FP’s Situation Report: A major fraud scandal rocks the Army’s ranks

By Gordon Lubold

A massive kickback scandal rocks the Army’s ranks. When a retired Army colonel and an enlisted soldier from Albuquerque, N.M., were charged last year with defrauding the National Guard Bureau out of about $12,000, the case drew little public attention. But it’s now become clear that the two men are among the roughly 800 soldiers accused of bilking American taxpayers out of tens of millions of dollars in what a U.S. senator is calling "one of the biggest fraud investigations in Army history."

The wide-ranging criminal probe centers around an Army recruiting program that had been designed to help the Pentagon find new soldiers during some of the bloodiest days of the Iraq and Afghanistan wars. The program went off the rails, investigators believe, after hundreds of soldiers engaged in a kickback scheme that allowed them to potentially embezzle huge quantities of money without anyone in the government noticing. In one case, a single soldier may have collected as much as $275,000 for making "referrals" to help the Army meet its recruiting goals, according to USA Today’s Tom Vanden Brook, who first reported the story Monday. 

The military’s failure to spot, or stop, the wrongdoing will be the focus of what is expected to be a highly contentious hearing Tuesday before the Senate’s Subcommittee on Financial and Contracting Oversight. The committee’s chairwoman, Sen. Claire McCaskill, D-Mo., has summoned several of the National Guard officials who were in power at the time the alleged wrongdoing was taking place.

The numbers of soldiers and money involved are staggering. An Army internal audit has discovered that 1,200 recruiters had received payments that were potentially fraudulent. Another 2,000 recruiting assistants had received payments that were suspicious. More than 200 officers remain under investigation, according to McCaskill’s office. There are currently 555 active investigations involving 840 people. 

A Defense Department official to Situation Report: "I think it was human greed, and I think it’s the cascading effects of contractors’ lack of supervision, as well as the Defense Department’s lack of supervision." Read the rest of our story, with FP’s own Dan Lamothe, here.

From the WaPo’s Ernesto Londono: "… Army criminal investigators are probing the actions of more than 1,200 individuals who collected suspect payouts totaling more than $29 million, according to officials who were briefed on the preliminary findings of the investigation and would discuss them only on the condition of anonymity. More than 200 officers are suspected of involvement, including two generals and dozens of colonels." More here.

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Closed doors: The Senate Select Committee on Intelligence meets today and Topic A is… Edward Snowden, Situation Report has learned.

The hunted becomes the hunter: Merkel accused of spying says a hacker group. The NYT’s Melissa Eddy: "The Chaos Computer Club, a leading hacker organization based in Germany, filed a criminal complaint against Chancellor Angela Merkel and members of her government on Monday, accusing them of violating the law by helping intelligence agencies in the United States and Britain to spy on German citizens. The move comes days after Secretary of State John Kerry visited Berlin to try to smooth over relations that have been strained by revelations of the extent of the National Security Agency’s surveillance activities in Germany. While filing the complaint with the Federal Prosecutor General is only a first step in the cumbersome German legal process and does not guarantee that an investigation will be opened, it demonstrates unwillingness by some here to drop the issue. Along with the International League for Human Rights, based in New York, the 32-year-old hacker group said in the complaint that Ms. Merkel’s government and German intelligence agencies violated the personal privacy of German citizens through ‘illegal and prohibited covert intelligence activities, along with aiding and abetting such activities’ by tolerating and cooperating with the N.S.A. and the British eavesdropping agency, known as GCHQ."  More here.

CSBA is putting the band back together for another big joint think tank event called "Alternatives to the QDR and the FY15 Defense Budget." The Center for Strategic and Budgetary Assessments is holding an event tomorrow morning with the American Enterprise Institute, the Center for New American Security and the Center for Strategic and International Studies to offer alternatives to the QDR and budget that the Pentagon will soon – in March – be submitting to Congress. The event follows a similar one CSBA did last year.

Here’s how it works: Each think tank team was asked to develop its own strategy to rebalance the DoD’s major capabilities in the context of shrinking budgets. Then, using CSBA’s "strategic choices tool and methodology," the teams are able to choose from more than 700 "pre-costed options" to add or cut the defense program over the next two years. The first option will follow the guidelines from the Budget Control Act, or BCA, while the second option offers a more pie-in-the-sky option with more resources. Then tomorrow, CSBA will host a public event on Capitol Hill where all four teams present their alternative strategies, capability priorities and budget decisions, according to CSBA’s invite. There will, of course, be extensive Q&A after.

CSBA’s Todd Harrison, to Situation Report: "I think what you’ll find from the think tanks are … some dramatic departures from the directions in which DOD is going." Harrison of course hopes it’s not too late to influence DOD policymaking when it comes to the budget. "We’re always hopeful that folks from OSD policy will come to the event and that it will inform or shape their thinking."  

Where? The Senate’s Dirksen SD-G50. What’s the agenda? Introduction at 10 a.m., followed by an "exercise overview," and then at 10:20, each team will begin each of their presentations; at 11, there will be a discussion of comparisons of each team and then at 11:15, the Q&A.

Regs watch: Did the partnership between the soldier returning home and the beer commercial during the Super Bowl make "Bad Buds?" FP’s Phillip Carter: "I like beer, and would wager that most veterans like beer too. Budweiser placed a similar bet last night during the Super Bowl with its ad "A Hero’s Welcome," which showed a Norman Rockwell-esque homecoming for Army 1st Lt. Chuck Nadd in his hometown of Winter Park, Fla. — courtesy of Budweiser. The ad tugs my heartstrings in the same complex way that standing ovations at Washington Nationals games for veterans do. The applause feels good, and is certainly better than what Vietnam-era veterans faced too frequently at home. Nonetheless, the Budweiser ad should have never been aired. The ad ignores the complicated relationship that veterans have with alcohol, obscuring how much harm booze does to veterans when they come home. And the one-minute spot arguably breaks a handful of government regulations meant to prevent public endorsement of private brands, especially where alcohol and drugs are concerned.

"Two main sets of military regulations exist to prevent the Army from getting, well, too buddy-buddy with companies like Budweiser. The first are the military’s ethics regulations… Under this regulation, the Army cannot legally endorse Budweiser, nor allow its active-duty personnel to participate in their ads (let alone wear their uniforms), any more than the Army can endorse Gatorade or Nike." More on that here.

Page One: On peace talks, Karzai back-channels the Taliban. The NYT’s Azam Admed and Matthew Rosenberg: "President Hamid Karzai of Afghanistan has been engaged in secret contacts with the Taliban about reaching a peace agreement without the involvement of his American and Western allies, further corroding already strained relations with the United States. The secret contacts appear to help explain a string of actions by Mr. Karzai that seem intended to antagonize his American backers, Western and Afghan officials said. In recent weeks, Mr. Karzai has continued to refuse to sign a long-term security agreement with Washington that he negotiated, insisted on releasing hardened Taliban militants from prison and distributed distorted evidence of what he called American war crimes."  More here.

An upsurge in terrorism in the Sinai raises concerns in the Suez. FP’s own Keith Johnson: "The growing and sophisticated insurgency in the Sinai Peninsula, along with its declared emphasis on attacking the Egyptian regime’s economic lifeblood, has raised fears over the security of the Suez Canal, one of the world’s principal arteries for trade, and especially for moving oil and gas between Asia and Europe. Late last summer, after militants filmed themselves launching a rocket attack on a cargo ship that was making its way through the canal, worries over the channel’s vulnerability to a terrorist attack began to proliferate. In January, West Point’s Combating Terrorism Center published an article on the Sinai insurgency and possible threats to the canal. The Suez Canal serves as the main transit point for the U.S. Navy to move ships between the Eastern Mediterranean and the Red Sea.

"… While many of Ansar Bait al-Maqdis’s attacks have focused on parts of the Egyptian security apparatus — the Army and the police — the group has made clear in its statements that it seeks to impose the greatest possible economic pain on a regime it sees as apostate. The group justified a January attack on a pipeline that exported gas to Jordan as part of a campaign to "target the regime’s economic interests." Another attack on a pipeline, one that fueled a cement factory owned by the Egyptian military, was justified in similar terms." More here.

Good news/man-bites-dog story: U.S. troop morale in Afghanistan actually increased in 2013. AP’s Pauline Jelinek: "U.S. soldiers had higher morale and suffered fewer mental health problems in Afghanistan last year as they handed off more duties to Afghans and saw less combat themselves, according to a report released Monday. The Army report was drawn from a battlefield survey and interviews in June and July. It was the ninth time since the practice started in 2003 in Iraq that the service had sent a team of mental health experts to the field of war to measure soldier mental health and assess available care. The report says rates of soldiers with depression, anxiety and acute stress – as well as tendencies toward suicide – were lower than in the most recent previous surveys.

"In a survey of nearly 900 soldiers, 20.2 percent said last year that their morale was high or very high, compared with 14.7 percent and 16.3 percent in 2012 and 2010, respectively. During those earlier survey years, there were more U.S. troops in Afghanistan – 100,000 at the height of the surge that started in 2010. Now, there are about 34,000 U.S. troops." More of that bit here.

China’s getting a little spendy when it comes to its military. The NYT’s Michael Forsythe: "China already spends more on its military than any country in the world except the United States. Now, as defense budgets at the Pentagon and in many NATO countries shrink, China’s People’s Liberation Army is gearing up for a surge in new funding, according to a new report. China will spend $148 billion on its military this year, up from $139.2 billion in 2013, according to IHS Jane’s, a defense industry consulting and analysis company. The United States spends far more – a forecast $574.9 billion this year – but that is down from $664.3 billion in 2012 after budget cuts slashed spending. By next year China will spend more on defense than Britain, Germany and France combined, according to IHS. By 2024, it will spend more than all of Western Europe, it estimates."

How capable IS China’s mil? "One military analyst, Ian Easton of the Project 2049 Institute in Arlington, Virginia, believes that China’s military is far less capable than its large military budget would suggest. Last month he wrote that the P.L.A. probably wouldn’t be able to effectively attack Taiwan – the prosperous, self-ruled island claimed by the mainland. In addition, Chinese troops lack real combat experience and some of the P.L.A.’s marquee projects, including the aircraft carrier, are plagued by technical problems."  More here.

And speaking of Asia: Japan should lift the ban on its collective defense, a panel says. AP: "A government panel will urge Japan to allow its military to help allies that come under attack, in a major reversal of the country’s ban on collective defense under its pacifist constitution. The panel is expected to present its near-final draft recommendation later Tuesday. Prime Minister Shinzo Abe wants Japan to play a greater role in international peacekeeping and step up its defense posture, citing potential military threats from China and North Korea." Read the rest here.

The role of American contractors grows in Iraq. The WSJ’s Dion Nissenbaum: "Hundreds of contractors working for America’s biggest defense companies are taking on a broader role in helping Iraq’s military learn to use new weapons in a growing battle against Islamist insurgents.  Over the next few months, the U.S. government is expected to begin sending more than $6 billion in military equipment to Iraq. The latest deal includes 24 Apache attack helicopters made by Boeing Co. and nearly 500 Hellfire missiles produced by Lockheed Martin Corp. While the helicopters may not arrive in time to help with the current fighting, the missiles are expected to be used by the Iraqi military in the battle to uproot Islamic fighters from Ramadi and Fallujah, cities that were the focus of major U.S. military operations during the height of the war in Iraq." Read the rest here.