In such a posture a civil suit under the False Claims Agt (31 U.S.C. Section 231) which permits double damages would be a much better, vehicle for recovery and possible deterrence of fraudulent activity. In addition, the burden of proof in a civil case is much less than that in a criminal case and thus the chance of success would be much greater. Although it is not clear from NNS' settlement agreement with the Navy Claims Settlement Board (dated October 5, 1978), it could be argued that the settlement agreement precludes subsequent civil litigation by the government to recover allegedly false claims. MIS' criminal counsel has raised the issue that the settlement agreement is also a bar to criminal prosecution in its confidential memorandum to the U.S. Department of Justice (pages 140-143). I believe that the Navy clearly intended to preclude all civil ? lizication by settling the claims with the company. However, the reservation clause of the settlement agreement reserves any rights the government may have under certain criminal statutes (18 U.S.C. Sections 286, 287, and 1001) and also under 31 U.S.C. 231 (the civil False Claims Act). Although believe that it would be imprudent to proceed civilly against NNS, the civil alternative is a viable one and should be considered in future cases like this. NNS is reportedly the best of the private shipyards that build and overhaul nuclear and non-nuclear ships for the Navy. It has a long history of excellent craftsmanship and has been awarded several more contracts to build submarines, cruisers, and aircraft carriers which are now under construction. I have raised the matter of possible debarment and suspension of NNS (in the case of an indictment and conviction of the company) with the Richmond and Alexandria prosecutors. Although I don't know all the procedures involving debarment or suspension of a government contractor, I do know that the matter is sclely within the purview of the appropriate agency (the Navy) rather than the Department of Justice. The consensus of the people I talked to was that there was no way NNS would be debarred or suspended by the Navy. The company's work is simply too vital to the national defense for the Navy to take any steps to halt NNS' work in building ships for the government. Apparently, debarment is not automatic with a company's criminal conviction but requires affirmative action on the part of the agency. I do not know about suspension (perhaps during the pendency of the criminal case). A related issue is the possibility that at the time of an indictment against NNS the company might voluntarily get out of the business of building ships for the Navy. Diesel seriously considered this alternative in early 1978 at the time he ordered a work stoppage on the Class 41 cruiser (Note: a government lawsuit forced construction work to continue). Internal NNS documents disclose that NNS had enough private shipbuilding business (oil tankers) at that time to prosper. In fact construction of the North yard at ANS was to handle commercial shipbuilding activities. Admiral Rickover's suggestion that the government take over Navy shipbuilding might become a reality. My feeling is that if that were the case it would lead to massive layoffs among the 25,000 employees at NNS and at the other private shipyards. I should point out that all of this is mere speculation on my part. I do not believe that the Department of Justice should be influenced in making a decision to prosecute or not to prosecute a case based solely on these considerations. The only relevant factor should be whether there is sufficient evidence to prove a criminal violation. However, where the evidence is borderline, policy considerations such as these may be weighed. V. CONCLUSION The approach of the Richmond prosecution team (and to a lesser extent the Alexandria prosecution team) was to scrutinize specific "hardware" items in the claim. This required deep immersion in technical detail. The theory was that if the back-up documents were not totally supportive of a claim item or if a multitude of errors occurred, fraud could be proven. Although I don't believe I would have pursued that methodology in the investigation, I believe no one can be accused of "botching" it. I believe that a lot more attention should have been devoted to the initial Jallegation of a company-wide conspiracy to inflate claims. I have attempted to do so in Part III of this memorandum. also believe that the "soft" items such as delay, disruption, deterioration of labor, and Navy recruiting practices should have been taken apart and shown to be outlandish. The Richmond prosecution team's conclusion that the claims writing process had integrity appears to be baseć only on the hardware items. I believe that the final claim narratives withstood analysis during the grand jury investigation because they had been massaged and perfected through many drafts. If prior drafts had been found for hard items I perhaps the Richmond prosecutors would not have recommended declination. In any event, the soft items constitute approximately 80% of the claim and may not be so immune from the discovery of "holes"in their entitlement theory. My belief is that a continued investigation should focus on the NNS claims effort as a conspiracy to obstruct, impede, and delay the lawful function of government (18 U.S.C. Section 371) and the orderly claims process (18 U.S.C. Section 286). APPENDIX A METHODOLOGY OF REVIEW During my tenure with the Organized Crime and Racketeering Section (1973-1980) reviewed approximately This 300 cases for prosecutive merit under the Racketeer Influenced and Corrupt Organizations (RICO) statute. review of the investigation of Newport News Shipbuilding and Dr Dock Company was undertaken by me with the same objectivity and thoroughness I believe I brought to my Previous assignments. This endeavor, however, was vastly noze extensive and complicated than any other case review I had done. Because of its importance, I am setting out here the procedures I employed and the materials I examined during this review. In January 1982, by agreement, the Alexandria prosecution team relinquished this investigation to the Fraud Section of the Criminal Division for handling. Two months prior to that, we wrote a thorough 110 page Status Report that summarized some of the more significant results of our investigation up to that point, and also analyzed a number of possible legal defenses raised by Newport News Shipbuilding (hereafter NNS). In that Status Report, we recommended that the investigation continue. We did not recommend that the company or any of its employees be indicted at that time because we felt that work remained to be done to fully develop a case. We made it clear, however, that we believed a prosecutable case could be developed if the necessary resources were made available. The Status Report demonstrated that NNS had in fact conspired to defraud the government on a massive scale. The Status Report further concluded that there was no legal impediment to a successful prosecution. In our view, the Status Report made a very compelling argument for continuing the investigation. We still are convinced that there is a prosecutable case against the company and that an indictment with a reasonably good chance of success could be put together before October 5, 1983. 1/ A two count indictment charging the company with conspiracy to defraud the United States by obtaining payment on any false, fictitious or fraudulent claim, in violation of 18 U.S.C. 286 and conspiracy to defraud the United States by impeding and impairing its lawful functions under 18 U.S.C. 371 could be quickly drafted la/ It is not clear whether such an indictment would be multiplicitous. Assuming it was, there would still be no error in allowing both counts to go to the jury. E.g., United States v. Colson, 662 F.2d 1389, 1392 (11th Cir. 1981). We would rely upon the evidence of an overall conspiracy plus individual claim items that can be shown to be either false or based on legally outrageous theories of entitlement or both. 2/ Some of the claim items based upon outrageous theories of entitlement would have great jury appeal because the company's 17 As our Status Report explains (pp. 105-106), there are various theories available that would allow us to argue that the conspiracy continued long after October 5, 1978, when NNS and the Navy agreed to a lump sum settlement of the company's claims. Thus, it is far from clear that the statute of limitations will run out on October 5, 1983. Nonetheless, the fact that an indictment returned after October 5, 1983 might be held to be time-barred is an argument against devoting further substantial resources to the investigation at this point. The statute of limitations question should be examined very carefully before any decision is made to decline prosecution. It is absolutely clear that the statute of limitations will not run on a false claims conspiracy (18 U.S.C..286) or conspiracy to defraud the United States (18 U.S.C. 371) until at least October 5, 1978. la/ It is no longer advisable to bring substantive false claim counts under Section 28.7 because the Statute of Limitations probably ran out on such offenses on August 1, 1982. See Status 27 bad faith is so readily apparent and the issues are not technical. II. THE FRAUD SECTION MEMO IS NOT AN ADEQUATE EVALUATION OF THE - both The Fraud Section memo marshals only the arguments good and bad against prosecution. Some of these arguments are identical to those contained in the company's "Confidential Memorandum." The memo's characterization of the evidence and the potential legal defenses available to the company cannot withstand serious scrutiny. 3/ It would serve no purpose here to rehash the extremely complex evidence summarized in our Status Report and in various memoranda. 4/ Nor can we respond to every point made by the Fraud Section memo in the two-week time period alloted for this critique. 5/ What we can do here is attempt to show that the major factual and legal premises of the Fraud Section memo are incorrect. We can also highlight some of the most questionable aspects of the memo. The OSHA/EPA claim item can also be shown to contain a false statement. 4/ It is important to note that memorandum of November 17, 1982 presented additional important evidence, some of which we summarize infra. 5/ We would be happy to provide you with a follow-up memo addressing any points on which you want further analysis. It should not be assumed that we accept the correctness of any point in the Fraud Section memo simply because we do not address it here. We refer you to our lengthy Status Report for a detailed discussion of the evidence developed up to that point. |