The Washington Post reports [1] today that members of Congress will move to investigate a mysterious exemption that appeared in new rules that require all government contractors to report waste, fraud, or abuse.

The problem is someone slipped in language that gave a free pass to all U.S. contractors that work overseas.

[I]n a twist that has evolved into a Capitol Hill mystery, the proposed rule that the White House's Office of Management and Budget published late last year includes language that would exempt from such reporting all U.S. contractors who do work overseas. There have been more than $100 billion in such contracts in Iraq and Afghanistan over the past five years.

The exemption has riled the Justice Department, which opposes limiting the rule to domestic contracts. And the loophole has led members of Congress to call for an investigation amid concerns that someone inserted the exemption as a favor to the contracting lobby that has major interests because of the ongoing wars.

In January, DOJ tried to get the OMB to drop the exemption language but failed.

In response, Representative Peter Welch (D-VT) has called on the White House to delete the exemption from the rule, but said there was no will to do so from the executive branch.

In a press release last Friday, Welch hammered [2]the White House:

"By seeking this exemption, the Bush administration is sending an unambiguous message: If you are a U.S. government contractor in Iraq, Afghanistan or elsewhere overseas, you have a green light to defraud our government and waste taxpayers' dollars."

He has also called on hearings to further investigate the matter and said he is drafting a bill to erase the exemption if the White House won't.

Welch isn't the only member of Congress demanding satisfaction on this issue, reports [3] the Associated Press:

Sens. Chuck Grassley, R-Iowa, and Claire McCaskill, D-Mo., also have criticized the exemptions and demanded that they be stripped from the overall rule that otherwise aims to curb fraud.

"The amount of money going to overseas contracts and the documented corruption that has taken place makes any exemption for fraud reporting for contracts being performed overseas unacceptable to both myself and to American taxpayers," McCaskill wrote in a letter earlier this week to White House OMB Director Jim Nussle.

The rule, reports the Post via the AP, has not been finalized yet.