anti-Trust Bid Rigging Procurement Integrity Act Violations Qui Tams

Employee Integrity Other Investigations

Consumer Fraud HHG Investigations Motor Fuel Tax Evasion Congressional Requests Computer Fraud Odometer Rollback Fraud Gray Market Vehicle Fraud

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Shared Roles in Fraud Detection and Investigation

State or Local Engineers and Inspectors Front Line Observe fraud indicators Listen to disgruntled employees Report concerns to FHWA and/or OIG OIG Special Agents Interview witnesses, obtain and analyze documents and other physical evidence, and present facts to Federal prosecutor Assistant U.S. Attorney Assess case facts and prosecute cases when warranted

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Common Goal in Fraud Detection and Investigation

Most contractors, LADOTD personnel, FHWA personnel, and OIG Special Agents have the same overall objectives

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To spend the limited transportation $$$$ to improve roads and bridges Not to line the pockets of the small % of unscrupulous contractors To remove the bad apples from the transportation construction industry Criminal/civil prosecution, suspension/debarment

Common Types of DOT Fraud Schemes

Bid Rigging and Collusion (Antitrust) Materials Overcharging Time Overcharging Product Substitution DBE Fraud Quality Control Testing Fraud Kickbacks Bribery

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What is Antitrust?

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Main Entry: antitrust Pronunciation: Function: adjective : of, relating to, or being legislation against or opposition to trusts or combinations; specifically : consisting of laws to protect trade and commerce from unlawful restraints and monopolies or unfair business practices
"an-ti-'tr&st, "an-"tI-

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The Sherman Act, 15 U.S.C. 1

Every contract, combination, in the form of a trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal [a violator] shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by a fine not exceeding $100 million if a corporation, or if any other person, $1 million, or by imprisonment not exceeding ten years.

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Additional Statutes

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General Fraud Mail Fraud, 18 U.S.C. 1341 Wire Fraud, 18 U.S.C. 1343 Crimes of Other Principals Aiding and Abetting, 18 U.S.C. 2 Conspiracy to Defraud, 18 U.S.C. 371 Fraud Against the Federal Government Bribery of a Public Official , 18 U.S.C. 201 False Claims Against the Government , 18 U.S.C. 287 Tax Fraud , 26 U.S.C. 7201 Theft/Bribery on Federally Funded Programs, 18 U.S.C. 666 Crimes Relating to Hindering an Investigation Perjury , 18 U.S.C. 1621 Subornation of Perjury , 18 U.S.C. 1622 Obstruction of Justice , 18 U.S.C. 1503 False Statements to the Grand Jury , 18 U.S.C. 1623

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Who Investigates?

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U.S. Department of Justice U.S. Department of Transportation-OIG Federal Bureau of Investigation State Attorneys General Often Joint Investigations Other Countries

Criminal Antitrust Offices

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Field Offices

Chicago New York Dallas San Francisco National Criminal Enforcement Section (NCES) Washington, DC

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Antitrust Criminal Prosecutions by Industry

Road Building Electrical Contracting School Milk Graphics Displays Chemicals Utilities Construction Food Brokers 0 68 65 51 50 200 400 600 800 195 165 668

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Number of Defendants

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Investigations into Antitrust

Antitrust Violations Identifiers Case Examples Investigative Practices and Techniques

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Collusion
Conspiracies

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are often lengthy The result is overcharging, higher prices, and limited competition

Elements of a Sherman Act Violation

Agreement Interstate

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Commerce

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Criminal Violations

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Acts that are considered illegal agreements

Price Fixing Market Allocation Bid Rigging

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What is Price Fixing?

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Agreement to raise, lower, or maintain prices Agreement not to negotiate on price Agreement to limit discounts, rebates, or promotions Agreement on price formulas or guidelines

What are Market Allocation Schemes?

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Any agreement not to compete for specific:

Territories Customers Products Volume

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What is Bid Rigging?

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An agreement to rotate bids An agreement to submit complementary or inflated bids An agreement not to bid or engage in bid suppression

Bid Rigging & Collusion

Definition Contractors misrepresent that they are competing against each other when, in fact, they agree to cooperate on the winning bid to increase job profit.

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Example Three asphalt-paving contractors agreed at the beginning of the construction season on which company would win each job. They then shared winning bids by telephone immediately in advance of electronic bidding, so the other two contractors could ensure their bids were higher than the winning bid.

Sources of Antitrust Cases

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Employees Contracting Officials Competitors Self reporting under the DOJ Amnesty Program

The DOJ Corporate Leniency Program (a/k/a The Amnesty Program)

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Unlike immunity, it provides protection for corporations Open to one corporation per conspiracy Requires full cooperation Requires a commitment to pay civil restitution Cannot be the organizer of the conspiracy Agrees to terminate its participation in the illegal conduct

The DOJ Corporate Leniency Program (a/k/a The Amnesty Program)

www.oig.dot.gov

NO

CRIMINAL PROSECUTION!!!

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Two Types of Amnesty:

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No Open Antitrust Investigation Amnesty almost automatic Includes all officers, directors, and employees who cooperate

Open Antitrust Investigation Amnesty is discretionary Open to the first company that comes forward Could not otherwise sustain a conviction Not unreasonable Individual immunity is not automatic

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Some things to look for

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What is the bidding history? Trends?

Is there competition?

Does the contractor subcontract a substantial portion of work which they would normally perform? Are there identical line items amongst competitors? Why? Are there identical misspelled words among competing bids? If a search is conducted of the companys bid files, is there supporting documentation of its number? How did the company arrive at the bid number?

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The Conspiracy

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Antitrust violations require an agreement to collude, not the actual act. The agreement is the crime.

The Complementary Bid

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The participants agree to submit complementary bids in an effort to provide the appearance that there was competition.

Case Example: Vinton et al

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Company executives from Vinton Construction, Streu Construction, and an area manager from James Cape & Sons (unbeknownst to his employer) agreed to rotate bids and submit inflated bids on projects totaling over $100 million. The illegal activities spanned several years. By engaging in a bid rotation and a complementary bid scheme, the trio gave the false perception of competition.

www.oig.dot.gov

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How it all began

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The

FBI was notified by James Cape & Sons that it suspected one of its employees was engaged in some kind of illegal activity

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Based upon limited initial information, the FBI attended a bid workup session at James Cape & Sons in a covert capacity. After observing furtive activities on behalf of the employee, the FBI confronted him. Upon being confronted, the employee informed the FBI of a scheme to rig bids and agreed to co-operate with the Government.

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The FBI notified the U.S. Department of Justice Antitrust Division (DOJ ATR) and U.S. Department of Transportation Office of Inspector General. A joint investigation began examining the methods used, contracts affected, and the on-going conspiracy.

Methods used by the players

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The co-conspirators would talk via phone, cell phone, Nextel direct-connect, and in person. When talking over the phone, the coconspirators would talk in code. Additionally, in person meetings occurred to discuss who wanted what projects.
What the co-conspirators did not expect was federal agents were there too

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On several occasions the participants of the scheme met at various locations to discuss and agree upon what companies would receive certain projects.

Including a situation at the Holiday Inn

parking lot in Fond Du Lac, WI.

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Upon learning of what was planned for the (then) upcoming January 13, 2004 bid letting, several plans were put into action

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It was determined to initially let the rigged bids go through to WisDot and notify them the morning of the letting. At the same time the letting occurred, DOT OIG and FBI agents conducted simultaneous search warrants at Vinton Construction and Streu Construction locations. DOT OIG and FBI agents also served arrest warrants on Ernest Streu, John Streu, James Maples and Michael Maples.

www.oig.dot.gov

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Streu Construction, Vinton Construction, and the five individuals pled guilty

All were removed from bidding on Federally funded projects Approximately $3 million in fines and restitution Three defendants jailed, one home confinement

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Techniques Utilzed

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Extensive Market Research Bid Analysis and Trends (Bid Analysis Management System (BAMS)) Undercover Work Informants Interviews The knowledge of bid rigging is often limited to the executives (and estimators) of a company. Consensual Recordings Surveillance Things to note: Where do contractors stay before lettings? Although relationships are established long before lettings, the sharing of numbers often occurs the night before, or the day of, lettings. Subpoenas (telephone records, credit cards, etc.) and Search Warrants Body Wires Computer Forensics

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Common Excuses of Conspirators

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But, no one was harmed But, the state received a lower price But, our bid was within the engineers estimate But, other companies could still beat us

The Reality

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Collusion always causes higher prices by reducing competition. Reducing competition is after all the definition of collusion.

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Agencies involved in the case:

U.S. Department of Justice - Antitrust Division U.S. Attorneys Office U.S. Department of Transportation - Office of Inspector General

www.oig.dot.gov

Kent Byers, Senior Special Agent, Chicago Office 312-353-0106; Kent.E.Byers@oig.dot.gov

Federal Bureau of Investigation

Wisconsin Department of Justice - Attorney Generals Office Federal Highway Administration - Office of Chief Counsel Federal Highway Administration - Wisconsin Division Wisconsin Department of Transportation

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DOT/OIG Hotline

www.oig.dot.gov

CALL: OIG Hotline 1-800-424-9071 or 202-366-1461 E-Mail: HOTLINE@OIG.DOT.GOV Write: USDOT-OIG

P.O. Box 23178 Washington, DC 20026-0178

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Contacting Us: USDOT/OIG JRI-4

ATLANTA (Main Office): 61 Forsyth, SW 17T60 Atlanta, GA 30303 404-562-3875 ASAC Ray Sanchez LOUISIANA (Post of Duty) 504-816-3019 SA Ryan Lefort

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QUESTIONS?

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