Saturday, July 15, 2006

Federal law enforcement officials are investigating a series of bribery and smuggling cases in what they fear is a sign of increased corruption among officers who patrol the Mexican border.

Two brothers who worked for the U.S. Border Patrol disappeared in June while under investigation for smuggling drugs and immigrants, and are believed to have fled to Mexico. In the past month, two agents from Customs and Border Protection, which guards border checkpoints, were indicted for taking bribes to allow illegal immigrants to enter the United States. And earlier this month, two Border Patrol supervisory agents pleaded guilty to accepting nearly $200,000 in payoffs to release smugglers and illegal immigrants who had been detained.
The House Government Reform Committee has subpoenaed the former law firm of convicted lobbyist Jack Abramoff for records of any contacts he or members of his lobbying team had with the Bush White House.

Chairman Thomas M. Davis III (R-Va.) authorized a subpoena weeks ago to Greenberg Traurig, according to several of the law firm's former clients who have been notified that it is turning over billing records, e-mails, phone logs and other material that reflects efforts to lobby the White House.
Representative John A. Boehner won the job of House majority leader amid a post-Abramoff clamor for an overhaul of lobbying and ethics rules. But nearly six months later, the changes are still tied up in Congress.

And far from trying to put the brakes on lobbyists and the money they channel into Republican coffers, Mr. Boehner, who has portrayed his ties to Washington lobbyists as something to be proud of, has stepped on the gas.

Friday, July 14, 2006

GOVERNMENT SETS UP ITS OWN TASK FORCE -- Yesterday we told you about Proskauer Rose's new stock options task force. Well: "On cue, the U.S. Attorney in San Francisco announced today the formation of a local stock options backdating task force."
Tony Blair will fly off on his summer holiday knowing that on his return he will be the first serving British prime minister to be interviewed by police in a corruption investigation.
Downing Street publicly denied again yesterday having been given any indication that the Prime Minister would be interviewed by the Scotland Yard team of detectives leading the cash-for-peerages inquiry. But The Times has learnt that Mr Blair and Jonathan Powell, his chief of staff, will be interviewed over the summer before the party conference at which his leadership was already certain to be an issue.

They will be questioned about what they knew of peerages that were offered to four millionaires who lent more than £5 million to the Labour Party before last year’s general election.
A European Union court on Thursday tossed out the approval of the two-year-old merger that created Sony BMG and had blunt criticism for the regulators that endorsed the union.

For the first time in its history, the European Court of First Instance in Luxembourg entirely voided the approval of a company combination, plunging the music industry into confusion and casting a chill over the prospects for another alliance, between Warner Music and EMI Group.
Meanwhile, Microsoft copes with fines levied against it:
"In Europe, we don't have guidance that is anywhere near as concrete as in the United States," he said. "My worry is that we won't have clarity from the European regulators until it is too late, until just before Vista is scheduled to ship, and we won't be able to make changes. And then we'll be right back to debating the past, as we are now, instead of addressing these issues before the product is shipped.
ARYAN BROTHERHOOD LEADERS FACE RICO CHARGES -- "The four are charged with participating in 15 murders or attempted murders under the Racketeer Influenced and Corrupt Organization laws, which have been used to prosecute Mafia families and other criminal groups. Federal prosecutors called the case against the Aryan Brotherhood, the result of four years of investigation, the largest death penalty case in the nation’s history."
FCC FRAUD SETTLEMENT -- "Money manager Mario Gabelli and companies affiliated with him agreed yesterday to pay $130 million to settle allegations that he used sham companies to buy cellphone licenses under a federal program for small and minority-owned businesses." See also WSJ Law Blog.
MEXICAN ELECTION MESS -- "Leftist presidential candidate Andrés Manuel López Obrador widened his allegations Thursday that government and private groups conspired against his candidacy, and he claimed there was enough fraud to annul the extremely close July 2 balloting." Sort of reminds me of something...
A U.S. federal jury convicted South Korean lobbyist Park Tong-sun on Thursday for acting as an unregistered agent for the former Iraqi regime under Saddam Hussein.
The jury in New York found Park, 71, had lobbied high-level U.N. officials to remove sanctions imposed on Iraq for its invasion of Kuwait in 1990. The prosecution claimed he received at least US$2.5 million from the Saddam government for his role.

The jury in New York found Park, 71, had lobbied high-level U.N. officials to remove sanctions imposed on Iraq for its invasion of Kuwait in 1990. The prosecution claimed he received at least US$2.5 million from the Saddam government for his role.

Thursday, July 13, 2006

YOU HAVE TO BE KIDDING -- "One year after the Department of Homeland Security created a high-level post for coordinating U.S. government efforts to deal with attacks on the nation's critical technological infrastructure, the agency still has not identified a candidate for the job." So much for homeland security.
ANOTHER ENRON LAWSUIT -- But this one is interesting: "Bolivia's government said on Friday it would sue former executives of U.S. energy company Enron as well as ex-government officials for fraud in relation to a natural gas pipeline to Brazil built in the 1990s." (emphasis added).
SAN JOSE MAYOR ALLEGEDLY CORRUPT -- "The embattled but defiant mayor of San Jose was arraigned Monday on public corruption charges stemming from a secretly negotiated deal with a garbage contractor that cost taxpayers more than $11 million."
CREDIT-RATING INDUSTRY REFORM -- "Retooling the credit-rating industry, dominated by Standard & Poor's and Moody's Corp., would address one of the last major issues many business and consumer groups raised in response to a string of corporate scandals in recent years, beginning with the meltdown of energy trader Enron Corp. in the fall of 2001, which cost thousands of employees their jobs and investors and retirees billions of dollars in losses."
WHY RUSSIA IS SO WEAK -- There are lots of reasons, but here is one example: "But in November, William Browder was turned away at the Moscow airport. Browder wasn't told why, but he says he believes he ran afoul of someone influential because of his outspoken criticism of Russian corporate governance. Since then, he's been unable to get a visa to return to Russia, even though his Hermitage Capital Management Ltd. has $4 billion invested in the country, making it the largest foreign institutional investor there."
AND NOW THE CIVIL SUITS -- "An Indian tribe sued the former superlobbyist Jack Abramoff and Ralph Reed, a candidate for lieutenant governor in Georgia, on Wednesday, seeking millions of dollars in lost revenues from a casino that the Texas tribe said had been fraudulently closed." See also Dallas Morning News.
WAL-MART SHIFTS POLICY ON SHOPLIFTING -- "According to internal documents, the company, the nation’s largest retailer and leading destination for shoplifting, will no longer prosecute first-time thieves unless they are between 18 and 65 and steal merchandise worth at least $25, putting the chain in line with the policies of many other retailers." Will this generosity lead to an increase in shoplifting at Wal-Mart?
STOCK OPTIONS TASK FORCE -- At least one law firm has formed one, suggesting there is a long way to go (and alot of fees to be earned) until this scandal sorted out.
KPMG DEFENDANTS SEEK PAYMENT OF FEES -- Following Judge Kaplan's decision admonishing prosecutors for pressuring KPMG to cut off the payment of legal fees to its employee-defendants in the ongoing tax shelter case, the defendants have filed a civil suit against KPMG seeking payment.
In 1996, Coltec, an industrial concern, reported a capital loss of approximately $380 million on its consolidated tax return. It generated the loss through a transaction structured by Arthur Andersen, creating a special-purpose entity and then selling it high-basis stock for a relatively low price. The IRS disallowed the loss and assessed additional taxes, ruling that the transaction lacked any economic substance. Coltec paid the assessment and filed a refund action for roughly $83 million in the U.S. Court of Federal Claims, which awarded Coltec a full refund.

The U.S. appealed to the Federal Circuit, which concluded that although Coltec’s claimed capital loss fell within the literal terms of acceptable deduction the IRS Code, the transaction that created the high basis in the stock lacked “economic substance” and therefore must be disregarded for tax purposes.

The decision centers on whether a court’s use of the economic substance doctrine violates the separation of powers clause. The trial court had said that because the transaction complied with the IRS Code, “the use of the ‘economic substance’ doctrine to trump ‘mere compliance with the code’ would violate the . . . the U.S. Constitution,” effectively allowing judges to legislate from the bench. But the appeals court called the doctrine “merely a judicial tool for effectuating the underlying Congressional purpose that, despite literal compliance with the statute, tax benefits not be afforded based on transactions lacking in economic substance.”

Wednesday, July 12, 2006

EU FINES MICROSOFT -- "Microsoft has been fined 280.5m euros ($357m; £194m) by the European Commission for failing to comply with an anti-competition ruling."
MEXICAN MONEY LAUNDERING CELL IDENTIFIED -- "Lorenzo Arce Flores' principal money laundering method is the smuggling of U.S. currency into Mexico. It is then converted into Mexican Pesos through a number of money service businesses (commonly referred to as "casas de cambio" or "centros cambiarios") that he or AFO lieutenant Jesus Abraham Labra Aviles own or control. Two key Arce Flores operatives, Frederico Carlos Torres Ramirez and Nancy Karina Rocha Lopez, were also designated today. The 29 companies and individuals designated by OFAC are all key components in this money laundering cell's operations."
BACKDATING SCANDAL GAINS MOMENTUM -- "For the first time in the mushrooming stock options-timing scandal, there is indication that a company’s employees knew that manipulating the dates of stock-options grants might be a no-no in the eyes of auditors." See also WSJ Law Blog (discussing defense of backdating practice by WSJ columnist).
Update -- HOUSE APPROVES LIMITS ON INTERNET GAMBLING -- "The House easily approved a bill yesterday to curb online poker games, sports betting and other Internet-based wagering that gained infamy as a central focus of a major lobbying scandal."
The State Department is recovering from large-scale computer break-ins worldwide over the past several weeks that appeared to target its headquarters and offices dealing with China and North Korea, The Associated Press has learned.

Investigators believe hackers stole sensitive U.S. information and passwords and implanted backdoors in unclassified government computers to allow them to return at will, said U.S. officials familiar with the hacking. These people spoke on condition of anonymity because of the sensitivity of the widespread intrusions and the resulting investigation.
IRAQ RECONSTRUCTION CONTRACT CANCELLED -- "The Army is discontinuing a controversial multibillion-dollar deal with oil services giant Halliburton Co. to provide logistical support to U.S. troops worldwide, a decision that could cut deeply into the firm's dominance of government contracting in Iraq." Halliburton and the Army had been heavily criticized for what some claimed to be a sweetheart deal.
CAPITOL SEARCH RULING REAX -- "When the F.B.I. searched the offices of William Jefferson, the scandal-plagued Democratic congressman from Louisiana, it produced a rare moment of bipartisanship. Leaders of both parties insisted that the search infringed on the rights of Congress. This week, Thomas Hogan, a federal district court judge in Washington, gave Congress a much-needed reminder that no one is above the law."

Tuesday, July 11, 2006

As this Committee knows well, tracking and combating terrorist financing are critical facets of our overall efforts to protect our citizens and other innocents around the world from terrorist attacks. This is true for two main reasons. First, when we block the assets of a terrorist front company, arrest a donor, or shut down a corrupt charity, we deter other donors, restrict the flow of funds to terrorist groups and shift their focus from planning attacks to worrying about their own needs. While any single terrorist attack may be relatively inexpensive to carry out, terrorist groups continue to need real money. They depend on a regular cash flow to pay operatives and their families, arrange for travel, train new members, forge documents, pay bribes, acquire weapons, and stage attacks. Disrupting money flows stresses terrorist networks and undermines their operations. In recent months, we have seen at least one instance of what we look for most - a terrorist organization indicating that it cannot pursue sophisticated attacks because it lacks adequate funding.

Second, "following the money" is one of the most valuable sources of information that we have to identify and locate the networks of terrorists and their supporters. If a terrorist associate whom we are watching sends or receives money from another person, we know that there's a link between the two individuals. And, while terrorist supporters may use code names on the phone, when they send or receive money through the banking system, they often provide information that yields the kind of concrete leads that can advance an investigation. For these reasons, counter-terrorism officials place a heavy premium on financial intelligence. As the 9/11 Commission staff pointed out - and as Chairman Hamilton testified before this Committee - "following the money to identify terrorist operatives and sympathizers provides a particularly powerful tool in the fight against terrorist groups. Use of this tool almost always remains invisible to the general public, but it is a critical part of the overall campaign against al Qaeda." The Terrorist Finance Tracking Program was just such an invisible tool. Its exposure represents a grave loss to our overall efforts to combat al Qaida and other terrorist groups.
LESSONS FROM THE MEXICAN ELECTION -- "Mexico is likely to weather the controversy over its photo-finish election despite the protestors that losing candidate Andrés Manuel López Obrador brought into the streets on Saturday to claim the election had been stolen. Mexico's nonpartisan National Election Commission has built up a decade of credibility in running clean elections and international observers have certified the count as fair. Indeed, in its successful efforts to overcome its old reputation for corrupt vote-counting Mexico has a lot to teach the United States."
PROSECUTORS NARROW FOCUS IN DEUTSCHE BANK PROBE -- "The criminal investigation of Deutsche Bank covers several types of shelters, but in recent months prosecutors have been focusing on a shelter known as Cards that was sold through a California investment firm once known as That firm was founded in 1999 by James H. Clark, a founder of Netscape Communications, to manage the wealth of millionaires minted during the Internet boom of the late 1990’s."
Federal investigators said Monday that Medicare prescription drug plans generally provided incomplete and inaccurate information to callers who asked questions about the new benefit.

The findings, from the Government Accountability Office, a nonpartisan investigative arm of Congress, are significant because the premise of the new program is that consumers will make informed choices among dozens of competing plans.
METH TIED TO GROWTH IN ID THEFT -- "Meth users — awake for days at a time and able to fixate on small details — were looking for checks or credit card numbers, then converting the stolen identities to money, drugs or ingredients to make more methamphetamine. For these drug users, Mr. Morales said, identity theft was the perfect support system."
DOOLITTLE PAC UNDER SCRUTINY -- "In the past two years, campaign and political action committees controlled by Rep. John T. Doolittle (R-Calif.) paid ever-larger commissions to his wife's one-person company and spent tens of thousands of dollars on gifts at stores such as Saks Fifth Avenue and Tiffany & Co. and a Ritz-Carlton day spa."
COULTER ACCUSED OF PLAIGARISM -- "The syndicator of Ann Coulter’s newspaper column is looking into allegations that the right-wing pundit has lifted material from other sources."
Gamblers who prefer their laptops to blackjack tables won't like what Congress is doing. On Tuesday, the House plans to vote on a bill that would ban credit cards for paying online bets and could padlock gambling Web sites.

The legislation would clarify existing law to spell out that it is illegal to gamble online.

To enforce that ban, the bill would prohibit credit cards and other payment forms, such as electronic transfers, from being used to settle online wagers. It also would give law enforcement officials the authority to work with Internet providers to block access to gambling Web sites.
The key here is prohibiting electronic payments since online gambling is already technically illegal.
JEFFERSON SEARCH UPHELD -- "'"Congressman Jefferson's interpretation of the speech or debate privilege would have the effect of converting every congressional office into a taxpayer-subsidized sanctuary for crime,' said [federal district judge Thomas] Hogan, who had approved the search warrant for the May 20-21 search of Jefferson's office." See also WaPo; NYT; Instapundit.

The case will no doubt move on to the appeals court.

Monday, July 10, 2006


Further disclosure of Abramoff visits to the White House: "The appointments included a meeting with a domestic policy aide to Vice President Cheney and a meeting in the Office of Faith-Based and Community Initiatives attended by about 40 people. The logs also reflect that Abramoff attended one or more social events, as well as a gathering of Indian tribal officials and state legislators at which President Bush appeared." See also USA Today.

Grover Norquist, the conservative uber-powerbroker, has seen his influence decline since he was implicated in the Abramoff scandal: "'People were willing to cut him a lot of slack because he's done a lot of favors for a lot of people,' said J. Michael Waller, a vice president of the right-leaning Center for Security Policy who for several years was an occasional participant at Norquist's Wednesday meetings. 'But Grover's not that likable.'"

Speaking of lobbying NYT ed board decries the trend in local governments' retention of lobbyists to help them obtain federal earmarks: "In this case, lobbyists are shopping themselves as gifted middlemen for mayors and school boards. And localities are biting, having seen the sorry evidence that lawmakers tend to deliver earmarks more readily for Beltway lobbyists than for hometown nobodies."

Jeffrey Birnbaum uncovers a big payday for one congressional staffer: "The 40-year-old congressional staffer last year collected nearly $2 million in severance payments from his former employer, a lobbying firm that specializes in winning benefits from the committee he now serves. Many longtime Washingtonians are shaking their heads in disbelief over the payout's enormous size, its ad hoc method of calculation and the fact that Shockey received it while working as a senior congressional aide."

The AP reports that there has been little or no movement in the Jefferson corruption probe while the parties tangle of the Speech & Debate Clause: "Prosecutors and investigators building a bribery case against Rep. William Jefferson have been unable to examine the documents and computer files seized in a search of the lawmaker's Capitol Hill office."