Sure, kid; first one's free

Some times procurement fraud is perpetrated by one party on the other. Other times, it takes two to tango. This is a story of the latter, and is so brazen as to become almost comedic.

Accepting that I often, very often, omit, rearrange, paraphrase and generally slice an dice articles presented (so you are advised and admonished to read the articles at the link provided and embedded in the article title), let's frame this story in the dry manner of the press release by government lawyers.

"Charges were unsealed yesterday against a Micronesian government official for his alleged participation in a money laundering scheme involving bribes made to corruptly secure engineering and project management contracts from the government of the Federated States of Micronesia (FSM). In a related matter, on Jan. 22, a U.S. executive pleaded guilty for his role in a scheme to, among other things, bribe the Micronesian official in violation of the Foreign Corrupt Practices Act (FCPA). Master Halbert, 44, a Micronesian citizen, was charged in a criminal complaint filed in the District of Hawaii with one count of conspiracy to commit money laundering. Halbert was arrested yesterday, and had his initial court appearance before a U.S. Magistrate, is scheduled to have a pretrial detention hearing on Feb. 13, and a preliminary hearing on Feb. 22. [Then the fun begins].

As described in the complaint: Halbert was a government official in the FSM Department of Transportation, Communications and Infrastructure ("IT&C") who administered FSM’s aviation programs, including the management of its airports; between 2006 and 2016 a Hawaii-based engineering and consulting company owned by Frank James Lyon paid bribes to FSM officials, including Halbert, to obtain and retain contracts with the FSM government valued at nearly $8 million; Lyon entered into an agreement with Halbert to bribe Halbert in exchange for Halbert’s assistance in securing contracts for Lyon and his company; and that Lyon and Halbert allegedly agreed that these bribes would be transported from the United States to FSM. Of course, none of this has (as yet) been proved, and Halbert is not guilty until and unless proven guilty.

On the other hand, in the related matter, Lyon did plead guilty on Jan. 22 to a one-count information filed in the District of Hawaii charging him with conspiracy to violate the anti-bribery provisions of the FCPA and to commit federal program fraud. Lyon is scheduled to be sentenced on May 13."

It should be noted that, the ITCT Dept handles its own procurements and is far broader than aviation.

The Department of Transportation, Communications and Infrastructure (DTC&I) is responsible for the delivery of national infrastructure projects. All infrastructure projects require defined project management processes from scope definition through funds release, design and construction to successful completion. The Program Management Unit (PMU) being part of the DTC&I, has the responsibility to provide overall coordination of amended compact matters for FSM’s Compact Management Division. The PMU has a strong program oversight and will ensure that standards are developed and shared, subsequent design and construction contracts are consistent with appropriate risk management and will provide peer review expertise as required.

As outlined in the National Infrastructure Development Plan (IDP), the PMU has been restructured to focus on program management and is accountable for project management, from initial planning through design to construction completion. The National Government, through the PMU, is responsible for program management systems, training of national and state personnel in these systems, review of project documentation to ensure compliance with funding agency requirements, preparation of consolidated annual FSM program reviews, as well as program management implementation assistance to the States as required. The establishment of the PMU along with the updated annual infrastructure plan is aimed at smoothing the FSM-US infrastructure relationship and ensure that all projects are implemented in a timely manner.

The PMU has engineering expertise and technical administration resource to collect and collate engineering and contractual data for use across the four states of the FSMas outlined in the National Infrastructure Development Plan (IDP), the PMU has been restructured to focus on program management and is accountable for project management, from initial planning through design to construction completion. The National Government, through the PMU, is responsible for program management systems, training of national and state personnel in these systems, review of project documentation to ensure compliance with funding agency requirements, preparation of consolidated annual FSM program reviews, as well as program management implementation assistance to the States as required. The establishment of the PMU along with the updated annual infrastructure plan is aimed at smoothing the FSM-US infrastructure relationship and ensure that all projects are implemented in a timely manner.

The PMU has engineering expertise and technical administration resource to collect and collate engineering and contractual data for use across the four states of the FSM

Adding more color and detail to this story, the Guam Daily Post reported (Feb 12, 2019) Bribery case against FSM official details cash, cars, trips This more comprehensive description shows how wrongful acts often lead to more wrongful acts, and keep spiraling down, like drug addiction.
It all began not so innocently enough:

• On May 3, 2010, Halbert sent an email to Lyon and "Co-Conspirator 1" regarding an FSM auditor's concerns about the purchase of a vehicle. Halbert wrote, "I know I should protect myself and [not] put this in writing or discuss this in e-mail or any form of communication that can provide as a concrete evident [sic] and come back and used against me but its ok, if you want to take me down no problem." Halbert wrote and threatened that if Lyon and Co-Conspirator 1 were not willing to back him up in confronting the auditor, then Halbert did "not think [they] should do business together again."

• On June 2, 2011, Halbert sent an email to Co-Conspirator 1, stating, "I am sorry to do this but I really your [sic] help again. We came with $3,000 and we have already used half of that in food and shopping. Can you and Jim [Lyon] give me $1,500.00 and this should last us for the rest of the trip."

• On Dec. 1, 2011, Halbert emailed Co-Conspirator 1, "Can you ask Jim for some money? I need $1,000 and if ok, you can give it to me when we get to Hawaii."

• On May 7, 2014, Halbert sent an email to Co-Conspirator 1, with the subject line, "Per dium," [sic] stating, "Please bring my money at home. Can you ask Jim if you can add another $1,000."

• In or around June 2015, Halbert and Lyon instructed Co-Conspirator 1 to draft a request for qualification document seeking bids for an FSM project management contract.

• In July 2015, the engineering company was awarded the contract by the FSM government.

• On Aug. 27, 2015, Halbert sent an email to Lyon with the subject line, "2014 Chevy Silverado," stating, "Please get this truck. It is my cash so when I need to pay back anyone, I can sell it or this will be my ride forever. If you can, lift it 6 in and put on black rims."

• In connection with his plea, Lyon admitted that in 2015, he and his co-conspirators purchased an additional vehicle for Halbert's personal use.

• On Sept. 1, 2015, Halbert sent an email to Co-Conspirator 1, asking Co-Conspirator I to talk to Lyon about loaning Halbert $2,500 to open an account.

• On Nov. 15, 2015, Halbert sent an email requesting that the engineering company book and pay for a hotel room for Halbert and members of his family for a trip to Guam. The engineering company executive responded that "at this time" the engineering company was approving "only project reimbursable travel requests."

• On or about Nov. 16, 2015, Halbert emailed three of the engineering company's employees, "This is to inform you that I am closing your office starting tomorrow until further notice."

The Hawai'i Free Press also followed the story. Lyon Bribery Micronesia: Arrests Start at the Top

Arrested over the weekend, Master Halbert, son-in-law of Federated States of Micronesia (FSM) President Peter Christian and son of FSM Senator Dohsis Halbert, appeared before Honolulu Federal Judge Richard L. Puglisi for arraignment Monday, February 11, 2019. A Federal source tells Hawai’i Free Press Halbert is charged with being the ‘Micronesian Official 1’ described in the January 16, 2019, indictment and January 22, 2019, guilty plea of corrupt Honolulu engineering contractor Frank James Lyon. Alleged bribes to ‘Micronesian Official 1’ include cash, a pickup truck, a trip to Las Vegas, and tuition at UH Manoa. These were only part of the total bribe package outlined in the Lyon indictment: 'From in or around 2006 through in or around 2016, Frank James Lyon, together with his co-conspirators, provided bribe payments to FSM officials totaling at least approximately $200,000 in order to obtain approximately $7.8 million in contract payments.'

The HFP article points to an online organization chart of the FSM Department of Transportation, Communications, and Infrastructure (TC&I) shows (or showed) nine (9) of 11 personnel under its Secretary to have email addresses for "@LYON.US.com".

In its practice of leaving no stone unturned, the HFP article also notes

In 2014 Halbert was tried in FSM courts for falsifying his academic record from the University of Washington in order to award himself a $173,614.56 ‘professional premium’ taken from FSM and FAA projects. '‘Crim. Case No. 2014-501; FSM v. Master Halbert” can be found on internet discussion board Micronesia Forum, and The Wayback Machine, but it has been stripped from the FSM Supreme Court website. An extensive 2016 discussion on Micronesia Forum titled, “Massy Halbert resigns from National Government...and then he goes on a trip funded by the government representing TC&I”, reveals the case was dropped as part of a plea agreement. Much of the federal indictment unsealed in Honolulu deals with Halbert soliciting bribe money from Lyon to pay the fine imposed in the FSM plea agreement.

Finding no dirt too deep to dig, the HFP article describes yet another scandal, in this case one that has been dragged around on Guam for decades. "The IT&C's PMU was previously managed by GMP Hawaii, Inc, a company owned by Wagdy Guirguis. Guirguis was convicted of tax evasion in Honolulu Federal Court, November, 2018. HFP has done a more extensive look into Guirguis also, complete with the Guam angle. For instance, it includes a link to an article from 1997, Guam Rubbish Piling Up,. The story goes way back near to the creation of the long-running trash incineration project, which was the brainchild of GRRP (Guam Resource Recovery Partners). It reports,

An overflowing landfill is causing a big stink on Guam, but the smell is not from the dump. It is from a contract for a $64 million waste-management project. The contract involves Guam Resource Recovery Partners, a Guam partnership with ties to GMP Associates Inc., a Hawaii-based engineering firm. In 1982, a company called IEEI of New York won a contract and a $250,000 loan from the Guam Economic Development Authority, or GEDA, to build an incinerator. In 1989, after years of legal wrangling with the Guam government, IEEI sold the license to G-Power Inc. G-Power is a Guam company whose principal shareholder is Wagdy Guirguis, G-Power allied itself with Wheelabrater to form GRRP. GEDA and GRRP then spent seven years negotiating a final contract."

That contract is still, contentiously, not finalized. Not sure about the smell. (I tend to hold my nose every time the subject comes up.)

Of bad actors and Emmys

Should a bad actor be given an Emmy award?

How about a contract award?

Read on.

Lawmakers, OMB push to ban more `bad-actor' contractors by Charles S. Clark

At a Wednesday hearing of the Senate Homeland Security and Governmental Affairs Committee, Chairman Joe Lieberman, I-Conn., expressed alarm that a series of reports from the Government Accountability Office and inspectors general have shown a reluctance of many agencies to refer unsatisfactory contractors to the Excluded Parties List System maintained by the General Services Administration.

A Pentagon report "just last month shows that over a 10-year period, DoD awarded $255 million to contractors who were convicted of criminal fraud; and almost $574 billion to contractors involved in civil fraud cases that resulted in a settlement or judgment against the contractor," Lieberman said. "Last year, the Department of Homeland Security's inspector general found 23 cases where the department had canceled a contract because of poor performance, but in none of those cases did DHS suspend or debar the contractor."

The Federal Emergency Management Agency, despite the existence of an anti-fraud task force following Hurricane Katrina in 2005, has not sent a single name to the list, Lieberman added, noting that the rarity of suspensions and debarments has been a concern of the committee as far back as 1981.

Sen. Claire McCaskill, D-Mo., regretted that proposals to require more suspensions and debarments founder because of a fear of litigation, because it's "too much trouble," some contractors are seen as "too big to fail," or "it is unclear who is accountable for a failure" to pursue that course, she said.

Dan Gordon, the departing administrator of the Office of Federal Procurement Policy, said the system's "weak link" is ensuring that a fraudulent contractor is flagged for action in a timely way. "Sometimes the referral takes too long, as historically agencies have been very bad about sharing, either because officials didn't check the list, checked it too late, or because of problems in the spelling of an entity's name."

But he expressed skepticism toward any prospective legislation making certain referrals mandatory, saying agency cultures differ and mandatory referrals that take away discretion could undermine the role of suspension and debarment officials.

Panelists agreed that the model policy is that practiced by the Air Force. Steven Shaw, deputy general counsel for contractor responsibility at the Air Force described two recent suspensions, one involving the Boeing Co.'s launch systems units and the other involving programs within L-3 Communications. Sixty-two percent of his suspensions and debarments are "fact-based," he said, meaning his team doesn't wait for the Justice Department to bring criminal charges. "We take a broad view of the type of misconduct, not just criminal fraud but as it relates to business integrity, tax issues, the Foreign Corrupt Practices Act or commercial fraud," he said.

The Air Force also uses a "carrot-and-stick approach that is aggressive at the front end" but still allows contractors to prevent fraud through risk management and ethics programs.

Ranking committee member Sen. Susan Collins, R-Maine, who as a staff director worked on the 1981 hearing chaired by then-Sen. William Cohen, R-Maine, reminded the hearing that the goal of suspension and debarment is "not to punish contractors but to protect" the taxpayer, and that allowing "bad actors" to win new contracts is "not fair or ethical to the honest contractors."

The perils of playing with federal funds

This post is essentially a guest post. It is the basis of a letter to the editor of the Pacific Daily News, written by Guam Attorney Charles D Stake, which is posted here with his permission.

Acceptance of federal financial assistance and procurement dollars under the American Recovery and Reinvestment Recovery Act (Stimulus Funds) presents serious risks for any recipient including the Government of Guam and its local procurement and audit personnel. Federal funds are never distributed without constraints on the manner in which they can be utilized including civil and even criminal penalties for violating those restrictions. This process can already be observed in the emerging problems with procurement methods at the port and the investigation which will inevitably follow.

Having recently attended several informative sessions of the 2009 Association of Pacific Island Auditors Conference, I noticed that local audit personnel were becoming increasingly and justifiably concerned about the disproportionate amount of responsibility being shifted to their shoulders. Under the new law they must now bear the burden of administering the stringent accountability provisions of the economic recovery stimulus package and the billions of dollars involved. In fact one local auditor anonymously complained to the media that, “we are being set up to fail” (See July 31 issue of Marianas Variety page 1 “Fraud”.)


Guam is currently in the midst of vigorously seeking much needed federal funding ,not only the development of the Port of Guam, but also schools ,roads , the hospital, public safety, the landfill, and public assistance. However, local governments would do well to recall the famous adage that past is prologue. President Obama recently gave a speech devoted to procurement fraud and abuse. He intends to reform the process. The stringent accountability standards placed on local governments by Congress in the American Recovery and Reinvestment Act also reflects President Obama’s approach and shifts responsibility to local government.

This is a familiar refrain which is indicative of a recurring cycle. It is a love/hate phenomenon present in most interactions with the federal government and is perhaps most clearly illustrated through the defense industry. Our national security and defense relies heavily on large private military contractors. Justifiable defense acquisition has an historical tendency to spin out of control and begin to take on a life of its own. Needless to say big money and significant benefits are an integral part of the process. Consequently, it can readily metamorphize into a culture of corruption. This involves an implicit cooperative and mutually beneficial understanding between contractors, executive branch officials, military procurement officers, Washington DC K Street lobbyist firms and congress. Eventually, so many corners are cut by so many key players that a lowered legal threshold becomes the norm and virtually everyone is implicated to some extent. Everyone within the circle benefits in one form or another through lucrative job offers, consulting contracts, cost overruns, inferior cheaper goods that do not meet specifications, excessive profits, political contributions, ad nauseam.

Eventually, when the excesses become too blatant a tipping point is reached and the tide begins to turn. Usually this occurs when a new administration, either democrat or republican, takes office. The cycle changes to emphasize fraud investigation and prosecution of the previous abuse. Cynically, the chance to appear as a reformer makes good opportunistic political capital. However, this scrutiny also provides valuable protection for the taxpayer and is both necessary and valid. For example, in the present case the new Obama administration may begin with a review of the Iraq reconstruction contracts and the role of major defense contractors such as Halliburton. The process is historical and circular and has been occurring since the civil war where there was wide spread public outrage over major procurement fraud, profiteering, and abuse. I have experienced this repetitive process myself as a minor participant and procurement fraud attorney with the federal government during the 1980s.

Bureaucratic messages are often somewhat confusing at best. The federal government and its individual agencies rarely speak with one clear voice. Far from being monolithic, one government bureau within an agency can be focused on dispensing federal funds and grants , while yet another bureau such as an inspector general within the very same agency ,may be concentrated on ensuring the funds are utilized by grantees in strict compliance with federal statutes and regulations. Employees of the first agency bureau will be evaluated in part based on their successful distribution of federal funds. Conversely employees of the second agency bureau are evaluated in part based any fraud and abuse of these federal funds they successfully investigate and prosecute. As an example, many Guam residents are familiar with the relatively liberal distribution of FEMA funds immediately after a typhoon. However, in subsequent months FEMA investigators, begin to carefully track the use of these federal funds and when merited, conduct investigations and make referrals for federal prosecution in the District Court.

Any dreams of simply relying on a federal "free money" stimulus bonanza to solve Guam's problems can be extremely deceptive. The restrictions and "strings" attached to federal funds can be so cumbersome that some states actually reject the funding. Also large long term local projects initiated in reliance on federal funding may need to be curtailed prior to completion if congress decides not to continue funding the project. For example this has occurred when local governments hired a large number of new police recruits under a federal grant which was later cut back leaving the local government with no funds to pay the new officers.

Following seemingly liberal expenditures such as the Obama stimulus package and its grants, the trend is toward subsequent strict federal enforcement and scrutiny for compliance with federal statutory and regulatory restrictions. This enforcement trend generally filters down to the states and territories and will include Guam. As long as so much as a pencil is purchased by our local government with federal funds there is federal jurisdiction to review the appropriateness of that expenditure. There is often only a thin margin between poorly planned wasteful spending and arguably intentional ,fraudulent, criminal expenditures. The statute of limitations offers little protection and is rather easily circumvented in procurement fraud prosecutions. Consequently, our local government planning and procurement agencies preparing for the military buildup, the landfill project, highway expansion projects, school construction, and Port of Guam expansion would to do well to immediately initiate a serious comprehensive process of procurement education and to carefully police themselves in all future purchases involving federal funds.

Charles D Stake

Charles D Stake is an Attorney, Member of the Guam and District of Columbia Bars, and graduate of the George Washington University Government Contract Program. He is a Procurement Appeal Hearing Officer with the Office of Public Accountability and a retired federal attorney and law enforcement officer residing in Barrigada.

Procurement Fraud conviction -- Oklahoma

man sentenced in Tulsa Public Works scandal

Stuart Jay Franklin, 49, pleaded guilty in September to a federal bribery charge connected to the city’s public corruption scandal. He is the fifth of six defendants to be sentenced in the case.

He admitted that while working as an accountant for FBS Inc., an engineering design and inspection services firm in Tulsa, he paid $6,150 of what was to be a $10,000 bribe to Albert Martinez to steer engineering inspection services contracts to the company.

The judge took exception to any assertion that Franklin’s crime was a victimless one. “The victims are the city of Tulsa and all of the citizens of the city of Tulsa,” Kern said.

Kern said the case had harmed public confidence in the competitive bidding process and deprived the people of Tulsa of the honest services they expected.

Read more from this Tulsa World article at http://www.tulsaworld.com/news/article.aspx?subjectid=14&articleid=20100202_14_0_AClare19590&allcom=1