Confronting Fraud and Corruption Amid the Pandemic

Q&A with Professor Christopher Yukins and Assistant Dean Jessica Tillipman

N95 Mask
April 27, 2020

As society grapples with the spread of COVID-19, the implications of the crisis are felt in every arena. Medical professionals face the front lines of the epidemic, but their ability to safely perform their jobs hinges on legal issues. The shortages of critical protective equipment for medical professionals have raised increasing concerns related to fraud and corruption in the supply chain. Governments all over the world are fighting back against price gouging and defective supplies. In a two-part conversation, Professor Christopher Yukins and Assistant Dean Jessica Tillipman of GW Law’s Government Procurement Program offer their expert views on these issues. 

Q: What tools are available to identify and combat fraud and corruption in the personal protection equipment (PPE) supply chain? Are they working?  

Professor Yukins: Since the Civil War, the federal government has relied on the False Claims Act to fight fraud in procurement. The act imposes severe criminal and civil penalties on companies that recklessly defraud the government, and those fraud claims can be pressed by whistleblowers, who are often insiders with special knowledge of the fraud. State governments, which are on the front line fighting the pandemic, typically have their own copycat laws modeled on the False Claims Act. Besides anti-fraud laws, governments can debar vendors that pose fraud risk. 

Asst. Dean Tillipman: The government has made clear that it will leverage all of its existing tools to combat fraud and corruption related to the COVID-19 pandemic. In addition to the False Claims Act, the Department of Justice (DOJ) has identified dozens of other statutes that it may use to prosecute this activity, including: statutes designed to prosecute individuals/businesses engaged in fraudulent or illegal schemes (e.g., the mail or wire fraud statutes), statutes designed to combat the sale of fake drugs (e.g., violation of the Food, Drug, and Cosmetic Act), statutes that may be used to punish hoarding (e.g., the Defense Production Act), and statutes used to prosecute anti-competitive behavior (e.g., the Sherman Antitrust Act). The government also has made clear that it will prosecute bribery schemes that may arise out of the pandemic (e.g., 18 U.S.C. 201, Honest Services Fraud, the Foreign Corrupt Practices Act). Nearly every day, the DOJ issues another press release touting the prosecution of individuals and companies that have engaged in illegal behavior relating to the pandemic. Are they working? Yes, but it is like a game of whack-a-mole. When one illegal scheme is prosecuted, three more pop up in its place. 

Q: Are there reasons to exempt government buying from transparency rules during an emergency? 

Professor Yukins: Normally, public procurement is presumptively transparent, as public dollars are being spent and taxpayers have a right to know how their money is used. In an emergency, however, public buyers often do not have the time or resources to publish opportunities and awards. That’s to be expected, and exemptions from transparency in an emergency are a normal part of procurement systems all over the world. In fact, many countries have specifically permitted non-transparent “emergency” purchasing during the pandemic. There are trade-offs, though: when procurements are done “in darkness” without transparency, it is much more likely that there will be investigations later that will second-guess those purchases.

Asst. Dean Tillipman: I agree. There are often legitimate reasons to procure goods and services during a pandemic or other emergency that may result in less transparency than we typically expect from our procurement system. Nevertheless, transparency is a critical anti-corruption mechanism, so it is important that all of these procurements are scrutinized (even if after the fact). Inspectors general, audits, civil society, bid protests, and other anti-corruption tools play an incredibly important role under these circumstances. 

Q: Is there a solution to the bidding wars that have been created among the states?

Professor Yukins: This is a really tough question, which we’ve addressed in several webinars hosted through www.publicprocurementinternational.com. The bidding wars for COVID-19 supplies have led some to argue that procurement should be centralized at the federal government level to concentrate demand and buying power. That seems like a simple solution, but it overlooks the decentralized nature of emergency response. In fact, one of the speakers in our webinars, Professor Cao from Beijing’s Central University of Finance pointed out that emergency procurement in China (one of the most centralized nations in the world) has been done on a decentralized (provincial or municipal) basis, with coordination from the central government. Perhaps bidding wars are an inevitable part of a decentralized, open market. Government responses to the pandemic around the world suggest that decentralization (that is, local response to local needs, even in a global crisis) may just be an inherent part of disaster management.  

Q: Is there any evidence of ethics violations involving President Trump’s ousting of the watchdog overseeing how coronavirus funds are spent?

Asst. Dean Tillipman: No. The President’s powers are quite expansive, and he is not subject to many of the ethics laws applicable to other federal employees. Inspectors general are a critical anti-corruption mechanism designed to combat fraud, waste, and abuse in the government. 

Professor Yukins: Many of our graduates serve as ethics lawyers in the government, and I will defer to the ethics experts on that question. What is clear, however, is that failures in leadership have helped make the pandemic worse here than in other countries.  

Q: Is the procurement system at greater risk for corruption when responding to a global crisis such as a pandemic?

Asst. Dean Tillipman: Absolutely. Anytime a government has to procure goods and services very quickly to respond to an emergency, the procurement system becomes even more vulnerable to fraud and corruption. This is only exacerbated by the huge sums of money that governments spend to respond to crises. Whether in natural disasters or war, the risks are inevitably the same. Transparency often decreases, oversight mechanisms are ignored (or poorly implemented), and there is often a willingness by contracting officials to overlook problems in order to get the job done. This is particularly true in this instance, where there are significant shortages in the global supply chain, many new and potentially unqualified individuals and companies entering the procurement space, a disorganized federal response, and new (and confusing) federal legislation. Under these circumstances, we can only hope that our existing anti-corruption mechanisms will effectively reduce the amount of corruption that is inevitably going to occur. 

Professor Yukins: Natural disasters in our national history, including probably most prominently Hurricane Katrina, have pointed up the risk of corruption when procurement is rushed on an emergency basis. That does not mean, however, that corruption is inevitable or that procurement in a crisis must always be non-transparent. As government procurement systems grow more “open” and transparent in the coming years, and instant accountability becomes easier (even in a crisis), the corruption scandals that dog every disaster may not disappear, but they may well shrink.

In part II, Professor Yukins and Asst. Dean Tillipman discuss implications for the future.

Q: How will the events and conduct during the coronavirus crisis affect government buying in the future? 

Professor Yukins: Above all, the pandemic has given us new perspectives on public procurement. The nature of the public procurement market, meaning the fact that it was quite literally a “buyer’s” market, slow and clunky and set up to serve first those inside the procurement function, was only dimly understood before the pandemic. As traditional procurement systems collapsed under the tidal wave of demand, however, it became clear that we need to approach procurement with a new perspective: to focus first on the user, and to streamline the procurement system so that the user’s needs are met quickly and efficiently. 

Q: Will we need new rules to protect taxpayers, or are the traditional principles of transparency and accountability enough? 

Asst. Dean Tillipman: Any time an event (or series of events) exposes weaknesses in a system, it often results in the creation of new laws, policies, or approaches designed to prevent these issues in the future. It’s clear that current tools are not working as well as they should be, so we can expect some changes (or at least, recommendations) in the future. 

Q: Are there lessons we can learn from other countries? 

Professor Yukins: Since most countries have responded the same way to procurement in the pandemic by opening the legal doors to emergency procurement, the more interesting lessons are in how those emergency procurements are done. In many cases, the procurement responses are tied to domestic political concerns, which may hamper effective procurement policies. In the United States, for example, the Trump administration has used the Defense Production Act to impose strict export controls on shipments of personal protective equipment (PPE) abroad. Actions like those invite retaliation from abroad, and our colleague, Professor Simon Evenett of St. Gallen University in Switzerland, who spoke at our April 21 webinar, has written extensively on how trade controls are proliferating internationally during the pandemic and how those controls may impede medical efforts to stem the disease.

Q: Do you have hope for a well-managed international marketplace for surplus supplies when the curve has flattened?

Professor Yukins: The questions surrounding surplus supplies are acute because resolving those questions may decide who will live and die in the “late” hotspots such as Sweden. Countries that are only now seeing an explosion of the COVID-19 virus, while other countries, past the “peak,” have life-saving surplus supplies they could share. This will probably not be a “marketplace” in the classic sense, as politics and diplomacy are likely to drive redistribution of surplus supplies, at least initially. In the longer term, however, as public attention shifts from the coronavirus, governments around the world may develop a more market-based approach to redistributing surplus supplies. But if that happens, policymakers and international institutions (such as the World Bank) will have to sort out how to ensure that the poorest countries (who are the weakest competitors in a market-based system) have adequate supplies to protect their populations.