US Government Accuses Operator Sprint Of Overcharging For Surveillance

The US government has sued US telecommunications company Sprint seeking a refund on $21 million (£13m) in alleged overcharges related to out of court wiretaps and other forms of surveillance.

In its complaint, filed on Monday in US District Court for the Northern District of California, San Francisco division, the US government alleged that Sprint inflated its charges by more than 50 percent by billing for “unallowable costs”. The agencies involved include the FBI, the Drug Enforcement Agency, Immigration and Customs Enforcement and others.

Surveillance costs

In the US, operators can charge the government for surveillance and Sprint said the costs it incurred were legal.

“Under the law, the government is required to reimburse Sprint for its reasonable costs incurred when assisting law enforcement agencies with electronic surveillance,” Sprint stated. “We have fully cooperated with this investigation and intend to defend this matter vigorously.”

The US Justice Department said the costs relate specifically to invoices filed between 1 January 2007 and 31 July 2010. The lawsuit alleges that Sprint knowingly included in its charges the costs of financing modifications to equipment, facilities and services installed to comply with the company’s legal obligation to facilitate government surveillance, as specified in the Communications Assistance in Law Enforcement Act (CALEA).

Carriers are allowed to bill the government for “reasonable costs” incurred when facilitating surveillance operations such as a wiretap, pen register or trap device. However, a May 2006 ruling by the US Federal Communications Comission (FCC) found that these “intercept charges” must not include the capital costs of modifying equipment, facilities or services to comply with CALEA. For these costs, operators are obliged to seek recourse to the US Attorney General, the ruling found.

As a result of the FCC ruling, in July 2006, Sprint modified its cost model for intercept charges, removing capitalised costs such as depreciation of CALEA equipment and upgrades to that equipment. However, the company allegedly continued to include the cost of financing investment in CALEA equipment, including the cost of debt and equity and of taxes associated with that debt and equity, according to the lawsuit.

‘Unallowable costs’

Sprint allegedly again modified its cost structure around June 2010 to remove these capital expenses, and accordingly lowered its intercept charges from August 2010, the complaint argues. The 2010 changes to Sprint’s CALEA cost structure were significant – in its intercept charges the carrier allegedly overcharged the goverment by about 58 percent.

The US government said it was unaware of the allegedly unallowable expenses because Sprint didn’t disclose details of its cost structure.

“Because Sprint’s invoices for intercept charges did not identify the particular expenses for which it sought reimbursement, federal law enforcement agencies were unable to detect that Sprint was requesting reimbursement of these unallowable costs,” the lawsuit stated.

The government thus only became aware that it had been overcharged when Sprint modified its intercept charges in 2010. The government then requested that Sprint refund the overpayments from the 2006-2010 period, affecting 29,000 claims for reimbursement by the carrier, but Sprint allegedly failed or refused to make the refunds.

The US Justice Department filed its complaint under the False Claims Act, which allows it to recover up to treble damages and is usually employed in cases of alleged fraud by large contractors such as arms manufacturers. The government has requested a jury trial.

The US government’s intelligence operations have been highlighted in recent months due to the disclosure of large-scale data surveillance under the PRISM scheme.

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Matthew Broersma

Matt Broersma is a long standing tech freelance, who has worked for Ziff-Davis, ZDnet and other leading publications

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