Of course, the activities of defense contractors today are spread across many dozens of congressional districts, so the potential for corruption and waste is huge. But I didn't know this sort of thing was happening during the Civil War. Perhaps to a greater extent than most of us realize, it's gone on for centuries -- or even millennia. Maybe those who know history better than I can provide other examples.
Interesting story:
March 7, 2013, 12:22 pmThe Civil War’s War on Fraud
By
MARK GREENBAUMPopular memory holds that among the many differences between Billy Yank and Johnny Reb were the clothes on their back. Union soldiers, we are told, had more and better everything, while rebels had to scrounge for uniforms, weapons and even shoes. But especially in the early years of the Civil War, this was more an impression than reality. Union supplies were poor and in short supply, thanks to unimaginable levels of fraud.
Cheaply made shoes plagued the soldiers’ feet. Uniforms of lousy fabric would literally fall apart in rain. Standard-issue coats and blankets were too thin to withstand the winter cold. Guns were sometimes unable to fire and stocks and shells of gunpowder were found filled with sawdust. And newly ordered horses and mules arrived at the front withered, old and sometimes even blind.
A good part of the problem lay in the growing pains of a still-developing war machine, where, for example, the lack of Southern cotton made the creation and procurement of quality uniforms and blankets more difficult for Union soldiers. But the root of the problem was the legion of unscrupulous contractors who knowingly supplied shoddy materials to the Union.
With virtually no checks in place in 1861 to combat fraud, contractors had free rein in their sales to the government, sometimes with the assistance of greedy military men. In response, Congress throughout the war worked to counter the ever-evolving economy of fraud that dragged heavily at the war effort – and as a result created an antifraud framework that remains in place today.
Spurred by early war reports and loud calls from New York Representative Charles Van Wyck, on July 8, 1861, the House approved the creation of the Select Committee on Government Contracts. In his trademark biting hyperbole, Van Wyck underlined the necessity of such a body, describing “the mania for stealing … almost from the general to the drummer boy.” The new committee was tasked with investigating the procurement system and given broad latitude to act.
The small committee of seven members was originally chaired by Van Wyck, but he was replaced by Illinois Republican Elihu Washburne, a close ally of the president and the original political patron of Ulysses S. Grant. The body maintained a significant pace of activity through the 37th Congress, holding field hearings in several cities, receiving testimony from hundreds of witnesses and ultimately issuing over 3,000 pages of findings.
The Committee’s three reports identified numerous cases of fraud in the supplying of horses, clothing, ammunition and other vitals to Union soldiers, and widespread malfeasance out West. The Committee found that both the Department of War under Simon Cameron and the Department of the Navy under Gideon Welles had awarded contracts not to the lowest bidder through proper advertisements, but to friends and associates.
The Navy Department was lashed for using private commission agents to procure un-seaworthy vessels. One such agent, Alexander Cummings, had secured a ship, the Cataline, at an exorbitant price, and another, George Morgan, enriched himself with a high commission for his purchases on behalf of the department. Things were even worse in the War Department. Cameron was assailed for awarding rich contracts to close allies in the railroad industry, much to the delight of his congressional critics.
Perhaps most striking were the findings in the West. Through several hearings in St. Louis and in Cairo, Ill., in October 1861, the committee uncovered rampant fraud by agents working under Gen. John C. Frémont at the center of the Union’s Western Department headquarters just three months after the general took the job. Writing the president, Washburne sounded the alarm: “The robberies, the frauds, the peculiarities in the government which have already come to our knowledge are absolutely frightful.”
Frémont had done business with a shady California contractor who worked without a contract and received exorbitant compensation. Perhaps even more troubling was the case of Maj. Justus McKinstry, the Western Department quartermaster. Eventually court-martialed on 63 separate counts through evidence exposed by Washburne’s committee including bribery and outright fraud, McKinstry was cashiered out of the Army, one of the biggest rogues in the war. Another purchaser, Simon Stevens, was implicated in the “Hall Carbine” affair, in which the government unknowingly repurchased arms it had already discarded as uselessly obsolete.
Coverage of the committee’s activities was insatiably detailed, as the press was fascinated by the reports of stunning thievery. A New York Times editorial appraising one of the committee’s reports reflected this colorful interest, calling the findings “a library of corrupt readings” whose “painful and dreadful” disclosures will “produce a feeling of public indignation which would justify the most summary measures against the knaves whose villainy is here dragged into daylight.”
Despite its success and the interest in the public stoked by media coverage of its hearings, the committee’s activities were highly controversial in Congress from the start. The House had fought over Van Wyck’s request for expanding jurisdiction and having the ability to hold field hearings, as many critics asserted turf concerns that the new body would impinge on the oversight of existing standing committees.
Soon after it began its hearings, the committee’s work came under attack from radical Republicans. Many radicals were agitated that the committee’s findings were not more sharply critical of enemies in Lincoln’s cabinet, including Welles and Cameron (who would be pushed out in January 1862, in part because of the committee’s revelations) and were disappointed that, unlike the Committee on the Conduct of the War, which was dominated by fire-breathers, the Government Contracts Committee was filled with moderates.
The radicals were also initially infuriated when the committee described in harsh detail the crimes occurring in the Western Theater under Frémont’s leadership, as many radicals had lionized the man known as the Pathfinder for his 1861 proclamation emancipating captured slaves in his department (which Lincoln quickly had rescinded so as not to upset the then-wavering border states).
Other critics sought to protect allies implicated by the committee’s findings. Simon Stevens was a protégé of the radical leader Thaddeus Stevens, who in turn raged that the committee had “no honest purpose to know the truth” except to go “scandal-hunting.” Similarly, an exposed thief, Capt. E.M. Davis, whose fraud in procuring military supplies was breathtakingly diverse, was the brother of Republican Representative William M. Davis of Pennsylvania, who savaged the committee.
Despite these political criticisms, fraud was a difficult issue to politicize completely. The findings offered by the committee’s members and the positive, heavy media coverage of its hearings – not to mention the scores of letters sent home by soldiers complaining of their poor supplies – shielded the committee, such that a motion offered by Representative Stevens to curtail its work was soundly defeated. And while earlier moves to pass broadly encompassing antifraud legislation did fail, Congress would finally act on the body’s work.
On March 2, 1863, the 37th Congress’s final day, Congress approved the False Claims Act to combat the problem of war profiteering. The bill banned the making of false claims to the government, including forgery, embezzlement and conspiracy to defraud the government in contracts. Punishment was harsh: wrongdoers faced prison time and up to $5,000 in penalties, and could also be hit with a fine double the amount they had stolen plus $2,000 for each claim – an enormous sum in 1863.
Equally important were the unique enforcement mechanisms of the bill. In 1863, there was no Department of Justice or federal prosecutorial apparatus to deal with criminal networks. Therefore, the legislation included a whistleblower, or “qui tam,” provision to encourage citizens to come forward with knowledge of ongoing fraud – if their claims proved correct, they would receive a share of the recovered money.
The principal sponsor of the bill in the Senate, Michigan’s Jacob Howard, acknowledged this: “In short, I have based the…sections upon the old-fashioned idea of hold out a temptation,” and “setting a rogue to catch a rogue…a reward for the informer who comes into court and betrays his co-conspirator…widely used to combat instance of fraud by companies supplying the Union Army.”
Qui tam derived from a Latin phrase which means, “he who prosecutes for himself as well as the king,” and it allowed private citizens (called relators in the law), to come forward and file civil suits against fraud merchants. Those relators who helped make a successful case would receive half the amount the government ultimately recovered from the dishonest contractor.
The idea traced back as far as 14th century England, and was common in colonial America. Qui tam provisions were also in several of the first bills passed by Congress as a means of encouraging people to help root out fraud too intricate and pervasive for the young government alone to adequately uncover.
Though often overlooked in general accounts of the wartime Congress’s achievements, the False Claims Act remains a significant legacy of the era. After being defanged during World War II, bipartisan amendments passed by Congress in 1986 reinvigorated the bill, and the law has since saved the government over $20 billion in recovered monies, and exponentially more in deterrence, continuing to serve as a robust a bulwark against fraud.
Corruption and Fraud Involving the Awarding of Military Contracts in the U.S. is Nothing New
