Fraud Squad

U.S. Attorney Paul J. McNulty is cracking down on federal contractors and federal buyers.

One week after announcing the high-profile indictment of former lobbyists for a pro-Israeli organization for gathering and sharing classified information, Paul J. McNulty, the U.S. Attorney for the Eastern District of Virginia, exudes the calm of a man on vacation. Despite his friendly demeanor, his most recent project has some members of the federal contracting world fearing him as if he were their own Eliot Spitzer, the New York attorney general known for his aggressive prosecution of corporate fraud. In February, McNulty created the Procurement Fraud Working Group, a coalition of more than two dozen Defense and civilian agencies that work together to investigate and prosecute illegal schemes in government contracting. "I'm not saying contractors are bad. That's how government functions. But it would be better for good contractors if we got rid of the bad apples," McNulty says.

"When he first announced the task force, a lot of us were concerned," says Stan Soloway, president of the Professional Services Council, an Arlington, Va.-based group that represents contractors. "It was portrayed as a witch hunt." Rumors that the group was working on placing undercover investigators inside contracting offices caused some contracting officials to fear they might soon have to be constantly looking over their shoulders and wondering who might be an interloper.

McNulty says his task force has been well-received by industry groups. Some have expressed what he calls an "amen" attitude. "They want us to go get those cheaters," he says. He has spoken at a handful of industry gatherings this year, and he appears to be charming them. Soloway now believes McNulty is approaching fraud-busting with balance and understanding.

According to McNulty, who is perhaps best known for his prosecutions of Sept. 11 terrorist Zacarias Moussaoui and Taliban fighter John Walker Lindh, his group is only in the initial stages of what he hopes will be a much larger movement toward improved government contracting. He would like the group to bring in more prosecutions. "Perhaps if we can prosecute, we will get more attention," he says. It's hard not to imagine McNulty himself also getting more attention.

Group Dynamics

McNulty launched the Procurement Fraud Working Group on the same day Michael Sears, the former Boeing Co. chief financial officer, was sentenced to four months in prison for secretly recruiting Darleen Druyun, still a senior Air Force acquisition official, to his company. McNulty's office prosecuted the cases against both Druyun, who was sentenced to nine months in prison, and Sears. Druyun admitted to giving Boeing contracts preferential treatment in exchange for a top job at the company, where she went to work shortly after retiring from government.

McNulty says it is reasonable to assume that because government spending has shot up, especially at the Pentagon and Homeland Security Department, there is more fraud. At first, he didn't know much about the other agencies charged with governmentwide contracting oversight. David Safavian, the former chief of the Office of Federal Procurement Policy who was arrested in September on charges of obstructing a federal investigation, says he contacted McNulty after hearing of his new group. "I said, 'Hey, just so you know, we're responsible for procurement policy.' He didn't know that we actually existed," he says. According to Safavian, McNulty changed his focus from policy to information sharing after their conversation.

McNulty acknowledges that he wasn't very familiar with agencies responsible for procurement, but says his goal has been consistent from day one: to promote coordination among agencies working on contracting fraud.

"We started with the simple idea that we would bring agencies together for collaboration," he says. McNulty says he is surprised at how popular the group has become. At first, his office approached what he calls the "usual suspects" involved in government fraud prevention: the Defense Criminal Investigative Service, the FBI, NASA and the inspector general at the National Reconnaissance Office. But after the first meeting in April, he says agencies started calling to ask how they could join. The list now includes 33 organizations.

The details of their meetings-they've had two so far-are secret. McNulty says they have to be, because they discuss specific cases and "investigative techniques we wouldn't want the public to know about." His smile briefly fades and his brow creases in concentration. "It's not that they're high tech or undercover, it's just where agencies invest in priorities and where they're putting their time and resources. It might give people the sense agencies aren't watching some things," he says.

For the most part, participating agencies are hesitant to talk about the group. A spokesman for the inspector general's office at the National Science Foundation declined to comment beyond saying the group would "benefit the government as a whole." Madeline M. Chulumovich, executive officer for NASA's inspector general office, declined to answer any questions on the office's involvement, including whether or not the office places undercover agents in NASA's contracting offices.

Joseph McMillan, special agent in charge at the Defense Criminal Investigative Service, which conducted the Druyun investigation, says he interacted with other agencies prior to the group's formation, but that working with the U.S. Attorney's Office helps agencies bring cases to court. While his agency hasn't embedded agents in contracting offices, he says, "Undercover operations are part of the investigative techniques that are utilized by all of us."

According to McNulty, rumors that the group is inserting undercover agents inside contracting offices are unfounded; he says he might work individually with agencies on such a technique, but it is not a practice the group is promoting. Instead, he says, it focuses on sharing ideas about techniques, including how to insert clauses into contracts to make it easier to investigate potential wrongdoing, how to identify officials with potential conflicts of interest and how to place investigative agents inside contracting offices. Those agents are not undercover, McNulty says, and only the Navy is using that technique so far, although others have expressed interest.

He rejects the idea that having agents on site would dampen contracting officers' ability to pursue procurement techniques that are "creative," a trait Safavian encouraged. When asked about it, McNulty pauses on the word "creative." He repeats it, as if he's questioning whether that's really something contracting officers should be. Then he answers, no, that investigators would not inhibit contacting officers. "It would remind them of the importance of staying on top of fraud," he says.

Some worry that placing investigators inside contracting offices could counteract efforts to strengthen the acquisition workforce. "I wonder how many new MBAs will be attracted to public service when they find out that undercover agents will be watching what they do. Who would want to work in that kind of environment? Or how many of the few remaining seasoned experts will say enough, and throw in the towel," says Bob Welch, a former procurement executive at the Treasury and Commerce departments and partner in the Oakton, Va.-based consultancy Acquisition Solutions Inc.

Becoming Republican

McNulty, 47, who has spent most of his career as a Republican political appointee and staffer, grew up in a Democratic household in what he calls a blue-collar Pittsburgh neighborhood. He describes his father as a Roosevelt-Truman Democrat who voted for George McGovern, the 1972 Democratic candidate who ran against Richard Nixon. "I shouldn't be saying that," he says, chuckling.

Every fall, McNulty says his father would cut out the photo of the Supreme Court justices published in the local paper and review it with him. Then, while they were watching television, he would turn to McNulty during commercials and say, "Name all nine justices!"

"Somehow I knew I'd be part of the American government system. It's almost part of the American dream. I didn't doubt that," McNulty says. He majored in history at Grove City College, a Christian, liberal arts school in Grove City, Pa. "I became a Republican over time," he says. Even as a student at Capital University Law School in Columbus, Ohio, McNulty had not yet realized his affinity for law enforcement. In fact, he dreamed of being a defense lawyer. "I thought the most righteous cause was to defend criminals," he says.

It wasn't until he served on the staff of the House Committee on Standards of Official Conduct in the early 1980s that he realized where he stood politically. "I was engaged for the first time not just in ideas but in reality of Congress and issues. Ronald Reagan was president, and I started to say, 'That's where I am, I'm on Reagan's side,'" he says.

Daniel Bryant, a vice president for Pepsico Inc. who worked with McNulty on the House Judiciary Committee, says even after that realization, McNulty wasn't particularly partisan. While the Republicans were promoting the Contract With America, Bryant says, "I remember on the House floor in February of 1995, Paul being the person that more regularly than anyone else would cross over from the majority side to the minority side-literally, physically crossing the aisle-and seeing him sitting down and working next to the minority counsel, talking through issues."

Bill McCullom of Florida, the ranking Republican on the House Judiciary Subcommittee on Crime when McNulty was on the staff, says McNulty was particularly skilled at finding common ground between interest groups, which included the American Civil Liberties Union, pharmaceutical companies and law enforcement organizations.

That charisma has worked well for McNulty as he's met with industry organizations concerned about his procurement fraud group. "For some, it was alarming to think about having an investigator sit next to a contract administrator, but how McNulty described it, he thought it brought expertise and information . . . so a trained investigator could help," says

Jeffrey Hildebrant, a partner at McLean, Va., law firm Barton, Baker, McMahon, Hildebrant & Tolle LLP.

Hildebrant, who represented a client being investigated by McNulty's office, says it is "one of the most reasonable offices that I've worked with." In a recent case involving one of his clients, an Air Force contractor that Hildebrant declined to identify, he says McNulty's office was willing to compromise and accept a package that included employee training and an outside review of procedures instead of prosecuting. "[McNulty] makes sure [his lawyers] feel confident so nobody feels they need to be a gunslinger by getting a lot of collars or having a maverick kind of attitude," says Hildebrant.

"Some people, if they're not able to convince you, will try to intellectually bully you, or raise their voice and become arrogant. Paul is just so good at what he does . . . his way of winning arguments is just to stay very cool, stay reserved and continue to press the merits," says Tom Spulak, former Democratic staff director and general counsel of the House Committee on Rules. Spulak is now a partner at the law firm King & Spalding LLP in Washington.

McNulty also emphasizes his Democratic friendships. "Treating people with respect and being honest is extremely important to me. That's what holds my bones together," he says.

His niceness, however, can be deceiving. "I think people could underestimate his toughness, because he's such a soft-spoken, polite person, but I've seen him in a handful of meetings where he's laid down the law in no uncertain terms," says Richard Cullen, who held McNulty's position from 1991 to 1993. Now a defense lawyer and partner at McGuireWoods LLP, Cullen frequently represents clients being investigated by McNulty's office, including Boeing. "I can't imagine there's a more savvy U.S. attorney anywhere in the country," he adds.

After serving as counsel and minority counsel, respectively, to the Standards of Official Conduct Committee and House Judiciary Subcommittee on Crime, McNulty worked at the Justice Department on communication and crime issues during George H.W. Bush's administration. When Bill Clinton won the presidency, McNulty worked for two years at Shaw, Pittman, Potts & Trowbridge law firm, before returning to the House Judiciary Committee to serve as chief counsel to the crime subcommittee. "My love for public policy is so great," he says. He did get briefly embroiled in partisan politics when he served as the Republican congressional spokesman during Clinton's impeachment hearings.

During President Bush's 2000 campaign, McNulty spent nights and weekends advising the candidate on crime issues and helping the campaign develop its law enforcement platform. After Bush won, he led the Justice Department's transition team and helped John Ashcroft prepare for his confirmation hearings. When Bush won his second term, McNulty says he expressed interest in his current position, and Sens. George Allen, R-Va., and John Warner, R-Va., supported him.

McNulty says his background prepared him to coordinate across various groups. In the mid-1990s, he helped William P. Barr, his then-boss and attorney general, coordinate crime prevention in high-risk communities at federal, state, and local levels. "He had a good sense of how to communicate policy, and a good way with people," says Barr.

Political Ambitions

It's not hard to imagine McNulty as a politician one day. "If he decided to go for elected office, I think he'd be very successful," says Barr. "He is a very complete package of skills that you rarely encounter. He's intellectual, he understands the law . . . but has a really good sense of people and the political process and he has good communication skills and leadership."

"Paul has a perfect personality," says Spulak. "He's bright, friendly, understated-all the things that people like politicians to be."

In addition to being a prospective candidate for office, McNulty was floated as a potential replacement for Alberto Gonzales when the attorney general was rumored to be a possible Supreme Court nominee. (McNulty currently chairs the Attorney General's Advisory Committee of United States Attorneys.)

McNulty doesn't dismiss the possibility of elected office or a higher appointed position. "There are a lot of assumptions, but I don't have anything in mind," he says of running for office. As for an appointee position, he says, "If I get to do this for as long as possible, I would be happy. If I'm asked to do something else, and if I'm able, I will, and if a call never comes, that's OK, too."

He was appointed in September 2001 for a four-year term, which expired last month. Traditionally, he explains, U.S. attorneys serve beyond their official terms until replaced by the next president. "I've never done anything that I enjoyed more," he says.