In The Name Of Progress

The people most likely to become victims of human labor trafficking are nationals of the poorest of countries who are working in unskilled and semi-skilled positions on military bases in Iraq and  Afghanistan. The authors’ investigations have revealed widespread fraud. 

The views expressed here are not necessarily those of the ACFE, its executives or employees. – ed. 

I steeled myself as I drove into an Iraqi labor camp that supported U.S. base operations. It was the middle of a summer day with temperatures climbing to 125 degrees Fahrenheit. My company was establishing a corporate compliance program for the firm providing these operations to the U.S. Army. We had already interviewed several hundred men during the assessment phase, and I (Sindhu) needed to do some follow-up.  

As I drove in, I saw a man carrying a four-foot stick beating some men and shouting obscenities at them. The men were company employees waiting in a long line outside one of the trailers. I jumped out of the vehicle, ran toward them, grabbed the stick and demanded to know what he was doing. He said, "Madam, I was placed in charge of these men to keep them in line until the meals arrive." One of the employees, "Kumar," from India, whom I had interviewed during a prior visit, came forward and said, "Madam, we have been waiting in this line the past four hours; we are hungry, thirsty and tired from waiting in this hot sun. We need our food soon, or let us go back to our trailer and have some water. Madam we need help! 

"The last three months we have been facing this problem," Kumar said. "Also, we don't have toilet paper and soap, and above all, we are not given a chance to call home." I asked about Kumar's friend, "Ramesh," a fellow villager whom I had also interviewed a few weeks earlier. "Ramesh is no more!" Kumar said. 

Ramesh, a college graduate, had come with Kumar to work in Iraq after paying $5,000 to a recruiting agent. The agent had promised Ramesh a storekeeper position with an $800-per-month salary. He arrived in Iraq and waited for six months with no pay while the base operations subcontractor decided what to do with him. He was finally compelled to work as a janitor for $150 per month. Ramesh had no options, so he accepted the offer because he knew the loan shark back home, from whom he had borrowed the $5,000, might already be threatening his two young sisters and his elderly mother for payments.  

Kumar said that two months earlier he and Ramesh were summarily loaded on a chartered flight and flown back home to India with no explanation. (Kumar later returned to Iraq while working for the same company even though a new recruiter had not told him that.) When they arrived in their village, friends told them that Ramesh’s sister hanged herself after the loan shark sexually assaulted her in front of the entire village because Ramesh could not make payments on the loan.  

Ramesh's bedridden mother, unable to stop the assault on her daughter, lapsed into a state of shock. According to Kumar, Ramesh walked around the village like a dead man for a week before gathering the remainder of the family into a room where they killed themselves by drinking poison. The shame of the sexual assault against his sister, coupled with the loss of his home to the loan shark, was too much for the exploited family to bear.  

This tragic case, of course, is on the extreme end, but our interviews and research have uncovered many fraudulent cases of human trafficking in Iraq. The U.S. Department of Defense (DOD) inspector general also has found major problems of human trafficking in many parts of the world. 

ZERO-TOLERANCE POLICY 

The U.S. government has adopted a zero-tolerance policy regarding human trafficking. The government also has taken an aggressive position in prosecuting those who engage in such trafficking by directing the Department of State (DOS) to ensure that U.S. citizens do not use any product that is the result of human trafficking violations. 

The DOS follows a "4P" paradigm to respond to "trafficking in persons" concerns: (1) prosecution, (2) protection, (3) prevention and (4) partnership.¹ Unfortunately, we have found that the 4P approach does not appear to apply to citizens of developing countries who work for U.S. government contractors in combat zones or areas of conflict. Almost all of the men (there are no women) work in base support operations, providing janitorial, maintenance, laundry and kitchen services. 

As of April 8, despite statutory prohibitions and widespread violations, according to the government's list of parties excluded from government contracting and our extensive search of the legal tracking for case dockets, there have been no prosecutions of human labor traffickers in combat zones or other military operations abroad, nor has any contractor been suspended from a U.S. government contract for violating statutes or failing to implement the "trafficking in persons" prohibitions.  

In fact, a report published by the DOD inspector general in 2010 stated that there was only one case of trafficking in persons worldwide that was reported by the four military law-enforcement agencies. (See Report No. IE-2010-001, "Evaluation of DOD Contracts Regarding Combating Trafficking in Persons.") The contractor purportedly resolved the issue, and the Department of Justice (DOJ) declined to take any action against the business. The same report stated that of the contracts the DOJ reviewed, almost 50 percent of them didn't even contain the mandatory clause prohibiting trafficking in persons. The report concluded the contractors were not aware of the prohibitions. Moreover, according to our findings, it is common in this industry for workers who complain of such activity to lose their jobs, and they are sent home without compensation.

From the beginning of the U.S. occupation of Iraq, neither the size nor the range of human trafficking violations has been mitigated. The status quo creates diametric opposition between policy and practice.  

In this article, we will address: (1) the scope and magnitude of human labor trafficking in this sector, (2) the most common schemes that fraudsters use to avoid detection and (3) effective theories to detect, report and prosecute violations.
 

SCOPE AND MAGNITUDE OF VIOLATIONS 

The people most likely to become victims of human labor trafficking are nationals of the poorest of countries working in unskilled and semi-skilled positions on military bases in Iraq and Afghanistan. Commonly referred to as Third Country Nationals (TCNs), these workers come from India, Nepal, Pakistan, Bangladesh, Sri Lanka and the Philippines. They provide what the military calls “base support” operations.² At the height of the U.S. troop deployment to Iraq, TCNs working base support functions numbered more than 100,000 men. Currently, there are approximately 62,295 TCNs because of fewer troops in Iraq.  

According to a March 20, 2007, memorandum report issued by the Office of the Inspector General at the U.S. Department of State, a military reinspection of a company using laborers in support of the construction of the U.S. embassy in Baghdad showed that several of the workers were the victims of deceptive hiring practices. The report concluded that, "A large majority of workers from the Indian subcontinent incurred recruiting fees up to one year's salary. ... Recruiting fees from approximately $2,000 to $3,000 are normal."  

Furthermore, based on separate collective interviews conducted by our consulting firm, all of the approximately 700 workers surveyed providing base support in Iraq had paid a fee to their recruiters, which constitutes an illegal commission under U.S. trafficking in persons statutes as well as the laws of the nations from which they were recruited.  

Contractors providing base support in Iraq typically experience an annual employee turnover rate of approximately 20 percent, according to our interviews with site and country managers for the base operations subcontractors that hire the TCNs. Applying the turnover multiplier to our survey’s results, the DOD contractors and their subcontractors in Iraq have victimized more than 250,000 men. That number does not include other agencies, such as the U.S. Agency for International Development, which uses TCN-contracted labor in support of its operations. Using the low side of the amount of illegal commissions charged by recruiters, we can see the dollar amount of the fraud impact as illustrated in this formula: 

250,000 labor-trafficking victims   

x $2,500 paid to each recruiter 

= $625 million paid to recruiters in support of DOD work in Iraq 

The standard amount that wayward recruiters pay to contractors is 50 percent of the illegal commission, according to our investigations. In this illustration, the recruiters (or recruiting firms) paid $312 million to representatives of the contracting companies. 

COMMON SCHEMES AND THEMES 

 If there is a common denominator in the facilitation and execution of human labor trafficking in government contracting, it would be the law of supply and demand. This dictates those workers who will be trafficked and leads contractors to select recruiters who are accustomed to trafficking schemes. In this marketplace, there are far more qualified applicants than positions. Likewise, there are substantially more recruiters than necessary to fill U.S. contractor requirements. What wayward recruiters (or traffickers) will charge and what prospective employees will pay varies in the race to overcome the law of supply and demand.  

Traffickers, although diverse in location and culture, use common schemes. They: (1) overstate the compensation promised to the worker, (2) misrepresent the jobs' working conditions and (3) collect illegal "recruiting fees." Although seemingly independent, these factors are interrelated.   

The objective of the trafficker is to get the most money from the worker. In our survey, it was not uncommon to hear that the trafficker had promised a job that paid $500 to $1,000 monthly. These promises, in essence, were made to "validate" a recruiting fee between $2,500 and $5,000 per person. The job candidates often rationalized that they could recoup the amount in five to six months — effectively creating an indentured servitude relationship between the contractor and employee.

Typically, the workers are not provided a written contract until they have paid the illegal recruiting fee and moved to the city where the job is located. When the worker arrives in Iraq, Afghanistan or Kuwait, he discovers the job actually pays between $150 to $250 per month, according to our investigations. Therefore, it takes the average worker a year or more to recoup the illegal fees paid to the trafficker. 

An even more egregious condition exists when traffickers lie about the work site's location. Although not as common as the other labor trafficking frauds, it does occur with some regularity. For instance, in one case we discovered that recruiters told TCNs that they would be working in the United Arab Emirates; they even were provided chartered aircraft ticket stubs that showed Dubai as the destination. However, when the plane landed they acutally were in Iraq; the contractor took their passports, and they were forced to work in a combat zone until their contract agreements expired. The American manager who reported the violation confirmed the allegations.   

In a horrific illustration, a recruiter told 12 Nepalese employees that they would be working for a luxury hotel in Jordan. However, following the standard modus operandi, the company confiscated the workers' passports and flew them to Iraq to work for base support operations in Iraq for Daoud & Partners, a Jordanian company working as a subcontractor for KBR. On the way to the base, Iraqi terrorists intercepted the vehicle in which the Nepalese workers were traveling, decapitated one man and executed the remaining 11. The crime was recorded on video and made public on YouTube. Attorneys representing the men’s survivors later filed a suit and recovered benefits. (See Adhikari, et al v. Daoud & Partners, et al, SD/TX, Case 4:2009cv01237.)  

CONCEALMENT OF CONDUCT 

A contractor's most common response to an investigation or inquiry is to repatriate the alleged victims to their home countries. In one case, we found that the prime contractor mandated its subcontractor to designate a subsidiary compliance officer on the ground who would report directly to the prime contractor’s compliance officer. After a few weeks of conducting effective training to subcontractor staff members, the subsidiary compliance officer received an assignment at a remote site in northern Iraq. In reality, the officer was taken to the airport, where his Iraq work visa was canceled, and he was given a one-way ticket to his home country. The officer was the only link to the conduct under question; if he disappeared, then so did the risk of detection.

One company representative was able to both conceal his crimes and increase his profits through a simple, but effective, technique. He would fire the workers prior to their satisfying the probationary period of employment. Now he was able to remove a substantial number of witnesses to trafficking and maintain a "chilling effect" over those who remained to deter them from reporting the misconduct. It also created a greater demand for labor trafficking and increased his share of the illegal proceeds. 

 
STOPPING TRAFFIC  

The obvious theory of prosecution would be to use the criminal and civil provisions set forth in U.S. statutes dealing with trafficking in persons. (See 22 U.S.C. section 7104, "Traffic Victims Protection"  and Public Law 106-386, "Victims of Trafficking and Violence Protection Act of 2000.") These statutes, however, have yet to be tested in labor trafficking by contractors. 

Although this conduct is clearly in violation of these statutes, there is another theory that is tried, tested and more easily established: the Anti-Kickback Act of 1986.³  

The text of the law makes it unlawful and fraudulent: "(1) to provide, attempt to provide or offer to provide any kickback," (2) "to solicit, accept or attempt to accept any kickback," or (3) "to include, directly or indirectly," the amount of a kickback in the contract price charged to the government. (See 41 U.S.C. § 53.) The Act defines a kickback as "any money, fee, commission, credit, gift, gratuity, thing of value or compensation of any kind, which is provided, directly or indirectly, to any prime contractor [or] prime contractor employee . . . for the purpose of improperly obtaining or rewarding favorable treatment in connection with a prime contract." [See Id. § 52(2).] There is a conclusive presumption that the cost of any kickback is passed on to the government. (See 41 U.S.C. § 53.) 

The civil provisions of the act allows for the recovery of twice the amount of each kickback involved in the violation and holds the contractor or subcontractor vicariously liable for the penalty.⁴  

As previously described, traffickers share their proceeds with the prime contractors or subcontractors in exchange for those companies using their services. We have found that the standard amount a trafficker pays to a contractor is 50 percent of what the trafficker collects from a recruit. Consequently, traffickers typically pay contractors between $1,250 and $2,500 per worker. It is said that there is no honor among thieves; trust in this instance, however, is not an issue because the company's trafficker is able to confer with the worker once he or she arrives in the conflict/post-conflict area to confirm the amount that should be paid to the trafficker. 

INVESTIGATIVE PROCESS  

The first step in the investigative process is to obtain a copy of the agreement between the hiring and recruiting companies. The next step is to determine if the recruiter is licensed for this line of work in the country where he or she does business. (We have compiled a summary of ministries that license workers in the most frequently used countries of recruitment and will provide the document upon request.) If the company states that it does not have a written agreement with the recruiting service, then you have a red flag at the outset. (Some complainants have alleged that one of the contractor’s management staff owned the recruiting firm.)  

When you obtain a copy of the recruiting agreement, or even in the absence of one, pinpoint the contractor representative who negotiated the agreement. In most instances, this will yield your target. Often, the company representative will find it necessary to travel to the host nation to arrange the scheme with the recruiting firm. Company financial and travel reimbursement records will provide further evidence to support this.  

You should next seek a list of all current and former employees — this is your witness list. The company, fearing exposure and seeking to maintain control over the communication flow, will no doubt offer to supply an interpreter to assist in your efforts. Refuse this offer.  

Interview the current employee witnesses in private, without the company's monitoring. Maintain a detailed list of all witnesses and tell the company's human resources/operations manager that none of the employees on the witness list are to be terminated or returned to their countries of origin unless prior approval is obtained from the investigator.  

Often in these schemes, the guilty party feels protected due to his or her non-American citizen status. The common misperception is that statutes pertaining to labor trafficking violations in combat zones and conflict areas pertain only to Americans, who are subject to the jurisdiction of the U.S. courts. That is not the case. Any person "physically present" in the U.S. is subject to jurisdiction of the courts. Therefore, investigate all persons who appear to be subjects or targets of the matter under inquiry, regardless of nationality.  

Also, the person who works for the subcontractor who engages in illegal conduct need not be a U.S. citizen to be subject to the jurisdiction of the U.S. courts — they only need to be in the U.S. Moreover, using the Anti-Kickback Act of 1986, the prime contractors can be held vicariously liable for the subcontractors’ conduct. All of the prime contractors for base support operations are U.S. entities. Therefore, jurisdiction exists under the Anti-Kickback Act in each instance when the traditional scheme identified in this article is implemented.  

Another important aspect of the Anti-Kickback Act of 1986 is that it has both criminal and civil provisions. When investigating with an eye toward litigation — either on behalf of the government, a private litigant or the parent company — be aware that companies can be held vicariously liable for the conduct of their agents. The liability can be great for base services contractors supporting the military. For example, a company has employed 10,000 workers over the course of the period in which a fraud was perpetrated. The average kickback received by the company in violation was $2,000 per person; the total amount equals approximately $20 million. The civil provisions of the act provide for a recovery of double the damages, which translates to potentially $40 million from one company. It also establishes why wayward companies are typically reluctant to allow anyone to interview witnesses or explore potential liability.   

A final remedy is the Federal Acquisition Regulations (FAR), which set forth that the government only does business with companies it considers to be "responsible."⁵ FAR 22.1704 says trafficking in persons is a justification to suspend a contractor from government contracting. Suspension does not require an indictment. Rather, a suspension can be based on facts gathered by an investigator, with or without the need for criminal prosecution. Therefore, the investigator’s report can stop a company or person from receiving additional government contracts or work for a government contractor at any tier.   

The FAR also can be used to support the termination of an existing contract.⁶ Unlike criminal and civil cases that require proof beyond a reasonable doubt and preponderance of the evidence that is admissible, the suspension debarment official for the government need only determine that it is more likely than not that the offense occurred; any evidence or information may be considered in the evaluation. It need not comport to the federal rules of evidence for admissibility purposes.   

SYMPATHY IS NOT ENOUGH  

Volumes could be written about the manifest injustice and economic impact of human labor trafficking on the battlefield. We have received testimonies from men who have lost their homes, their savings, their dignity and their freedom to contractors in Iraq and Afghanistan. In at least one instance, similar to the opening case, there was a man who, after being trafficked and suffering devastating financial consequences, returned to India to find he was unable to pay the village loan shark the amount he borrowed to pay the trafficker. Not wanting to surrender his daughter to the loan shark for prostitution and debt bondage to satisfy the obligation, he hanged himself.

Certainly, these stories evoke sympathy in even the most hardened of hearts. Yet, sympathy is not enough. The only way to stop this practice is for law enforcement, corporate compliance officers, fraud examiners and all those involved in the contract administration process to take decisive action.  

The fact that gross violations of existing statutes occur on a daily basis is undeniable. It's a reality that there have been no prosecutions or suspensions of contracting abilities for these violations. It is an affront to our national character and our respect for the rule of law that we allow the practice to continue unabated.

Sindhu P. Kavinnamannil, CFE, is CEO and founder of Compliance Consulting Services in Washington D.C. She specializes in establishing corporate compliance programs and investigations for multinational corporations, including those related to combating trafficking in persons.  

Sam W. McCahon, J.D., LLM, is an attorney practicing in Washington, D.C. He focuses on U.S. government contract law, procurement fraud and efforts to combat trafficking in persons. He has spent several years living and working in the Middle East, including Iraq, Kuwait and Saudi Arabia. 

1. U.S. Department of State, Policy Priorities, Trafficking in Persons Report 2010. 

2. Department of Defense Contractors in Iraq and Afghanistan: Background and Analysis, July 2, 2010, CRS Report to Congress. 

3. The Anti-Kickback Act of 1986, 41 U.S.C. Section 5, et. seq. 

4. 41 U.S.C. Section 55. 

5. FAR 9.4. 

6. FAR 22.1704 and FAR 52.222-50.

SIDEBAR: Human Trafficking Defined  

The Traffic Victims Protection Act of 2000 defines "severe forms of trafficking" as: 

a. Sex trafficking in which a commercial sex act is induced by force, fraud or coercion or in which the person induced to perform such an act has not attained 18 years of age or, 

b. The recruitment, harboring, transportation, provision or obtaining of a person for labor or services, through the use of force, fraud or coercion for the purpose of subjection to involuntary servitude, peonage debt bondage or slavery. A victim need not be physically transported from one location to another in order for the crime to fall within these definitions.  

SIDEBAR 2: DOD IG Inspects Other Locations for Anti-Trafficking Compliance  

On Jan. 15, 2010, The Inspector General's Office (IG) of the U.S. Department of Defense released an "Evaluation of DOD Contracts Regarding Combating Trafficking in Persons," Report No. SPO-2011-002. (Also, see the subsequent Jan. 18, 2010, Report No. SPO-2011-002.) The IG conducted its first evaluation at military installations in Republic of Korea, Japan and the Territory of Guam. The following is a summary of the findings: 

What We Did   

Section 232 of the "William Wilberforce Trafficking Victims Protection Reauthorization Act of 2008," Public Law 110-457 (Dec. 23, 2008), requires the inspectors general of the Department of Defense, the Department of State and the U. S. Agency for International Development to investigate a sample of contracts where there is a heightened risk that a contractor may engage in human trafficking.   

In response, we reviewed a sample of Department of Defense contracts for compliance with the "Trafficking Victims Protection Act of 2000," title 22, United States Code, chapter 78 (as amended). We reviewed reports covering common areas for trafficking in persons, selecting the Republic of Korea, Japan and the Territory of Guam for our first evaluation. We conducted site visits at U.S. military installations in these locations. We also reviewed and summarized DOD criminal investigative data collection efforts related to combating trafficking in persons.  

What We Found  

• The Standard Procurement System should be modified so that the mandatory Combating Trafficking in Persons clause cannot be removed during solicitation or contract document build.  
• The DOD law enforcement community should proactively share trafficking in persons' convictions information with contracting offices.  
• Relevant contract quality assurance plans should include combating trafficking in persons' considerations.  

Client Comments and Our Response

The Office of the Under Secretary of Defense for Personnel and Readiness agreed with our recommendation and stated they planned to modify Department of Defense policy to comply with the recommendation after federal law enforcement organizations agree upon an overarching identification scheme for TIP-related offenses. The director of defense procurement, acquisition policy and strategic sourcing, of the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics, agreed with our recommendations and provided plans for their implementation.

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