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Labor Dept.'s Botched Oversight of Injured War Contractors

Civilian workers injured in war zones are routinely neglected at home.

| Thu Dec. 17, 2009 8:44 PM EST

This story first appeared on the ProPublica website, and was co-published with Salon.

WASHINGTON–In her first public address after taking office, Labor Secretary Hilda Solis promised to increase enforcement of laws designed to protect workers.

"You can rest assured that there is a new sheriff in town," she told union members at a gathering in Miami Beach shortly after her confirmation in February.

Ten months later, Solis’ Labor Department has failed to crack down on one of the agency’s fastest growing and most expensive programs—a system designed to ensure medical care for civilian workers injured in war zones.

The department is responsible for overseeing a workers compensation system in which insurance carriers provide coverage to civilians working on overseas federal contracts. Such policies are funded by taxpayers.

But the department has failed to pursue sanctions against corporations accused of ignoring federal requirements to purchase such insurance, according to a ProPublica review of court cases, federal records and interviews with worker advocates.

The department has also taken no action in cases where insurance carriers allegedly provided false or misleading information to the federal government to terminate medical benefits for injured civilians—another potential crime under the law, known as the Defense Base Act.

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The lack of enforcement has allowed carriers and contract companies to abuse the system by avoiding or blocking payments, forcing contractors to spend months and sometimes years battling carriers in court for benefits, claimants and their attorneys said.

"No one has ever been prosecuted for anything," said Dennis Nalick, a veteran claimant’s attorney. "It’s like having a bank robber who gets caught, apologizes and then is let go."

The department’s internal regulations call the detection of fraud and abuse the "highest priority" for officials overseeing the insurance program. Labor Department "personnel are responsible for reporting actual or suspected fraud or abuse, through appropriate channels to the Department of Labor," the department’s procedural manual states.

But the ProPublica examination shows that the department has rarely deployed the tools available under the law to crack down on fraud and abuse–a record that extends back through Democratic and Republican administrations. Labor officials can recommend cases for prosecution to the Justice Department–but have only done so once in the past two decades, according to Labor officials.

They can directly levy civil penalties, but have done so sparingly. As of June, Labor officials have imposed fines in only about 50 of more than 36,000 cases processed by the two largest insurance carriers, according to an internal Congressional memo obtained by ProPublica.

In private conversations, Labor officials have told Congressional staff that they are not an enforcement agency, despite the agency’s internal regulations and federal laws.

One Labor official told Congressional investigators the agency was "at best a score keeper, not a referee," according to Rep. Dennis Kucinich, D-Ohio, who conducted a hearing into the program earlier this year. (The hearing came after a joint investigation by ProPublica, ABC News and the Los Angeles Times, which found that civilian contractors had routinely been denied basic medical care.) Foreign-born civilian contractors often had received no benefits at all, despite law requiring the delivery of payments within 14 days of an injury, the investigation found.

Sen. Bernie Sanders, I-Vt., said Labor officials have the power to enforce the law, but have ignored their responsibilities.

"Under the last administration, there was virtually no oversight," said Sanders, who serves on the Senate’s Health, Education and Labor Committee. "Obviously, this whole thing has been a fiasco."

In a statement, the Labor Department said it had recently imposed a series of fines on corporations that failed to report worker injuries as required by law.

The department indicated that it had fined Blackwater, the private security company now known as Xe, $11,000 for failing to report a worker injury for more than two years. KBR, Armor Group and insurance carriers AIG and CNA have also been fined in recent months.

"We are taking a stronger approach with respect to penalizing the failure to meet the requirements of the law and regulations," said Shelby Hallmark, the senior Labor official overseeing the program. "We’re upping the ante."

Nobody’s in charge

Passed in 1941, the Defense Base Act requires every company with an overseas U.S. contract to obtain health insurance for its workers.

But no single U.S. agency is fully in charge of implementing the program, which has exploded since the wars in Iraq and Afghanistan. More than 1,600 civilians have died and 37,000 have reported injuries.

In theory, the Labor Department is the lead agency. But Labor officials do not issue overseas contracts. That responsibility falls largely to the Pentagon and a handful of other federal agencies such as the State Department.

When the wars in Iraq and Afghanistan started, contracting officers with little experience in war zones began awarding bids to companies that lacked the required insurance.

The ProPublica review identified five companies that either did not purchase the required insurance, or which purchased the insurance, and then cancelled it. At least 33 employees have reported serious injuries while working for uninsured companies, according to Labor records.

One company, Strategic Security Solutions, Inc., failed to renew its insurance as recently as last year, according to court records. The company did not return calls for comment.

When companies fail to buy insurance, contractors’ medical care is put at risk.

Typical was the injury sustained by John Mancini, a contract specialist who found a job in Kuwait in 2004 with Procurement Services Associates, a small firm in Pleasanton, Calif., that did bookkeeping for larger contractors in Iraq.

Mancini was on his way home from work in Kuwait City in September 2004 when he was hit from behind by another SUV. Mancini smashed head-on into a concrete freeway barrier. The crash, at speeds of more than 75 miles per hour, totaled both cars. Mancini was left with severe back pain and difficulty walking.

Procurement Services had never purchased Defense Base Act insurance, court records show. Mancini was left to battle the company in Labor Department administrative courts to force them to pay his medical bills. Finally, after nearly two years of frustration and mounting pain, Mancini snapped.

On Oct. 6, 2006, Mancini barricaded himself inside his home outside of Phoenix and began calling 911, making threats and bizarre demands, records show. When local police arrived, Mancini unleashed a barrage of gunfire. After a lengthy stand-off caught live on television, police managed to lure Mancini out of his home.

Mancini pleaded guilty but insane in summer 2007 to charges of endangering police officers and passersby. He was

"It was against everything that I stand for," Mancini said in a jailhouse interview shortly before being sent to the hospital. "It’s not like I’m a crazed maniac. I don’t shoot at police."

Mancini and his family believed the standoff would not have happened, had Mancini been able to get help earlier.

Mancini’s neck continues to bother him, and he is scheduled for surgery next year. Taxpayers will foot the bill, although the injury stems from his work accident, said his ex-wife, Susan Mancini. Mancini hopes to petition for an early release, but he has no home to return to. Earlier this year, his house burned down in a case of unsolved arson.

"You hear about veterans’ mental health all the time. These poor contractors end up with nothing," said his ex-wife, Susan Mancini. "To me, that’s a crime."

Scofflaws Run Free

In an interview at his company’s offices in Pleasanton, Dan Plute, the president of Procurement Services, acknowledged that his company had not purchased Defense Base Act insurance.

Plute said he was unfamiliar with the law since his firm had not worked overseas before Iraq. Procurement Services paid some of Mancini’s medical bills, but stopped after a doctor hired by the company found that Mancini was fit to return to work, Plute said.

Plute accused Mancini of exaggerating his injuries to get disability payments. He said the Defense Base Act program was biased against employers.

"I don’t think the judge realizes the misery that his decision put me, my family, my employees through," he said.

And yet under the law, Plute could have been charged with a federal misdemeanor or a fine. But Labor officials did not pursue such charges—despite admonitions from one of the department’s own judicial officials.

At a Labor Department hearing just before Mancini snapped, Administrative Law Judge Russell Pulver warned Plute that failure to provide coverage can result in "criminal liability."

Procurement Services "has consistently shirked its responsibility to [Mancini] to furnish adequate and prompt medical treatment, apparently hoping that someone else will shoulder its responsibilities in this regard," Pulver wrote. "I find this position untenable, if not outright reprehensible."

Under the law, Labor officials are required to ask Justice Department prosecutors to pursue charges against company officials who fail to purchase insurance, a misdemeanor that can result in a year in federal prison.

But Justice has historically shown little interest in pursuing such low-level crimes. In a statement, the Labor Department said that since 2001, it had proposed one case to the Justice Department involving a contract company which failed to purchase the required insurance, but the case resolved before any action was taken.

The law "does not provide for fines or penalties except through criminal prosecution by the Department of Justice," the Labor statement said. "That avenue is currently not available to us."

Yet even when Labor officials have the power to impose penalties on companies for administrative infractions, such as failing to file timely paperwork, they rarely act, the review found.

Companies are supposed to file a notice with the Labor Department within 10 days of an employee’s injury. But in nearly 7,000 cases, the companies filed those notices more than a year after they had knowledge of the injury, according to an analysis of Labor Dept. records.

Yet the department has only fined only five companies since 2001 for failing to report injuries. "The current system…provides little incentive for enforcement," the memo by Congressional investigators concluded.

In the U.S., at least the threat of punitive fines and possible criminal charges exists. For a corporation operating abroad, the Labor Dept. has no way to pursue scofflaws. And hundreds of companies contracted to work in Iraq are based overseas.

David Barnett, a Florida attorney who handles injured worker claims, has argued several cases in which foreign firms contracted with the U.S. government failed to purchase insurance. He said foreign companies face little incentive to cover workers since the Labor department does not pursue actions against them.

"If there are no repercussions to not having insurance coverage, why would you do it?" Barnett said. "It’s a huge problem."

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