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                                                         S. Hrg. 110-39
 
  COMBATING WAR PROFITEERING: ARE WE DOING ENOUGH TO INVESTIGATE AND 
             PROSECUTE CONTRACTING FRAUD AND ABUSE IN IRAQ?

=======================================================================

                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 20, 2007

                               __________

                          Serial No. J-110-20

                               __________

         Printed for the use of the Committee on the Judiciary



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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts     ARLEN SPECTER, Pennsylvania
JOSEPH R. BIDEN, Jr., Delaware       ORRIN G. HATCH, Utah
HERB KOHL, Wisconsin                 CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California         JON KYL, Arizona
RUSSELL D. FEINGOLD, Wisconsin       JEFF SESSIONS, Alabama
CHARLES E. SCHUMER, New York         LINDSEY O. GRAHAM, South Carolina
RICHARD J. DURBIN, Illinois          JOHN CORNYN, Texas
BENJAMIN L. CARDIN, Maryland         SAM BROWNBACK, Kansas
SHELDON WHITEHOUSE, Rhode Island     TOM COBURN, Oklahoma
            Bruce A. Cohen, Chief Counsel and Staff Director
      Michael O'Neill, Republican Chief Counsel and Staff Director


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Feingold, Hon. Russell D., a U.S. Senator from the State of 
  Wisconsin......................................................     5
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     1
    prepared statement...........................................   102
Specter, Hon. Arlen, a U.S. Senator from the State of 
  Pennsylvania...................................................     3

                               WITNESSES

Bowen, Stuart W., Jr., Special Inspector General for Iraq 
  Reconstruction, Arlington, Virginia............................     7
Gimble, Thomas F., Acting Inspector General, Department of 
  Defense, Arlington, Virginia...................................     9
Sabin, Barry M., Deputy Assistant Attorney General, Criminal 
  Division, Department of Justice, Washington, D.C...............    11

                         QUESTIONS AND ANSWERS

Responses of Stuart W. Bowen, Jr. to questions submitted by 
  Senators Leahy, Kennedy and Specter............................    19
Responses of Thomas F. Gimble to questions submitted by Senators 
  Leahy, Kennedy and Specter.....................................    32
Responses of Barry M. Sabin to questions submitted by Senators 
  Leahy, Kennedy and Specter.....................................    44

                       SUBMISSIONS FOR THE RECORD

Bowen, Stuart W., Jr., Special Inspector General for Iraq 
  Reconstruction, Arlington, Virginia, statement.................    83
Gimble, Thomas F., Acting Inspector General, Department of 
  Defense, Arlington, Virginia, statement........................    91
Sabin, Barry M., Deputy Assistant Attorney General, Criminal 
  Division, Department of Justice, Washington, D.C., statement...   105


  COMBATING WAR PROFITEERING: ARE WE DOING ENOUGH TO INVESTIGATE AND 
             PROSECUTE CONTRACTING FRAUD AND ABUSE IN IRAQ?

                              ----------                              


                        TUESDAY, MARCH 20, 2007

                              United States Senate,
                             Committee on Senate Judiciary,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 9:35 a.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Patrick J. 
Leahy, Chairman of the Committee, presiding.
    Present: Senators Leahy, Feingold, Cardin, Specter, and 
Coburn.

OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM 
                      THE STATE OF VERMONT

    Chairman Leahy. Good morning. As you may have gathered, 
talking up here, Senator Specter and I are friends. We go back 
to our days as prosecutors. Sometimes in this job that is a 
good background to have. He used it well in his days as 
Chairman, and we were trying to work out some of the logistics 
for the rest of the week.
    Today, though, we have an issue of war profiteering, and 
the efforts to combat war profiteering have a long history. 
They go back almost as far as the practice itself. During the 
Civil War, President Lincoln fought against war profiteers, 
denouncing them as ``worse than traitors.'' He pushed for the 
first Federal laws curbing this abuse. In World War II, 
President Roosevelt spoke out against ``war millionaires'' who 
made excessive profits exploiting the calamity of war. 
President Truman, when he served in the Senate, crossed this 
country holding now famous public hearings to expose gross 
fraud, waste, and abuse by military contractors. As we observe 
the fourth anniversary of the Iraq war this week, we continue 
to face war profiteering in that conflict. As Iraq Study Group 
Co-Chair Lee Hamilton testified before this Committee just a 
few weeks ago, contracting fraud and abuse significantly 
undermine the current efforts in Iraq.
    Our Nation has sent nearly a half a trillion dollars to 
Iraq--and we are on track to send a trillion dollars--with few 
or no controls over how that money has been spent. The Bush 
administration has chosen to use private contractors in this 
war to a greater extent than at any time in our history. The 
trend has raised the cost of this military action by untold 
billions. Predictably, these actions have led to widespread 
fraud, waste, and abuse in Iraq on a scale that may be 
unprecedented in our history.
    The Inspectors General before this Committee today have 
reported that billions of dollars spent in Iraq are unaccounted 
for and may have been lost to fraud or other misconduct. 
Billions of dollars. And if any of you are making out your tax 
returns for this time of the year, just think about that. It is 
your money. These Inspectors General have opened hundreds of 
investigations into fraud, waste, and abuse in Iraq, Kuwait, 
and Afghanistan involving illegal kickbacks, bid rigging, 
embezzlement, and fraudulent overbilling. These investigations 
have uncovered crimes committed by employees of the largest 
Government contractors in Iraq, including Kellogg, Brown & 
Root, a wholly owned subsidiary of Halliburton. Many of these 
matters involve abuse of the now infamous ``cost-plus'' and 
``no-bid'' contracts so often used by the Bush administration 
to award huge sums to many who, it turns out, have close ties 
to the administration.
    Despite these investigations and mounting evidence of 
fraud, the administration has committed precious few resources 
to investigate and prosecute those who have illegally exploited 
this war for profit.
    I think they relied upon a Congress that would not ask 
questions. In fact, that same Congress--and it has changed- -
attempted to limit the investigation of fraud in Iraq, and they 
actually wanted to shut down the office of the Special 
Inspector General for Iraq Reconstruction. I am pleased that 
better sense prevailed and the Inspector General's authority 
was reinstated after the people spoke last November.
    During the nearly 4 years of war, the Department of Justice 
has failed to move aggressively enough in prosecuting fraud in 
Iraq. Today, the Inspectors General before us have opened 
hundreds of investigations, they still have more than 70 open 
and active cases in contracting fraud and abuse in this war. 
But so far, the U.S. Justice Department has only brought eight 
criminal cases involving 25 individuals over the last 3 years.
    The crimes in a number of these cases were committed by 
employees of Kellogg, Brown & Root, one of the largest 
contractors in Iraq--as I said, a wholly owned subsidiary of 
Halliburton. In these cases, the employees have admitted to 
receiving kickbacks, inflating costs, embezzling money, and 
stealing millions from the American people. But so far, the 
Justice Department has brought no legal action, civil or 
criminal, against KBR or Halliburton.
    Now, just last week, we learned that Halliburton will move 
its CEO's headquarters outside the United States to Dubai. They 
apparently plan to spin off KBR. One of the late-night comics 
said that moving to Dubai was because of the location--just 
outside the reach of the long arm of the law. I do not know 
whether that is so or not, but whether they are or not, the 
move is an insult to the U.S. soldiers and taxpayers who have 
paid the tab for these low-bid contracts and ``no-bid'' 
contracts, and endured these overcharges all these years.
    I introduced the War Profiteering Prevention Act on the 
first day of this new Congress. This makes acts of war 
profiteering a specific crime and reaches all contracting 
fraud, whether it occurs in this country or outside. It applies 
to all reconstruction and relief activities overseas. I have 
been proposing versions of this bill since 2003. It actually 
did pass the Congress, but the White House brought pressure on 
the Republican leadership in the House, and they removed it 
from the conference committee.
    A new law to combat war profiteering in Iraq and elsewhere 
is sorely needed, and long overdue. There are anti-fraud laws 
to protect against the waste of U.S. tax dollars at home, but 
no law to specifically cover when it is spent overseas.
    So we want to send one message: Any act to exploit the 
crisis situation in Iraq or elsewhere overseas for excessive 
profit is unacceptable, is reprehensible, is criminal, and the 
American people will not stand for it. That kind of deceit 
demeans and exploits the sacrifices that our military personnel 
are making in Iraq and Afghanistan and around the world.
    Combating war profiteering is not a Democratic issue or a 
Republican issue. It is an American issue. The American people 
are sacrificing so far to the tune of half a trillion dollars. 
We will at least double that amount. We ought to make sure at 
least--whether they agree with or oppose the war in Iraq--they 
ought to at least know that their tax dollars are being spent 
the way they should be.
    [The prepared statement of Senator Leahy appears as a 
submission for the record.]
    Senator Specter?

STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM THE STATE 
                        OF PENNSYLVANIA

    Senator Specter. Thank you, Mr. Chairman. I believe that 
the focus that you have brought to bear on this important issue 
is very, very important, with your legislation and with this 
hearing today. There is no better therapy to combat white-
collar crime than a prison sentence. You and I both know that 
from our earlier days as prosecuting attorneys.
    Senator Leahy and I frequently discuss our first meeting at 
a national convention of the District Attorneys Association 
when he was DA of Burlington, Vermont, and I was district 
attorney of Philadelphia. And that experience has demonstrated 
to both of us that you really attract the attention of white-
collar criminals when they go to jail.
    There are lots of arguments about whether deterrence is 
effective. You are not going to stop passion homicides with 
jail sentences because people are thinking about something 
else. But profiteering and commercial crimes, white-collar 
crimes, are customarily very, very carefully thought out. And I 
believe that President Lincoln had it right on the quotation 
which Senator Leahy has cited when he said that war 
profiteering was a characteristic worse than traitors.
    I think there is something especially opprobrious about 
contractors going to Iraq and taking advantage of that 
situation at a time when so many brave young men and women are 
giving their lives or giving their limbs for their country. And 
at a time when the American taxpayers are being hit so very, 
very hard for the costs of Iraq, especially hard and especially 
difficult under those circumstances.
    Before coming here this morning, I signed three letters to 
relatives of Pennsylvanians who had been killed in action, and 
later this week in the Appropriations Committee, where both 
Senator Leahy and I serve, we will be taking up the 
supplemental appropriation which has $100 billion for Iraq. So 
it is especially disheartening to see what is going on there.
    Since 2000, ten companies with billions of dollars in U.S. 
contracts for Iraq reconstruction have paid more than $300 
million in penalties to resolve allegations of bid- rigging 
fraud, and I sharply question whether these matters are 
appropriately resolved with agreements to pay penalties. Three 
hundred million dollars is not unsubstantial, but it may be de 
minimis, relatively meaningless, compared to the billions of 
dollars which are involved. Probably a very inexpensive license 
to cheat the American taxpayers.
    We have seen a few convictions. The Custer Battles firm 
billed the Government about $10 million when its actual costs 
did not exceed $4 million, and it billed $400,000 for a $74,000 
electric bill.
    The Pentagon investigation found evidence that Halliburton 
had overcharged $61 million for fuel deliveries from Kuwait to 
Iraq. Halliburton also admitted that two of its employees took 
nearly $6 million in kickbacks.
    Another major company, Bechtel, hired three subcontractors 
in Iraq that have been fined more than $86 million over the 
last 4 years, and those contractors continue to work for 
Bechtel.
    A subsidiary of Northrop Grumman, Vinnell Corporation, has 
been penalized over $190 million over the last 4 years. The 
company now has a $48 million contract to train a new Iraqi 
army. If this kind of conduct is met with a small fine or a 
relatively small fine, really a license, and then rehired, 
there is no incentive not to violate the law.
    The majority of contracts for troop support overseas is on 
a noncompetitive basis, which contrasts with regular 
contracting procedures which are full and open competition. 
Well, that ought to be changed. It may be difficult to find 
contractors to function in Iraq, but I think it can be done 
with sufficient diligence. And there are cost-plus contracts. 
Well, that again is an open invitation to run up the costs. So 
we are dealing with enormously serious problems here.
    The reality is that the Judiciary Committee cannot trail 
all of these people, but we have a Special Inspector General 
for Iraq Reconstruction testifying here today. We have the 
Department of Defense Acting Inspector General. And we have the 
Criminal Division of the Department of Justice, which really 
ought to be focusing on these matters instead of so much e-mail 
traffic which captures all of our attention.
    I am trying to get some of my colleagues on this side of 
the aisle to come down. We have had 3,000 documents delivered, 
and we are about to vote this morning on changing the 
procedures for replacing United States Attorneys. Every time we 
turn around, there is another major calamity, catastrophe, 
within the jurisdiction of this Committee. It will not be until 
tomorrow that we will have to review what the FBI has done or 
not done on National Security Letters. They came to us, asked 
for renewal of the PATRIOT Act, and the Judiciary Committee 
wanted to be patriotic, so we renewed the PATRIOT Act. And we 
find major abuses in the National Security Letters.
    We are in the midst of reviewing many, many documents to 
prepare for that hearing tomorrow, and a renewed call has come 
to take away the intelligence function from the Department of 
Justice and the FBI and give it to an analogy to what the 
British use. So that we are beset by problems, as we all know, 
and--
    Chairman Leahy. We have one less problem on things to read. 
With all due respect, Mr. Sabin's testimony did not arrive 
until after 5:00 last evening, and I remember--I liked the 
Specter rule on that, so he will not be testifying. We will put 
his statement in the record.
    I also feel--
    Senator Specter. May I commend you, Mr. Chairman, for 
finding one less problem.
    Chairman Leahy. What he is commending me for is following 
the Specter rule, but what I might say--and I know Senator 
Feingold wanted to make a brief remark here. But if you are 
having hundreds of millions of dollars of cost overruns and you 
get fined a couple million dollars when it is found out, it 
really is a cost of doing business.
    I agree with Senator Specter. If people think they are 
actually going to go to jail, if they think the buyers are 
going to close on them, what I have found as a prosecutor is 
that had a lot more impact than any kind of fine or censure you 
might do.
    Senator Feingold, did you want to say something before we 
start?
    Senator Feingold. Thank you, Mr. Chairman, for recognizing 
the need to hold--
    Senator Specter. Excuse me one moment, Senator Feingold. I 
am going to have to excuse myself now. I will have staff here 
and will review the testimony very closely, and I will join 
Senator Leahy in his efforts to crack down on this malicious, 
vicious practice.
    Thank you, Mr. Chairman.
    Chairman Leahy. Thank you. Well, Senator Specter, you have 
always been consistent on that, and I appreciate that. Thank 
you.
    Senator Feingold?

STATEMENT OF HON. RUSSELL D. FEINGOLD, A U.S. SENATOR FROM THE 
                       STATE OF WISCONSIN

    Senator Feingold. Thank you, Mr. Chairman, for recognizing 
the need to hold a hearing on this very important issue. I have 
to leave in a couple of minutes to chair my own hearing in the 
Foreign Relations Committee on Chad and the Central African 
Republic as it relates to Darfur and their own problems. But I 
would like to make a few brief comments about the importance of 
strong oversight and accountability for U.S. taxpayer dollars 
going to Iraq.
    The Special Inspector General for Iraq Reconstruction plays 
a crucial role in investigating and reporting fraud and misuse 
of Iraq reconstruction funding. I recognize the difficult task 
that SIGIR staff has and commend the SIGIR for its efforts to 
bring increased transparency to U.S. reconstruction spending. I 
support efforts to ensure that SIGIR's unique role is preserved 
as long as this administration continues to request emergency 
funding for the Iraq war.
    That said, I believe that we can do even more to deal with 
those who waste or fraudulently use Iraq reconstruction funds. 
I strongly encourage all U.S. Government agencies involved in 
oversight activities in Iraq to work together to aggressively 
pursue allegations of misuse and to penalize those who use U.S. 
taxpayer dollars for personal gain.
    I look forward to working with my colleagues to ensure that 
Congress is providing adequate resources to ensure the 
oversight activities in Iraq are robust and effective. SIGIR 
has played a significant role in targeting abuse of the U.S. 
contracting system in Iraq, and I want to briefly touch on the 
potential for SIGIR to strengthen oversight activities in 
Afghanistan as well.
    While Afghanistan receives significantly less funding than 
Iraq, we also need to ensure that taxpayer funding for 
reconstruction in Afghanistan is adequately distributed and 
accounted for. Today, as we examine the value of having strong 
oversight in Iraq, Mr. Chairman, we should also take into 
consideration the value it could add in Afghanistan. And I look 
forward to continue discussions with my colleagues and Mr. 
Bowen about a potentially expanded role for SIGIR.
    Once again, I thank you for your important role and the 
work that you and your staff are doing to ensure that U.S. 
taxpayer dollars are being well spent.
    Thank you so much, Mr. Chairman.
    Chairman Leahy. Thank you very much.
    Gentlemen, would you--and, incidentally, before I swear you 
in, I should mention, Mr. Sabin, you did get your testimony 
here earlier than the incomplete document dump we got in 
connection with the mass firing of U.S. Attorneys, and 
obviously anybody is free to ask you any questions. I commend 
you on that. I know it has been busy down there at the 
Department of Justice. We are trying to enforce this rule. We 
have been ignored on the documents, but you were ahead of them, 
incomplete though they were.
    Please stand, gentlemen, and raise your right hand. Do you 
solemnly swear that the testimony you will give in this 
proceeding will be the truth, the whole truth, and nothing but 
the truth, so help you God?
    Mr. Bowen. I do.
    Mr. Gimble. I do.
    Mr. Sabin. I do.
    Chairman Leahy. Let the record show that all were sworn in.
    The first witness, Stuart Bowen, has served as the Special 
Inspector General for Iraq Reconstruction since October of 
2004. He previously served as the Inspector General for the 
Coalition Provisional Authority in Iraq. Mr. Bowen has served 
President George W. Bush as Deputy Assistant to the President, 
Deputy Staff Secretary and Special Assistant to the President, 
and Associate Counsel. He has been a partner at the law firm of 
Patton Boggs, LLP. Of course, Mr. Boggs was a classmate of mine 
in law school. From 1992 to 1994, Mr. Bowen served as the 
Assistant Attorney General of Texas in administrative law 
litigation, holds a B.A. from the University of the South, 
attended Vanderbilt Law School, and received his J.D. from St. 
Mary's Law School.
    Please go ahead, Mr. Bowen.

 STATEMENT OF STUART W. BOWEN, JR., SPECIAL INSPECTOR GENERAL 
          FOR IRAQ RECONSTRUCTION, ARLINGTON, VIRGINIA

    Mr. Bowen. Thank you, Mr. Chairman.
    Chairman Leahy, Ranking Member Specter, and members of the 
Committee, thank you for this opportunity to address you today 
on the role of the Special Inspector General for Iraq 
Reconstruction's oversight, and specifically investigations, in 
Iraq reconstruction. This hearing asks whether we can do more 
to combat fraud in Iraq, and before I answer that question, let 
me make two salient points to put my answer in context.
    First of all, corruption within the Iraqi Government is a 
serious problem inhibiting all progress in Iraq. We have called 
it the ``second insurgency'' in our reports, and I returned 
last week from my 15th trip to Iraq and during that time met 
with the Commissioner on Public Integrity, the analogue to the 
FBI in Iraq, and the President of the Board of Supreme Audit, 
the analogue to the Government Accountability Office, and both 
of them, again, emphasized to me the problem of corruption 
across the government in virtually every ministry.
    The CPI Commissioner told me that he has 2,000 cases 
involving $8 billion of alleged corruption--
    Chairman Leahy. How many?
    Mr. Bowen. Two thousand cases involving $8 billion of 
alleged corruption within the Iraq Government. The President of 
the Board of Supreme Audit has hundreds of audits going on and 
in virtually every case finds missing funds. Again, this is 
involving Iraqi money on the Iraqi side. My office has a 
working arrangement with the CPI, and we continue to support 
them where we come across evidence of potential Iraqi 
wrongdoing.
    On the U.S. side, the incidence of corruption with respect 
to the U.S. reconstruction program that SIGIR has uncovered to 
date is a relatively small component of the overall investment. 
We have found egregious incidents of fraud. We have 
aggressively pursued them, and we have produced prosecutions 
and imprisonments. As you said, Mr. Chairman, fraud is 
unacceptable in Iraq. We must aggressively pursue it. And as 
Ranking Member Specter said, the best way to get attention is 
to put people in prison, and I agree. And that is my mission 
and has been from the start.
    You summarized our overall effort at SIGIR, and that is, to 
account for how the taxpayers' money has been invested in Iraq. 
And we continue to do that aggressively.
    In January, two individuals were sentenced to prison as a 
result of SIGIR investigations. In early February, indictments 
were announced of five more individuals as a result of SIGIR 
investigations. We have opened 300 cases. We have over 70 
ongoing, and 28 of those cases are under prosecution at the 
Department of Justice. So we take seriously the mandate 
Congress has given us to audit, inspect, and investigate the 
use of taxpayer dollars in Iraq, and I am committed to 
maintaining a robust deterrent presence in ia as long as SIGIR 
exists.
    Today, we have eight investigators on the ground in Iraq 
investigating fraud. It is the largest contingent of fraud 
investigators there. They travel the country pursuing leads and 
also work regionally. To date, we have produced 12 quarterly 
reports, 82 audit reports, 80 on-site inspections, and as I 
said, over 300 investigations opened, yielding 10 arrests, 5 
indictments, 5 convictions, and 2 imprisonments, and working on 
79 live investigations. We have 19 investigators on staff, 
eight, as I said, in Iraq and the balance here in Arlington.
    One of the most important aspects of our work is to develop 
a task force, working relationships with other agencies 
involved in oversight in Iraq, including my colleague, Mr. 
Gimble, and the Defense Criminal Investigative Service. Our 
first task force was the Special Investigative Task Force for 
Iraq Reconstruction, SPITFIRE, and it combined the efforts of 
the Internal Revenue Service, the Department of Homeland 
Security's Immigration and Customs Enforcement office, the FBI, 
and the Department of State IG office. That task force was able 
to effectively pursue the Bloom-Stein conspiracy that my 
auditors uncovered in Hilla, Iraq--a very egregious kickback 
and bribery scheme involving over $10 million in reconstruction 
funds that Philip Bloom, a contractor, and Robert Stein, the 
comptroller for that region, engineered to their own criminal 
ends. SPITFIRE continues and we continue to pursue a number of 
leads that arose from that case.
    The other major initiative that SIGIR has begun is the 
International Contract Corruption Task Force. The Joint 
Operations Center for that task force is housed at SIGIR, and 
it is already producing effective cross-pollination of 
investigative leads and source development with respect to 
ongoing investigations, including some very significant ones 
that will be--that news of which will be forthcoming in the 
course of this year.
    That task force includes the U.S. Army's Criminal 
Investigative Division Major Procurement Fraud Unit, the 
Defense Criminal Investigative Service, the FBI, and the 
Department of State's IG. And, again, a number of the Iraq 
Relief and Reconstruction Fund cases that we have ongoing are 
making rapid progress as a result of coordinated effort among 
the agencies assigned with jurisdiction.
    We also are part of the DOJ National Procurement Fraud Task 
Force, and we continue to work closely with DOJ in the 
investigation and prosecution of our cases.
    And, finally, to coordinate efforts in oversight in Iraq, I 
formed shortly after I was appointed 3 years ago the Iraq 
Inspector General's Council, which brings together everyone in 
every corridor who has got oversight, and we deconflict and 
discuss what needs to get done to ensure, as you said, Mr. 
Chairman, that we account for how the taxpayer dollars are 
being invested in Iraq.
    Thank you.
    [The prepared statement of Mr. Bowen appears as a 
submission for the record.]
    Chairman Leahy. Thank you very much.
    You have made how many trips over there, did you say?
    Mr. Bowen. Fifteen.
    Chairman Leahy. God bless you.
    Mr. Bowen. Thank you, sir.
    Mr. Gimble became Acting Inspector General of the 
Department of Defense on September 10, 2005. Prior to his 
appointment, Mr. Gimble was Principal Deputy Inspector General, 
has held other key positions in the Office of the Inspector 
General for the Department of Defense. He served with the U.S. 
Army as an infantry soldier in combat, was awarded the Bronze 
Star, the Purple Heart, the Combat Infantry Badge. He has a 
bachelor's of business administration from Lamar University, an 
MBA from the University of Texas at San Antonio.
    Mr. Gimble, thank you for joining us today and please go 
ahead.

   STATEMENT OF THOMAS F. GIMBLE, ACTING INSPECTOR GENERAL, 
           DEPARTMENT OF DEFENSE, ARLINGTON, VIRGINIA

    Mr. Gimble. Members of the Committee on the Judiciary, 
thank you for the opportunity to appear before the Committee 
today to talk about our oversight and investigation into 
contracting fraud in Iraq. The Global War on Terrorism is a top 
priority of our DoD IG office, and currently we have 150 
personnel providing oversight of the $463 billion in DoD 
supplemental funds appropriated to support our fight in the war 
on terrorism.
    The Defense Criminal Investigative Service is the 
investigative arm of the DoD Inspector General and has been 
investigating DoD-related matters pertaining to the Iraqi 
theater, to include Kuwait, since the start of the war.
    We continue to expand our in-theater presence. For example, 
in March of 2006, we established our first forward field site 
in Qatar, under the sponsorship of the Commander of the U.S. 
Central Command. We use the Qatar office as a hub to deploy 
teams into Iraq, Kuwait, and Afghanistan.
    Recently, in coordination with the Commanding General of 
the Multinational Force-Iraq, we established our second forward 
deployed office, at Camp Victory. We currently have two 
investigators and eight auditors assigned there. In addition, 
we have two advisers in the International Zone and two 
additional investigators stationed in Kuwait.
    The presence of the DCIS in the region has led to 83 
investigations. Our investigations have focused on matters such 
as bribery, theft, gratuities, bid rigging, product 
substitution, and conflicts of interest. These alleged crimes 
expose U.S. and coalition forces to substandard equipment and 
services, or shortages that aggravate an already harsh and 
harmful environment. Currently DCIS is conducting 56 
investigations involving war profiteering, contract fraud, and 
contract corruption in Iraq. Fifteen of those investigations 
are being conducted by four DCIS special agents that are in 
theater, and the remaining 41 are being conducted by 31 special 
agents that are housed in our U.S. and Germany offices.
    The criminal activities being investigated in Iraq involve 
members of the U.S. Armed Forces, U.S. contractor personnel, as 
well as foreign personnel. For example, in January 2004, an 
investigation was initiated on information from the Defense 
Contract Audit Agency concerning allegations of kickbacks and 
gratuities that were solicited and/or received by Kellogg, 
Brown & Root (KBR) employees. KBR has also been alleged to have 
been overcharging for food and fuel.
    The DCIS has also initiated a project to review paperwork 
associated with payments made by the U.S. Army paying agents in 
Iraq. Those payment records are currently stored at the Defense 
Finance and Accounting Service, Rome, New York. This is 
expected to be a long-term effort. DCIS is working with the FBI 
and coordinating its activities with the U.S. Attorney's Office 
in the Northern District of New York. Also, our Deputy 
Inspector General for Auditing at DoD IG is conducting a 
concurrent review of the records, and several questionable 
transactions have been discovered and referred for further 
investigation.
    Since the Global War on Terrorism began, DCIS has pursued 
criminal, civil, and administrative remedies against U.S. and 
foreign persons and companies. Ten of those investigations with 
adjudication fall within the prohibited activities of the War 
Profiteering Prevention Act of 2007.
    These investigations have resulted in four Federal 
indictments, nine criminal informations, two Article 32 
hearings under the Uniform Code of Military Justice. As a 
result of the investigations, eight U.S. persons and one 
foreign person were convicted and have a total of 14\1/2\ years 
in confinement and an additional 9 years of probation. Two 
individuals and one company were debarred from contracting with 
the U.S. Government; an additional 17 companies and personnel 
were suspended, and two contractors signing settlement 
agreements with the U.S. Government.
    In all, about $9.8 million was paid to the U.S. in 
restitution, plus $322,000 was levied in fines and penalties, 
with another $3,500 being forfeited.
    We in the DoD IG are committed to remaining an active 
player in preventing and detecting fraud in the Iraqi theater. 
Again, thank you for the opportunity to appear before your 
Committee today.
    [The prepared statement of Mr. Gimble appears as a 
submission for the record.]
    Chairman Leahy. Thank you, Mr. Gimble. On those sentences, 
what was the average? Of the ones who served time, what was the 
average sentence?
    Mr. Gimble. Eight total people had a total of 14\1/2\ 
years, I think.
    Chairman Leahy. But that is 14 years for 8 or each one had 
14 years?
    Mr. Gimble. No. It was a total of 14\1/2\ years for all 8.
    Chairman Leahy. So that would be about a year and a half.
    Mr. Gimble. About a year and a half, yes, sir.
    Chairman Leahy. Thank you. Over the last 3 years, I 
understand the Inspectors General here today have opened 
hundreds of investigations into fraud. I think there are 
currently more than 70 that are open and active that have been 
referred to the Department of Justice. I understand from the 
public records the Justice Department has brought eight 
criminal cases involving 25 people over the last 3 years. Is 
that correct?
    Mr. Bowen. I believe it is nine.
    Chairman Leahy. Nine, okay. And you have--
    Mr. Bowen. I should say nine SIGIR cases. I don't know 
about--
    Chairman Leahy. What?
    Mr. Bowen. Nine from our investigations.
    Chairman Leahy. Have they moved vigorously enough, 
aggressively enough, in the cases you have referred to them?
    Mr. Bowen. I think that they are moving very aggressively 
now, and I think over the last year we have made a lot of 
progress as the recent indictments and the convictions reveal. 
We have 28 cases that are being aggressively managed now. I 
have met with the Assistant Attorney General in the Criminal 
Division, Alice Fisher, and she has deployed the resources 
necessary to vigorously prosecute these cases.
    Chairman Leahy. Mr. Sabin, when would we expect the Justice 
Department to start prosecuting these investigations that have 
been referred to you? And I realize that it sometimes takes a 
while to put a case together for prosecution. You and I have 
both been there, but when can we expect this?
    Mr. Sabin. Mr. Chairman, it is a priority area for the 
Department of Justice. We have devoted significant 
prosecutorial and investigative resources to it.
    Chairman Leahy. How many full-time prosecutors?
    Mr. Sabin. We have 70 prosecutors, approximately, both in 
the civil and criminal arena, devoted throughout the Justice 
Department to these matters.
    Chairman Leahy. Full-time?
    Mr. Sabin. I can't represent that it is full-time, sir, but 
working on these matters, so I would say approximately 70 is 
the number that the folks have provided.
    Chairman Leahy. How many are there full-time, this is their 
one duty?
    Mr. Sabin. I can walk through specifics. We have folks in 
the Antitrust Division. We have individuals in the Criminal 
Division, both in the Asset Forfeiture and Money- Laundering 
Section, the Public Integrity Section, the Fraud Section, the--
    Chairman Leahy. Do you have enough people or do you need 
more?
    Mr. Sabin. Well, I am not going to get into the specifics 
of resource allocation. I can talk to you about the manner in 
which we have tried to--
    Chairman Leahy. I am trying to help you out here. Do you 
need more--
    Mr. Sabin. Right, but I cannot speak for our budgetary 
process with respect to--
    Chairman Leahy. When will the prosecutions start on the 
backlog?
    Mr. Sabin. Sir, we believe that we are devoting significant 
resources to it. We believe that those prosecutions have to 
date occurred. We have had, as you have noted, 25 defendants 
charged. I believe it is 12 separate cases. That is on the 
criminal side.
    We also have, of those 16 defendants that have been 
convicted on a wide variety of money laundering, major fraud 
against the Government, wire fraud, mail fraud, kickback, bulk 
cash smuggling. So we have tried to use the full resources that 
Congress--
    Chairman Leahy. These are the ones that have been convicted 
and are serving time? These are the ones that got a year and a 
half, approximately?
    Mr. Sabin. Mr. Stein in the Stein and Bloom case, it is my 
understanding, received a 9-year sentence. Mr. Bloom I believe 
received a 4-year sentence.
    Chairman Leahy. Are they in the average then of the 14 
months?
    Mr. Sabin. I am not going to represent what the average or 
median is. We can work with you to get you those specific 
statistics.
    Chairman Leahy. Please, I would be very interested in that.
    Mr. Sabin. We would be happy to provide that to you, sir.
    Chairman Leahy. Do you expect further prosecutions to be 
brought, say, in the next 3 months?
    Mr. Sabin. I am not going to give a specific time frame, 
but absolutely we are devoting time and energy to make these 
criminal cases.
    Chairman Leahy. In your position, you would know if there 
is going to be, wouldn't you?
    Mr. Sabin. I am not going to speculate as to when a 
particular indictment--
    Chairman Leahy. I am not asking you to speculate--
    Mr. Sabin. --is going to occur.
    Chairman Leahy. This is an easy yes or no. In your 
position, would you know if prosecutions are about to be 
brought?
    Mr. Sabin. Yes.
    Chairman Leahy. Do you know of any that are about to be 
brought in the next 3 months?
    Mr. Sabin. Depending on factors, yes.
    Chairman Leahy. How many?
    Mr. Sabin. I am not going to give you a specific answer to 
that, sir, but--
    Chairman Leahy. Why not?
    Mr. Sabin. Because they are ongoing, operational endeavors 
with respect to those matters. It depends upon search warrants. 
It depends upon cooperators.
    Chairman Leahy. I understand.
    Mr. Sabin. So we are working our way through both 
individuals and corporate entities to ensure that we are 
making--
    Chairman Leahy. By the end of the year, how many do you 
think might be brought?
    Mr. Sabin. Sir, I am not going to commit to a specific 
number, but I can say here today that we are devoting the 
resources. It is a priority area, and we are going to make 
these cases. As you are aware--
    Chairman Leahy. Would it surprise you to think that perhaps 
Senator Specter and I may be asking you this question 
periodically as the year goes on?
    Mr. Sabin. And, sir, I would be happy to come up-- indeed, 
maybe I will have a chance to give an opening statement at that 
time. But--
    Chairman Leahy. Well, if you get the testimony in ahead of 
time under the rules, then you will. As I said, though, you 
were better than the incomplete--you came in more timely than 
the incomplete dump of other information in a different matter.
    Mr. Sabin. I am not going to comment on that, but--
    Chairman Leahy. I do not--
    Mr. Sabin. --I would tell you respect--
    Chairman Leahy. There are a lot of things you are not going 
to comment on. I understand. We will ask you though, Mr. Sabin, 
I am not trying to play games here. I am worried that it has 
taken a long time on some of these. Mr. Bowen says there are as 
many as 2,000 investigations of fraud in Iraq.
    Mr. Sabin. I believe that was referencing, though, if I am 
not mistaken, in Iraq as opposed to U.S. based.
    Mr. Bowen. Yes, those are Iraqi cases. We have 28 cases at 
the Department of Justice right now.
    Chairman Leahy. Am I correct in understanding there is 
about $8 billion in missing funds, unaccounted for funds?
    Mr. Bowen. There are two figures here. One is the 2,000 
cases that Judge Radhi told me about involve, according to his 
figures, about $8 billion in Iraqi funds. You may be referring 
to our audit of 2 years ago, which looked at about $8.8 billion 
in money that was provided by the CPA to the then-government of 
Iraq, and we found that the CPA did not have adequate controls 
to account for how that money was actually used.
    Chairman Leahy. When I was in law school at Georgetown, I 
used to enjoy coming up to enjoy coming up to watch the Senate, 
and I remember Everett Dirksen, who was the Republican leader 
at that time, his oft-repeated statement, you know, ``A billion 
here and a billion there, after awhile we are talking about 
real money.'' He is right, of course.
    You have, what, about 20 full-time fraud investigators in 
Iraq and Kuwait?
    Mr. Bowen. I have eight full-time in Iraq and another 12 
here in Arlington.
    Chairman Leahy. Is that enough?
    Mr. Bowen. We can always do more to exercise oversight and 
investigate allegations of wrongdoing. One of the challenges in 
Iraq is putting together a case when there is no electronic 
trail to follow. There is no EFT, electronic funds transfer, in 
Iraq, which means you depend exclusively on individuals coming 
forward. And we are talking about individuals coming forward in 
an environment where their lives are threatened.
    Chairman Leahy. It is not too easy to come forward.
    Mr. Gimble, do you have enough investigators?
    Mr. Gimble. I am with Mr. Bowen. We can always use more. 
But we actually have 35 full-time equivalents working those 
issues now.
    Chairman Leahy. We will come back to that. Dr. Coburn has 
been waiting patiently here.
    Senator Coburn, go ahead.
    Senator Coburn. Mr. Chairman, all of these gentlemen, save 
Mr. Sabin, have been before the Federal Financial Subcommittee 
of Homeland Security, and all these questions have been 
addressed, and we have had hearings exactly like this. And so I 
do not have any questions. I came to hear the testimony today.
    Chairman Leahy. I appreciate that. As always, I appreciate 
having you here.
    Senator Cardin?
    Senator Cardin. Thank you, Mr. Chairman.
    This is somewhat frustrating to all of us because it is a 
lot of money that the taxpayers of the United States have spent 
in an effort to try to help rebuild Iraq. So we are talking 
about billions of dollars.
    How much money have we recovered from those who have 
committed wrongdoings as contractors in Iraq with U.S. dollars? 
How much has actually been recovered to date?
    Mr. Bowen. SIGIR has recovered about $10 million in cash 
and illegal property, contraband.
    Mr. Sabin. In terms of the Department of Justice, on the 
civil side my understanding is that it is $5.8 million 
resulting from two civil settlements. And then there is on the 
criminal side forfeiture and restitution. For example, the 
Bloom-Stein case, each of the two lead defendants were ordered 
both forfeiture and restitution $3.6 million jointly and 
severally, as well as additional matters out of the LOGCAP 
Working Group task force. In the Central District of Illinois, 
there is a matter that was $350,000, et cetera.
    So pull that all together, I would say maybe approximately 
$8 million, but I can get you the specific breakdown, Senator 
Cardin.
    Senator Cardin. Well, I think that would be helpful. The 
estimates that have been used indicate that the amount of fraud 
far exceeds those dollars amounts, and I really do applaud your 
efforts. I know it is difficult. I know it is not easy. I 
cannot think of a much worse conduct than a contractor taking 
advantage of a war effort. We have brave men and women who are 
serving in our armed forces, and you would think that the 
business community that is involved in Iraq would understand 
the sacrifices that are being made and, if anything, would be 
looking at ways to help the mission rather than making a profit 
unjustifiably through corruption.
    I am not sure I totally understand the difference in the--I 
understand the Iraqi corruption issues, but does this involve 
the U.S. funding? Is there any U.S. dollars involved in the 
contracts that the Iraqis are investigating?
    Mr. Bowen. No. Those contracts involve Iraqi funds, 
according to Judge Radhi's report to me.
    Senator Cardin. So there are no U.S. dollars involved, no 
funds made available through our country to Iraq that are 
involved in these issues?
    Mr. Bowen. Not in the cases he has reported to me. I have a 
memorandum of agreement with him wherein if he comes across 
cases involving the misappropriation of U.S. dollars, he will 
refer that information to me; and, likewise, if I come across 
cases involving Iraqi money, I refer them to him.
    Senator Cardin. I could tell you that from the press 
accounts and from the information that has been made available 
to our Committee, there is a significant amount of concerns. I 
appreciate the fact that investigations are ongoing. It just 
does not appear that we are being as aggressive as we need to 
with certain business entities that are extremely active in 
Iraq, and the reports indicate that U.S. taxpayers have been 
overcharged. There are also reports that large sums of monies 
have gone unreported. We do not know where they are. And yet 
there--am I wrong on that?
    Mr. Bowen. Senator Cardin, you are right, there has been a 
problem with waste, as our audits and inspections have 
documented. However, accumulating evidence in theater up to the 
standard of review required in criminal cases has been a 
challenge. That is why I have pushed my office to pursue other 
alternative punitive measures such as debarments and 
suspensions. And that is something that we are going to 
aggressively pursue this year.
    We have had 14 companies and individuals suspended and 
another 12 that are--8 that have been debarred, another 12 
pending debarments. I think, though, this is a fruitful path to 
pursue in order to hold accountable those who have taken 
advantage of the situation in situations where we cannot come 
up with sufficient evidence to convict them of criminal 
wrongdoing.
    Senator Cardin. And Senator Leahy has suggested--yes?
    Mr. Sabin. I would agree with that. I think we are trying 
to use the full tools available, so you would have the 
suspension and debarment procedure that Mr. Bowen referred to. 
We have brought corporate cases against business entities in 
the civil realm on two public instances, and we are looking, 
consistent with the fundamental principles of Federal 
prosecution relating to corporate entities to explore corporate 
charges as well in the criminal context.
    Senator Cardin. And I would just call to your attention 
Senator Leahy's legislation, because I do think it makes it 
clear about the particular focus that the United States wants 
to have on profiteers in our war efforts. That to me takes it 
to a different level, and those who participate need to 
understand that this is more than an 18-month sentence. This is 
someone who has committed a horrible act. When we have our 
soldiers that we ask every day to take on the challenges, 
including their own safety, the least that we can expect from 
contractors is that they will do their job and will not try to 
take advantage of the circumstances.
    Thank you, Mr. Chairman.
    Chairman Leahy. Thank you.
    You know, we do not have a law that actually makes war 
profiteering a specific Federal crime. This bill would do so. I 
direct this to you, Mr. Sabin. It would also extend 
extraterritorial jurisdiction to the full extent that we can 
under both U.S. law and obviously our treaty obligations.
    Now, should we have such a clear, precise piece of 
legislation?
    Mr. Sabin. Fair question, sir. We share common ground in 
this. We want to make sure that we have all the appropriate 
tools and authorities to address the war profiteering, to 
reduce fraud, and protect the public. I, in fact, commend your 
leadership and attention to this important area.
    We have as part of our National Procurement Fraud Task 
Force a working group made up of Inspector Generals throughout 
the interagency process reviewing appropriate legislative and 
regulatory mechanisms that may be appropriate, not only on the 
criminal side but on the civil side.
    Chairman Leahy. I do not want to get too far off my 
question. You said that you want all the tools you can. Is this 
a tool that you could use?
    Mr. Sabin. The Department has not sent forth particular 
views on your proposed legislation, but--
    Chairman Leahy. Either for or against it.
    Mr. Sabin. There is not a specific views letter on it, but 
I can work with the Committee, our staff can work with your 
staff with respect to some of the technical concerns that we 
have.
    For example, the willfulness that is drafted in the statute 
would increase the burden of proof, the mens rea requirement, 
as opposed to the normal mail and wire fraud statutes. So it 
would make it harder to bring these cases.
    Chairman Leahy. What about the extraterritorial 
jurisdiction?
    Mr. Sabin. There is a logistical and a jurisdictional 
component to extraterritorial jurisdiction. For example--
    Chairman Leahy. Let's put aside the logistical one for a 
moment. What about the--
    Mr. Sabin. The jurisdictional, if it is not explicitly 
stated in a congressional criminal law, then you can in some 
instances based upon five principles of extraterritorial 
jurisdiction under international law, read into it an 
extraterritorial component.
    Chairman Leahy. Is this specific enough?
    Mr. Sabin. Well, yours is specific. The point is it may 
have unintended consequences. For example, the wire fraud 
statute has been construed to have extraterritorial 
application--
    Chairman Leahy. In what way?
    Mr. Sabin. You can bring a wire fraud charge, a violation 
of Title 18 United States Code Section 1343, presently even 
though extraterritorial jurisdiction is not explicitly stated 
in the congressional enactment. So we have time-tested fraud 
statutes. So the fact that you have asserted specific 
extraterritorial jurisdiction in the proposed War Profiteering 
Act may have consequences, for example, in the securities fraud 
realm, in the bank fraud context, in the wire fraud and mail 
fraud context. So that is what I am suggesting, that we can 
work through these technical issues.
    As an explicit statement of extraterritorial jurisdiction, 
the impact upon the protective principle, the ability for the 
United States interest in terms of its public fisc, its monies, 
its documents--
    Chairman Leahy. Well, let me talk about under the current 
laws. How many of these referrals that you have had, how many 
has the Department of Justice joined in cases?
    Mr. Sabin. All the referrals that SIGIR has made to us we 
have worked with them to review and explore criminal or civil 
potential.
    Chairman Leahy. You have joined every one of those cases?
    Mr. Sabin. I believe through the International Contract 
Corruption Task Force, as an operational matter, we are working 
with SIGIR and a host of other entities. I am not going promise 
that criminal charges are going to be brought.
    Chairman Leahy. Okay. Well, maybe I should ask you,
    Mr. Bowen: How many matters alleging fraud have been 
referred to the Justice Department?
    Mr. Bowen. Total since inception, I am going to have to get 
you that number. Currently, we have 28. Five are civil and the 
balance are criminal. But the total number since inception is 
upwards towards 40.
    Chairman Leahy. And how many has the Justice Department 
joined?
    Mr. Bowen. They have acted or are considering action on 
everything that we have presented. The turndown rate of our 
cases has been low.
    Chairman Leahy. Thank you.
    I am not sure, Mr. Sabin, whether you are saying this is or 
is not a tool that a prosecutor can have in their arsenal, this 
War Profiteering Act. I realize the tools you have now. I 
always liked the idea, if I had a criminal matter coming before 
me when I was a prosecutor, that I could look down and find 
about half a dozen statutes that applied and pick the one that 
I thought I had the best chance of winning on.
    Mr. Sabin. Fair point, sir. And we want to make sure that 
we have the tools that we need. So if--but we have not had any 
obstacles to bringing cases because, remember, these cases have 
both an international and domestic component. So that would be 
a territorial application of U.S. law and not needing to go 
into an extraterritorial aspect if there are facts and 
incidents that are occurring in the continental United States. 
So you do not have to resort to extraterritorial jurisdiction.
    Chairman Leahy. How much have you recovered on these cost-
plus contracts?
    Mr. Sabin. I do not have that specific answer, but we can 
absolutely get that to you, sir.
    Chairman Leahy. Please. Have some of these cost-plus 
contracts been used to commit fraud?
    Mr. Sabin. I believe the answer is yes, but, again, we can 
provide the specifics that are in the public realm. We would be 
happy to work with the Committee to provide that.
    Chairman Leahy. And we have a lot of cash contracts. Still, 
it boggles my mind--maybe it is being a frugal Vermonter where 
we like to know where the money goes, but seeing these large 
transport planes coming in with these huge piles of cash that 
are passed out when we were first there. Are we still paying 
out war contracts in cash?
    Mr. Bowen. Yes, contracts are commonly paid out in cash 
when Iraqi firms are involved in direct contracting in Iraq 
today.
    Chairman Leahy. And do I understand from your earlier 
testimony that that exacerbates the problem of following up on 
it?
    Mr. Bowen. It does. When I arrived in Iraq on my first trip 
3 years ago and saw the amount of cash that was simply moving 
out of the pallets, I recognized we had an oversight issue of 
enormous proportion. And, indeed, that was one of the matters 
addressed in the audit I referred to earlier. Our other audits 
also looked at the management of cash in Iraq during CPA and 
found the controls wanting. Those controls have improved over 
time, and I might add that one of the important initiatives the 
SIGIR has engaged in over the last 18 months is our Lessons 
Learned program. We have presented those reports--Senator 
Coburn referred to them earlier--before the Senate Governmental 
Affairs and Homeland Security Committee, and in the Contracting 
Lessons Learned report, I highlighted the importance for 
Congress to review the cost-plus contract system. I do think 
that waste has been the larger issue in Iraq, and the place 
where that has happened is within the cost-plus arena and the 
failure to definitize costs as required over time.
    Chairman Leahy. Thank you.
    Senator Coburn, I know you have had these matters before 
your other Committee. Did you have anything further you wanted 
to add?
    Senator Coburn. Just a comment, and it is really political 
in nature. You know, talking about war profiteering, we are 
going to have a supplemental on the floor, and it is going to 
have $21 billion worth of war profiteering on it by the Senate, 
things added to it that do not have anything to do with the 
war. And so I think it is good that we look at this and then we 
look at ourselves as we look at that supplemental.
    Chairman Leahy. Thank you.
    I see nobody else here. We may have some questions for the 
record. Mr. Bowen, Mr. Gimble, Mr. Sabin. Is it Sabin?
    Mr. Sabin. Yes, sir.
    Chairman Leahy. We have a number of Sabins in Montpelier, 
Vermont, where I was born. That is how they pronounce it also.
    Thank you all for being here. I do appreciate it.
    Mr. Bowen. Thank you, Mr. Chairman.
    [Whereupon, at 10:33 a.m., the Committee was adjourned.]
    [Questions and answers and submissions for the record 
follow.]

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