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UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Division for the Purpose of
Appointing Independent Counsels
Ethics in Government Act of 1978, As Amended
Division No. 94-2
FINAL REPORT OF THE INDEPENDENT COUNSEL
In Re:
ALPHONSO MICHAEL (MIKE) ESPY
DONALD C. SMALTZ
Independent Counsel
www.oic.gov
Filed January 30, 2001
Published October 25, 2001
Washington, DC
ACKNOWLEDGMENTS
Every criminal investigation or prosecution is a team effort and, given its
scope and scale, this investigation and its resulting prosecutions against almost two
dozen defendants in four venues demanded a particularly talented, dedicated, and
hard-working team. While it is impossible to identify everyone whose contributions
aided the effort, I would like to take this opportunity to express my gratitude to the
many dedicated people who worked with me, often for very long hours and with
modest compensation, to bring our efforts to successful fruition. Many of these
people were required to relocate from their homes for extended periods of time,
and so their families, including mine, also deserve acknowledgment of, and
appreciation for, their many sacrifices.
An Independent Counsel office is by statute ad hoc. Its size and duration
are determined by the scope of its jurisdictional mandate and the extent of the
criminal conduct uncovered. It offers its employees no expectation of a "career path" or even a defined term of employment. The investigative agents,
attorneys, and staff who volunteer to work for the Office of the Independent
Counsel interrupt their career paths and forego future opportunities otherwise
available - a significant sacrifice. Moreover, both the OIC and they personally may
become the object of political polemics, a tactic frequently employed by opponents
of the investigation.
Notwithstanding these drawbacks, this investigation attracted an outstanding
array of legal talent from around the country, from both the public and private
sectors. I was particularly fortunate in being able to enlist a large number of highly
experienced former and current federal prosecutors, both as staff and as advisors.
All of my senior trial counsel had substantial trial experience as federal prosecutors.
Overall, about two-thirds of the Office's attorneys were current or former
prosecutors.
At the apex of the attorney staff were my successive Deputy Independent
Counsels, Charles G. Bakaly, III, Theodore S. Greenberg (team leader for United
States v. Sun-Diamond Growers of California, United States v. Tyson Foods,
Inc., and United States v. James Lake), and Robert W. Ray (team leader for
United States v. Archibald R. Schaffer, III and United States v. Jack L. Williams).
My immediate right-hand assistants were the Counsellors to the Independent
Counsel, first Theodore S. Greenberg and then William F. Fahey (team leader for
United States v. Ronald H. Blackley), followed by Robert W. Ray, and thereafter
Jacob S. Frenkel (co-team leader for United States v. Alvarez T. Ferrouillet,
Jr./John J. Hemmingson).
My Chief Appellate Counsel throughout the investigation was Charles M.
Kagay, whose service included significant trial court briefing in addition to appellate
matters and who also undertook primary responsibility for drafting this final report,
a daunting task given the breadth of the investigations.
The trial attorneys for our numerous cases included Adrienne R. Baron,
Barry Coburn (team leader for United States v. Five M Farming Enterprises, Inc.,
et al.), Michael R. Davis, Jacob S. Frenkel, Wil Frentzen, Joseph P. Guichet, Trent
B. Harkrader, Joe M. Hollomon (team leader for United States v. Norris J. Faust,
Jr.), Roscoe C. Howard, Jr., Benjamin B. Klubes, Mark J. Krum (team leader for
United States v. Henry William Espy, Jr.), Kathleen M. Nicolaides, William S.
Noakes, Jr., Robert O'Neill (team leader for United States v. Richard Douglas),
Eduardo G. Roy, Joseph F. Savage (team leader for United States v. Crop
Growers Corporation), and David Schertler. Other attorneys who worked on the
investigative, trial support, and appellate tasks of the Office included Bruce A.
Abbott, Walter F. Becker, Jr., James L. Brochin, Mark S. Brodin, George D.
Brown, Blanche L. Bruce, Kimberly S. Davis, Roberto Iraola, Stephen R.
McAllister, Charles P. Murdter, Nathan J. Muyskens, Allen L. Neelley, Jan
Patterson, Henry H. Rossbacher, David Smith, Elizabeth Taylor, George Van
Cleve, Thomson von Stein, L.C. Wright, and Tracy W. Young. Paul S.
Rosenzweig provided valuable input in the creation and review of this Report. I
was also extremely fortunate to be advised on an as-needed basis by a group of
very experienced attorneys serving without compensation under the title of
Advisory Independent Counsel - Leighton M. Anderson, Joseph F. Barletta,
Anthony R. Corso, Don DeGabrielle, Stephen H. Jigger, Steve Mansfield, George B. Newhouse, Jr., Daniel J. O'Brien, Melvyn H. Rappaport, and Michael I. Spiegel.
The backbone of this office's investigative efforts was a staff of extremely
capable investigative agents. The largest group of these agents came from the
Federal Bureau of Investigation and worked under the guidance of Mark B. Codd,
Supervisory Special Agent, who provided skilled leadership and sage counsel
throughout his tenure. The agents included J. T. Burns (who worked on the
investigation from beginning to end), Peggy Campane, John R. Cantalupo,
Margaret Carmichael, Brian K. Cosgriff, Cynthia A. Falls, Francis X. Gaughen,
Mark A. Grisham, Alexis Hatten, E. Leo Martinez, Carolyn Murphy, and Lawrence
J. Welk. The United States Department of Agriculture Office of Inspector General
also contributed a major contingent of special agents, headed by Supervisory
Special Agent Kim Widup, whose indefatigable determination was contagious and
whose highly skilled services spanned the entirety of the investigation through the
conclusion of all prosecutions. The United States Department of Agriculture
(USDA) agents included Neal H. Hasheider, Derrick N. Hurst, Don Meeks, Stacy
Rubey-deGuerrero, and Pam Taylor. Investigators from other agencies, who
contributed a multiplicity of talents, included Arthur L. Wicks, Ronald DiStefano,
and Stephen C. Dodge of the U.S. Customs Service; Leonard Thill of the
Securities and Exchange Commission (SEC); David P. Cyr of the U.S. Postal
Service; Ray Gregson and John D. Fort of the U.S. Treasury Department/Internal
Revenue Service; and retired F.B.I. agents James T. Burns, Jerry Marsh, Richard
O'Connell, Lewis L. Small, and Robert E. Smith.
The efforts of the attorneys and investigators could not have been as efficient
and effective as they were without the continual support of an excellent staff of
legal assistants. The corps of paralegals was ably and tirelessly headed by Barbara
P. Schultz, and included David L. Dunleavy, Rosemary A. Ficalora, William L.
Hurlock, Jacob D. Kortz, John A. Kruger III, James Lagomarsino, James D.
Manclark, William S. McNish, Brett L. Shelton, Kerry A. Stehn, Josephine J. Tao,
Carly B. Tolchin, Ruth M. Vogelsang, and Denise E. Washington. The law clerks
and legal interns serving our effort included David S. Hochman, Michael C.
Petronio, Lisa A. Rich, Lisa Stern, and Diane E. Wolf.
The work of this office also depended vitally on a talented troop of
accountants, auditors, and financial analysts supporting our efforts. Neill W.
Freeman, Laurence A. Mills, Ellen Faun, Fred Smolen, and James F. Chadbourne
III, provided expert forensic accounting services. Alvin A. Brown of the USDA
and Michelle Biess also provided accounting support. Leonard Thill of the SEC
provided accounting expertise in securities matters. Philip J. Rooney from
beginning to end supplied the accounting support and related advice necessary to
the administration of the office.
A small number of exceptionally skilled professionals provided essential trial
preparation, evidence presentation, and information dissemination services.
Providing jury consulting services were Dr. Donald E. Vinson, Steve Paterson, and
Norma Silverstein; Lorrie Messinger and Gayle Mumm assisted in the preparation
of demonstrative trial exhibits of complex evidentiary materials. Public response
advisors included Eric Dezenhall and Andy Shea; and William P. Kucewicz
provided editing vital to the completion of this Report.
No law office can function without its executive support staff, and we were
particularly fortunate in attracting dedicated and capable workers to fill these crucial
positions. I particularly want to acknowledge the indispensable assistance of my
most talented, tireless, and absolutely dedicated confidential assistant Janice M.
Drake, who also functioned as my secretary, confidant, press officer, and shepherd
for the Final Report. The role of confidential assistant was also briefly and ably
filled by Mae Chauvin, who also contributed as a trial assistant. Elizabeth Ray and
Peggy Thume exhibited total dedication and commitment as they assisted in a
variety of roles throughout the investigations and trials, and in the preparation of the
Final Report. The other helpful and highly effective members of the secretarial staff
included Eileen B. Aarons, Delores "Tiesha" Banks, Christine L. Brown, Judy
Buechner, Danielle L. Cannata, Lauren C. Davis, Angie R. Drehsler, Ann Fisher-Durrah, Frank E. Gillen, Ann T. McLean, Gwendolyn Shuler, Ruth Marion
Tichenor, and Avis C. Wilson. Ably supporting their efforts was a clerical staff,
including Clifton Z. Dameron, Carol Ann Daniel, Eric J. Dominitz, Frances D.
Johnson, Ramona R. Kerley, Thomas A. Kertscher, Joshua E. Miller, David
Tillotson, and Christopher von Stein.
The efforts of the above personnel would not have been possible without a
well-run home office in Alexandria, Virginia (with occasional satellites when
necessary). Fortunately, we were served by experienced administrative personnel
who kept this support structure running at high level of efficiency at all times. The
head of this effort was the office administrator, a role filled successively and always
capably by Carol McCreary-Maddox, Kerry A. Stehn and, since April 1998,
Margaret B. Jackson, assisted for a time by Lauren Daniel Thomas. The satellite
offices were administered in New Orleans, Louisiana, and Jackson, Mississippi, by
Luis Jeffrey Martorell, and in San Francisco by Ruth Vogelsang. The office's
computer network was ably managed at different times by Emmanuel S. Vouvakis,
William L. Hurlock, James D. Manclark, Josephine J. Tao, and, for the past three
years, James A. Reid, Sr., who also bore the responsibility for maintaining the
Office's website. Finally, no office of this scale can function without the jack-of-all-trades who can make everything work whenever and wherever as needed. The
absolutely indispensable Calvin S. Holt, Jr., whose duties and responsibilities far
exceeded his Property Manager title, most ably fulfilled that role in each of our
various offices.
Finally, I wish to acknowledge and publicly thank those citizens who served
as jurors. The grand juries in San Francisco, New Orleans, and Jackson,
Mississippi worked patiently and thoughtfully in consideration of the evidence
behind the indictments we obtained in those cities. In particular, the grand jury in
the District of Columbia labored tirelessly in anonymity to perform its vital
investigatory functions from October 1994 through April 1998. This body, so
essential to any meaningful investigation, met on a weekly basis, sometimes as
frequently as four days a week, to hear testimony and review documentary
evidence. Its patience, insightful countenance, and instructive comments
contributed significantly to our efforts. Similarly, the citizens who served as petit
jurors for our numerous trials deserve recognition for the time and thoughtful effort
they gave as essential participants in our system of justice.
I am immensely grateful to all of these people for their dedication and their
hard work. I am both pleased and proud to have worked in association with the
people in my office for an extended period of time. To each and every one, I
extend sincere thanks and congratulations for a job well done.
Don Smaltz
Independent Counsel
TABLE OF CONTENTS
ORDER
I. INTRODUCTION
A. Summary of Investigation
B. Background Information
1. The United States Department of Agriculture
2. Alphonso Michael Espy
a. Biographical Information
b. Secretary Espy's Knowledge of Ethical Constraints
C. Initial Allegations and Investigations
1. Investigation by the Office of Inspector General, USDA
2. Investigation by the Department of Justice
3. The Attorney General's Application for Appointment of an Independent Counsel
4. White House Inquiry
5. Allegations of Additional Improprieties
6. Appointment of the Independent Counsel
II. THE OFFICE OF INDEPENDENT COUNSEL'S INVESTIGATION
A. Gifts Solicited or Received by Secretary Espy
1. Gifts from Tyson Foods, Inc.
a. The Donors
b. Donors' Interest in Secretary Espy's Official Acts
(1) USDA Food Safety Initiatives
(a) Zero Tolerance for Pathogens
(b) Safe-Handling Labeling
(2) Fresh-Frozen Labeling
(3) Detainment of Chicken in Puerto Rico
c. Gifts Given
(1) Four Seats at a Presidential Inaugural Dinner
(2) The Russellville Weekend Musical Celebration
(3) Scholarship to Secretary Espy's Girlfriend
(4) The Dallas Football Game
(5) Basketball Tickets and Travel Benefits to Assistant Secretary
d. Allegations of Cash Payments from Tyson Foods to Public Officials
e. Summary Timeline
f. False Statements to Federal Investigators
g. Prosecution Decisions
2. Gifts from Sun-Diamond Growers of California and Richard Douglas
a. The Donors
b. Donors' Interest in Espy's Official Acts
(1) Methyl Bromide
(2) Market Promotion Program
(3) USDA Commodity Purchases
(4) Delaney Clause
(5) Teamsters Strike at Diamond Walnut
(6) Forest Service Land Swap (Relating to a Douglas Consulting Client)
c. Gifts Given
(1) Gifts Given by Sun-Diamond
(2) Gifts Facilitated by Douglas
d. Summary Timeline
e. False Statements to Federal Investigators
f. Prosecution Decisions
3. Gifts from Oglethorpe Power, Smith Barney, and EOP Group
4. Gifts From Quaker Oats
5. Gifts From Fernbank Museum
6. Gifts From Robert Mondavi Winery
7. Gifts From Morgan Stanley
8. Espy's Acceptance of Gifts Unrelated to Agriculture
a. Inaugural Party in Espy's Honor and Event Tickets
b. March 1994 Beverly Hills, California Trip
c. $2,800 Monotype
B. Espy's Concealment of Gifts Received
1. False Statements to Federal Officials
a. False Statements to the USDA Inspector General
b. False Statements to the FBI
c. False Statements to the White House Chief of Staff
2. False Statements in Disclosure Reports
3. After-the-Fact Reimbursements
4. Prosecution Decisions
C. Espy's Other Abuses of Office for Personal Benefit
1. Abuses Related to Government Vehicles
a. USDA Lease of Jeep Cherokee
b. Use of USDA Ford Explorer
c. Jeep Payments by Government Contractor
d. Prosecution Decisions
2. Abuses Related to Official Travel
a. Travel Expenses Paid by Subordinates and Others
b. The $71,000 Plane Charter to Facilitate Attendance at a Birthday Party
c. Frequent Travel to Mississippi at Government Expense
d. Prosecution Decisions
D. The Role of Espy's Staff in Avoiding Abuses
1. Instruction and Counseling on Ethical Matters
2. Espy's Reliance on Staff to Prevent Ethical Lapses
E. Henry Espy Campaign Offenses
1. Unlawful Campaign Contributions to Obtain Access to Secretary Espy
a. Henry Espy's Campaign Attracts the Interest of Agribusiness
b. Crop Growers Insurance Becomes Involved in the Henry Espy Campaign
(1) The USDA Role in Crop Insurance Reform Becomes Important to Crop Growers Insurance
(2) Crop Growers Insurance Makes Illegal Campaign Contributions to Henry Espy
(3) Crop Growers Insurance Obtains Access to Secretary Espy
c. Henry Espy Borrows Money to Cover His Campaign Debts
(1) Ferrouillet Arranges a Fraudulent Loan
(2) Secretary Espy Involves Himself in Retiring the Fraudulently Obtained Loan
d. The First Installment of the Loan Is Paid with Illegal Campaign Contributions
(1) Douglas Solicits Illegal Campaign Contributions
(2) Douglas Organizes the 116 Club Fundraiser
(3) Ferrouillet Makes the First Repayment on the Delinquent Loan
e. The Second Installment of the Loan Is Paid with an Illegal Campaign Contribution
(1) Hemmingson Provides a $20,000 Contribution From Crop Growers Corporation
(2) The $20,000 Check Is Laundered
f. Ferrouillet and Henry Espy Make the Final Payments on the Loan
2. Concealment of Campaign Offenses
a. Crop Growers Conceals Its Illegal Campaign Contributions in Its SEC Filings
b. Ferrouillet Makes False Statements to Federal Investigators
3. AFLAC's Illegal Contributions to the Henry Espy Campaign
4. Prosecution Decisions
F. Other Conflicts of Interest Within the Department of Agriculture
1. Ronald Blackley's Earlier Employment with USDA and Congressman Espy
2. Blackley Becomes Espy's Chief of Staff
3. Blackley's Receipt of Funds from Charles Fuller
4. Blackley's Receipt of Funds from David Cochran
5. Blackley's Involvement in USDA Program Fraud by Supporters of Espy
a. Rodalton Hart and Hart Farms
b. Brook Keith Mitchell, Sr. and Five M Farming Enterprises
6. Blackley and Secretary Espy's Efforts on Behalf of Mitchell
7. Blackley's Failure to Disclose Receipts from Agricultural Interests
8. Petition to the Special Division
9. Prosecution Decisions
G. Other Matters Investigated by the Office of Independent Counsel
1. Richard Douglas Mortgage Offenses
2. Irregularities in Secretary Espy's Congressional Campaign Account
a. OIC's Investigation
(1) The Campaign Committee's Initial Infrastructure and the Misuse of Funds
(2) Congressman Espy's Knowledge of the Misuse of Funds
(3) The House Bank Investigation
(4) The Transition Process
(5) White House Interest
(6) Fraudulent Means Used to Replace Campaign Funds
b. Petition to the Special Division
3. Richard Blackmore's Loan Application to USDA
a. OIC's Investigation
b. Prosecution Decisions
4. Thomas Espy's $3. 5 Million USDA Loan Request
a. OIC's Investigation
b. Prosecution Decisions
5. Sun-Land Products' Illegal Campaign Contributions
H. Litigation Regarding Privilege Claims Before the Grand Jury
1. AFLAC's Attorney-Client Privilege Claim
2. The CBS Journalists' Privilege Claim
3. The White House's Executive Privilege Claim
III. PROSECUTIONS, CIVIL ACTIONS, AND REFERRALS
A. The Indictment Process
B. Prosecutions Regarding Gifts to Secretary Espy
1. The Tyson Foods Cases
a. United States v. Tyson Foods, Inc.
(1) The Charges
(2) The Plea Agreement
(3) The Sentence
b. United States v. Jack L. Williams and Archibald R. Schaffer, III
(1) The Charges - The First Indictment
(2) The First Trial
(3) The Order Granting a New Trial
(4) The Charges - The Superseding Indictments
(5) The Second Trial
(6) Post-trial Motions
(7) The Williams Sentence
(8) The Schaffer Appeals
(9) Schaffer's New-Trial Motions Following the Espy Trial
(10) The Schaffer Sentence
2. The Sun-Diamond Cases
a. United States v. Sun-Diamond Growers of California
b. United States v. Richard Douglas
(1) The Charges
(2) Dismissal of False-Statement Counts
(3) The Trial
(4) Post-trial Dismissal
(5) The Plea Agreement and Sentence
c. United States v. James H. Lake
3. The Case Against Former Secretary Espy - United States v. Alphonso Michael Espy
C. The Henry Espy Campaign Contribution Cases
1. The Crop Growers Case - United States v. Crop Growers Corp. , John J. Hemmingson, and Gary A. Black
a. The Charges
b. Pre-trial Dismissals
c. Crop Growers' Plea
d. The Trial
2. The Henry Espy Case - United States v. Henry William Espy, Jr. , Alvarez T. Ferrouillet, Ferrouillet & Ferrouillet, Municipal Healthcare Cooperative Incorporated, and John J. Hemmingson
a. The Charges - Eastern District of Louisiana
b. The Trial - Eastern District of Louisiana
c. Sentencing - Eastern District of Louisiana
d. The Appeal
e. The Charges - Northern District of Mississippi
f. Plea Agreements - Northern District of Mississippi
g. The Trial - Northern District of Mississippi
h. Sentencing - Northern District of Mississippi
D. Prosecutions Regarding Conflicts of Interest within the Department
1. The Case Against Secretary Espy's Chief of Staff - United States v. Ronald H. Blackley
a. The Charges
b. The Trial
c. Sentencing
d. The Appeal
2. The "Mississippi Christmas Tree" Cases
a. United States v. Five M Farming Enterprises, Inc. , Brook Keith Mitchell, Sr. , and Brook Keith Mitchell, Jr.
b. United States v. Norris J. Faust, Jr.
(1) The Charges
(2) The Trial
E. Civil Actions
1. United States v. Smith Barney, Inc. 316
2. United States v. Robert Mondavi Corp.
F. Referred Cases
1. United States v. Sun-Land Products
2. AFLAC (Federal Election Commission)
3. United States v. Richard E. Blackmore
4. United States v. Rodalton Hart
IV. THE EVOLVING LAW OF GRATUITIES
V. FINANCIAL ANALYSIS
VI. CONCLUSION
VII. CHRONOLOGY
-- APPENDICES
-- COMMENT LETTERS
I. INTRODUCTION
In 1961, with regard to proposed legislation governing the receipt of
gratuities by government officials, President John F. Kennedy stated:
No responsibility of government is more fundamental than
the responsibility of maintaining the highest standards of
ethical behavior by those who conduct the public
business. There can be no dissent from the principle that
all officials must act with unwavering integrity, absolute
impartiality and complete devotion to the public interest.
This principle must be followed not only in reality but in
appearance. For the basis of effective government is
public confidence, and that confidence is endangered
when ethical standards falter or appear to falter.
It is axiomatic that the Federal laws and regulations controlling the receipt of
gifts by federal employees and officials implement a fundamental principle of public
service - that federal officials should not use their public office for their own
personal gain or give the appearance that they are not carrying out their official
duties with complete impartiality. The public's trust in the fairness and justice of
federal decision-making is irretrievably compromised when federal officials take
gifts from those whose conduct they regulate and oversee.
If a public official accepts a gratuity - a gift given for or because of an
official act - it calls into question the impartiality of his judgment on matters that
affect the giver. A public official's breach of legal and ethical standards -
standards that prohibit the receipt of gifts from those whom his decisions may
affect - undermines the confidence American citizens must have in the integrity of
their political leaders.
Gift-giving to a public official by those whose conduct he regulates is
pernicious behavior in any context. In matters of public health and safety it is
especially troubling. The United States Department of Agriculture is primarily
responsible for the quality and safety of the Nation's food supply, particularly meat
and poultry. In 1906, Upton Sinclair's famous book The Jungle illuminated the
corruption of public meat inspectors and unsanitary conditions in the meat packing
industry. In response, Congress established a federal meat inspection system and
enacted one of the most stringent anti-gratuity provisions on the books. For nearly
a century, every federal meat and poultry inspector has known that the Federal
Meat Inspection Act, 21 U.S.C. § 622, signed into law by President Theodore
Roosevelt, prohibits the receipt of all gifts, even such seemingly token items as a
Christmas turkey. The safety of the American food supply, and the integrity of
those who ensure its safety, is that important.
But if a poultry inspector on his daily rounds is so constrained, how much
more important is the integrity of the Secretary of Agriculture whose decisions have
nationwide impact? As a high public official, the Secretary of Agriculture is obliged
to perform his job in a manner that is free from self-enrichment, free from
corruption, and free from even the appearance of self-enrichment and corruption.
Public officials are trustees for the American citizenry - they owe America their
honesty, their loyalty and their impartial service.
Perhaps the gravest concern arising from the receipt of gratuities by high
public officials is the uncertainty it creates in the public mind. Typically, nobody
really knows why a public official decides a matter one way or another. In a 1957
review of conflicts of interest, the House Judiciary Committee observed:
More troublesome than outright bribery, however,
because of the obscurity of its motivation and the
subtlety of its effect, is the practice of modern lobbies
indiscriminately to befriend influential officeholders. In its
sophisticated form, this activity never includes a request
for a favor, but limits itself to the extension of amenities
and courtesies in the form of free transportation,
hospitality, and adjuncts to "gracious living." The sole
visible object appears to be the establishment of the
amiability of the lobbyist and his client. (1)
This observation rings especially true when a public official is charged with
balancing conflicting goals and duties - for example, both ensuring the safety of the
American food supply and promoting agricultural business development. When a
public official receives gifts from a regulated business and later makes a decision
affecting that business, the American public can only speculate, from the outside,
whether the gifts received played any role in the decision made. The gratuities laws
are designed to eliminate that uncertainty - the Nation should not be left to wonder
whether its chief food safety official made decisions based upon principle or upon
self-interest.
When public allegations that Secretary Espy solicited and received gifts from
agricultural interests he regulated first arose, the allegations raised a justifiable
concern that Espy's decisions were subject to improper influence. Did Espy's
receipt of more than $12,000 in gifts from Tyson Foods, Inc., the world's largest
meat and poultry processor, affect his decision on safe poultry handling label
regulations that would have cost Tyson more than $30 million? Was the more than
$14,000 that Sun-Diamond Growers of California, one of America's largest
agricultural cooperatives, spent to Espy's benefit a factor in his decision to support
Sun-Diamond's continued use of methyl bromide on its crops, notwithstanding the
contrary recommendation of the Environmental Protection Agency? The American
public should not have to entertain these questions, but Espy's actions brought
them front and center.
The anti-gratuities statutes also protect those regulated entities that truly
desire to conduct their business in an above-board, lawful manner. When a high
public official solicits gifts from those he regulates, even when there is no particular
decision regarding that business pending before him, he places the donors in an
untenable position. Declining to provide the requested gift risks alienating the
federal official, but giving the gift flies in the face of the public interest, if not the
criminal law. Such was the dilemma faced by the president of Quaker Oats, a
company with $180 million of business before the Department of Agriculture, when
Espy (whom he had met only once) called him to ask for the gift of two valuable
basketball tickets. An executive of Mondavi Winery, who was seeking to enlist
Espy's support on a variety of issues, found himself in the same bind when Espy's
advisor called him to ask that Espy be given some wine.
The Office of Independent Counsel (OIC) investigated all these allegations
relating to Espy's conduct, and all other matters related to its jurisdiction that arose
from the investigation. In the end, it brought numerous indictments for unlawful
gratuities, lying and concealment before federal agencies, fraud, and related
offenses. These efforts resulted in 15 convictions (of which nine were concluded
by pleas) and two successful civil prosecutions, although Espy himself was
acquitted of all charges.
There was, in the end, never any doubt that Espy and his family and friends
had taken gifts of substantial value from those whom Espy regulated. Espy's
principal defense, and the defense of those who had given gifts to Espy, was that
the OIC could not prove that the gifts had been given with the intent to influence
any particular, specific decision. Even though the evidence was ample to establish
that the gifts were given to Espy for and because of his official position, in the case
of Espy the jury was not convinced beyond a reasonable doubt that they were
given for or because of a specific official act.
At bottom, the Office's investigation illustrates the destruction of the public
trust arising from the actions of a high public official who places private gain before
public interest. As this Report details, Espy directly and indirectly received from
various agriculture businesses gifts valued at more than $30,000; his chief of staff
concealed payments he received under the table from his former agricultural clients;
his girlfriend solicited and received a valuable scholarship, employment, and travel
and entertainment; his brother received approximately $50,000 in illegal campaign
contributions because he could facilitate access to the Secretary; and Espy and
many of the donors and recipients concealed these gifts from the American public.
In short, this investigation showed how our leaders can be compromised in
their decision-making obligations and how others used unlawful means to influence
public policy. Espy gained substantial personal benefit, receiving a multitude of
gifts from persons and entities whose conduct he was supposed to impartially
regulate. The donors, in return, gained access to Espy; the influence this gave them
over his decisions can never be measured. The integrity of the federal decision-making process, the potential safety of the American food supply, and the
American public's trust in the impartiality of government all suffered.
A. Summary of Investigation
The Office of Independent Counsel's (OIC) investigation into the receipt of
gifts and gratuities by former Agriculture Secretary Alphonso Michael Espy
revealed a pervasive pattern of improper behavior by Secretary Espy and his top
aide, and by persons and companies regulated by or with business before the
United States Department of Agriculture (USDA). The investigation disclosed that,
among other offenses, companies with financially important matters pending before
USDA gave Secretary Espy - either directly or via members of his family or his
girlfriend - numerous gifts in an effort to garner his favor. (A complete list of gifts
OIC found Espy to have received from agricultural interests appears at Section
II.A.)
OIC's investigation culminated in the return of a 39-count indictment against
Espy, charging multiple violations arising out of his acceptance of things of value
from persons and entities regulated by USDA, his concealment of these gifts from
the public, and other abuses of his office. The indictment charged that he had
received more than $30,000 in gifts and benefits from agricultural interests. At trial,
Espy did not dispute receipt of the gifts, but he argued that these gifts did not
affect the decisions he made and that he did not have the criminal intent required for
a conviction. After a two-month trial, the jury found former Secretary Espy not
guilty on all counts.
All told, OIC charged thirteen individuals (including Espy) and six business
entities (2) with criminal violations regarding the provision of gifts and gratuities to the
former Secretary of Agriculture, the concealment of gratuities from federal
investigators, and/or related offenses. Of these, 14 were convicted of or pleaded
guilty to one or more offenses (3), and four were acquitted of all charges (4); one person
was placed into a pre-trial diversion program (5). OIC also instituted civil
prosecutions against two corporations (6) and referred several matters to other federal
enforcement agencies. (7)
In addition to the gratuities given directly to Espy and his girlfriend, the
investigation focused on election campaign contributions given to the account of
Espy's brother, Henry Espy. The donors were persons and companies regulated
by the Department of Agriculture who saw Henry Espy's campaign debt, and
Secretary Espy's personal concern over that debt, as an avenue to gain the
Secretary's favor. Beyond the impropriety of seeking to gain an advantage before
a governmental agency in this manner, many of these contributions and related
activities were substantively illegal under the election laws and other federal statutes.
The illegal contributions exceeded $50,000. Consequently, this area of the
investigation resulted in several prosecutions and convictions.
The investigation further disclosed that Secretary Espy's chief of staff,
Ronald Blackley, accepted money from persons with business before USDA and
concealed this fact from the public, and that Mississippi farmers with ties to
Secretary Espy defrauded USDA of federal subsidies. This part of the
investigation resulted in criminal convictions of Blackley and several persons and
one corporation he had represented.
OIC's investigation led to a number of significant prosecutions. The
investigation of Crop Growers Corporation, then the second-largest private seller
of federal multi-peril crop insurance, led to the first indictment and conviction in an
Independent Counsel proceeding of a publicly-held company and resulted in the
largest fine, $2 million, secured by any Independent Counsel up to the time. OIC's
prosecution of John J. Hemmingson, Crop Growers' chief executive officer, and
Alvarez T. Ferrouillet, a Louisiana lawyer who chaired an effort to retire the
congressional-campaign debt of Secretary Espy's brother Henry, was the first to
charge and convict individuals for money laundering in connection with illegal
federal-election campaign contributions. OIC's investigation later led to the first
conviction in approximately 100 years for giving a gratuity to a sitting Cabinet
member, with the guilty plea of Tyson Foods, Inc., the nation's leading poultry
producer. The plea resulted in a $4 million criminal fine and a $2 million payment
toward OIC's investigative costs. The prosecution of Sun-Diamond Growers of
California, a large, multi-crop agricultural cooperative, resulted in a Supreme Court
decision clarifying the scope of the federal gratuities statute. The civil actions OIC
brought against Smith Barney, Inc. and Robert Mondavi Corporation, Inc. were
apparently the first instances in which an Independent Counsel resolved charges
through civil litigation.
In total, OIC collected more than $10 million in criminal fines, civil
recoveries, and restitutionary orders for the United States Treasury. OIC also
referred three matters to the Department of Justice for prosecution and one matter
to the Federal Election Commission for civil disposition, resulting in the recovery
of an additional $560,000 for the United States.
B. Background Information
The focus of the investigation was Secretary Espy, and the setting in which
he was scrutinized was the Department of Agriculture. The following briefly sets
forth pertinent background information regarding both.
1. The United States Department of Agriculture
The United States Department of Agriculture (USDA), founded in 1862,
became a Cabinet-level department in 1889. The duties of USDA include the
regulation and inspection of the United States food supply, the improvement and
promotion of agricultural development and production in the United States, and the
promotion of United States agricultural products in foreign countries. In 1993,
USDA consisted of more than 43 different agencies and subagencies, (8) and had an
annual operating budget in excess of $65 billion, representing 4.3 percent of the
total federal budget. Its payroll of more than 112,000 staff employees was
exceeded only by four other federal agencies (the Departments of Defense, Health
and Human Services, Treasury, and the Veterans Administration). USDA has
offices or committees in nearly every county in the United States and personnel
stationed around the world.
The USDA departments of particular relevance to the Independent Counsel's
investigation were the following:
The Food Safety and Inspection Service (FSIS): FSIS, the public-health
agency within USDA, is responsible for ensuring that the nation's
commercial supply of meat, poultry, and egg products is safe and correctly
labeled and packaged. It inspects all raw beef, pork, lamb, chicken, and
turkey sold in interstate and foreign commerce, and it regulates production
and distribution to ensure compliance with applicable laws and regulations.
It also provides laboratory-analysis services to inspect samples of meat and
poultry products for disease, contamination, or other forms of adulteration.
The Agricultural Marketing Service (AMS): AMS directs and monitors
a range of activities in the areas of commodity promotion, market news,
agricultural transportation, and product inspection and grading; it also
procures food for domestic food-distribution programs. AMS further acts
to divert commodities or food products from normal channels of commercial
trade to relieve market surpluses, primarily through government purchases,
whenever the Secretary of Agriculture determines such a diversion is
necessary.
The Federal Crop Insurance Corporation (FCIC): FCIC, in
cooperation with various private insurance agencies, provides farmers and
ranchers federally subsidized crop insurance to protect against crop loss
resulting from floods, drought and other natural disasters.
The Agricultural Stabilization and Conservation Service (ASCS):
ASCS administers farm price support programs and conservation cost-sharing programs.
The Secretary of Agriculture, appointed by the President and confirmed by
the Senate, administers USDA. The Secretary is ninth in line of succession to the
Presidency.
2. Alphonso Michael Espy
In late 1992, President-elect Clinton chose Alphonso Michael Espy, a
Mississippi Congressman, to serve as the Secretary of Agriculture in his
administration.
a. Biographical Information
Espy was born November 30, 1953 in Yazoo City, Mississippi, a town
located in the Mississippi Delta. His grandfather had founded a chain of more than
two dozen funeral homes; his father had worked as a USDA county extension agent
in Arkansas during the 1930s and 1940s and had later joined the family funeral-home business in Mississippi. Espy graduated from Yazoo City High School and
earned a B.A. degree in political science from Howard University in Washington,
D.C. in 1975. In 1978, he received a law degree from University of Santa Clara
Law School, near San Jose, California.
Upon graduating from law school, Espy returned to Mississippi, where he
obtained an appointment as the managing attorney at Central Mississippi Legal
Services. In 1980, Espy became an Assistant Secretary of State and Director of
the Mississippi Public Lands Division, a position he held for the next four years.
From 1984 to 1985, Espy served in the Mississippi Attorney General's office as an
Assistant Attorney General in the Consumer Protection Division.
In 1983, Espy first entered the political arena as coordinator in Mississippi's
Second Congressional District for a candidate for Attorney General. The following
year, Espy served on the Democratic National Committee's Rules Committee. In
1986, Espy ran for Congress in Mississippi's Second Congressional District.
The Second Congressional District of Mississippi, geographically one of the
larger districts in the United States, is primarily rural, and agriculture is its main
industry. The district borders the Mississippi River and is approximately 275 miles
long and up to 180 miles wide. It has an estimated population of just under
500,000.
Running on a campaign of reform, Espy defeated two-term incumbent
Republican Congressman Webb Franklin by a margin of 52 percent to 48 percent
and became Mississippi's first black congressman since Reconstruction. Espy
was reelected three times, soundly defeating his opponents in the 1988, 1990 and
1992 elections. In the House of Representatives, Espy served as a member of the
House Agriculture Committee, the House Select Committee on Hunger, and the
Budget Committee. He also served with then-Governor William Jefferson Clinton
of Arkansas on the Lower Mississippi Economic Delta Commission and on the
Democratic Leadership Council.
Espy was an early supporter of Arkansas Governor Clinton in his successful
1992 presidential bid. Following the November elections, Espy actively sought the
Cabinet position of Secretary of Agriculture, and he eventually obtained the
approval of President-elect Clinton. After his confirmation by the Senate, Espy
resigned from Congress and was sworn in as Agriculture Secretary on January 22,
1993.
A divorced father of two, Espy dated Patricia S. Dempsey, an administrative
assistant for an accounting firm in Georgetown and subsequently for the D.C. Aids
Education and Training Center in Washington, D.C., throughout his term as
Secretary of Agriculture. Dempsey met Congressman Espy through a mutual
friend, and the two began dating in February 1992. Dempsey and Espy lived
together for most of the period from October 1992 through June of 1993 and
shared some expenses, as well as an American Express Card account. Dempsey
and Espy continued to date until November of 1995, at which time their relationship
apparently ended. Dempsey became a focal point for several matters investigated
by OIC, as she was the recipient of gifts and a scholarship from entities regulated
by USDA. For a time she worked for a consulting firm lobbying Espy on a variety
of issues, and in that position she intervened with Espy's staff on several
occasions.
Analysis of Espy's financial documents revealed that his annual expenses
increased more than his income after he left Congress to become Secretary of
Agriculture. Although his total income rose from $96,068 in 1992 to $100,172 in
1993, certain of his expenses, particularly credit card and consumer-loan payments,
increased by nearly $30,000 in 1993. In addition, Espy's total debt rose from
nearly $300,000 at the end of 1992 to almost $400,000 at the end of 1993 as the
result of increased mortgage loans, unsecured loans, and credit card debts. Thus,
the things of value he received from agricultural interests could well have been
beyond his means had he been personally obligated to pay for them with his own
resources.
b. Secretary Espy's Knowledge of Ethical Constraints
As a Congressman, Espy had been subject to federal rules and laws
prohibiting the receipt of gifts in certain circumstances. Although these rules
became more restrictive during his tenure in Congress, they were always more
lenient than those imposed on the Executive Branch. When Espy entered
Congress, the applicable ethics rules allowed members to receive gifts valued up to
$100 per year from each person having a direct interest in legislation before
Congress. The rules allowed outside sources to pay for travel, food, and lodging
for a member, spouse, his dependants if the congressman "substantially
participated" in an event. Members also were permitted to receive honoraria up to
$2,000 per event for speaking engagements. However, many of the congressional
rules changed effective January 1, 1991, when bans on honoraria, the solicitation of
things of value from "prohibited sources," and the acceptance of things of value
from prohibited sources, with certain specified exceptions, took effect.
Almost immediately upon his selection as Secretary of Agriculture, Espy
received a variety of memoranda designed to make him aware of the ethical
regulations that applied to his new position in the executive branch. Specifically, he
received materials regarding the prohibitions against gifts to public officials and the
requirements regarding financial disclosure.
For example, on December 29, 1992, within one week of his nomination to
the post of Secretary of Agriculture, Espy received a memorandum from Vice
President-elect Albert Gore's chief of staff summarizing the federal ethics rules.
The memorandum informed incoming administration officials that the ethics rules
required financial disclosure through annual financial disclosure reports
(government form SF-278) and that the rules forbade acceptance of gifts from
prohibited sources, with a few exceptions (such as gifts under $20). On the same
date, Espy also received a memorandum from the transition counsel specifically
regarding inaugural events and gifts. The memorandum warned:
As the Inaugural approaches, it is important that
presidential designees be aware of the federal rules
governing the receipt of gifts by executive branch
employees - including attendance at receptions, parties
and other events.
Additionally, on January 22, 1993, the day Espy was sworn in as Secretary
of Agriculture, a personnel assistant at USDA gave him a copy of the Standards of
Ethical Conduct for Employees of the Executive Branch and told him that "it was
a book he should read." The document stated the ethical regulations regarding the
receipt of gifts by executive-branch officials. These rules generally forbade the
acceptance of things of value from prohibited sources, except for gifts of less than
$20 value, gifts given solely out of friendship, and other minor exceptions. The
rules defined a "prohibited source" as any person or organization that seeks official
action by, does business with, or is regulated by a federal employee's agency, or
that has interests that may be substantially affected by the performance or
nonperformance of the employee's official duties.
Espy does not appear to have considered the executive branch's ethical
restraints significant. On an April 2, 1993 plane flight, for example, Espy discussed
the executive branch's ethical restraints with Environmental Protection Agency
Administrator Carol Browner. Secretary Espy stated (in Administrator Browner's
words) that he thought the tougher ethical standards put in place by the Clinton
administration were "a bunch of junk" and that, in ethics matters, he was going to
conduct himself as he had in Congress.
C. Initial Allegations and Investigations
Allegations of Espy's official improprieties first appeared in a March 17,
1994 Wall Street Journal article entitled "Tyson Foods, With a Friend in the White
House, Gets Gentle Treatment From Agricultural Agency." (9) Tyson Foods, Inc.,
the nation's largest poultry producer and also a pork and beef processor, is based
in Arkansas, the home state of President Clinton. Exploring the apparent close ties
between Tyson Foods and President Clinton, the article reported that the company
was a major Clinton supporter, having flown him on its aircraft and contributed to
his gubernatorial campaigns. Further, according to the article, President Clinton
had received $22,000 for his presidential campaign from Tyson Foods executives
and board members. The article also alleged that Tyson Foods had received very
favorable treatment from Clinton during his tenure as Governor of Arkansas.
With regard to USDA, the article first noted that Don Tyson, chairman of
Tyson Foods, had recently entertained Patricia Jensen, an Assistant Secretary of
USDA, in his skybox at the University of Arkansas in Fayetteville during a college
basketball game. The article quoted Jensen, who was under consideration to
become the USDA official in charge of meat and poultry inspection, as saying that
she felt she was being "looked over" by Tyson.
The article then disclosed that Espy "acknowledged meeting with Tyson
Foods lobbyists 'all the time,'" that Tyson Foods earlier in 1994 had feted Espy at
a Dallas Cowboys football game, and that company executives had contributed
$4,000 to Espy's brother's unsuccessful campaign for Congress. At the same
time, the article alleged, Tyson Foods was enjoying very favorable treatment from
USDA in several aspects of USDA's regulation of poultry and meat: "Few
corporations in America have stronger personal ties to Bill Clinton than Arkansas-based Tyson Foods, Inc., and few have fared better in their dealings with his
Agriculture Department."
The Wall Street Journal article specifically mentioned that a USDA "blitz"
of surprise sanitation inspections of meat-packing facilities over the previous year
had bypassed chicken processors, including Tyson Foods' 66 plants. It also
reported that USDA had favored Tyson Foods' position in a dispute over a
California regulation regarding whether to permit poultry frozen at or above zero
degrees Fahrenheit to be labeled "fresh." The article added that Espy had ordered
USDA employees working on a "zero tolerance" fecal-matter policy for chicken
processing (similar to one he had partially imposed for red meat), to drop the
initiative and turn over their work, including information on computers, to an Espy
aide.
1. Investigation by the Office of Inspector General, USDA
The Wall Street Journal article caught the attention of USDA's Office of
Inspector General (OIG). OIG is a separate agency within USDA charged with
preventing and detecting fraud and abuse in USDA programs and operations and
providing security protection for the Secretary and Deputy Secretary. OIG
investigates alleged or suspected violations of federal criminal law relating to the
employees, programs and operations of USDA and may refer matters to the
Department of Justice (DOJ). OIG is headed by the Inspector General, who
reports directly to the Secretary of Agriculture.
The article prompted OIG to interview Assistant Secretary Jensen on March
21, 1994. Jensen was responsible for USDA's Marketing and Inspection Services,
which included the Food Safety and Inspection Service (FSIS). She was
prohibited by federal law (21 U.S.C. § 622) from receiving gifts from a firm
regulated under the Federal Meat Inspection Act, such as Tyson Foods.
Jensen informed OIG agents that she met Jack Williams, a consultant for
Tyson Foods and the Mid-American Dairymen Association (MADA), in late 1993.
At Williams's invitation, she traveled on January 31, 1994 to Kansas City, Missouri
to address MADA and, the next day, to Fayetteville to visit Tyson Foods. Jensen
said that, while in Fayetteville, she attended a basketball game between the
University of Arkansas and Vanderbilt University, using a ticket that Archibald
Schaffer, Tyson Foods' director of Media, Public and Governmental Affairs
provided to her through Williams. At the game, she met Don Tyson and, after a
brief conversation, sat at the front of Tyson Foods' skybox to watch the game.
Jensen said she insisted on paying for the ticket, and ultimately mailed a personal
check to Williams for $13, the value of the ticket according to Williams.
Jensen said that, on the morning after the game, she gave a speech to
representatives of the Arkansas Poultry Federation and toured Tyson Foods'
facilities. She then flew to Nashville, Tennessee, where she met up with Williams,
who obtained their boarding passes for the flight to Washington, D.C. She
received an upgrade to first class on the flight and sat next to Williams. She
assumed Williams arranged her upgrade through a frequent-flyer program but was
unclear about the details.
On March 22, 1994, the day after their interview with Jensen, OIG agents
interviewed Williams. Williams said he represented issues before governmental
agencies and Congress as a lobbyist for various industrial clients, including Tyson
Foods. He then confirmed that he gave Jensen a ticket to the basketball game in
Fayetteville and provided her upgrade to first class on the flight from Nashville to
Washington, D.C., using his frequent-flyer upgrade stickers. Williams said that
Jensen sent a check to him as reimbursement for the basketball game and that he
endorsed the check to Tyson Foods. Williams stated that he offered to upgrade
Jensen as a token of his goodwill, not as a bribe, and that in his view the "stickers"
had no real value to him. He said he did not submit an invoice to Tyson Foods for
the cost of the upgrade.
OIG Agents asked Williams if he knew anything about Espy attending a
Dallas Cowboys football game with Don Tyson (an incident that had been reported
in the Wall Street Journal article). Williams replied that he did not know whether
Espy had gone to Dallas and attended a football game, except for what he had
heard through rumor and news reports. (10)
On March 22, 1994, on the basis of the information provided by Jensen and
Williams, OIG formally opened an investigation regarding "Gratuities to USDA
officials by Tyson Foods, Inc., Springdale, AR." As to the allegations regarding
Tyson Foods providing football tickets to Espy, OIG concluded that any
substantial investigation of Espy should be handled by DOJ and therefore did not
open a formal investigation into this matter. OIG agents decided, however, to meet
with Espy to question him generally about the items raised in the Wall Street
Journal article, to determine if there was a basis to refer the matter to DOJ.
On March 22, 1994, OIG informed USDA Counsel and Deputy Secretary
Richard Rominger of its need to meet with Espy to discuss the Wall Street Journal
allegations at a mutually convenient time. Two days later, OIG informed DOJ's
Public Integrity Section of the status of its investigation of Jensen and of its
intention to interview Espy. DOJ suggested some questions to ask Espy.
On April 1, 1994, OIG agents interviewed Espy in his office. The agents
first informed Espy of the status of the Jensen investigation and then asked him
about the Dallas football game that the Wall Street Journal article had reported.
Espy said that a week of official travel concluded on Friday, January 14, 1994, in
Lubbock, Texas. The USDA personnel traveling with him returned to Washington,
but Espy remained in Texas for the weekend. Espy stated that he paid for his own
hotel and meals and that on Sunday, January 16, 1994, he attended the Dallas
Cowboys-Green Bay Packers playoff game at Texas Stadium. Espy
acknowledged that Tyson Foods provided him with a skybox ticket and that he
watched the game from its skybox, but he said nothing about his girlfriend meeting
him in Dallas and accompanying him to the game as a guest of Tyson Foods. (11)
Espy further stated that after his office received an inquiry from a reporter
for The Wall Street Journal regarding the game, he asked one of his assistants to
determine the value of his ticket. The day after The Wall Street Journal printed the
article reporting his attendance at the game, Espy reimbursed Tyson Foods $68 for
the cost of his ticket.
After the discussion of the Dallas trip, the agents asked Espy if he had
received any other tickets or things of value from outside sources. Espy stated he
was limiting his response to his acceptance of things from Tyson Foods. He said
that in late spring 1993, after speaking at two graduation ceremonies in Mississippi,
he traveled to Arkansas, where he spoke to the Arkansas Poultry Federation, and
then traveled to a Tyson Foods management training center in Russellville,
Arkansas, where he had dinner and stayed the night. Espy explained that he
received a call the next day from the White House requesting his presence at a
dinner being held for the Cabinet, and that because there were no available airline
facilities Tyson Foods flew him back to Washington National Airport in its
corporate jet. Espy stated that he had USDA reimburse Tyson Foods for the
lodging and the equivalent of a first-class fare for the jet. Espy did not identify
anyone else as accompanying him to Russellville.
During the April 1, 1994 interview, Espy consulted certain documents which
he did not show the OIG agents and which the agents presumed were official
USDA trip itineraries. Espy was asked to provide copies of all itineraries in
support of the two trips discussed, and Espy agreed. The agents informed Espy
that they would prepare a memorandum following the interview and forward it to
DOJ and that the information he provided would be enclosed with the
memorandum. A week later, OIG agents received the itineraries from Espy's
office. As the agents had not seen the original itineraries, they were unaware that
Espy had directed his staff to redact the copies provided to exclude all references
to Tyson Foods and Espy's girlfriend. (12)
On April 19, 1994, OIG's Assistant Inspector General for investigations
formally referred to DOJ both the Jensen investigation and the Espy inquiry. The
referral relayed the relevant facts and the information provided by Espy and stated
in pertinent part:
We are asking that you determine whether the Federal
Meat Inspection Act is applicable to the actions of these
two officials. We also understand that even if you find
that the act is not applicable, the conduct may fall under
the Standards of Ethical Conduct for Employees of the
Executive Branch (5 C.F.R. 2635). Thus, we believe that
these public integrity questions involving two of the
highest officials of this Department can only be resolved
with your prompt guidance and advice.
2. Investigation by the Department of Justice
On April 25, 1994, the Federal Bureau of Investigation (FBI), under the
direction of DOJ's Public Integrity Section, initiated an investigation into the
matters OIG had referred. The investigation differed from a typical Department of
Justice investigation. It was narrowly focused, compulsory process was not used
to obtain documents and testimony, and agents were specifically instructed to limit
their inquiries. The Public Integrity lawyers instructed the agents to be concerned
only about the "receipt of tickets." There was no apparent reason for so limiting
the investigation and for not invoking normal investigative techniques and
procedures. The Independent Counsel Statute, which limits the scope of
preliminary DOJ inquiries, in particular prohibiting the use of compulsory process,
was not then in effect, but DOJ nevertheless adhered to the statute's restrictions. (13)
The FBI interviewed approximately 50 persons, including Espy, Williams,
Espy's girlfriend, Patricia Dempsey, and numerous witnesses from USDA, Tyson
Foods, and other agricultural interests. Information gathered during these
interviews confirmed that Tyson Foods had provided Espy and Dempsey with
tickets and limousine service to attend the 1994 Dallas Cowboys-Green Bay
Packers playoff game. Witnesses further confirmed that Espy, with Dempsey, had
attended a party at the Tyson Foods management training center in Russellville,
Arkansas and had flown back to Washington, D.C. on a Tyson Foods aircraft in
late Spring 1993.
The DOJ investigation also uncovered new information. Credible evidence
suggested that Espy had accepted other, previously undisclosed gifts. These
included tickets to the 1993 National Football League Super Bowl championship
game in Atlanta, Georgia; tickets to a 1993 National Basketball Association finals
game in Chicago, Illinois; tickets to the 1994 Academy Awards ceremony in Los
Angeles, California; and a $500 contribution to a 1993 birthday party for Espy.
FBI agents also heard assertions by senior USDA officials at FSIS, the
agency responsible for food safety and inspection, that they had been ordered in
March 1993 to stop working on the "zero tolerance" inspection system for poultry
they had been developing and to destroy all work produced to date on the matter.
The two members of Espy's immediate staff who purportedly delivered the halt
order, Counselor to the Secretary Kimberly Schnoor and Chief of Staff Ronald
Blackley, told agents that they did not issue such an order.
The FBI and DOJ disagreed sharply on the handling of the additional matters
disclosed in the course of the investigation. Some FBI agents complained about
restraints placed upon them by DOJ Public Integrity attorneys; they wanted
authority to conduct a broader investigation into whether Espy received gifts from
entities other than Tyson Foods and to pursue the "zero tolerance" issue. Internal
DOJ memoranda state that, at a June 7, 1994 meeting between DOJ and FBI, Public
Integrity lawyers wanted to complete the investigation as to "all known gifts" and
decline further inquiry. FBI agents wanted to keep the case open while they
continued to investigate what they believed to be evidence of additional gifts from
other sources.
The outcome was that DOJ authorized the FBI to conduct limited inquiries
for three more days. These limitations on breadth and time limited the FBI's ability
to examine and evaluate the facts fully and increased the likelihood that false
statements Espy and others made to investigators would paint a distorted view of
the facts. (14)
The Public Integrity Section subsequently closed the investigation, despite
the FBI's confirmation that Secretary Espy had received several things of value,
and despite open questions surrounding other gifts and the order to FSIS to halt
work on its "zero tolerance" plan. In a memorandum to the Assistant Attorney
General, Criminal Division, dated June 24, 1994, the DOJ Public Integrity Chief
declined prosecution of Espy for his receipt of gifts from Tyson Foods, stating in
part:
I hereby decline prosecution and close the investigation
of Secretary of Agriculture Mike Espy for violating the
bribe/gift provision of the Meat Inspection Act, 21
U.S.C. § 622. . . . Secretary Espy did violate the statute.
However, in light of the de minimis nature of the
violation; the disproportionality of the mandatory
minimum sentence required by the statute as applied to
this activity; and my firm belief that no amount of further
investigation will make this case more likely than not to
result in a conviction, I have decided to decline. . . .
Public Integrity's decision to close the investigation was reversed by the then
Assistant Attorney General, Criminal Division, on June 30, 1994. In a
memorandum to the file, she expressed concern that DOJ would decline at a time
when the reauthorization of the Independent Counsel Act had been passed by
Congress and was awaiting the President's review. However, neither Public
Integrity nor any other arm of DOJ conducted any further investigation. Instead,
the Attorney General chose to seek the appointment of an Independent Counsel
when the Independent Counsel Statute was reenacted effective June 30, 1994. (15)
3. The Attorney General's Application for Appointment of an Independent Counsel
The Independent Counsel Statute, 28 U.S.C. § 591 et seq., provided special
procedures for the investigation of certain top executive officials (including Cabinet
members such as the Secretary of Agriculture), presidential campaign committee
officers, and, in certain circumstances, members of Congress. It specified the
circumstances under which the Attorney General would conduct preliminary
investigations of these persons and, when appropriate, seek the appointment of an
Independent Counsel to investigate their actions.
The Statute's first enactment in 1978, and its subsequent reenactments,
contained a "sunset" provision that provided for its expiration after five years.
After the statute expired in December 1992, Congress did not reenact it until June
1994. The Clinton administration supported renewal of the statute; Congress held
hearings in 1993 but was unable to reach agreement. In May 1994, the Senate
passed an Independent Counsel Statute that paralleled previous Independent
Counsel Statutes, with certain modifications (e.g., extending the statute to cover
Congress and imposing various fiscal controls on an Independent Counsel). The
House passed the bill on June 21, 1994. President Clinton signed the legislation
into law on June 30, 1994 and stated:
Regrettably, the statute was permitted to lapse when its
reauthorization became mired in a partisan dispute in the
Congress. In fact, the IC [independent counsel] statute
has been in the past and is today a force for governmental
integrity and public confidence.
On August 8, 1994, Attorney General Janet Reno filed an application for the
appointment of an Independent Counsel to investigate Secretary Espy with the
division of the Court of Appeals for the District of Columbia Circuit for the
purpose of appointing Independent Counsels (Special Division). (16) The application
requested appointment of an Independent Counsel with authority to investigate
whether "any violations of federal criminal laws were committed by Secretary of
Agriculture Alphonso Michael (Mike) Espy, and to determine whether prosecution
is warranted." After noting that the source of the allegations against Espy was the
press report of March 17, 1994, the application stated:
Investigation developed evidence that Secretary Espy
accepted gifts from Tyson Foods in the course of two
separate trips, one to Arkansas in May 1993 and one to
Texas in January 1994. The gifts fall into the categories
of entertainment, transportation, lodging and meals. In
total, the gifts amount to at least several hundred dollars
in value.
In addition to the alleged gifts from Tyson Foods, the
Department's investigation also included preliminary
reviews of other instances in which Secretary Espy
allegedly received gifts from organizations and individuals
with business pending before the Department of
Agriculture.
In the application, the Attorney General specifically identified two applicable
criminal statutes: the Meat Inspection Act, 21 U.S.C. § 622, (17) and the gratuities
statute, 18 U.S.C. § 201(c). (18) With regard to the former, she wrote:
Section 622 is a strict anti-gratuity statute which prohibits
any Department of Agriculture employee or officer with
responsibilities under the Meat Inspection Act from
accepting any gift from any person engaged in
commerce, without regard to the intent of the donor or
the donee. . . . [T]he acceptance of non-trivial gifts of
entertainment, transportation, lodging and meals by a
Department of Agriculture official who has
responsibilities under the Meat Inspection Act, from an
entity that is subject to regulation by the Department of
Agriculture, falls within the purview of the statute.
As to the gratuities statute, 18 U.S.C. § 201(c), she wrote that it:
requires proof that a gift was given for or because of
official acts. No evidence has been developed during the
investigation suggesting that Secretary Espy accepted the
gifts as a reward for, or in expectation of, his
performance of official acts.
The Attorney General recommended that the Division grant the Independent
Counsel broad jurisdiction that extended not only to Espy's acts but also to
violations of any federal law by any organization or individual developed during the
Independent Counsel's investigation and connected with or arising out of that
investigation. (19)
4. White House Inquiry
On August 10, 1994, two days after the Attorney General made her
application to the Special Division, the White House publicly announced that it
would ask the Office of Government Ethics to conduct an inquiry into the
allegations of Espy's misconduct. Instead of requesting an Office of Government
Ethics investigation, White House Chief of Staff Leon Panetta asked White House
Counsel Lloyd Cutler to conduct an inquiry.
Panetta later testified that the purpose of the White House Counsel's inquiry
was not to establish whether Espy had committed criminal or ethical violations but
to provide information to the White House about whether Espy had engaged in
conduct that might create an appearance of impropriety and violate the standards
for the Cabinet established by the White House. Panetta stated that he gave
periodic reports of the White House Counsel's inquiry directly to President
Clinton.
The White House Counsel conducted little, if any, independent investigation
of the facts. He relied primarily on press reports to define the scope of inquiry and
on Espy's lawyers to establish the facts. Espy's counsel asserted to White House
Counsel that the allegations of wrongdoing were baseless, principally on the theory
that Espy had reimbursed many of the gifts after public disclosure and had not
performed any favors for the gift-givers.
The White House soon became aware of allegations concerning Espy's
personal use of a USDA-leased Jeep in Mississippi and his girlfriend's receipt of a
scholarship from Tyson Foods. As the White House had not previously been
aware of these two matters, Panetta informed Espy he wanted to discuss them.
On Friday, September 30, 1994, Panetta asked Espy to meet him in the Chief
of Staff's office at the White House. Those present included Panetta, Espy,
Espy's personal counsel, and the new White House Counsel Abner Mikva. Panetta
confronted Espy with the allegations regarding Dempsey's scholarship from Tyson
Foods. Espy told Panetta that he was aware Dempsey had received the
scholarship, that she had mentioned it to him at the time, and that, although he had
expressed some concern about it, no steps had been taken either to decline the
scholarship or to pay it back to Tyson Foods. Espy further told Panetta that
Dempsey did not compete in any way for the scholarship and that he understood a
Washington, D.C. lobbyist for Tyson Foods had arranged it.
Panetta asked Espy about the Jeep that Espy had leased while in Congress
and for which USDA had since assumed the lease payments. Panetta was
concerned that there was no apparent connection between the use of the vehicle in
Mississippi and USDA business. Espy answered that, although it was located in his
old congressional district, he was using the vehicle for purposes related to his
duties as Secretary of Agriculture. Espy also stated that he had approval of USDA
counsel for that use. Espy did not disclose to Panetta that he had represented to
USDA counsel that the Jeep was to be used only in the Washington, D.C. area, and
that counsel had approved its use in Washington, D.C. solely in lieu of a
chauffeured limousine.
Panetta asked Espy whether there were any other matters about which the
White House should be concerned. Espy responded that there were not.
Panetta considered Espy's responses with respect to the scholarship and the
Jeep inadequate and told Espy that he would expect Espy to resign on the following
Monday morning. Panetta and White House Counsel Mikva then went immediately
to President Clinton, informed him of what they had learned in the meeting, and told
him they recommended that Espy resign. The President concurred in the
recommendation. On October 3, 1994, Espy submitted his resignation to the
President, effective December 31, 1994.
On October 11, 1994, Mikva submitted a report on the Espy inquiry to the
President. The report indicated that the President had asked Mikva to examine two
questions in light of the Standards of Conduct for Employees of the Executive
Branch, 5 C.F.R. Part 2635: "(1) whether the President should direct that any
further action be taken with respect to Secretary Espy's conduct; and (2) what
actions should be taken to ensure that similar incidents are avoided by other
Members of the Cabinet." The report reviewed the applicable ethical regulations
and recounted White House Counsel's understanding of the background facts
related to Espy's conduct. Although the report purported to be a "review of these
matters under the Standards of Conduct," it did not reach any conclusions
regarding whether Espy had violated any of those standards. It stated that in light
of Espy's resignation (effective December 31, 1994), his recusal from meat and
poultry issues for the two months remaining in his tenure, his reimbursement for the
things of value he had received, and the institution of further methods to review his
travel, the White House Counsel felt that no further actions should be taken at that
time.
5. Allegations of Additional Improprieties
At about the same time that the Special Division was considering the
Attorney General's request for the appointment of an Independent Counsel and that
White House Counsel was investigating Espy, the press began to report a series of
new allegations against the Secretary, many of which would ultimately be examined
by the Independent Counsel. The following table summarizes the major publicly-reported events that OIC investigated:
| Date |
Publication |
Allegation |
|---|
| August 7, 1994 |
Chicago Star Tribune |
Espy solicited a ticket for a Chicago Bulls playoff game from the President of Quaker Oats. (See discussion at Section II.A.4.) |
| August 7, 1994 |
Des Moines Register |
Sun-Diamond executive threw a lavish party for Espy. (See discussion at Section II.C.2.b.) |
| August 19, 1994 |
New York Times |
Agricultural interests hosted a fundraiser to help Espy's brother Henry retire his campaign debt. (See discussion at Section II.E.1.d.(2).) |
| August 24, 1994 |
Associated Press |
Espy received tickets to the 1994 Super Bowl from the Fernbank Museum in Atlanta. (See discussion at Section II.A.5.) |
| August 27, 1994 |
Atlanta Journal-Constitution |
Espy's brother Henry had applied for, but was refused, a $3.5 million USDA loan guarantee. (See discussion at Section II.G.4.) |
| September 6, 1994 |
Los Angeles Times |
Espy showed favoritism toward Richard Douglas, an old friend who was an executive at Sun-Diamond Growers. (See discussion at Section II.A.2.) |
| September 12, 1994 |
Wall Street Journal |
Espy's Chief of Staff Ronald Blackley intervened in subsidy applications by former clients and Espy campaign contributors (See discussion at Section II.F.) |
| September 16, 1994 |
Washington Post |
Espy met with Oglethorpe Power regarding Treasury's rejection of its plan to pay off a federal loan, shortly after Oglethorpe's consulting firm, EOP Group, hired Patricia Dempsey, Espy's girlfriend. (See discussion at Section II.A.3.) |
| September 17, 1994 |
Los Angeles Times |
Espy made 20 government-paid trips to his home state of Mississippi in his first 20 months in office, many with light official duties. (See discussion at Section II.C.2.c.) |
| September 19, 1994 |
Newsweek |
Investigators were looking into eight contacts between Espy and Tyson Foods, including one shortly before USDA officials said they were told to destroy documents on new regulations opposed by the poultry industry. (See discussion at Section II.A.1.b.) |
| September 19, 1994 |
Associated Press |
Espy kept a government-leased Jeep in Mississippi and used it for personal transportation (See discussion at Section II.C.1.a.) |
| September 21, 1994 |
Associated Press |
Espy had begun reimbursing donors for benefits they had given him. (See discussion at Section II.B.3.) |
6. Appointment of the Independent Counsel
On September 9, 1994, thirty days after the Attorney General filed her
application for appointment of an Independent Counsel, the Special Division
appointed Donald C. Smaltz to the position. Smaltz was a 57-year-old California
trial lawyer who had begun his career as a federal prosecutor, first in the United
States Army, where he served as Captain in the Judge Advocate General's Corps,
and later as an Assistant United States Attorney and Special United States Attorney
in Los Angeles, California. He had been in private practice for 30 years,
specializing in white-collar criminal defense and complex civil litigation. (20)
One week after the Independent Counsel was appointed, Espy issued a press
release explaining that he had been an extremely busy Secretary with an "impressive
record of accomplishments." He said he was releasing his travel schedules, news
stories, speeches and a variety of other materials to provide a detailed account of
his "official activities" while Secretary of Agriculture. Acknowledging that he may
have been "inattentive" to the appearance of impropriety, he flatly asserted that he
had "not violated any laws or ethics regulations" and had "cooperated fully with the
USDA's Inspector General, [and] with the FBI." (21)
Part of the Special Division's function is to specify an Independent
Counsel's jurisdiction, and the jurisdictional grant in this instance tracked the
Attorney General's request. It gave to the Independent Counsel the full power,
independent authority, and jurisdiction to the maximum extent authorized by the
Independent Counsel Reauthorization Act of 1994 (22)
[to investigate] whether Alphonso Michael (Mike) Espy,
Secretary of Agriculture, committed a violation of any
federal criminal law, other than a Class B or C
misdemeanor or infraction, relating in any way to the
acceptance of gifts by him from organizations or
individuals with business pending before the Department
of Agriculture;
[to investigate] allegations or evidence of violation of any
federal criminal law, other than a Class B or C
misdemeanor or infraction, by any organization or
individual developed during the Independent Counsel's
investigation referred to above and connected with or
arising out of that investigation;
to seek indictments and to prosecute any organizations or
individuals involved in any of the matters described
above;
to fully investigate and prosecute the subject matter with
respect to which the Attorney General requested the
appointment of independent counsel . . . and all matters
and individuals whose acts may be related to that subject
matter, inclusive of authority to investigate and prosecute
federal crimes . . . that may arise out of the above
described matter, including perjury, obstruction of
justice, destruction of evidence, and intimidation of
witnesses.
The Attorney General's application for the appointment of an Independent
Counsel referred specifically to Espy's receipt of gifts in possible violation of 18
U.S.C. § 201(c), the general gratuities statute, and of 21 U.S.C. § 622, the gratuities
provision of the Meat Inspection Act. It also recommended that the Independent
Counsel's jurisdiction extend not only to Espy's acts, but also to organizations and
persons involved in those acts and, further, to violations of federal criminal law
connected with or arising out of the investigation.
The Special Division's definition of the Independent Counsel's jurisdiction
did not limit the range of possible offenses into which the Independent Counsel
could inquire. The Special Division adopted the grant that the Attorney General
proposed, and the Independent Counsel's jurisdiction extended to Espy's receipt
of gifts, to the giving of the gifts, and to other criminal violations arising out of and
in connection with the investigation. This broad authority gave the Independent
Counsel both the power and the responsibility to look at a wide range of possible
offenses touching on the receipt of gratuities, including mail and wire fraud under
18 U.S.C. §§ 1341, 1343, and 1346; salary supplementation under 18 U.S.C.
§§ 209 and 216(b); false statements to government officials under 18 U.S.C.
§ 1001; false recording of the gratuities under 15 U.S.C. § 78m(b)(2); failure to
report receipts as required by ethical regulations; and other violations of ethical
regulations to the extent such violations offend other criminal statutes. Later
referrals of related matters compelled the Independent Counsel to address a variety
of violations of other possible criminal statutes, such as the federal election laws.
During the OIC's investigation, the Attorney General and the Special Division
referred a total of five related matters to the Independent Counsel for investigation.
On September 14, 1994, shortly after the Independent Counsel's
appointment, the Attorney General referred as related matters the two allegations
that
(a) Secretary Espy hosted a fundraising dinner,
attended by agricultural lobbyists, the purpose of which
was to retire the campaign debt of his brother; and
(b) Debts of Secretary Espy, including an automobile
loan, were paid by a government contractor.
The investigation of these two matters is discussed in Sections II.E.1.f and
II.C.1.c, respectively.
On October 20, 1994, the Attorney General referred to the Independent
Counsel a third related matter - the allegation that
Secretary Espy was improperly influenced by Tyson
Foods to intervene, in February 1993, on behalf of U.S.
poultry producers in a dispute involving the labeling of
chicken shipped from the United States to Puerto Rico.
The investigation of this matter is discussed in Section II.A.1.b.(3).
On April 1, 1996, upon the Independent Counsel's request and over DOJ's
objection, the Special Division referred to OIC, as a fourth related matter, the
investigation of
any application, appeal, or request for subsidy made to or
considered by the United States Department of
Agriculture, for which Secretary of Agriculture Alphonso
Michael (Mike) Espy and/or his Chief of Staff Ronald
Blackley intervened in the application, approval, or review
process.
The investigation of this matter is discussed in Section II.F.
On October 15, 1996, the Attorney General referred to OIC, as a fifth related
matter, the allegation that
Richard Douglas [the executive of Sun-Diamond Growers
of California who had given gifts to Espy] may have
obtained a mortgage loan in 1993 by making false
representations and submitting false writings and
documents to a broker and a lender.
The investigation of this matter is discussed in Section II.G.1.
Early on in the investigation - in January 1995 - OIC requested the Attorney
General to refer either as a related matter or as an expansion of its jurisdiction the
authority to investigate Tyson Foods' gifts to other public officials. The Attorney
General refused this request. The matter is discussed in Section II.A.1.d. The
Independent Counsel sought one additional referral from the Special Division
concerning irregularities in Espy's congressional campaign account, which the
panel denied on June 12, 1998. The circumstances of this request are discussed in
Section II.G.2.
An Independent Counsel's statutory powers include conducting grand-jury
proceedings and other investigations, participating in civil and criminal court
proceedings and litigation, and appealing any decision in any case in which the
counsel participates in an official capacity. 28 U.S.C. § 594(a)(1)-(3). An
Independent Counsel has authority to obtain immunity for witnesses and to consult
with the United States Attorney in the district where crimes were allegedly
committed. His powers include "initiating and conducting prosecutions in any
court of competent jurisdiction, framing and signing indictments, filing
informations, and handling all aspects of any case, in the name of the United
States." He appoints employees, requests and obtains assistance from DOJ, and
may accept referral of matters from the Attorney General, if the matter falls within
the Independent Counsel's jurisdiction as defined by the Special Division. He is
required, except to the extent inconsistent with the statute, to "comply with the
written or other established policies of the DOJ respecting enforcement of the
criminal laws." 28 U.S.C. § 594(f). He has "full authority to dismiss matters within
[his] prosecutorial jurisdiction without conducting an investigation or at any
subsequent time before prosecution, if to do so would be consistent" with DOJ
policy. 28 U.S.C. § 594(g). (23)
II. THE OFFICE OF INDEPENDENT COUNSEL'S INVESTIGATION
A. Gifts Solicited or Received by Secretary Espy
The Independent Counsel's original mandate centered on allegations that
Secretary of Agriculture Alphonso Michael Espy received gratuities from
agricultural interests, in particular from Tyson Foods, Inc. The Office of
Independent Counsel (OIC) undertook a thorough inquiry into all things of value
Espy received from persons and entities that had an interest in Espy's official
actions and, more generally, in actions of the United States Department of
Agriculture (USDA). In the course of its investigation, OIC uncovered a wide
variety of benefits conferred on Espy, and indirectly on him through his girlfriend
Patricia Dempsey or members of his family, by representatives of companies
subject to USDA regulation who had significant issues awaiting resolution.
The things of value that Espy received from agricultural interests while in
office, and the companies whose agents gave or facilitated the giving of things of
value while they had matters before him, are set forth chronologically in the
following table:
| DATE |
THINGS OF VALUE |
SOURCE |
|---|
| 1/5/93 |
Dinner at Mr. K's Restaurant in Washington, D.C. (estimated value $123) |
Sun-Diamond Growers of California |
| 1/6/93 |
Dinner at Twenty One Federal Restaurant in Washington, D.C. (estimated value $73) |
Sun-Diamond Growers of California |
| 1/13/93 |
Dinner at Le Mistral Restaurant in Washington, D.C. (estimated value $50) |
Sun-Diamond Growers of California |
| 1/18/93 |
Four Presidential Inaugural Dinner seats ($6,000 value) |
Tyson Foods, Inc. |
| 3/14/93 |
Hartman luggage / dinner at Steamers Restaurant in Bethesda, Maryland (estimated value $2,427) |
Sun-Diamond Growers of California |
| 5/13/93 |
$3,100 cash to Secretary Espy's girlfriend for a trip to Greece |
International Nut Council (through Richard Douglas) |
| 5/14-16/93 |
Tyson birthday party in Russellville, Arkansas, including airfare, meals, lodging and entertainment (estimated value $2,556) |
Tyson Foods, Inc. |
| 6/7/93-3/95 |
Employment for Secretary Espy's girlfriend at EOP as "Seminar Planner and Staff Associate" from June 1993 to March 1995 (total compensation of $63,861) |
The EOP Group, Inc. |
| 6/18/93 |
Two tickets to Chicago Bulls-Phoenix Suns 1993 NBA championship game in Chicago (face value $95) |
Quaker Oats |
| 7/6/93 |
Lunch barbecue from Sutton Place Gourmet in Washington, D.C. (estimated value $75) |
Sun-Diamond Growers of California |
| 9/11-12/93 |
U.S. Open tennis tickets and limousines in New York City for Secretary Espy and his girlfriend (estimated value $4,446) |
Sun-Diamond Growers of California |
| 9/18/93 |
Three tickets to Congressional Black Caucus Foundation Annual Awards Dinner in Washington, D.C. (estimated value $1,500) |
Morgan Stanley |
| 9/26-29/93 | Weekend stay at Greenbriar Resort in West Virginia (cost $569) |
American Crop Protection Association (through Michael O'Bannon of EOP) |
| 10/29/93 |
Six bottles of wine (retail price $187) |
Robert Mondavi Winery |
| 11/10/93 |
Two tickets to Washington Bullets-New York Knicks NBA game in Washington, D.C. (estimated value $222) |
Sun-Diamond Growers of California |
| 1/4/94 |
$1,200 per-semester (8 semesters) college scholarship to Secretary Espy's girlfriend (total value $9,600 (of which $1,200 was paid)) |
Tyson Foundation |
| 1/15-16/94 |
Weekend trip to Dallas, Texas, including airfare, limousines and tickets to Dallas Cowboys-Green Bay Packers NFL playoff football game (estimated value $2,271) |
Tyson Foods, Inc. |
| 1/17/94 |
Waterford crystal bowl (estimated value $173) |
Sun-Diamond Growers of California |
| 1/29/94 |
Dinner at the Ritz-Carlton in Atlanta, Georgia (estimated value $50) |
Sun-Diamond Growers of California |
| 1/30/94 |
One NFL Super Bowl ticket (cost of $2,200) |
Oglethorpe Power/The EOP Group, Inc./Smith Barney |
| 1/30/94 |
Four NFL Super Bowl tickets (cost of $857) |
Fernbank Museum |
| 3/8/94 |
Dinner at Kinkead's Restaurant in Washington, D.C. for Secretary Espy and his girlfriend (estimated value $207) |
Robert Mondavi Winery |
| 3/11/94 |
Dinner at Ca'Brea Restaurant in Los Angeles, California (estimated value $77) |
Sun-Diamond Growers of California |
| 4/1/94 |
$10,000 in contributions to the Henry Espy for Congress Committee |
Sun-Diamond Growers of California/Richard Douglas |
Espy's counsel maintained at trial that some donors of these gifts were
personal friends of Espy. Similarly, Espy appeared, in his own mind at least, to
have justified the receipt of many of these things of value on two grounds: that they
were given to his girlfriend Patricia Dempsey, not directly to him or a blood
relation, and that some of the immediate donors were his friends - in particular
Richard Douglas of Sun-Diamond Growers and Michael O'Bannon of the EOP
Group. In his diary, he explored possible "book themes" to explain his legal
difficulties, including the following: "My errors - reliance on non-blood
relationships (Pat) reliance on friendship exception Richard Douglas, O'Bannon."
The "friendship exception" is a reference to regulations promulgated by the
Office of Government Ethics that specifically recognize "gifts based on a personal
relationship" as an exception to the general regulatory prohibition on receipt of any
gifts over $20 in value from prohibited sources. 5 C.F.R. § 2635.204(b). The
regulations provide that such exceptions apply to enforcement of the gratuities
statute, 18 U.S.C. § 201(c)(1)(B). 5 C.F.R. § 2635.202(b). However, the
regulations make clear that this friendship exception is limited:
Gifts based on a personal relationship. An employee may accept a gift
given under circumstances which make it clear that the gift is
motivated by a family relationship or personal friendship rather than
the position of the employee. Relevant factors in making such a
determination include the history of the relationship and whether the
family member or friend personally pays for the gift.
5 C.F.R. § 2635.204(b).
Espy's acceptance of these gifts was not protected by the friendship
exception because the gifts were given for business purposes and paid for by
businesses either regulated by or having matters before USDA. It is immaterial that
the person who presented the gifts on behalf of the companies happened to be
Espy's personal friends. Espy either knew or willfully ignored the source of the
expensive gifts he received.
1. Gifts from Tyson Foods, Inc.
Of all the entities investigated by OIC, Tyson Foods, Inc. was the largest
and best connected to President Clinton. It had direct entree to the White House
through its chairman, Don Tyson, a longtime supporter of President Clinton, and its
chief counsel, James Blair, was described in a White House memo as the
President's "close personal friend." Blair had an office at the corporate
headquarters of Tyson Foods in Springdale, Arkansas.
In December 1992, while still a congressman, Espy sought Don Tyson's
help in being appointed to the new Clinton administration cabinet. After Espy's
appointment, Don Tyson and other Tyson Foods officials subsequently sought to
maintain direct access to and influence with Espy through a pattern of gift-giving,
which began immediately before Espy was sworn in as the Secretary of Agriculture
and continued until shortly before publication of the March 17, 1994 Wall Street
Journal article that reported on these activities. During Espy's first year in office,
Tyson Foods gave Espy, Espy's girlfriend, and Espy's relatives things of value
worth a total of more than $12,000 for or because of official acts performed or to
be performed by the Secretary.
a. The Donors
In 1993 and 1994, Tyson Foods was the world's largest fully integrated
producer, processor and marketer of poultry-based food products. Its market
share of chicken products sold in the United States was approximately 23%. It
also had a smaller beef and pork division. The company's integrated operations
included breeding and rearing chickens and hogs, harvesting seafood, and
processing and marketing poultry, beef, pork and seafood. The company
processed approximately 3.9 billion pounds of consumer poultry and 518 million
pounds of consumer beef and pork during fiscal 1994. Tyson Foods' annual
sales in 1993 and 1994 were approximately $5 billion, with beef and pork
operations accounting for approximately 10% of its business.
Tyson Foods in 1993 and 1994 owned and operated approximately 60
poultry processing plants, 18 of which also processed beef and pork products, in
17 states and three foreign countries. USDA inspected all of Tyson Foods'
slaughtering and processing facilities and pervasively regulated their operations.
The company noted in its annual 10-K report for 1994:
The Company's poultry, beef, pork and Mexican food-based processing facilities are . . . subject to extensive inspection and regulation by the United States
Department of Agriculture.
As Tyson Foods' main lines of business were food processing and
distribution, it had an obvious reason to maintain Espy's receptive ear. The
company was subject to extensive USDA regulation in its everyday operations.
Tyson Foods routinely had numerous matters pending before USDA - matters
that could and did substantially affect the company's operations. During Espy's
tenure as Secretary of Agriculture, pending USDA policy issues had the potential to
affect more than $100 million of Tyson Foods' business.
Don Tyson, chairman of the Board of Directors, owned or controlled
approximately 90% of the voting shares of the company. Don Tyson was a friend
of and political contributor to Bill Clinton when he was Governor of Arkansas and
when he ran for the presidency of the United States. Don Tyson's son, John H.
Tyson, was president of the Beef and Pork Division and a director of Tyson
Foods in 1993.
Archibald R. Schaffer III was Tyson Foods' director of Media, Public
and Governmental Affairs. In this capacity, Schaffer acted as the company's
principal spokesperson and was responsible for overseeing all of Tyson Foods'
dealings with and lobbying of government officials, supervising all contacts with the
press and administering all public-relations efforts. His duties included reviewing
official comments that Tyson Foods' technical department submitted to
government agencies regarding proposed legislation and regulations. He was also
the primary contact between Tyson Foods and two trade associations to which it
belonged, the National Broiler Council and the Arkansas Poultry Federation.
Schaffer reported directly to John Tyson and supervised Tyson Foods'
Washington, D.C. lobbyist, Jack Williams. Don Tyson testified that he expected
Schaffer and his predecessor to advise him on the legalities of his dealings with
government officials, and in this respect Schaffer had let him down.
Jack L. Williams, a registered lobbyist, represented Tyson Foods'
interests before various governmental agencies, including USDA. Williams
reported to Don Tyson, John Tyson and Schaffer. He submitted monthly invoices
for "Legislative Liaison Services" to Tyson Foods, including a flat fee for services
rendered and a non-itemized amount for "additional Washington expenses" that
varied from month to month and that Schaffer reviewed and approved. Williams
also represented other clients before USDA.
The National Broiler Council (NBC), a trade association for the poultry
industry, described itself as "representing the producers/processors of 95% of the
broiler chickens consumed in the United States." Its purpose was to promote
poultry products and maintain a legislative liaison presence with regulatory
authorities and Congress. The $165,000 in annual dues paid by Tyson Foods,
nearly twice those of the next-largest member, comprised 8% of the NBC's annual
budget, making Tyson Foods the trade association's largest and dominant member.
The Arkansas Poultry Federation (APF) was a trade association that
represented the interests of the poultry industry in Arkansas before federal, state
and local government entities. Its membership consisted of poultry processors,
feed manufacturers, commercial egg producers and others. Each member
company paid up to a maximum $15,000 in annual dues; in each of 1993 and 1994,
Tyson Foods, the largest dues-paying member, paid $45,000 reflecting the three
companies it controlled.
The Tyson Foundation, Inc., an entity separate from Tyson Foods, was
formed in 1969 as a not-for-profit Arkansas charitable corporation funded with
Tyson Foods stock. It was organized, in part, to provide college scholarships to
needy students who resided in the vicinity of Tyson Foods' operating facilities. As
the Tyson Foundation stock increased in value, the foundation developed into a
significant charitable education enterprise, with assets in 1995 valued in excess of
$15 million.
After the 1992 presidential election, Mississippi Congressman Espy
approached John Rogers, president of C.B. Rogers, Inc., a large Mississippi
poultry company, seeking an introduction to Don Tyson. Espy was interested in
being nominated as Secretary of Agriculture or Commerce in the Clinton
administration. Because of his position as chairman of one of the world's largest
poultry companies and his reputed relationship with the President-elect, Don Tyson
appeared to be in an advantageous position to influence the new administration's
selection of the Agriculture Secretary. Rogers agreed to arrange the meeting.
Shortly thereafter, Espy, Ronald Blackley (Espy's Congressional district
agricultural representative and future Chief of Staff), Rogers, and Rogers's wife
flew in Rogers's private plane from Mississippi to Little Rock, Arkansas to meet
with Don Tyson.
John Tyson met the group at the airport in Arkansas. Espy, Blackley,
Rogers and John Tyson then traveled to Little Rock for lunch, where Don Tyson
joined them. During lunch, Rogers told Don Tyson that Espy wanted to be a
Cabinet member and urged him to use his influence with the President-elect to
assure that Espy be considered. Espy then informed Don Tyson of his
qualifications for the post and solicited his assistance.
After he became Secretary of Agriculture, Espy occasionally met Don and
John Tyson, primarily at social gatherings and events, and the Tysons made use of
such occasions to lobby Espy on matters of interest. Espy's most frequent
contact with Tyson Foods, however, came through lobbyist Williams, with whom
he frequently met to discuss policy matters affecting Tyson Foods. Espy's
calendar reflects that he met with Williams on at least the five following scheduled
dates: February 3, 1993; March 11, 1993; January 25, 1994; February 16, 1994;
and March 9, 1994. Williams also was known to show up unannounced on other
occasions to meet with the Secretary. Espy's notepads reveal either a meeting or a
telephone conversation with Williams on September 14, 1993, at which time the
topic of attending a Dallas football game came up. Espy also met with Tyson
Foods' governmental affairs director Schaffer from time to time.
b. Donors' Interest in Secretary Espy's Official Acts
The Secretary of Agriculture has a significant role in overseeing the nation's
meat and poultry industries. The Federal Meat Inspection Act (FMIA) (21 U.S.C.
§ 601 et seq.) and the Poultry Products Inspection Act (PPIA) (21 U.S.C. § 451 et
seq.) direct the Secretary of Agriculture to maintain meat- and poultry-inspection
programs designed to assure consumers that the meat and poultry products they
purchase are wholesome and unadulterated. Such inspections were required for
Tyson Foods to market its products. Tyson Foods was subject to numerous
USDA regulations that applied to many aspects of its integrated business, from the
slaughter of meat and poultry through their processing, distribution and sale to the
consumer.
USDA's Food Safety and Inspection Service (FSIS) has the responsibility
under these laws for inspecting both meat and poultry products and the facilities at
which they are produced. As part of its inspections, FSIS routinely monitors for
the presence of microbial contamination in commercial cooked or processed ready-to-eat meat and poultry products to assure they are safe.
FMIA and PPIA further direct the Secretary of Agriculture to assure that
meat and poultry products distributed to consumers are properly marked, labeled,
and packaged. The regulations grant the Secretary broad authority to determine
what must be disclosed on labels bearing the USDA inspection legend. One
important consequence of the Secretary's authority to mandate labeling is that such
mandates preempt inconsistent state and local requirements that might otherwise
restrict the flow of interstate commerce in meat and poultry products. The
Secretary therefore has significant power to limit state and local regulation.
(1) USDA Food Safety Initiatives
Before he was sworn in as Secretary of Agriculture on January 22, 1993,
Espy faced a major public-health crisis. On January 18, 1993, USDA learned that a
virulent strain of E.coli bacteria (E.coli 0157:H7) had caused an outbreak of food
poisoning from hamburgers sold at a fast-food restaurant in Washington state. The
incident captured the nation's attention as more than 500 people became ill and four
died. The E.coli outbreak caused a flurry of activity at USDA and had the potential
to affect severely the meat and poultry industries. FSIS, with the Secretary, was
responsible for coordinating USDA's response to the crisis.
One of Espy's first official acts as Secretary was a February 2, 1993 trip to
Olympia, Washington to meet with state officials and coordinate state and federal
efforts to control the outbreak. Dr. Russell Cross, administrator of FSIS,
accompanied Espy and briefed him on the details of a "two-track" system for
inspection reform that FSIS had had under development since the fall of 1992. Dr.
Cross had publicly disclosed these proposals to industry groups in mid-January
1993, before Espy took office. Soon after his trip, Espy announced his intention to
implement Dr. Cross's two-track program. On February 4, 1993, in a Washington,
D.C. conference with representatives of meat and poultry producers and
processors - including Tyson Foods representative Schaffer - Espy discussed
USDA's response to the E.coli outbreak and stated his intention to proceed with
substantial changes in the inspection systems for both meat and poultry.
The following day, February 5, 1993, before the Senate Agriculture, Nutrition
and Forestry Subcommittee, Espy testified that the then-current meat inspection
practices, which depended on visual examination of carcasses, could not detect
bacterial contamination. Espy said that he was directing USDA "to reinvent every
aspect of meat inspection" and testified that Dr. Cross had prepared a two-track
model for reforming meat and poultry safety procedures, designed to maximize the
effectiveness of the existing program while developing new meat and poultry
inspection regimens for the future. Track I, Espy explained, was to be
"evolutionary," in that it would take advantage of existing scientific technology and
techniques to improve meat and poultry inspection. Track II, he said, was to be
"revolutionary," with a wholly-revamped meat and poultry program capable of
dealing with the dangers posed by various harmful bacteria. Espy outlined a
number of proposed measures he planned to implement promptly, including filling
500 meat-inspector vacancies, using organic sprays more widely to reduce bacteria
on the surface of beef carcasses, and mandating safe-handling instructions on raw
meat and poultry products to heighten consumer awareness.
Dr. Cross, whose testimony followed Espy's, further detailed the two-track
approach. Track I involved the implementation of six initiatives, including
proposals to enhance detection and control measures to develop quantitative risk
analysis to encourage the use of technologies that reduce pathogens, and to
increase consumer awareness of safe food practices by disseminating information
on how best to handle meat and poultry products. Track II called for FSIS to
redesign all USDA safety programs for the future in cooperation with "outside
stakeholders such as Congress, professionals from the public health sector,
consumer groups [and] industry."
Throughout 1993 and 1994, USDA developed and implemented new
measures designed to increase food safety. FSIS increased its inspection of
slaughterhouses. The agency also conducted 90 unannounced inspections of cattle
slaughterhouses and temporarily closed 30 of them. In the fall of 1993, Espy
announced that USDA intended to conduct 1,000 unannounced inspections of meat
and poultry processing plants.
USDA also continued work throughout 1993 on two Track I policies of great
interest to Tyson Foods. First, FSIS refined and implemented a plan for pathogen
reduction on meat and poultry, an effort that acquired the name "zero tolerance."
Second, FSIS worked on developing a consumer education program that would
apply to all meat and poultry products. This effort culminated in an emergency
regulation mandating the use of so-called "safe handling labels" on all not-ready-to-eat products.
(a) Zero Tolerance for Pathogens
The January 1993 E.coli incident focused public attention squarely on FSIS
policies regarding the removal of pathogens from meats during processing. Dr.
Cross's February 5 Congressional testimony announced to the public that FSIS's
response would include maximizing performance of the then-existing system, which
consisted solely of inspection of animal products by sight, smell, and touch.
At the time of the E.coli outbreak, USDA policy required inspectors to take
certain measures with meat or poultry products on which any foreign material was
found. But this policy was not strictly enforced; small amounts of fecal, ingesta,
and milk contamination were allowed to remain on the product. As its first step to
further combat food-borne pathogens, USDA issued a memorandum in early
March 1993 instructing inspectors to enforce strictly USDA's policy precluding
such material from beef carcasses. "A zero tolerance for feces and ingesta is to be
enforced," the memo commanded.
Beginning in February and continuing through mid-March 1993, FSIS
officials met with Espy and his Chief of Staff, Ronald Blackley, regarding
additional pathogen reduction efforts for meat and poultry. When USDA issued
the March 1993 memo in direct response to the E.coli outbreak, it mandated a zero
tolerance policy only as to beef. (The USDA had historically treated poultry
different from beef because foreign material could be trimmed from beef, but not
poultry, without significantly reducing the product's value.) Thus, existing policy
still permitted a certain amount of visible fecal contamination on poultry, sometimes
referred to as "specks."
FSIS had never discovered E.coli on poultry. However, food poisoning
from bacterial pathogens in poultry was a significant problem. Dr. Cross estimated
that on average about 25% of poultry carcasses were contaminated with salmonella,
compared to 1% of beef carcasses. According to Dr. Cross, the fecal material
responsible for E.coli contamination, if present on either beef or poultry, greatly
increased the risk for all pathogens that FSIS intended to eliminate through zero
tolerance, including both E.coli (on beef) and salmonella (on beef and poultry).
Consequently, FSIS worked to develop a comprehensive program to reduce
pathogens and eliminate foreign material from poultry as well as meat.
On March 9, 1993, FSIS officials met with representatives of the poultry
industry to advise them of the zero-tolerance initiative and to seek their input.
Although poultry industry representatives argued that changes in the poultry-inspection process were unnecessary and would cost the industry millions of
dollars, they appeared to view changes as inevitable. Another meeting between
FSIS officials and poultry-industry representatives to discuss zero tolerance was
scheduled for March 11, at which time the industry was to present its thoughts and
recommendations.
On March 10, 1993, interviews with two FSIS officials were reported by the
news media - interviews that apparently had not been pre-cleared by Espy or his
staff. The FSIS officials told the Des Moines Register and CNN that USDA would
soon be issuing a zero-tolerance policy for poultry similar to the one instituted for
beef. The Des Moines Register article said:
The Agriculture Department's decision last week to set a
"zero tolerance" standard for fecal contamination covers
only beef products, and not pork and poultry, officials
have confirmed.
But the USDA plans to issue a similar policy change to
inspectors in pork and poultry plants in the next few
weeks, spokesman Jim Greene said. (24)
The news reports received widespread attention from the poultry industry.
A day later, March 11, 1993, the meeting between the poultry industry and
FSIS resumed as planned. Industry representatives presented their proposal for
tightening the poultry-inspection process. FSIS staff called it unacceptable. The
industry representatives grew angry, voices were raised, and the meeting became
contentious. The industry representatives claimed that the FSIS-proposed poultry-inspection reforms were unreasonable, and the meeting ended in discord.
Later that afternoon, Tyson Foods lobbyist Williams sought and obtained an
audience with Espy in Espy's office. OIC has no direct evidence of what took
place at the meeting. However, Espy later acknowledged that he conferred with
Williams on poultry issues, including zero tolerance, and confirmed that he met with
Tyson Foods' lobbyists frequently. The March 11 meeting with Williams appears
on Chief of Staff Blackley's schedule too, although Blackley has stated that he
does not recall attending the meeting.
The next day, March 12, 1993, Blackley called a meeting with FSIS
personnel. Also in attendance were the acting assistant secretary, who oversaw
FSIS, and Espy's new counselor, Kimberly Schnoor, who joined his staff
approximately two weeks prior to the meeting. The purpose of the meeting was to
discuss the March 10 Des Moines Register article.
Accounts of the meeting vary. According to Schnoor, Blackley led the
meeting. Others claimed that Schnoor led the meeting. In either event, Blackley
and Schnoor, as Espy's most senior advisors, spoke for him. They told the FSIS
personnel that Espy was very upset at being caught off guard about zero tolerance
and that neither they nor he had been aware of the policy of zero tolerance for
poultry. Blackley and Schnoor also said that Espy resented learning about the
initiative from industry. Blackley was especially angry at not having been kept
apprised of this important policy matter. According to several participants in the
meeting, Blackley made his feelings known by yelling at FSIS staff members and
pounding the table.
The four attendees at the meeting other than Blackley and Schnoor stated
that Blackley directed them to stop work on the zero-tolerance program. Also,
according to one FSIS official present at the meeting, Schnoor told the FSIS
personnel that they needed to stop work immediately on the zero-tolerance initiative
and to get rid of all their files on the matter. Blackley reiterated this instruction.
When informed that much of the relevant material was on computer, he told the
FSIS staff members to delete the computerized material. Blackley and Schnoor
then told the staffers that they had acted improperly in meeting with industry about
zero tolerance and talking to the press without approval from Espy's office, and
that until they heard from the Secretary, they were to drop the zero-tolerance
initiative as it related to poultry. According to several participants in the March 12
meeting, approval to proceed was not forthcoming for many months, with the result
that USDA did not announce a zero-tolerance policy for poultry until a year later, in
the spring of 1994.
Schnoor's account of the March 12, 1993 meeting with FSIS differed from
those of other attendees. Schnoor recalled that Blackley called the meeting to
discuss how zero tolerance for meat was being implemented and also to find out
why the news media had reported Espy was implementing a zero-tolerance program
for poultry when Espy was not aware of such a program. Schnoor stated that she
and Blackley did not tell FSIS to hold off on further action to develop zero
tolerance for poultry but did tell FSIS that it should keep the program "highly
confidential" and should not discuss it with anyone outside of FSIS or Espy's
office. Schnoor denied that there was any discussion of destroying any work done
by FSIS on computers or otherwise.
Despite the discrepancies among the various accounts of the March 12
meeting, most of the participants claimed to have a fairly strong recollection of
what had transpired. Blackley's recollection of the meeting, though, was vague at
best. He did not remember when it took place or what it was about, other than that
it had to do with "policy changes in FSIS." He also had no recollection of saying
or hearing that Espy was upset about having been caught off guard regarding zero
tolerance.
On March 15, 1993, George Watts, president of and lobbyist for the NBC,
who dealt with Schaffer, reported that lobbying efforts on zero tolerance occurred
at the "highest levels" of USDA. In a fax to Jim Darazsdi, the chairman of the
NBC, Watts stated:
You are no doubt aware that USDA's Food Safety and
Inspection Service (FSIS) recently published a
memorandum to inspectors-in-charge and plant operators
of beef slaughter and boning plants stating that 'all fecal,
ingesta and milk contamination from any source, must be
trimmed prior to any washing of the carcass.' This has
resulted in great turmoil in beef plants.
The National Broiler Council has been concerned that
FSIS might issue a similar memo on poultry. There have
been several meetings and contacts with FSIS and
Department officials at the highest levels on this matter.
In addition to expressing opposition to such a memo
being issued for poultry, we are trying to make sure that if
a memo should be issued, it would be based on scientific
principles as well as practically achievable goals.
(Emphasis added.)
When interviewed by OIC agents, Watts claimed he was unable to recall to
whom he was referring when he wrote, "Departmental officials at the highest
levels," but it was obvious that this matter was of considerable concern to the NBC
and its leading member, Tyson Foods. In a previous memorandum to Tyson
Foods, dated March 4, referencing a meeting with Espy or his chief of staff
concerning "our . . . point that poultry should be left alone," the NBC lobbyists
reported to Schaffer on the council's efforts and looked to Tyson for strategies
and guidance in dealing with USDA.
As a result of Blackley and Schnoor's March 12 confrontation with senior
FSIS representatives, development work on the zero-tolerance program temporarily
ceased and no further discussions with industry were permitted, absent approval by
Espy's office. Schnoor instructed FSIS to prepare a package discussing pathogen
reduction on beef and poultry to brief Espy. On March 25, 1993, Dr. Cross sent
an explanatory memorandum and supporting information to the Secretary and
requested authorization to proceed. When authorization was not immediately
forthcoming, Dr. Cross authorized FSIS to continue developing in-house
procedures but not to discuss the matter with industry or consensus groups.
In early October 1993, Dr. Cross sent Espy a zero-tolerance proposal
entitled "Clean Poultry Examination." In a meeting in November 1993, Espy
authorized FSIS to proceed, but Espy cautioned "to keep work internal and not
discuss with anyone."
In January 1994, as Dr. Cross was retiring from USDA, he recommended
several proposals for action, the top priority being the development of "Zero
Tolerance for Poultry & Meat Species Other Than Cattle." Next in line for
immediate attention Dr. Cross listed "Microbiological Sampling in Inspection" as
part of the "Pathogen Reduction Program" for meat and poultry, a component of
the second track of his two-track plan for inspection reform.
On March 9, 1994, Espy finally announced a new poultry-inspection system
that included a zero-tolerance policy for poultry contamination. In June 1994, Espy
told the Capitol Hill newspaper Roll Call that USDA's zero-tolerance policy would
now be strictly enforced against meat and poultry producers, characterizing his
March announcement as "an outline of zero tolerance policy for poultry." (25) Espy
acknowledged the gravity of the public-health concerns, noting that "[d]eaths from
all food-borne pathogens are estimated at more than 9,100 each year." (26) In July
1994, USDA formally proposed a zero-tolerance policy for fecal contamination of
poultry. 59 Federal Register 35639 (July 13, 1994). (27)
Tyson Foods was vitally concerned about the effects of USDA's proposed
zero-tolerance-for-poultry plan and objected to the standards. In a comment letter,
Tyson Foods estimated the cost of converting and operating for one year under the
Department's Poultry Enhancement Program at $57.1 million and said recurring
costs after that would run to $39 million a year.
(b) Safe-Handling Labeling
The federal meat- and poultry-inspection regulations in place when Espy
took office in 1993 required only very short and general consumer-protection
labeling statements, such as "Keep Refrigerated," "Keep Frozen," or "Perishable -
Keep Under Refrigeration." The regulations mandated such labels only on
packaged products that required special handling to maintain their wholesome
condition - i.e., products that were uncooked or had not been otherwise processed
to make them ready to eat. From the time Espy assumed office on January 22,
1993 through August 11, 1993, more extensive and detailed safe-handling labeling
was a matter pending his decision.
In early January 1993, USDA officials began publicly to advocate detailed
mandatory safe-handling instructions on the labeling of meat and poultry products.
The issue of requiring labels on meat and poultry products to inform the consumer
how to handle them safely came to Espy's attention shortly after the E.coli
outbreak of January 1993, in a briefing by Dr. Cross on their trip to
Washington state.
Following the E.coli outbreak, at a February 4, 1993 conference with
industry representatives, including representatives from Tyson Foods, Espy
expressed his intention to require detailed safe-handling labels on meat and poultry
products. In his testimony the next day before the Senate Agriculture, Nutrition,
and Forestry Subcommittee, Espy explained that he was going to mandate these
labels on all red meat and poultry to advise consumers how to avoid food-borne
illnesses through proper handling procedures. Dr. Cross, whose subcommittee
testimony followed Espy's, cited the need to "mandate safe-handling instructions
for labels on all raw meat and poultry products"and "[i]ssue instructions to the field
on approval of safe-handling statements for voluntary industry use, pending
mandatory rules."
The following week, a public-interest coalition filed suit to enjoin the
Secretary of Agriculture from affixing USDA's inspection legend to meat and
poultry products, unless it was accompanied by a label warning that the product
might contain harmful bacteria and prescribing appropriate handling and cooking
instructions. On May 5, 1993, USDA and the plaintiffs reached a court-sanctioned
agreement under which the suit was dismissed. USDA agreed to publish, by
August 30, 1993, new labeling requirements, mandating that raw meat and poultry
products bear safe-handling instructions and a statement explaining the importance
of following the handling instructions.
From February through August 1993, FSIS worked to determine what the
safe handling labels should say, a process that included receiving and considering
input from both consumer groups and industry. Aside from questions over precise
language and illustrations, there were two competing schools of thought about the
general content of the labels. Some consumer groups advocated that the labels
should take the form of a "WARNING" notice and advise consumers that eating
improperly handled or undercooked meat could cause sickness or death. The
industry adamantly opposed labels that might scare consumers and argued that the
labels should instruct consumers on how properly to handle and cook meat and
poultry. FSIS ultimately rejected the call for a "WARNING" notice and focused
on how the labels could educate consumers about appropriate handling and
cooking of animal products.
At that time, USDA continued to receive reports of deaths and illness around
the United States from E.coli bacteria. Espy decided to implement safe-handling
labeling in an "interim final rule" instead of following normal notice and comment
procedures, which would have taken longer to implement. By issuing an interim
final rule, USDA caused this new rule to be published directly into the "Rules and
Regulations" section of the Federal Register instead of the "Proposed Rules"
section. 9 C.F.R. §§ 317 and 381. This manner of circumventing the normal, more
lengthy notice and comment process is permitted under the Administrative
Procedure Act when an agency finds that the normal notice procedure is
"impracticable, unnecessary, or contrary to the public interest."
USDA issued the safe-handling interim final rule on August 15, 1993. The
rule required all meat and poultry that was not "ready to eat" to bear labels with
instructions on proper handling, cleaning, cooking, and storing. The rule provided
the following as a sample compliance label:
The rule was to take effect automatically in 60 days (on October 15, 1993)
for raw, partially cooked, or ground meat and poultry. All other poultry and meat
products would be required to have safe-handling labels by January 15, 1994.
FSIS estimated that the cost to the food industry of implementing the regulation
would be between $37.5 and $75 million. The public was given 30 days (until
September 15, 1993) to comment on this interim final rule.
The meat and poultry industries vigorously objected to the proposed labeling
requirements, arguing that the time allowed for compliance was too short and that
compliance would be too costly. In a letter to FSIS on September 7, 1993, Tyson
Foods emphasized that the changes would cost the company $9 million. The
industries asserted that they were not objecting to labeling requirements per se but
rather to the short implementation period. One of the grounds for their objections
was that USDA was requiring three label changes to be implemented at different
times. In addition to safe-handling labels, USDA was requiring meat producers to
add metric measurements to their labels in February 1994, and then to add
nutritional information in July 1994.
In August 1993, Watts of the NBC and Schaffer of Tyson Foods obtained a
meeting with Espy to discuss the labeling issue, even though a pre-meeting
memorandum that Watts drafted pointed out that the Secretary is generally
precluded from discussing regulations in the rule-making stage with the regulated
industry. The following month, on September 8, 1993, Tyson Foods sent a letter
to Espy opposing what it viewed as "the unreasonable short time allowed to
implement the [safe-handling] rule." On September 18, 1993, at a Congressional
Black Caucus dinner in Washington, D.C., John Tyson lobbied Espy to persuade
him of the need to alter the rule.
The American Meat Institute, the National Broiler Council, and Tyson Foods
pressured USDA over the proposed regulation and sought (and later obtained) the
intervention of the Clinton administration. (The American Meat Institute, a national
trade association based in Washington, D.C., represents packers and processors of
beef, pork, lamb, veal and turkey products and their suppliers.) Vice President
Albert Gore received a letter on September 15, 1993 from Senator Dale Bumpers of
Arkansas (28) that Schaffer had initiated and that Tyson Foods had drafted. It
requested the Vice President's review of the labeling matter, explaining the
difficulties Tyson Foods and the industry as a whole would have in implementing
all the proposed changes by the scheduled deadline. Senator Bumpers's letter
noted that
Tyson Foods tells me that the October 15th deadline on
all products would have cost them about $30 million.
Changing the packaging again in February, and then again
in July will end up costing the industry several hundred
million dollars.
The letter found its way to President Clinton, who recognized it as a Tyson
Foods-sponsored request, as he penned a note on the back to his Chief of Staff,
Thomas F. (Mack) McLarty, stating:
Mack - Tyson really encouraged this - looks like a good
idea. Please follow up. See if we can. BC.
Contemporaneously, James Blair, Tyson Foods' chief lawyer, contacted the
White House about the safe-handling labels controversy. On September 20, 1993,
White House Policy and Staff Director Bill Burton wrote to Vice President Gore's
chief of staff, Espy, and White House Domestic Policy Counsel Carol Rasco.
Burton's memorandum, in pertinent part, stated:
Subject: Johnny Tyson's labeling suggestion
Johnny Tyson, through the President's good friend, Jim
Blair, made the following suggestion regarding labeling,
which Johnny believes ties in with our "reinventing
government" effort. He says the USDA is in the process
of making three major food business labeling changes
regarding various items. One of the labeling changes is
due in two months, Tyson says, another in the spring,
and another in July.
Tyson suggests that all three labeling changes be
announced concurrently, so as to avoid making food
processors go through three labeling changes in the space
of a year.
On October 1, 1993, Mark Middleton, an assistant to the White House chief
of staff, wrote a memorandum to Espy's chief of staff, Blackley, suggesting that a
compromise should be adopted to address the concerns of USDA and of the beef
and poultry industries. Three days later, Espy responded to Middleton, agreeing to
adopt Middleton's suggested changes. The letter stated:
Dear Mark:
I received your 10/1/93 memo to Ron [Blackley] on the
safe handling labels - and will move to adopt your
suggested changes on compliance dates, etc.
However, you should understand that when we go
public - there will be shouts of protest from food safety
and consumer groups - and from the families of the E-coli victims. They all believe that we're in the 'pocket' of industry and will use this to validate their position.
There will be a new assault on USDA meat inspection
jurisdiction.
When this happens, I'm going to need someone to talk
with the V.P. I don't mind making the changes - as
long as you are aware of the repercussions. - We are
team players - but you are asking me to catch a short
pass "across the middle."
Respectfully, Mike.
The meat and poultry industry took their objections to the interim final rule to
court, as well. In September 1993, a group of food-industry trade associations
filed a lawsuit and a motion for preliminary injunction in the Western District of
Texas to block the rule's implementation. On October 14, 1993, the court enjoined
USDA from proceeding with the labeling plan. (29) USDA's motion to stay the
injunction was denied, and USDA thereafter withdrew the proposal and submitted a
new proposal under the normal procedures of the Administrative Procedures Act.
As a result of the injunction, USDA filed a new proposed rule on November
4, 1993, with a 45-day comment period. The comment period ended on December
19, 1993. The rule took effect on January 15, 1994 and the labeling rules finally
went into effect on May 27, 1994 - i.e., the deadline initially requested by the meat
and poultry industries.
(2) Fresh-Frozen Labeling
Both the Federal Meat Inspection Act and the Poultry Products Inspection
Act (FMIA and PPIA or, collectively, Inspection Acts) preempt states and local
jurisdictions from imposing any marking, labeling, packaging or ingredient
requirements on federally inspected meat and poultry products that are in addition
to, or different from, those imposed under the Inspection Acts. States and local
jurisdictions may, however, exercise concurrent jurisdiction over meat and poultry
products to prevent the distribution of meat and poultry products that are
misbranded or adulterated under the Inspection Acts. The requirements imposed
by states that maintain meat- and poultry-inspection programs must be at least as
stringent as those under the Inspection Acts.
For years, big processors in the Southeast, such as Tyson Foods, hard-froze their birds for shipping. Regional processors, whose products were not
hard-frozen because they did not have to travel far and therefore could be shipped
at higher temperatures, contended that they were at a competitive disadvantage,
because large poultry firms could undersell them and legally call their frozen
products "fresh." (Poultry that has not been hard-frozen generally commands a
higher retail price than frozen poultry.) The debate over "fresh versus frozen" thus
pitted national against regional poultry marketers.
In 1993, California passed legislation that defined "fresh" poultry as poultry
that had never been chilled below 26 degrees Fahrenheit. This meant that
producers that froze poultry below this temperature for long-distance shipment
could not sell it as "fresh." California's new definition was at odds with USDA
regulations that allowed processors to label poultry "fresh" so long as it had never
been chilled below zero degrees Fahrenheit. The National Broiler Council (NBC),
in which Tyson Foods was a major force, was particularly concerned about the
issue, because it affected the ability of its member processors to sell their products
in California as "fresh."
California maintained that its labeling law was vital to consumer protection.
The NBC, the Arkansas Poultry Federation, and the American Meat Institute,
among others, sued to block enforcement of the California law. By December 27,
1993, Espy was well aware of the litigation.
The NBC approached USDA, urging participation in the court case to
support its claim that the California law was preempted by federal statute. On
February 14, 1994, at the court's request, USDA filed an amicus brief that
supported the NBC argument that federal law preempted California's labeling
requirements. The district court struck down the California law on April 8, 1994,
and the Ninth Circuit Court of Appeals affirmed the decision in December 1994.
Although USDA supported the NBC in the court case, Espy gave conflicting
signals about his own position. In February 1994, Espy told Watts, the NBC's
lobbyist, that he would do nothing to interfere with the lawsuit. On February 10,
1994, Espy directed FSIS to reexamine its policy on use of the term "fresh" on the
labels of raw poultry products. Subsequently, Espy told Senator Dianne Feinstein
of California, who was a member of the Senate Agriculture Appropriations
Subcommittee, that USDA was studying its definition of "fresh."
Concerned about Espy's statement to Feinstein, Watts sent a fax to
Schaffer, Tyson Foods' director of Media, Public and Governmental Affairs, on
March 4, 1994, stating:
Here is a report on today's Senate Ag Appropriations
Subcommittee hearing of FY 95 budget. In addition to
what is reported regarding exchange between Bumpers,
Feinstein, and Espy, the Secretary responded to a
question from Feinstein as follows re 'fresh' issue:
FEINSTEIN: I trust you are continuing to look at it
(USDA's definition of fresh).
ESPY: We are studying the definition of fresh and
frozen and will be coming out with a
definition soon.
As you know, the Secretary as well as others on his staff
told NBC chairman, Ken May and me recently that they
will be in no hurry to review the issue and will do nothing
to interfere with the court case as we attempt to get a
strong opinion on preemption. I don't know why he said
what he did today. . . . It appears the Secretary needs to
get another message about holding off while court case
is pending. (Emphasis added.)
The controversy over fresh versus frozen persisted throughout 1994. On
March 9, 1994, Espy met with Watts, Tyson Foods lobbyist Williams, and Stewart
Proctor of the National Turkey Federation. On May 20, 1994, two congressional
subcommittees requested Espy to appear and testify on the fresh-frozen labeling
debate, but Espy sent Deputy Secretary Rominger in his place.
In August 1995, six months after Espy left office, USDA issued its final rule
in the fresh versus frozen dispute - effective August 1996, poultry was not to be
labeled "fresh" unless it had never been chilled below 26 degrees; poultry
refrigerated between zero and 26 degrees was to be labeled "hard chilled," and
poultry frozen below zero degrees was to be labeled "frozen." However, a
provision of USDA's fiscal year (FY) 1996 appropriations act, enacted October
21, 1995, prevented the final rule from taking effect and prohibited use of any funds
for implementation and enforcement of the rule. Another provision contained in
USDA's FY 1997 appropriations act, enacted August 8, 1996, instructed USDA
within 90 days to issue a revised final rule replacing certain provisions contained in
the final rule originally promulgated in August 1995. Complying with that provision,
USDA published the revised final rule on December 17, 1996, with an effective date
12 months later. Under the revised final rule, now in effect, raw poultry that has
been chilled below 26 degrees but above 0 degrees may contain optional,
descriptive labeling but is not required to be labeled with any specific, descriptive
labeling terms such as "hard chilled."
(3) Detainment of Chicken in Puerto Rico
The July 25, 1994 issue of Time magazine reported that, as a favor to Tyson
Foods, Espy used his influence with Puerto Rico's governor to get 900,000
pounds of Tyson Foods chicken released into the island's commerce after it had
been detained because of a failure to comply with a Puerto Rico Department of
Agriculture (PRDA) labeling requirement. The article reported that Guillermo
Garcia, president of Packer's Provision Company, a Puerto Rican importer of
Tyson Foods chicken, had called Tyson Foods about the detention and "Tyson
Foods officials promised swift action." Time quoted Garcia as stating:
We expected a good result because of Tyson's support
of Clinton . . . but we were told that it wouldn't look
good for Tyson to seek Espy's help directly. For that,
we were told, the National Broiler Council would be used
as a kind of shield.
Garcia denied the statements attributed to him in the Time article and
asserted that the quotes attributed to him were either fabricated or taken completely
out of context. He also wrote to Time, denying that he had sought and obtained
Tyson Foods' intervention with the federal government regarding the detained
chicken.
On August 18, 1994, a member of the Puerto Rico House of Representatives
wrote Attorney General Janet Reno, transmitting a resolution calling for an
investigation of the allegations in the article. Deputy Assistant Attorney General
John C. Keeney sent a copy of the letter and the accompanying resolution to the
Independent Counsel on October 20, 1994 "for whatever action . . . deem[ed]
appropriate." Upon receiving the referral, OIC commenced an investigation into its
allegations.
OIC's investigation disclosed that on January 20, 1993, one day before Espy
was sworn in, PRDA inspectors began detaining loads of frozen chicken entering
the commonwealth if they were not properly labeled in accordance with PRDA's
newly revised Market Regulation No. 8 (MR8) - i.e., if they did not bear the name
of the importer. By early February 1993, PRDA had officially detained a
substantial amount of frozen chicken, including about a million pounds produced
by Tyson Foods. A large quantity of chicken produced by the Boston Sausage
and Provision Company had also been detained. While there was little chance that
the product would thaw or spoil, the companies needed the matter resolved,
because the seizure affected their purchasing, pricing and shipping options. Boston
Sausage offices called the Secretary of Agriculture's office numerous times. The
NBC also became involved.
NBC President Watts learned of the detention around January 20, 1993.
Watts said that he "probably" discussed the matter with Schaffer and with Charles
Clark, Tyson Foods' vice president for International Marketing, but that he had no
specific recollection of doing so. Watts also contacted USDA officials, including
possibly Espy's chief of staff, Ronald Blackley, about the detention. On February
1, 1993, NBC's Executive Committee authorized the filing of a lawsuit challenging
MR8. At the time, Watts stated that Espy had spoken with Puerto Rico's governor
about the issue but that nothing had been resolved.
At a convention of poultry producers in Atlanta, Georgia, Garcia informed
Roy Brown, Tyson Foods' vice president for Sales & Marketing, and Clark about
the detention of the chicken. According to Garcia, neither Brown nor Clark
expressed any real concern.
Before a grand jury, Brown acknowledged meeting Garcia at the conference
but had no recollection of discussing the Puerto Rico chicken detention with him.
In grand-jury testimony, Clark recalled Garcia mentioning the issue to him in
Brown's presence but maintained that it was not a "big part" of their discussion.
Clark's impression was that the matter was "another slight interruption in business
that would be cleared up," and he was not overly concerned, because Tyson
Foods' distributor bore the risk of loss of the detained chicken. Brown and Clark
further testified before the grand jury that they had no contact with USDA about the
Puerto Rico chicken detention and that they were not aware of any contact between
Tyson Foods and USDA on the issue. No USDA official has contradicted their
testimony.
Documentary evidence, however, is inconsistent with Brown's and Clark's
testimony regarding the significance of the issue to Tyson Foods. On February 2,
1993, Clark wrote a memorandum to NBC's counsel, explaining that the new MR8
labeling requirement "create[d] a major problem in feasibly supplying Puerto Rico
with chicken . . . [because it] [wa]s a non-tariff barrier to trade." Brown was sent a
copy of the memorandum. Brown and Clark both testified that James Darazsdi,
chairman of the NBC, said he did not have any conversations about MR8 with
Leland Tollett, Tyson Foods' chief executive officer and a representative to NBC's
Board of Directors, outside the discussions at NBC Board meetings. Tollett,
however, testified that NBC assisted Tyson Foods with the chicken detention
"problem." Tollett did not recall any direct contact with USDA by Tyson Foods.
USDA Chief of Staff Blackley advised Espy, probably on February 1, 1993,
that a Philadelphia sausage company had called about its chicken being detained in
Puerto Rico and had requested that Espy discuss the issue with Puerto Rico
Governor Pedro Rossello at the National Governors' Association dinner they both
would be attending that evening. At the dinner, Espy met Rossello and mentioned
to him that there was an issue concerning the detention of poultry in Puerto Rican
ports. The governor responded that he would look into the matter. Because
Rossello was unaware of the problem, he asked that an explanatory letter be faxed
to him at his hotel.
On February 2, 1993, Espy sent a letter to Rossello at his hotel, noting that
MR8's requirement that the name and address of the importer must be on all
poultry products imported into Puerto Rico was preempted by the federal PPIA.
A telephone message slip, dated February 2, from Rossello's chief of staff, Alvaro
Cifuentes, to Blackley at USDA states: "[W]ill comply w/secy's letter to the
Governor on the poultry situation - not aware of what was going on - have been in
Wash."
Cifuentes told investigators that after Rossello asked him at the dinner if he
knew anything about the chicken detention, he called PRDA Secretary Neftali Soto-Santiago (Soto) to inquire about the status of the chicken. Cifuentes said he
believes he did not advise Soto of Espy's interest but instead simply called him to
obtain information.
Soto stated that he received a copy of Espy's letter to Rossello on February
26, 1993. Approximately three weeks before, however, on February 3, 1993, after
meeting with local chicken producers and importers, Soto had issued a 30-day
waiver, allowing poultry products detained on the docks or in transit by sea to enter
without the necessity of a label bearing the name and address of the importer.
The poultry industry continued to complain about MR8, and in mid-February
the NBC informed Soto that there were four provisions in MR8, including the
labeling requirement, that created trade barriers in violation of federal law, and that
the NBC would commence legal action if its concerns were not addressed. As a
result of this discussion, Soto issued another 30-day waiver, followed by a 90-day
waiver, of the labeling requirement. After further discussions, PRDA agreed to
extend indefinitely the waiver of the labeling requirement and to review MR8 with
respect to the concerns raised by the NBC.
By letter dated April 8, Soto advised Espy that he had waived
implementation of the requirement until at least June 3, 1993 and that negotiations
were underway with NBC and others to avoid further litigation and preemption
problems. On June 10, 1993, Soto issued a permanent waiver of the MR8 labeling
requirements. He did so to avoid suit with the NBC and a possible unfavorable
court ruling, and because he believed the labeling requirement disadvantaged small
Puerto Rican importers. Soto asserted that Espy's letter to Rosello had no impact
on his decisions in this matter.
On July 1, 1993, Espy wrote Soto to advise that USDA had formed a
committee to review new amendments to MR8 and to consult with PRDA about the
regulation. After reviewing MR8 and proposed revisions to the regulation, USDA
general counsel's office advised Puerto Rico in November 1993 that the regulation
still contained provisions that were preempted by the PPIA.
With respect to the Puerto Rican chicken detainment, Tyson Foods and
other members of the poultry industry clearly had an interest in Secretary Espy's
role in the dispute. While Secretary Espy's actions were responsive to the
industry's concerns, the extent to which Tyson Foods attempted to influence his
actions proved to be inconclusive.
c. Gifts Given
During the period January 18, 1993 through January 16, 1994, Tyson Foods,
through its officers and agents, gave illegal gratuities to Espy totaling approximately
$12,000. Tyson Foods' gifts to Espy, his girlfriend, and his family included the
following: (1) four tickets to the January 18, 1993 Presidential Inaugural Dinner at
the Sheraton Washington Hotel in Washington, D.C., valued at $6,000; (2)
transportation to and hospitality at a weekend-long musical celebration at the Tyson
Management Development Center in Russellville, Arkansas, on May 14-16, 1993,
valued at approximately $2,556; (3) a $1,200 Tyson Foundation scholarship check
to Patricia Dempsey, Espy's girlfriend, dated January 4, 1994, for the first semester
of an eight-semester academic program: and (4) airline tickets for Dempsey and
skybox tickets, food and limousines for Espy and Dempsey for the Dallas
Cowboys-Green Bay Packers National Football League playoff game in Dallas,
Texas on January 16, 1994, valued at approximately $2,271. Tyson Foods also
provided USDA Acting Assistant Secretary for Marketing and Inspection Services
Patricia Jensen with an airline ticket upgrade and a ticket to a University of
Arkansas college basketball game, which she attended as a guest in Tyson Foods'
skybox.
While OIC's investigation did not reveal evidence that Espy agreed to
change any specific decisions because of these gifts, Tyson Foods subsequently
admitted in pleading guilty to gratuities offenses that it gave these gifts for or
because of Espy's official acts.
(1) Four Seats at a Presidential Inaugural Dinner
On December 7, 1992, Schaffer submitted a Tyson Foods check request
for $30,000 for the purchase of two tables (with 10 seats each) at the January 18,
1993 Presidential Inaugural Dinner at the Washington Sheraton Hotel in
Washington, D.C. On December 23, 1993, he submitted a second Tyson Foods
check request in the amount of $15,000 for the purchase of a third table at the
dinner. Four of these 30 seats were provided to Secretary-designate Espy. On
January 15, 1993, Schaffer circulated a memorandum to the "Tyson Inaugural
Team," confirming that Espy, Dempsey, and two of Espy's siblings (Jean Espy
Geralds and Henry Espy) were invited as Tyson Foods' guests at the inaugural
dinner and noting that the seats cost $1,500 each. On a separate memorandum,
Schaffer by hand wrote: "Archie Schaffer will pick up and distribute" the tickets
for each guest. Schaffer's memorandum also stated that Tyson Foods would host
a private party at the Bayou, a club in Georgetown, on the same night, following the
inaugural dinner.
On December 29, 1992, Secretary-designate Espy received an admonition
from the transition counsel that warned:
As the Inaugural approaches, it is important that
presidential designees be aware of the federal rules
governing the receipt of gifts by executive branch
employees - including attendance at receptions, parties
and other events.
Richard Douglas, senior vice president of Sun-Diamond Growers of
California, claimed he invited Espy and Dempsey to sit at a Sun-Diamond-purchased table at one of the presidential inaugural galas. However, according to
Douglas, Espy declined because he understood that "the White House did not want
administration officials to be guests of any private interest groups."
As a Cabinet appointee, Espy was invited to attend one of the inaugural
dinners as the guest of the President and Vice President. Espy was invited to the
Vice President's dinner at the National Building Museum. Espy and Dempsey
nonetheless attended the inaugural dinner at the Washington Sheraton as guests of
Tyson Foods and sat at one of the Tyson Foods' tables, with Don and John
Tyson and Schaffer, among others. Two of Espy's sisters (Laverne Espy and Jean
Espy Geralds) also attended the event and sat at another of Tyson Foods' tables,
with Tyson Foods lobbyist Williams. Although their attendance was beyond
question (they appeared in photographs taken at the time), both claimed to have no
significant memory of the event. (30)
After the inaugural dinner, Espy and Dempsey attended a Tyson Foods private
party at the Bayou.
(2) The Russellville Weekend Musical Celebration
On March 29, 1993, the Arkansas Poultry Federation (APF) invited Espy to
its June 4 and 5 Poultry Festival in Hot Springs, Arkansas. The festival customarily
drew more than 4,000 attendees. Espy declined on April 20, 1993. However, the
next day, on April 21, 1993, Don Tyson sent Espy an invitation to a weekend-long
musical celebration to be held at Tyson Foods' management training complex in
Russellville, Arkansas from May 14 through May 16. The invitation listed events
spanning three days.
With this invitation, Don Tyson sent Espy a handwritten note, stating:
Mike - Next week you will get an invitation from
Arkansas Poultry Federation for May 15 Meeting. -
David P[ryor] and Jim Sasser and maybe one more
couple will be on the airplane with you and we will take
you back on Sunday.
The text of the note clearly suggests that it followed an earlier communication
between Don Tyson and Espy and that arrangements had been or would be made
for Espy's travel to and from the party via a Tyson aircraft.
A blind carbon copy went to "A. Schaffer," with a note from Don Tyson's
secretary that read:
Archie: This letter was sent with the party invitation to
Mike Espy.
At the time Don Tyson invited Espy to Arkansas, APF had no event planned
in Russellville. However, on April 26, 1993, five days after Don Tyson sent Espy
the invitation to the birthday party, Don Allen, APF's executive vice president,
wrote to invite Espy to speak at a "short meeting," sponsored by APF, to be held
in Russellville on May 15, 1993. According to Allen, someone at Tyson Foods
had telephoned him and told him that he should have a meeting in Russellville and
invite Espy. On the same day, Allen also circulated a memo to APF board
members, informing them that Secretary Espy would be in Arkansas on May 15
and inviting them to meet with the Secretary. Allen sent the original invitation via
United Parcel Service overnight delivery, not to Espy but to Schaffer, who then
mailed it to Espy from Tyson Foods' headquarters in Springdale, Arkansas. On
April 27, 1993, Schaffer also faxed a copy of the letter to Espy at USDA.
When questioned by OIC, Allen recalled that someone from Tyson Foods
told him that Espy was available, and that Allen should set up a meeting in
Russellville and invite Espy. Don Tyson thus had informed Espy that he would be
invited to attend an official APF event even before APF itself had scheduled such
an event, and APF then extended an invitation to Espy at the request of Tyson
Foods. The circumstances clearly implied that Tyson Foods officials initiated the
APF event to create an official reason for Espy to be in Russellville the weekend of
the Tyson birthday party.
After Schaffer faxed the APF invitation to USDA, Espy's travel coordinator,
Betty Stern, made arrangements with Schaffer for Espy's attendance at the APF
meeting. Schaffer provided Stern a stream of false information about the event,
which made it appear that Espy would be attending a meeting and weekend-long
conference, without any mention of the birthday celebration. On May 5, 1993,
either Schaffer or his secretary told Stern that the APF meeting would have about
150 attendees, that it would last from 9:00 a.m. until 5:00 p.m. on May 15, 1993,
and that it would be followed by a dinner with Senator James Sasser (of
Tennessee) and Senator David Pryor (of Arkansas). The timing and description of
events reported to Stern were completely inconsistent with what actually occurred -
a "short meeting," held for only 15 to 20 attendees, that lasted about 45 minutes.
As a result, the Secretary's itinerary reflected an all-day business meeting,
permitting Espy to remain on official business status in Arkansas through the
following day. Schaffer further informed Stern that there would be a charter plane
available on Sunday to transport Espy, along with Senators Pryor and Sasser, back
to Washington, D.C.
On May 11, 1993, Stern faxed Schaffer a note inquiring about, among other
things, the agenda for the APF meeting, details regarding the charter plane and the
location at which Espy and his security agent would stay the evening. Stern's note
stated that USDA would expect to be billed for two first-class tickets (for Espy and
his security agent), plus $1.00, so the government could reimburse the cost of the
airfare. On the same day, Schaffer instructed Don Tyson's personal assistant to fill
out a corporate aircraft request for a plane to carry passengers from Washington,
D.C. to Russellville, Arkansas on May 14, 1993 and return passengers to
Washington, D.C. on May 16, 1993. Schaffer told the assistant to add "one other"
to the list of passengers flying to Russellville on May 14 and indicate "M[ike]
Espy" and "one other" on the return flight to Washington on May 16. The "one
other" for whom Schaffer requested seating was Patricia Dempsey, Espy's
girlfriend.
Schaffer replied to Stern's facsimile the following day. Without mentioning
the Tyson birthday party, he described a "conference of the leadership of
Arkansas's poultry industry, who are meeting over this weekend," and stated that
"the meeting will run throughout the day Saturday." Schaffer provided information
on the charter plane, without disclosing that Tyson Foods owned the charter, and
listed the other passengers on the charter, without naming Dempsey. (31) He stated
that APF would bill USDA for the airfare. These representations concealed the true
nature of Espy's travel. As a result, Stern, who was responsible for the Secretary's
official expense vouchers, believed that Espy was on official business throughout
his trip to Russellville. The false information Schaffer provided Stern resulted in
the following being issued as Espy's official itinerary for May 15:
| 2:45 p.m. CDT |
Arrive Russellville, Arkansas, Municipal Airport. Met by Don Allen, Exec. Vice President, Arkansas Poultry Federation, and Archie Schaffer, III, Director of Media for Tyson Foods, Inc.
CONTACT: Russellville Aviation. PHONE: 501-968-4013
|
| 2:55 p.m. |
Leave for Arkansas Tech University. Driver: AR Poultry Fed.
Arrive Arkansas Tech University. Informal presentation to members of Arkansas Poultry Federation re future of poultry industry in light of anticipated changes in regulations coming from the state and federal government. (Approx. 150; closed to press.)
CONTACT: AR Tech Univ. PHONE: 501-968-0389.
(AR Poultry Fed. Contact: Archie Schaffer 501-756-4000)
|
| 7:30 p.m. |
Arkansas Poultry Federation Dinner with Senator Pryor.
OVERNIGHT: Tyson Management Development Center
PHONE: 501-968-4570 |
Espy did, in fact, go to the May 15 APF meeting, which was attended not by
150 people as Schaffer indicated to Stern but by 15 to 20 persons, including
Schaffer and others from Tyson Foods. There was no APF dinner as indicated in
Espy's official itinerary. Schaffer, other Tyson Foods officials, and Espy then
drove to the Tyson Management Development Center for a lavish, weekend-long
"musical celebration," which included entertainment by celebrity musicians. Allen,
who had invited Espy to the APF meeting, claims not to have known that Espy
would attend the Tyson event until he saw him there. Dempsey had arrived in
Russellville the night before on the Tyson Foods plane Schaffer had requested and
stayed with Espy upon his arrival. On Sunday, May 16, Espy and Dempsey flew
back to Washington, D.C. on the Tyson Foods jet.
After the party, Schaffer continued to represent that Espy had only attended
an APF function. On June 30, 1993, Stern faxed Schaffer a request for bills for the
Secretary's travel and lodging. Although a Tyson Foods corporate aircraft flew
Espy and Dempsey and they stayed at Tyson Foods' management training
complex, Schaffer had Allen of APF prepare APF invoices to USDA for the
lodging and airfare, giving the appearance that APF had provided these services.
Schaffer then submitted the invoices to Stern.
Stern included APF's invoice for $69.55 in lodging costs on Espy's travel
claim for the Russellville trip. Espy received reimbursement from USDA on
August 23, 1993, but he did not then reimburse APF or Tyson Foods for the
lodging. Ten months later, on June 11, 1994, one day after agents from the FBI
interviewed him about the Russellville trip, Espy wrote APF a $69.55 check for the
lodging in Russellville.
On September 13, 1994, Dempsey sent Don Tyson a check representing, in
part, reimbursement of $830 for airfare to and from Russellville and $69.55 for
lodging in Russellville. The check was returned because of insufficient funds. On
November 17, 1994, Dempsey's attorney sent Tyson Foods a letter withdrawing
the offer of reimbursement and asking that the check be sent back to her. (Espy
and Dempsey's reimbursements are discussed in Section II.B.3.)
When OIG agents interviewed Espy in 1994 about his receipt of gifts from
Tyson Foods, he did not disclose that he had attended a Tyson Foods event on
this occasion. He instead stated that he was at an APF dinner at a Tyson Foods
facility. He similarly did not disclose that Dempsey was with him.
Espy's own contemporaneous writings are inconsistent with his statements
to the OIG agents. In his legal pads, for the date "4/27/93," within a list of things
to do, Espy wrote:
Schedule b'day party - Ark.
Furthermore, in his pocket calendar, Espy noted "Tyson," rather than "APF,"
for the afternoon of May 15, 1993 and the morning of May 16, 1993.
(3) Scholarship to Secretary Espy's Girlfriend
On September 18, 1993, Espy and Dempsey attended a Congressional Black
Caucus Dinner in Washington, D.C. John Tyson, Schaffer and Tyson's lobbyist
Williams also attended. During the course of the dinner, John Tyson approached
Espy to lobby him with regard to USDA labeling requirements for poultry. Espy
told John Tyson that there was nothing he could do about the regulation. Williams
was within earshot of this discussion. After Espy walked away, John Tyson began
speaking with Dempsey and, upon learning that she was planning to attend college,
told her that she would qualify for a Tyson Foundation Scholarship.
Following the Congressional Black Caucus Dinner, Williams met with Espy
at USDA and, during the course of the conversation, mentioned that he was aware
that Dempsey was interested in going to college and in obtaining a scholarship.
According to Dempsey, Espy told her that he told Williams he should take that
issue up with Dempsey, not with him. One witness testified that Espy had urged
Dempsey not to accept the scholarship because of his regulatory authority over the
company, but that she insisted that she could accept it if she wanted to.
Dempsey followed up on this offer on November 22, 1993, when she faxed
Williams a letter addressed to John Tyson, inquiring further about the scholarship
and stating that she would be enrolling in college in January 1994. She asked
Williams by telephone whether she would meet the residency requirement that
applicants live near Tyson Foods facilities. Williams replied that she did not have to
worry about it. Williams forwarded Dempsey's letter to John Tyson at Tyson
Foods. On December 10, 1993, the Tyson Foundation faxed an application to
Williams, and Williams faxed the form to Dempsey that same day. On December
21, 1993, Dempsey faxed the completed application to the Tyson Foundation. On
January 3, 1994, the Tyson Foundation informed Dempsey that she had received
the scholarship, in the amount of $1,200 per semester for up to eight semesters, or
a total of $9,600. Dempsey subsequently received a check from the Tyson
Foundation for $1,200 for the first semester. (Dempsey withdrew from the
Scholarship program after it came under investigative scrutiny and never received
the remaining $8,400.)
Cheryl Tyson, Don Tyson's daughter and president of the foundation,
believed that Dempsey, who then resided in Silver Spring, Maryland, did not meet
the residency requirement that an applicant live in the vicinity of an operating facility
of Tyson Foods. She awarded Dempsey a scholarship, nonetheless, because Don
Tyson told her that he wanted Dempsey to have it.
On September 13, 1994, Dempsey sent John Tyson at the Tyson Foundation
a check for $1,200 to return the scholarship money. The check bounced because
of insufficient funds. On November 17, 1994, Dempsey's attorney sent Tyson
Foods a letter withdrawing the offer of reimbursement and asking that her check be
returned. This reimbursement is discussed at Section II.B.3.
(4) The Dallas Football Game
On September 18, 1993, Espy met with Williams at USDA, where they
discussed Espy's possible attendance at a Dallas Cowboys football game at the
team's Texas Stadium, where Tyson Foods had a skybox. Espy noted this
discussion in his legal pad entry on that day.
In January of 1994, Dempsey made reservations to fly to Dallas, Texas to
meet Espy and to attend with him a National Football League post-season playoff
game between the Dallas Cowboys and the Green Bay Packers at Texas Stadium.
On January 12, 1994, Williams purchased the round-trip air tickets for Dempsey at
a cost of $1,009; he later submitted the expense to Tyson Foods, where Schaffer
approved it. On January 13, 1994, after speaking to Dempsey on the phone,
Williams had his hired driver deliver the tickets to Dempsey at her place of work.
The next day, Williams spoke with Don Tyson's secretary about the travel
arrangements for Espy and Dempsey.
On the morning of Saturday, January 15, 1994, a member of Espy's security
detail, Millard Reid, phoned Supervisory Special Agent Thomas Bates of the
USDA/OIG office in Dallas from Lubbock, Texas, where the Secretary was
traveling. Reid informed Bates that, contrary to earlier information from Reid, the
Secretary wanted to be briefed on operations by someone from the Dallas office.
Bates thought the reason for the meeting sounded "hokey," as this information
could have been provided to Espy without his coming to Dallas. Reid would later
call Bates and tell him to meet the Secretary in the lobby of his hotel shortly before
2:00 p.m.
That same morning, Dempsey traveled to Dallas using the ticket Williams
purchased and met Espy at the airport. Tyson Foods provided a limousine service,
which took the couple to their hotel. Espy then met with Bates in the hotel lobby
for approximately thirty minutes and Bates briefed him on the operations of the
Dallas office. Espy did not mention his anticipated attendance at the football game
the next day. Afterward, it was Bates's opinion that the meeting was a "set-up" -
that the only reason for the meeting was to justify the Secretary's trip to Dallas.
The following day, the limousine service picked up Espy and Dempsey and
took them to the airport to meet Don Tyson and others. Limousines then took the
entire party to Texas Stadium, where Tyson Foods provided a pre-game meal and
skybox seats for Espy and Dempsey. Following the game, a limousine drove Espy
and Dempsey to a shopping mall and then to the airport for their return flight to
Washington.
The Wall Street Journal reported on March 17, 1994 that Tyson Foods had
"feted" Espy at a Dallas Cowboys football game in January. The next day, March
18, 1994, Espy sent Don Tyson a check for $68 as reimbursement for the January
16 game. The check was dated March 10, but Espy had backdated it from March
18, apparently to make it appear he had intended to make reimbursement prior to
publication of the Wall Street Journal story.
On September 13, 1994, Dempsey sent Don Tyson a check representing, in
part, $65 reimbursement for the football game and $275 for the limousine service.
She did not reimburse Tyson Foods for the airplane ticket. The check was
returned because of insufficient funds. On November 17, 1994, Dempsey's
attorney sent Tyson Foods a letter withdrawing the offer of reimbursement and
asking that the check be sent back to her. This reimbursement is discussed at
Section II.B.3.
(5) Basketball Tickets and Travel Benefits to Assistant Secretary
The March 17, 1994, Wall Street Journal article that prompted the
investigation of Secretary Espy's receipt of gifts from businesses USDA regulates
also alleged that Tyson Foods had recently hosted USDA Acting Assistant
Secretary Patricia Jensen at a college basketball game in Arkansas. Jensen oversaw
USDA's Marketing and Inspection Services, including the Food Safety and
Inspection Service (FSIS).
The Department of Justice had jurisdiction over the Jensen investigation and
declined to prosecute her. OIC's investigation, however, overlapped with the
Jensen investigation to the extent that Tyson Foods had bestowed gifts upon senior
officials at USDA. In conducting its investigation, OIC reviewed the evidence OIG
had developed on this allegation. That evidence revealed that Tyson Foods,
through its lobbyist Williams, had given Jensen a Tyson skybox ticket for a
University of Arkansas basketball game and a flight upgrade to first class during
Espy's tenure.
On January 31, 1994, Jensen addressed the Mid-American Dairymen
Association, another Williams client, in Kansas City, Missouri. The next day, she
and Williams traveled to Fayetteville, Arkansas, where she addressed the Arkansas
Poultry Federation.
While they were in Arkansas, Williams gave Jensen a Tyson Foods skybox
ticket for that evening's University of Arkansas-Vanderbilt basketball game and told
her it had been provided by Schaffer, Tyson Foods' director of Media, Public and
Governmental Affairs. Jensen said she insisted on paying for the ticket, which she
ultimately did by mailing a personal check to Williams for $13, the value of the
ticket according to Williams. Jensen dined with Williams and Schaffer as a guest of
Southwestern Bell. After dinner, she rode with Williams and Schaffer to the arena,
where she met Don Tyson and watched the game from the Tyson Foods skybox.
On February 2, Jensen gave her speech at the Arkansas Poultry Federation
meeting and toured Tyson Foods facilities. On her flight back to Washington,
D.C., Williams arranged to have her seat upgraded to first class. The government
estimated that the ticket upgrade Williams gave Jensen was worth approximately
$80.
d. Allegations of Cash Payments from Tyson Foods to Public Officials
One aspect of OIC's investigation of Tyson Foods received a great deal of
public attention for a short period of time, even though it did not result in any
prosecutions. Early in the investigation, OIC heard allegations that Tyson Foods
provided things of value to other government officials in addition to Secretary
Espy. To the extent that Tyson Foods had in fact given gratuities or engaged in
illegal conduct with other government officials, such evidence would have been
relevant to Tyson Foods' intent in providing gratuities to Secretary Espy.
In late 1994, looking for possible information about Tyson Foods gifts to
Espy, OIC interviewed Joseph Henrickson. Henrickson had been a pilot for Tyson
Foods from 1978 to 1993 and was suing the company for wrongful termination.
Henrickson gave OIC investigators credible information about Tyson Foods
providing favors to political figures on a number of occasions.
According to Henrickson, Tyson Foods had placed substantial pressure on
his attorney to halt his lawsuit, threatening that they would accuse him (falsely,
according to Henrickson) with using Tyson aircraft to transport illegal drugs.
When the investigators asked him why he thought Tyson Foods would react so
strongly to his lawsuit, Henrickson, after reflection, responded that the only thing he
could think of was the "envelopes of money."
According to Henrickson, in the 1980s and through 1991, he and other pilots
had repeatedly on behalf of Tyson Foods transported white envelopes to Little
Rock for ultimate delivery to Governor William Clinton. The envelopes were left at
a desk at the airport or with a person driving an Arkansas State Police vehicle. By
holding the envelopes to the light, Henrickson had seen the denomination of $100
through the envelope.
Recognizing that this accusation bore on the question of Tyson Foods'
policies regarding gifts to public officials, OIC began to make further inquiries
about the matter. Henrickson's wife confirmed that he had told her of these events
at the time they were alleged to have transpired. However, OIC did not locate any
other witnesses who corroborated the story.
Following this preliminary investigation, in January 1995, OIC requested that
the Attorney General refer as a related matter these allegations of Tyson Foods'
misconduct to the OIC for further investigation. Alternatively, OIC requested that
its jurisdiction be expanded to include these allegations. The letter request, set
forth in Appendix A, identified the evidence gathered to date and explained its
relation to the ongoing Espy investigation. In addition to the alleged payments to
former Governor Clinton, the allegations included the following:
- possible conduit campaign contributions by Don Tyson to elected
federal officials other than Secretary Espy;
- entertainment by Tyson of elected members of Congress and other
federal officials at his vacation residence in Cabo San Lucas, Mexico;
and
- possible bribes paid to Mexican immigration and customs officials.
By letter dated February 17, 1995 (Appendix A), Attorney General Reno
declined OIC's request. Shortly thereafter, someone outside OIC, in an apparent
effort to discredit OIC's investigation, leaked Attorney General Reno's decision
denying OIC's requests. (32)
Subsequently, OIC referred to DOJ the evidence it had concerning these
allegations of Tyson gifts to then-Governor Clinton and other government officials
other than Secretary Espy. Insofar as OIC is aware, DOJ conducted no further
investigation of these allegations and brought no prosecutions relating to them.
Documentation of OIC's contacts with the Department of Justice
concerning referral of this matter and leaks to the press are included in Appendix A
to this Report.
e. Summary Timeline
The following chronology summarizes the gifts Tyson Foods gave to Espy
and significant events related to USDA policy matters of interest to Tyson Foods:
| Date |
Event |
Matters of Interest |
|---|
| Matters of Interest: 1 - Zero Tolerance; 2 - Safe-Handling Labeling; 3 - Fresh-Frozen Labeling; 4 - Puerto Rico-Detainment |
1 |
2 |
3 |
4 |
| 1992 |
Tyson Foods is aware that FSIS is developing "zero tolerance" initiatives for meat and poultry inspection. |
x |
|
|
|
| Early January 1993 |
USDA officials advocate in speeches and writings that mandatory safe-handling instructions on labels of meat and poultry are necessary to combat food-borne illness. |
|
x |
|
|
| January 18, 1993 |
E.coli outbreak causes the sickness and deaths of persons in the Pacific Northwest. |
x |
x |
|
|
| January 18,
1993 |
Gift given: Four Presidential Inaugural Dinner seats, ($6,000 value) |
| January 21, 1993 |
Puerto Rico Department of Agriculture (PRDA) detains imported poultry because of insufficient markings. |
|
|
|
x |
| February 1, 1993 |
National Broiler Council (NBC) authorizes a lawsuit challenging Puerto Rico's MR8 as preempted by federal law. |
|
|
|
x |
| February 2, 1993 |
Espy sends a letter to the Governor of Puerto Rico arguing preemption of the challenged labeling regulations. |
|
|
|
x |
| February 5, 1993 |
Espy and Cross inform a Senate subcommittee that USDA will revise meat and poultry inspection systems and will mandate safe handling labels |
|
x |
|
|
| February 18, 1993 |
NBC representatives meet with PRDA representatives to discuss regulations. |
|
|
|
x |
| March 3, 1993 |
Espy publicly announces an order that zero tolerance for meat must be enforced. |
x |
|
|
|
| March 12, 1993 |
USDA Chief of Staff Blackley and Counsel Schnoor meet with FSIS staff who understood that they are to stop working on zero-tolerance plan for poultry |
x |
|
|
|
| March 19, 1993 |
Espy informs the Arkansas Poultry Federation that "[b]y August 15, USDA will propose rules mandating that meat and poultry labels carry handling and cooking instructions." |
|
x |
|
|
| May 15-16, 1993 |
Gift given: Russellville birthday party and related travel (estimated value $2500) |
| July 1, 1993 |
Espy sends a letter to Puerto Rico pointing out that challenged regulations are preempted by federal law and stating that a USDA committee has been established to review the new amendments to MR8 |
|
|
|
x |
| August 11, 1993 |
USDA announces safe-handling labeling regulations, with emergency measures to take effect in 60 days, October 15, 1993. |
|
x |
|
|
| August 18, 1993 |
Memo from NBC to Tyson's Leland Tollett states a meeting is being scheduled "to ask the Secretary for more time to implement the proposed safe food handling label for raw meat and poultry products." The letter also notes: "We are led to believe that the Secretary is the one responsible for the short
and confusing implementation period." |
|
x |
|
|
| August 23, 1993 |
Industry representatives meet with USDA officials to tell of problems with the safe-handling regulations. |
|
x |
|
|
| August 26, 1993 |
NBC's George Watts's calendar reflects a 3:30 p.m. meeting with Espy and industry representatives, including Tollett and Schaffer of Tyson Foods. |
|
x |
|
|
| September 7, 1993 |
Tyson Foods official sends a letter to FSIS emphasizing that the cost of the safe-handling regulations to Tyson Foods would be $9 million. |
|
x |
|
|
| September 8, 1993 |
Tyson Foods letter to Espy opposes "the unreasonable short time allowed to implement the [safe-handling] rule" and requests changes. |
|
x |
|
|
| September 15, 1993 |
Arkansas Senator Dale Bumpers sends a letter to Vice President Gore opposing the timing of the safe-handling regulations. |
|
x |
|
|
| September 20, 1993 |
The White House sends a memo to Espy regarding John Tyson's suggestion that the timing of labeling requirements be unified. |
|
x |
|
|
| September 31, 1993 |
California law is enacted prohibiting the sale of poultry labeled as "fresh" if it has been chilled to 25 degrees or below. |
|
|
x |
|
| October 4, 1993 |
Espy sends a handwritten note to an assistant to the White House chief of staff stating he will adopt the White House's compromise position on safe-handling labels. |
|
x |
|
|
| October 8, 1993 |
Cross forwards a briefing memo to Espy outlining steps for zero tolerance on meat and discussing the development of zero tolerance for poultry. |
x |
|
|
|
| October 14, 1993 |
Federal court enjoins safe-handling labeling regulations; Espy issues a statement expressing disappointment. |
|
x |
|
|
| October 20, 1993 |
Espy receives a memo regarding a Court of Appeals' decision denying USDA's motion to stay the injunction against safe-handling regulations and suggesting alternative steps that could be taken by USDA. |
|
x |
|
|
| November 3, 1993 |
Espy receives USDA Information Memo regarding California "fresh-frozen" labeling legislation. |
|
|
x |
|
| November 5, 1993 |
New proposed rule for safe-handling labels is published. |
|
x |
|
|
| December 7, 1993 |
Arkansas Poultry Federation and two other organizations file suit in California federal court to block state "fresh-frozen" label law. |
|
|
x |
|
| December 27, 1993 |
Espy receives a USDA Informational Memo about the "fresh-frozen" lawsuit noting "it is possible that the [USDA] may be called upon to appear in the case." |
|
|
x |
|
| January 4, 1994 |
Gift given: Tyson Foundation scholarship to Patricia Dempsey ($1,200 value per semester) |
| January 11, 1994 |
Espy states in a USDA press release: "Washington has debated for the past 20 years whether to mandate safe cooking and handling labels on raw meat and poultry products," and "publication of the final rule is expected soon." |
|
x |
|
|
| January 15, 1994 |
Gift given: Dallas Cowboys-Green Bay Packers playoff game and related travel (estimated value $2,271) |
| January 26, 1994 |
Letter to Espy from a California congressman opposes USDA taking a position on the "fresh-frozen" lawsuit that supports preemption of California law. |
|
|
x |
|
| February 10, 1994 |
Espy directs FSIS to reexamine its policy on the use of the term "fresh" on the labels of raw poultry products. |
|
|
x |
|
| February 14, 1994 |
USDA files an amicus brief in the "fresh-frozen" lawsuit arguing that California's labeling requirement is preempted. |
|
|
x |
|
| February 15, 1994 |
Espy receives a zero-tolerance briefing and proposals by FSIS and asks for a final proposal in the near future. |
x |
|
|
|
| March 4, 1994 |
Final zero-tolerance proposal is given to Espy. |
x |
|
|
|
| March 9, 1994 |
Espy announces a new poultry-inspection system that includes zero tolerance for poultry, and meets with Jack Williams and two other poultry industry representatives regarding "fresh-frozen" label controversy. |
x |
|
x |
|
f. False Statements to Federal Investigators
On March 22, 1994, OIG agents interviewed Tyson lobbyist Williams about
the Dallas football game at which Tyson Foods hosted Espy and Espy's girlfriend,
Dempsey. Williams, who had been placed under oath by the agents, (33) replied that
Tyson Foods owns a skybox at Texas Stadium, home of the Dallas Cowboys
football team, but that he had heard only through rumor and news reports that Espy
was a guest of Tyson Foods at the Cowboys-Packers playoff game that previous
season. In truth, Williams had been actively involved in arranging for Dempsey to
attend the football game with Espy.
On May 24, 1994, after USDA had referred these matters to the Department
of Justice (DOJ), the FBI interviewed Schaffer, Tyson Foods' director of Media,
Public and Governmental Affairs, at the company's offices in Springdale,
Arkansas. The interview concerned Schaffer's participation in and knowledge of
the giving of things of value to Espy. Schaffer denied any involvement in arranging
Espy's attendance at the APF meeting or the Russellville birthday party. Further,
he denied any knowledge of who arranged for Espy to attend the party. In fact,
Schaffer knew that Don Tyson had invited Espy, because he had received a blind
copy of the invitation and had himself made the arrangements for Espy's visit to
Russellville.
Schaffer also falsely told the interviewing FBI agents that he had no
involvement whatsoever in arranging for Dempsey to travel to Arkansas that
weekend and to stay at the Tyson Foods Management Development Center. In
fact, a Tyson Foods aviation form showed that he had requested the plane that
brought Dempsey to Arkansas from Washington, D.C. and then returned Espy and
Dempsey to Washington following the party.
On May 29, 1994, the FBI interviewed Dempsey at her apartment in Silver
Spring, Maryland concerning her and Espy's attendance at the Russellville party
and the Dallas football game. Dempsey stated that she paid for her round-trip
airfare to Dallas to attend the game. In truth, Williams purchased the $1,009 airline
tickets and he was subsequently reimbursed for that expenditure by Tyson Foods.
Dempsey also stated during the interview that, without Espy's knowledge,
she had made arrangements with Don Tyson for her and Espy to attend the Dallas
football game and that Espy did not know that she was attempting to obtain or had
obtained tickets until Friday, January 14, 1994, two days before the game.
These assertions were contradicted by USDA records, including Espy's official
travel itinerary, which was prepared on January 10, 1994 and updated several times,
and which showed that Espy had planned to attend the game at least since January
10, 1994. Also inconsistent with the sequence of events advanced by Dempsey
were phone records that reflected a 15-minute call from Espy's office to Don
Tyson's direct dial phone only three days earlier, on January 7, 1994. Don
Tyson's secretary testified that the call came from Espy. (34)
On June 9, 1994, the FBI interviewed Williams, who corroborated
Dempsey's false claim that she, rather than Williams and Tyson Foods, had paid
for her airfare to Dallas. Williams's corroborative statements are consistent with
the conclusion that he knew Dempsey had lied to investigators and tailored his
statements accordingly. In this interview, Williams stated that he did not recall
speaking with Dempsey by phone and that he did not make travel arrangements for
her. He further stated that he did not have her phone number, that he did not know
where she was employed, and that he did not have any prior knowledge of Espy's
trip to Dallas to attend the football game. These statements were false.
g. Prosecution Decisions
As a result of the events described above, OIC brought the following:
- a criminal information against Tyson Foods for illegal gratuities under 18
U.S.C. § 201(c)(1)(A) (see Section III.B.1.a).
- an indictment against Jack Williams for conspiracy under 18 U.S.C. § 371,
wire fraud under 18 U.S.C. §§ 1343 and 1346, violation of the bribery
provision of the Federal Meat Inspection Act under 21 U.S.C. § 622, illegal
gratuities under 18 U.S.C. § 201(c)(1)(A), and false statements under 18
U.S.C. § 1001 (see Section III.B.1.b); and
- an indictment against Archibald Schaffer for conspiracy under 18 U.S.C.
§ 371, mail fraud under 18 U.S.C. §§ 1341 and 1346, wire fraud under 18
U.S.C. §§ 1343 and 1346, violation of the bribery provision of the Federal
Meat Inspection Act under 21 U.S.C. § 622, and illegal gratuities under 18
U.S.C. § 201(c)(1)(A) (see Section III.B.1.b).
As a consequence of its entire investigation, including the events described
above, OIC included in the indictment sought against former Secretary Espy
charges for wire fraud under 18 U.S.C. §§ 1343 and 1346, illegal gratuities under 18
U.S.C. § 201(c)(1)(B), violation of the Federal Meat Inspection Act under 21
U.S.C. § 622, and interstate travel to receive illegal gratuities under 18 U.S.C.
§ 1952 (see Section III.B.3).
To end what it saw as unacceptable delays to its central investigation, OIC
granted Don and John Tyson immunity to require their complete cooperation
before the grand jury. The evidence developed, in large part from their testimony,
which could be compelled in full without claims of the privilege against self-incrimination, resulted in the unequivocal guilty plea of Tyson Foods, Inc. about
seven months later, concluding the case against the company.
2. Gifts from Sun-Diamond Growers of California and Richard Douglas
OIC's investigation disclosed that Sun-Diamond Growers of California, a
multi-crop agricultural cooperative, and Richard Douglas, its senior vice president
in charge of government affairs, gave Espy and his girlfriend Dempsey numerous
things of value from January 1993 to April 1994 while Sun-Diamond had several
matters pending before Espy and USDA. The largesse that Sun-Diamond and
Douglas bestowed included a $2,427 set of luggage; tickets, limousines and meals
during a 1993 U.S. Open tennis-tournament weekend in New York for Espy and
Dempsey at a cost of more than $4,000; tickets to a Washington Bullets-New York
Knicks basketball game for Espy and his girlfriend; a framed art print; a crystal
bowl; several expensive restaurant meals; and $10,000 in contributions to the failed
congressional election campaign of Espy's brother. Douglas also arranged for
Dempsey to receive approximately $3,100 from the International Nut Council,
which he advanced to her in cash so that she could accompany Espy to a
conference in Athens, Greece.
a. The Donors
Sun-Diamond Growers of California was a large agricultural cooperative
corporation, with its principal offices in Pleasanton, California. It was owned in
1993 and 1994 by five member cooperatives which, in turn, were owned by
approximately 4,500 growers. The five member cooperatives were: Sun-Maid
Growers of California; Diamond Walnut Growers, Inc.; Sunsweet Growers, Inc.;
Valley Fig Growers; and Hazelnut Growers of Oregon. Sun-Diamond's wholly
owned subsidiary Sun-Land Products marketed and sold Sun-Diamond's fruit and
nut products in mixtures for use in other products.
Sun-Diamond and its member cooperatives grew, processed, packaged,
marketed and sold, among other products, raisins, walnuts, prunes, figs and
hazelnuts. Each member cooperative was the largest producer of commodities in
its respective industry. Sun-Diamond's net sales and other revenues totaled
approximately $648 million in 1993 and $574 million in 1994. Sun-Diamond
assisted its member cooperatives primarily in marketing and in dealing with state
and federal government agencies, such as USDA. Sun-Diamond's members were
subject to extensive regulation by USDA and were significantly dependent for their
financial well-being upon certain USDA programs.
Richard Douglas, Sun-Diamond's senior vice president for Corporate
Affairs, was in charge of and responsible for, among other things, dealing with the
Secretary of Agriculture and other decision-makers at USDA and directing Sun-Diamond's government-lobbying activities. At least once during Espy's tenure,
Douglas also did private consulting in which he pursued matters before USDA on
behalf of a client, BKK Corporation, which had business before USDA, but was
not affiliated or associated with Sun-Diamond. (35)
Douglas and Espy became friends when they were in college at Howard
University. They renewed their friendship after Espy was elected to the U.S. House
of Representatives in 1986. As a Congressman, Espy was required to file annual
financial disclosure statements setting forth gifts, income, and reimbursements from
outside sources. The Congressional disclosure that Espy filed reflected that Sun-Diamond, through Douglas, provided the following trips, honoraria, and campaign
contributions to Espy from the time of his initial election to Congress:
| YEAR |
ITEM(S) |
VALUE |
TYPE |
|---|
| 1987 |
1/24/87 Honorarium
2 Tickets for football, airfare, lodging and food for spouse
Airfare (MS to CA to DC) plus food/lodging for two days |
$2,000
Not listed
Not listed |
Income
Reimburse/gift
Not listed |
| 1988 |
1/20/88 Honorarium
Airfare (MS to CA to MS) and food/lodging |
$2,000
Not listed |
Income
Reimburse/gift |
| 1989 |
8/28-31/89 Honorarium
Private aircraft travel and lodging |
$2,000
Not listed |
Income
Reimburse/gift |
| 1990 |
Honorarium |
$2,000 |
Income |
| Ethics Reform Act Effective 1991 |
Nothing reported |
|
|
| 1992 |
No report filed by Congressman Espy |
|
|
Sun-Diamond's gifts and honoraria to Representative Espy apparently
ceased after Congress amended the House Ethics Rules to prohibit receipt of
honoraria, effective January 1991. (36) Sun-Diamond's gifts to Espy through Douglas
resumed in early 1993 after the newly-elected Clinton administration selected Espy
to become Secretary of Agriculture, even though Executive Branch regulations
prohibited gifts from entities having business before the recipient's agency.
Douglas had direct access to and influence with Espy, occasionally advising
the Secretary on agricultural and staffing matters. Douglas had previously served
as Assistant Deputy Secretary at USDA from 1981 to 1983 and headed the Farmers
and Ranchers Political Action Committee for President George Bush during the
1992 presidential-election campaign. Despite differing party allegiances, Espy
sought and received Douglas's advice and assistance in securing his nomination for
Secretary of Agriculture in the Clinton administration.
Thereafter, Douglas assisted Espy in the selection and hiring of USDA staff
members. During this process, Douglas encouraged Espy to hire as his chief of
staff Kimberly Schnoor, who, while working for Sun-Diamond's Washington
lobbying firm, Robinson Lake Sawyer and Miller, previously had worked for
Douglas. Although Espy chose Ronald Blackley as his chief of staff, he created
the position of "Counselor to the Secretary" for Schnoor. Douglas's access to
Espy continued throughout 1993 and 1994; staff members testified that he would
arrive at the Secretary's office unannounced to see Espy, and that Espy would
occasionally bring Douglas to USDA events, such as USDA's 1993 retreat. All the
while, Douglas lobbied Espy on behalf of Sun-Diamond.
Sun-Diamond continually used the relationship between Douglas and Espy to
its benefit. For example, the company lauded Douglas in his November 1993
Performance Appraisal as follows:
Richard's long-term friendship with Mike Espy served
Sun-Diamond's interests well when Mike became
Secretary of Agriculture. Further, Richard's considerable
knowledge of the workings within USDA have provided
Secretary Espy with invaluable insight and assistance as
he learned his new job.
Douglas received an $80,000 bonus in 1993 and a $90,000 bonus in 1994, based
upon his contribution to the company.
Five years earlier, in Sun-Diamond's 1988 Annual Report, Douglas
described how long-term friendships and relationships could be nurtured to the
benefit of the company:
Effective political action, in many ways, is similar to
farming. Just as the farmer works year-round between
harvests, pruning, fertilizing and making improvements to
his vineyard or orchard to maximize yields, so does your
management team work year-round in the political arena.
Successful political action today requires more than
simply communicating our views to politicians or trying
to get specific legislation passed. Like farming, it is an
ongoing process whereby new ideas are planted,
friendships developed and past relationships cultivated.
This formula for effective political action has, over the
years, not only protected our members' interests, but also
allowed Sun-Diamond to emerge as a creative and
effective force in the public policy arena. (Emphasis
added.)
The philosophy behind Sun-Diamond's cultivation of government officials
such as Espy is perhaps best exemplified by Douglas's confidential 1986 memo to
Sun-Diamond's Board of Directors, in which he wrote:
We have no permanent friends or permanent enemies,
only a permanent interest in Sun-Diamond Growers of
California.
b. Donors' Interest in Espy's Official Acts
Sun-Diamond and its member cooperatives frequently lobbied Espy and
other USDA officials on myriad issues in which they had an interest. The
cooperatives' board minutes testify to this fact, as they contain several references
to issues before USDA and Douglas's efforts to affect governmental decisions on
these issues.
In a memorandum, Sun-Diamond's Washington lobbyist James Lake (37)
identified the following as significant issues for Sun-Diamond in 1993 and 1994: (1)
the phase-out and elimination of methyl bromide as a pesticide; (2) the market
promotion program (MPP) and the possible deletion of Sun-Diamond's
cooperatives from eligibility for coverage; (3) the government's purchase of
products from Sun-Diamond's cooperatives for use in its school lunch programs,
which was possibly in danger of elimination; and (4) the Delaney clause and its
potential for prohibiting the use of certain types of pesticides on Sun-Diamond
crops. These all proved to be matters of active concern for Sun-Diamond and
Douglas, as did a long-running strike by the Teamsters' Union.
(1) Methyl Bromide
The pesticide methyl bromide was of considerable importance to walnut
growers belonging to Diamond Walnut, a Sun-Diamond cooperative. It became a
contentious issue in 1992, when the Environmental Protection Agency (EPA), under
the Clean Air Act, proposed to regulate and ultimately ban use of methyl bromide,
because it determined that the substance was depleting the Earth's ozone layer.
While USDA did not directly regulate the use of methyl bromide, its views
were of considerable importance to EPA, since restrictions on the chemical's use
would principally affect agricultural interests. USDA's position, supported by Sun-Diamond and other agricultural groups, was that methyl bromide was crucial to
agriculture in general and that EPA had moved precipitously and without adequate
scientific basis in proposing to prohibit the chemical's use. USDA estimated the
annual economic loss to U.S. agriculture of a methyl-bromide ban at $1 billion.
In 1993 and 1994, Sun-Diamond and its cooperatives were particularly
concerned that a ban on methyl bromide and the lack of viable alternatives would
hurt their ability to sell their products. As a 1994 memorandum to Douglas from
Sun-Diamond's Washington lobbyists stressed
because of the enormous effect on Sun-Diamond
cooperatives, it will be imperative to advance USDA's
view of alternatives to methyl bromide . . . . While this is
an industry wide issue, the effort required to protect Sun-Diamond's interests far exceeds the resources the industry groups are able to commit for adequate
coverage.
During prior debates over a ban of the pesticide, Sun-Diamond President Larry D.
Busboom had sent a memorandum to Douglas regarding methyl bromide and
specifically asked, "[H]ow do we influence the process?" Following EPA's
proposal to ban methyl-bromide use, Sun-Diamond sought Espy's assistance in
persuading EPA to delay promulgating the phase-out rule and to mitigate the
adverse effects of any such rule. Sun-Diamond also sought to have USDA
increase research funding for alternatives to methyl bromide in the event that use of
the chemical was restricted or prohibited.
Espy became involved in the effort to prolong the use of methyl bromide
almost immediately upon taking office. On February 5, 1993, he signed a letter to
Leon Panetta, then head of the Office of Management and Budget (OMB), urging
OMB to support preservation of methyl bromide. On February 10, 1993, Douglas
and Edward Ruckert, head of the Methyl Bromide Working Group, an organization
dedicated to preserving methyl-bromide use, met with Espy at USDA to explain
their positions on methyl bromide and to urge the Secretary's assistance in
preserving the chemical's employment in agriculture.
In a number of speeches he gave as Secretary of Agriculture, Espy took
credit for going to the bargaining table with EPA to delay restrictions on methyl
bromide. On March 5, 1993, for instance, Espy spoke before the National
Farmers' Union, stating:
We had a problem a few weeks ago because EPA had
decided to list this methyl bromide as a class one ozone
depleter. And of course they called us, and we ran over
to discuss it with them. We sat down and we discussed
this and we reached a compromise. It will be listed as a
class one ozone depleter, but unlike all those in the class
one category, we do not have to reduce manufacturing
and use until the year 2000.
On or about March 18, 1993, EPA formally proposed a rule limiting methyl
bromide's use as a pesticide. The proposed rule also included a prohibition on the
chemical's employment as a fumigant on commodities, such as those exported by
the Sun-Diamond cooperatives.
USDA again urged the preservation of methyl bromide's use in a May 17,
1993 letter from Deputy Secretary Richard Rominger to Carol Browner, EPA
Administrator. On November 18, 1993, Espy himself wrote to Browner to convey
USDA's official comments on EPA's draft final rule. While stating that the EPA
final rule did address some of USDA's concerns, Espy expressed continued
reservations about the proposal, citing ongoing scientific studies and the lack of
adequate substitutes for methyl bromide.
Espy continued to address the subject in his speeches and actions. During a
speech to the National Council of Farmer Cooperatives on January 19, 1994, Espy
stated that EPA had put methyl bromide on the chopping block but USDA
arranged a compromise to delay reduction in its use and manufacture until at least
the end of 2001, allowing time for added research. On May 4, 1994, he wrote
Senator Dianne Feinstein of California to report that USDA had placed the
development of methyl-bromide alternatives among its highest research priorities.
Espy further reported that USDA distributed funds in fiscal years 1993, 1994, and
1995 for developing alternative pesticides.
(2) Market Promotion Program
In 1993 and 1994, and for several years prior, USDA administered the
Market Promotion Program (MPP), a grant program designed to increase export
sales of certain U.S. agricultural commodities, including prunes, raisins and
walnuts, by subsidizing companies' advertisement of U.S. products overseas. The
program relied on annual congressional funding, and USDA bore responsibility for
apportioning and distributing the funds to participating entities. Sun-Diamond and
its member cooperatives had previously received MPP money and, in 1993 and
1994, stood to benefit significantly from the program, depending on how much
money Congress allocated and how USDA distributed the funds.
The MPP began as the Targeted Export Assistance Program in 1986, and
annual funding for the program was an issue in Congress every year thereafter.
There was, in fact, considerable opposition to the program within Congress, where
it was criticized as a welfare program for corporations. USDA's support of the
program therefore was important to MPP beneficiaries. Douglas, who handled
governmental affairs for Sun-Diamond, lobbied Espy to back continued MPP
funding throughout Espy's tenure. Congress renewed MPP each year from 1986
onward, with the encouragement of Sun-Diamond and other farm groups.
The issue of funding came to a head during Espy's tenure, when Congress
threatened to reduce funding drastically or even eliminate the program. Sun-Diamond enlisted Espy's help in urging Congress to renew MPP. Douglas's
November 1993 Performance Appraisal listed the following as one of his major
accomplishments:
MPP funding has been maintained for our commodity
groups despite federal budget pressure, increased
requests from other commodity groups for funds, and the
general attack on the program by certain members of
Congress. During the budget deficit debate, Richard
played a key role working with Secretary Espy, the
Senate and House agricultural committees, and influential
senators and representatives which ultimately resulted in
federal funding of the MPP.
Funding concerns arose again the following year, however. As the board
minutes for Sun-Diamond's Executive Committee noted in April of 1994:
Senior Vice President Douglas reported that hearings
were conducted last week by Representative Richard
Durbin (D-IL) on MPP, but support for the program was
not sufficient; intensive lobbying will be required to
maintain MPP in the future. . . . [V]isits to Member
Cooperative facilities will be arranged for State Controller
Gray Davis, along with a Town Hall meeting for
Agriculture Secretary Espy, Senator Feinstein and
Representative Dooley.
Indeed, sometime prior to February 1994, at Douglas's request, Espy
telephoned members of the U.S. House Appropriations Committee and lobbied for
continued MPP funding. Congress ultimately agreed to continue the program, and,
on May 6, 1994, Espy authorized the 1994 MPP allocations, some of which went to
Sun-Diamond member cooperatives.
The precise allocation of MPP funds was a yearly issue within USDA.
Under MPP, USDA was authorized to award government funds to trade
organizations if the Secretary determined that such organizations would significantly
contribute to the sale of U.S. farm commodities in foreign countries. To receive
money to market their commodities abroad, trade organizations submitted
marketing-plan applications to USDA. By law, the Secretary of Agriculture had to
approve the award of MPP money to each trade organization. The trade
organizations would, in turn, award money to companies, such as the member
cooperatives of Sun-Diamond, to pay for part of their foreign marketing
campaigns.
Since MPP's inception, the major Sun-Diamond member cooperatives had
applied for and obtained MPP money from trade organizations in which they
participated. Each Sun-Diamond member cooperative was the largest member of
its respective trade organization.
MPP subsidies to help sell raisins, prunes and walnuts abroad were of
substantial importance to Sun-Diamond and its member cooperatives. During May
1994, USDA allocated $2,180,000 to the California Prune Board, the trade
organization that administered MPP funds for prunes; $3,520,000 to the Raisin
Administrative Committee, the trade organization that administered MPP funds for
raisins; and $2,890,000 to the California Walnut Commission, the trade organization
that administered MPP funds for walnuts. A portion of MPP funds allocated to
each trade organization was dedicated to the sale of brand-name commodities, such
as Sun-Maid raisins and Sunsweet prunes, and the remainder to advertising the
commodities generally.
During 1994, the California Walnut Commission dedicated $45,941 to the
marketing of brand-name walnuts; Diamond Walnut Growers received all of the
brand-name dedicated funds. In 1994, the California Prune Board dedicated
$2,362,685 of its MPP funds to the marketing of brand-name prune products;
Sunsweet Growers received $1,232,000 (52%) of such funds. The Raisin
Administrative Committee dedicated $445,750 of its MPP funds to brand-name
marketing; Sun-Maid Growers received $165,000 (32%) of such funds. The
remainder of all such MPP funds was spent on advertising for raisins, prunes and
walnuts generally in selected foreign countries, which also benefitted Sun-Maid
Growers, Sunsweet Growers, and Diamond Walnut Growers to the extent they
sold their products in those countries.
Aside from questions of general funding and allocation of the funds, another
issue regarding MPP arose during 1993 and 1994 that was of considerable concern
to Sun-Diamond and its cooperatives. In August 1993, Congress directed Espy to
give priority to "small business entities" applying for MPP funds and to define
criteria for qualification as a "small business entity." A pending issue before USDA
was whether to include cooperatives in the definition of small business entities. If
USDA did not consider cooperatives to be small-sized entities, some Sun-Diamond
member cooperatives would receive significantly less MPP money. Sun-Diamond
wanted Espy to have USDA promulgate MPP regulations that would allow Sun-Diamond cooperatives to receive the preferences provided for small-sized entities
and to continue to study the issue with a view toward giving cooperatives small-business preferences.
Lower-level USDA officials defined small business entities in a manner that
excluded large cooperatives like Sun-Diamond. On May 5, 1994, Douglas called
Schnoor and told her that he was upset at Espy because USDA had not included
cooperatives in the MPP's small-business definition. At that time, Sun-Diamond
member cooperatives were the only cooperatives still attempting to claim small-business status. Douglas threatened to go to Congress and "beat up the Secretary"
over the issue. Later that day, Espy called Douglas to apologize for not paying
enough attention to the issue and offered to remedy the matter by reversing his
staff, a ruling that would have allowed the Sun-Diamond cooperatives to qualify for
small business status. In a telephone conference shortly thereafter with Espy and
Douglas, lobbyist James Lake stated that it would demonstrate favoritism toward
Douglas and Sun-Diamond if Espy reversed his staff at that point. Espy did not
reverse his staff on this issue.
In an August 1994 memorandum to Douglas, Lake noted the need for Sun-Diamond to continue to lobby USDA on MPP. He advised Sun-Diamond:
During the MPP debate there were serious discussions
about deleting agricultural cooperatives from coverage
under MPP . . . [and] when FAS wrote their regulations
on MPP, they included limitations on the small entity
status that were potentially difficult for Sun-Diamond
member co-operatives. USDA . . . is re-thinking entire
policy.
(3) USDA Commodity Purchases
USDA purchased various commodities through its school-lunch program
and other commodity purchase programs. In this capacity, USDA served as a
direct customer to marketers of agricultural products, including Sun-Diamond. In
the school-lunch program, commodity trade organizations petitioned USDA to
purchase commodities such as raisins and walnuts. USDA would announce its
intention to purchase specified amounts of various commodities and invite bids.
The Sun-Diamond cooperatives, among others, bid on certain contracts, and, if
they won, sold the commodities to USDA. These programs were important to the
Sun-Diamond cooperatives, because they provided a safe market for crops in years
in which farmers grew a surplus or could not sell all of their crop to their ordinary
customers, and because they raised the market price for all sellers of a commodity
that USDA purchased.
USDA purchased approximately $70,000 of commodities from one of Sun-Diamond's cooperatives in 1993, and slightly more than $500,000 worth in 1994.
OIC uncovered no evidence that Espy was personally involved in making selections
for USDA commodity purchases. However, in a 1994 memorandum to Douglas,
Sun-Diamond's Washington lobbyists noted on this subject that "additional efforts
are made at the Secretary's office . . . to gain support."
An alternative to direct USDA commodity purchases was the Commodity
Letter of Credit (CLOC) program, a pilot program started prior to and continued
during Espy's tenure at USDA. Under the CLOC program, USDA allowed a
handful of school districts to make federally subsidized purchases of commodities
directly rather than receive them through the USDA purchasing system. Sun-Diamond opposed the program, because the cooperatives feared that expansion of
the program and delegation of purchasing authority from USDA to school districts
could threaten the total volume of its school lunch sales.
On June 2, 1994, Douglas wrote a letter directly to Espy, asking him to
oppose any expansion of the CLOC program:
On behalf of Sun Diamond Growers, I urge you to
oppose any proposals which would expand the
Commodity Letter of Credit (CLOC) demonstration
project within the National School Lunch Program
(NSLP). . . .
While we share the goal of the CLOC project, to improve
the overall nutritional quality of school meals, we believe
that goal can be accomplished without disrupting the
important supply control functions of the commodity
purchase program which are so vital to our livelihood.
A week later, a USDA official testified in a congressional hearing that USDA
opposed expansion of the CLOC program. This stance was consistent with both
the USDA's prior positions on the program and Douglas's suggestions.
(4) Delaney Clause
The "Delaney Clause," named for its congressional sponsor, prohibits
federal government approval of a food additive if it has been found, at any level, to
induce cancer in experimental animals or humans. Under the regulations, any
pesticide that concentrates in processed food is considered a food additive and
therefore is subject to the Delaney Clause's zero-risk standard.
The Delaney Clause was an issue throughout Espy's tenure at USDA. In
July 1992, the U.S. Court of Appeals for the Ninth Circuit held that the Delaney
Clause required EPA to prohibit the sale of processed foods that contained any
trace of cancer-causing additives, a decision the U.S. Supreme Court declined to
review.
Raisins and prunes, as dried fruits, were considered processed foods and
therefore within the reach of the Delaney Clause. The Ninth Circuit ruling barring all
cancer-causing additives from processed foods threatened the continued use of a
number of pesticides by fruit and vegetable growers, including members of the
Sun-Diamond cooperatives.
To avoid the preclusive proscription of the Delaney Clause, Douglas and
Sun-Diamond sought to have EPA classify prunes and raisins as raw rather than
processed agricultural commodities. On behalf of Sun-Diamond, Douglas sought
Espy's assistance in these endeavors.
On April 9, 1993, USDA's acting assistant secretary for Marketing and
Inspection Services wrote an Informational Memorandum on the Delaney Clause
for Espy. Sometime prior to April 28, 1993, Espy wrote EPA Administrator
Browner urging classification of dried fruits and nuts as raw rather than processed
commodities under the Delaney Clause. Douglas continued to lobby Espy on the
issue. In testimony before Espy at a Farm Forum on August 2, 1993, Douglas
urged that the Delaney clause be amended and said that USDA "should and must
be at the forefront of that effort."
(5) Teamsters Strike at Diamond Walnut
The International Brotherhood of Teamsters Local Union 601, which
represented the workers at Diamond Walnut's processing plant, began a
contentious and protracted strike against Diamond Walnut in 1991. The workers
had agreed to take a pay cut when the cooperative's business was slow. Once
business improved, the workers demanded that Diamond Walnut increase their
salaries, but the company refused. The workers struck, and Diamond Walnut hired
replacement workers. The labor dispute was an issue of major importance to the
cooperative. Teamsters Union leaders likewise considered the strike highly
important. Because of USDA's regulatory authority over Diamond Walnut in other
matters, both sides were interested in Espy's reaction to the strike.
The Teamsters had supported Espy in his campaigns for Congress in
Mississippi and had made him an honorary member. After Espy became the
Secretary of Agriculture, the Teamsters' general president wrote to him on three
separate occasions within a period of four months - June 9, September 21 and
October 6, 1993 - seeking USDA assistance in the dispute negotiations with
Diamond Walnut and asking Espy to meet with him and other members of the
Teamsters. Among other things, the Teamsters asked Espy to consider
withholding MPP funds from Diamond Walnut because of its treatment of the
striking workers. Douglas, acting on behalf of Diamond Walnut, did not want Espy
to meet with the Teamsters and told the Secretary so.
Espy resisted the efforts of the Teamsters Union to have him become
involved on their behalf in the Diamond Walnut strike. Espy did not respond to the
June 9, 1993 letter from the Teamsters inviting him to meet with striking Diamond
Walnut cannery workers. Espy also did not respond to the September 21 and
October 6, 1993 letters inviting him to meet with the Teamsters' general president.
On December 27, 1993, Espy sent the Teamsters general president a letter stating
that he would not get involved in the strike through MPP allocations to Diamond
Walnut but that his office would set up an appointment. His staff did not contact
the Teamsters, and three subsequent phone calls from the union failed to gain a
meeting with Espy.
(6) Forest Service Land Swap (Relating to a Douglas Consulting Client)
The power of the Forest Service, an agency of USDA, to exchange lands
with private interests was of considerable importance to a Douglas client other than
Sun-Diamond. The Forest Service is an agency within USDA that administers the
National Forests. The Forest Service may exchange federally-owned forest lands
for lands of comparable value held by other parties. Such exchanges require the
approval of the Secretary of Agriculture.
BKK Corporation was involved in the business of waste disposal in the Los
Angeles area. Elsmere Corporation, a BKK subsidiary, owned a landfill site
adjacent to the Angeles National Forest and wanted to use some Forest Service
land as part of a planned landfill. Consequently, Elsmere proposed a land swap
with the Forest Service. Elsmere offered to trade properties it owned inside the
Angeles National Forest for Forest Service-held land in Elsmere Canyon in Los
Angeles County. The Forest Service land was adjacent to property Elsmere
already owned that it planned to use as a landfill. Elsmere intended to combine its
own land with the Forest Service's property in building the landfill.
Various citizens, politicians and environmental groups opposed the Elsmere
land swap. In 1989, Elsmere began the administrative process necessary to win
Forest Service approval of the deal - a process that included preparation of an
Environmental Impact Statement.
BKK Chief Administrative Officer Ronald Gastelum contacted Douglas in
late 1993 to discuss hiring him to lobby USDA on the land-swap proposal.
Gastelum had previously hired a number of lobbyists to accelerate the project but
had met with no success. He now wanted the Elsmere issue brought to the
Secretary of Agriculture's attention to speed the decision-making process and had
been told that Douglas was the man who could get to Espy.
Douglas agreed to represent Elsmere and BKK through the consulting firm
PMK Associates. PMK Associates was a one-person firm in Washington, D.C.,
owned and operated by Patricia M. Kearney, Douglas's girlfriend. On January 10,
1994, PMK Associates entered into a retainer agreement with Elsmere to lobby
USDA and, if necessary, Congress. The retainer agreement specified a fee of
$60,000 for 1994, with an option for $100,000 additional if further work became
necessary in 1995.
On February 4, 1994, Douglas arranged a meeting for Kearney and himself
with Espy and USDA staff members to discuss the Elsmere matter. At that
meeting, Douglas and Kearney made a presentation; Espy indicated that the land
swap sounded good and urged his staff to "move it along." Specifically, he asked a
staff member to commit to completing the requisite environmental impact statement
in 1994.
Ralph Bauman, a Forest Service official whose duties included handling land
swaps, attended the meeting. Bauman stated that, of the 100 or so land-related
issues he was working on at any given time in 1993 and 1994, this was the only one
for which he ever had a meeting with Espy. After the meeting, Bauman prepared
an e-mail summary for other Forest Service officials, noting that "Espy wants us to
move as fast as possible."
On April 22, 1994, Douglas or Kearney arranged another meeting with Espy.
At the meeting, which Douglas did not attend, Gastelum lobbied Espy to accelerate
the land-swap process.
In December 1994, after Espy had submitted his resignation but before he
had left office, local Forest Service officials in Los Angeles recommended against
approving the land swap. Although Elsmere continued to try to get the land
exchange through, on November 1, 1996, the Forest Service received Elsmere's
letter withdrawing the project from consideration for a land exchange. On
November 12, 1996, the President signed Public Law 104-333, section 812 of
which prohibited the transfer of any lands owned by the United States and managed
by USDA as part of the Angeles National Forest for use as a solid waste landfill.
On December 6, 1996, the Forest Service issued a public announcement notifying
the public that the project had been withdrawn by its proponent and that, since the
matter was no longer pending, the Forest Service would prepare no record of
decision on the project. These actions ended the matter.
c. Gifts Given
OIC's investigation uncovered numerous gifts provided to Espy by Douglas,
most of which were approved and paid for by Sun-Diamond. One was paid for by
the International Nut Council.
(1) Gifts Given by Sun-Diamond
From January 1993 through March 1994, Sun-Diamond, acting through
Douglas, spent approximately $14,300 in corporate funds to entertain and provide
things of value to Espy and his girlfriend, Patricia Dempsey. Of this amount, Sun-Diamond spent approximately $5,900 directly on Espy. The balance,
approximately $8,400, primarily went to pay the expenses of Douglas, Dempsey,
and Douglas's own girlfriend while Douglas was entertaining Espy. Sun-Diamond
reimbursed Douglas for all the money he spent on Espy, in accordance with Sun-Diamond's Policy Statement Number P-3, Expense Control and Reporting, which
stated in pertinent part:
Entertainment expenses which are reimbursed are those
ordinary and necessary costs that employees are required
to incur for hospitality extended to individuals in sales
promotion and in establishing or maintaining business
relationships. These expenditures associated with the
active conduct of business are reimbursed only if the
entertainment precedes or follows a bona fide business
discussion.
From January 5, 1993 through March 11, 1994, Douglas spent over $2,000
to provide meals and entertainment to Espy and others at premier restaurants. Of
the amount, over $600 was for meals provided directly to Espy.
On March 14, 1993, in the parking lot of Steamer's Seafood Restaurant in
Bethesda, Maryland, Douglas, on behalf of Sun-Diamond, gave Espy four pieces
of a five-piece set of luggage. Douglas kept the fifth piece. The following month,
Douglas submitted a check request to Sun-Diamond for the cost of the luggage,
$2,427, describing the expense as "[r]eimbursement for honorarium gift to
Congressman Mike Espy for presentation at Board of Directors' Meeting, 12/92." (38)
Sun-Diamond approved the expense and reimbursed Douglas for the cost of the
luggage.
On or about September 10, 1993, Douglas, Espy and their girlfriends
traveled from the District of Columbia to New York City to attend the U.S. Open
tennis tournament. Douglas hosted Espy and Espy's girlfriend at the U.S. Open,
paying for tickets to two tennis matches, limousines, and meals. Sun-Diamond
reimbursed Douglas $9,183. Approximately $2,295 of the $9,183 was for
tournament tickets, meals and limousines provided directly to Espy, while
approximately $4,446 covered expenses for both Espy and his girlfriend.
On November 10, 1993, Douglas provided Espy, an avid sports fan, tickets
to a Washington Bullets-New York Knicks basketball game. Douglas submitted a
voucher for the tickets to Sun-Diamond, indicating that the tickets were for three
congressmen and their staffers. In truth, Douglas took Espy and Dempsey to the
game, and invited several professional athletes who wanted to meet Espy.
In addition, between October 1993 through January 1994, Douglas caused
Sun-Diamond to spend approximately $524 to purchase a framed art print and a
crystal bowl for Espy. Although Sun-Diamond paid for the print as a gift for Espy,
Douglas never delivered it to him. An official of one of Sun-Diamond's
cooperatives presented Espy with the crystal bowl during a conference in January
1994.
Douglas, acting on Sun-Diamond's behalf, also orchestrated a Washington,
D.C. fundraiser and arranged for $10,000 in contributions to be made to the failed
and indebted congressional campaign of Espy's brother. Of this $10,000, Sun-Diamond-related Political Action Committees contributed $4,000, while Douglas
solicited $2,000 from his client in the Elsmere land-exchange matter and
accumulated $4,000 through an illegal conduit-contribution scheme. (These
activities are described in detail in Section II.E.1.d.)
(2) Gifts Facilitated by Douglas
Douglas also secured travel funding for Espy's girlfriend through the
International Nut Council (INC). INC comprised growers, handlers, brokers,
agents, exporters and others, including Diamond Walnut Growers of California. Its
purpose was to promote the worldwide consumption of tree nuts. INC wanted
Espy to speak to its members at its Ninth World Tree Nut Congress, to be held
May 22-24, 1993 in Athens, Greece. In January 1993, Don Soetaert, INC's
president and a consultant to Sun-Diamond, sought Douglas's assistance in
arranging for Espy to attend and speak at the Athens World Tree Nut Congress.
Soetaert solicited Douglas to assist in the effort because he understood that
Douglas could get Espy to accept an invitation to speak at the Athens gathering.
Soetaert told Douglas that INC would pay for Espy's travel. Douglas told him that
USDA must pay for Espy, and suggested that INC pay instead for Espy's
girlfriend Dempsey to travel to Greece. When Soetaert agreed to the suggestion,
Douglas informed him that Dempsey's flight would cost around $7,000. Soetaert
replied that INC could not pay that much. Douglas then estimated business-class
airfare would cost about $3,000, and Soetaert agreed to provide that amount.
Douglas was to purchase Dempsey's tickets and INC was to reimburse him.
Douglas told Soetaert that Espy would speak at the event.
Subsequently, on February 9, 1993, Soetaert sent an invitation to Espy
through Douglas. On March 26, 1993, Douglas's assistant faxed the invitation to
Espy. USDA staff recommended that Espy decline the invitation because of the
small size of the group and Espy's pre-existing travel schedule. Rejecting that
recommendation, Espy formally accepted the invitation on April 7, 1993 and
indicated that Douglas would assist in working out the details of his travel
arrangements. Espy signed a letter to Sun-Diamond, care of Douglas, noting that
"Richard Douglas will be hearing from my travel coordinator."
On May 13, 1993, Douglas gave Dempsey an envelope containing
approximately $3,100 in $100 bills at his home in Washington, D.C., to pay for her
travel to Greece. Douglas later admitted that part of his reason for using cash was
to leave no paper trail back to INC. On May 21, 1993, Dempsey attended the INC
event in Athens, as did Espy and members of Espy's staff. Douglas, Kearney and
officials of Sun-Diamond's member-cooperative Diamond Walnut also attended the
Athens conference.
On May 22, 1997, while at the conference, Douglas purchased dinner at
Canaris Restaurant in Athens for Espy, Kearney, Dempsey and Schnoor, counselor
to the Secretary. The total cost for the meal was $456.09. Douglas sought and
received reimbursement for the dinner from Sun-Diamond as a business expense.
The following day, May 23, 1997, Douglas purchased lunch for Espy and Dempsey
at Diogenis Restaurant at a cost of $555.85. Sun-Diamond also reimbursed
Douglas for this meal as a business expense. Schnoor stated that she reimbursed
Douglas for her and Espy's meals, and that she told Douglas she insisted on paying
because Douglas was a prohibited source.
While in Greece, Espy acknowledged to Douglas that he knew Douglas had
given $3,100 to Dempsey, and told him to get reimbursed for it. On July 20, 1993,
INC reimbursed Douglas by way of an electronic transfer of $3,155 to Douglas's
personal bank account.
d. Summary Timeline
The following timeline sets out chronologically the gifts Sun-Diamond and
INC gave to Espy and significant events related to matters before USDA that were
of interest to Sun-Diamond and Douglas:
| Date |
Event |
Matters of Interest |
|---|
| Matters of interest: 1 - Methyl Bromide; 2 - Market Promotion Program; 3 - Commodity Purchases; 4 - Delaney Clause; 5 - Teamsters Strike; 6 - Forest Service Land Swap |
1 |
2 |
3 |
4 |
5 |
6 |
| September 1991 |
Teamsters Local 601 at Diamond Walnut's Stockton processing plant goes on strike. |
|
|
|
|
x |
|
| August 1992 |
EPA issues a draft proposed rule to OMB phasing out use of methyl bromide by January 1, 2000. |
x |
|
|
|
|
|
| January 5, 1993 |
Gift given: Dinner at Mr. K's (estimated value $123) |
| January 6, 1993 |
Gift given: Dinner at 21 Federal (estimated value $73) |
| January 13, 1993 |
Gift given: Dinner at Le Mistral (estimated value $50) |
| February 5, 1993 |
Espy writes Leon Panetta, head of OMB, urging preservation of methyl bromide as pesticide. |
x |
|
|
|
|
|
| February 10, 1993 |
Douglas and a representative of the Methyl Bromide Task Force meet with Espy to lobby him in favor of continued use of methyl bromide. |
x |
|
|
|
|
|
| February 24, 1993 |
Diamond Walnut's president reports to Sun-Diamond board that the "Delaney Clause [is] a major issue." |
|
|
|
x |
|
|
| March 14, 1993 |
Gift given: Luggage/Dinner at Steamers (estimated value
$2475) |
| March 18, 1993 |
EPA publishes and invites comments on a proposed rule to list methyl bromide as a Class One ozone depleter, to freeze 1994 production at 1991 levels and to terminate production and use on 1/1/2000. |
x |
|
|
|
|
|
| April 9, 1993 |
Espy receives a USDA Information Memo about the Delaney Clause. |
|
|
|
x |
|
|
| April 28, 1993 |
Douglas reports at a Sun-Diamond president's meeting that Espy sent a letter to EPA's administrator supporting the position that dried fruit is not a processed food under the Delaney Clause. |
|
|
|
x |
|
|
| May 17, 1993 |
USDA submits comments on EPA's proposed rule regarding methyl bromide supporting use and questioning the science used to ban the substance. |
x |
|
|
|
|
|
| May 21-22, 1993 |
Gift given: Trip to Greece for Patricia Dempsey (estimated value $3,100 paid by INC, arranged by Douglas); Meals for Espy and Dempsey (estimated value $1,011 paid by Sun-Diamond) |
| June 9, 1993 |
Teamsters' president sends a letter to Espy seeking a meeting over its strike and pointing out that Diamond Walnut is a major beneficiary of MPP monies. |
|
x |
|
|
x |
|
| June 15, 1993 |
Diamond Walnut's president writes to Espy: "I also wish to take this opportunity to thank you for your help on methyl bromide." |
x |
|
|
|
|
|
| July 6, 1993 |
Gift given: Sutton Place Barbecue (estimated value $75) |
| August 2, 1993 |
Douglas tells Espy that USDA must take the lead on the Delaney Clause |
|
|
|
x |
|
|
| August 3, 1993 |
Legislation requires the Agriculture Secretary to give priority to small entities for MPP in 1994. |
|
x |
|
|
|
|
| August 6, 1993 |
Dan Haley, Account Executive from lobbying firm Robinson Lake Sawyer & Miller, sends memo to Douglas reciting the final provisions of MPP and noting that the Agriculture Secretary has discretion to determine which agricultural entities are small- and medium-sized. |
|
x |
|
|
|
|
| September 11-12, 1993 |
Gift given: U.S. Open Trip (estimated value $4446) |
| September 21, 1993 |
Teamsters' president sends a letter to Espy requesting a meeting to discuss its strike and Diamond Walnut's participation in MPP. |
|
x |
|
|
x |
|
| October 1993 |
EPA sends its draft final rule regarding methyl bromide to USDA; phase-out is pushed back to 1/1/2001. |
x |
|
|
|
|
|
| October 6, 1993 |
Teamsters' president sends a letter to Espy asking him to use his influence over Diamond Walnut through MPP program and again requesting to meet with Espy. |
|
x |
|
|
x |
|
| Late October 1993 |
BKK's Chief Administrative Officer determines current lobbyists cannot get meeting with Secretary and contacts Douglas. |
|
|
|
|
|
x |
| November 1, 1993 |
Douglas's Performance Appraisal indicates he "successfully lobbied USDA for research money for [methyl bromide] alternatives"and "played a key role working with Secretary Espy, the Senate and House agricultural committees . . . which ultimately resulted in federal funding of the MPP" and contributed to the Delaney Clause debates at the national and state level. |
x |
x |
|
x |
|
|
| November 10, 1993 |
Gift given: Bullets/Knicks Game (estimated value $222) |
| November 18, 1993 |
Espy writes EPA Administrator with USDA's comments on EPA's draft final rule stating concerns about completing ongoing scientific studies and the lack of adequate substitutes for methyl bromide. |
x |
|
|
|
|
|
| December 27, 1993 |
Espy writes to the Teamsters' president, explaining that its labor dispute is not an appropriate consideration in the MPP process and stating his office would contact the Teamsters about a meeting. No such contact was made despite three subsequent calls by the Teamsters. |
|
x |
|
|
x |
|
| January 11, 1994 |
Douglas reports to the Diamond Walnut board that "USDA released for comments proposed MPP regs that would establish priority for small businesses, defined per SBA rules as having less than 500 employees; SD [Sun-Diamond] will argue that growers, as small businesses, should not be penalized for marketing their crops through cooperatives." |
|
x |
|
|
|
|
| January 15, 1994 |
Pat Kearney signs $60,000 contract for Douglas to lobby USDA on the Elsmere land swap. |
|
|
|
|
|
x |
| January 19, 1994 |
In a speech to the National Council of Farmer Cooperatives, Espy states EPA had put methyl bromide on the chopping block but USDA arranged a compromise to delay reduction in its use and manufacture until at least the end of 2001, allowing time for added research. |
x |
|
|
|
|
|
| January 30, 1994 |
Gift given: Dinner at Ritz Carlton (estimated value $50) |
| February 4, 1994 |
Espy, Douglas, Kearney and USDA staff members meet at USDA on Elsmere project. Espy asks staff member for a commitment that the environmental impact statement will be completed in 1994. |
|
|
|
|
|
x |
| March 11, 1994 |
Gift given: Dinner at Ca'Brea (estimated value $77) |
| April 22, 1994 |
Espy, Kearney, Schnoor, Gastelum and USDA staff meet at USDA regarding the Elsmere project. |
|
|
|
|
|
x |
| May 5, 1994 |
Douglas calls counsel to the Secretary upset over USDA's decision not to include cooperatives in MPP's small-business definition and threatens to go to Congress to "beat up the Secretary." |
|
x |
|
|
|
|
| May 6, 1994 |
Espy approves the final 1994 MPP allocations. |
|
x |
|
|
|
|
| June 2, 1994 |
Douglas writes Espy a letter asking him to oppose expansion of CLOC. |
|
|
x |
|
|
|
| June 9, 1994 |
A USDA official testifies before Congress on behalf of USDA to oppose expansion of CLOC. |
|
|
x |
|
|
|
e. False Statements to Federal Investigators
In early June 1994, FBI agents interviewed Douglas as part of DOJ's
investigation of accusations against Espy in the press. In the course of the
interview, Douglas told the FBI agents that the only time Sun-Diamond had paid
any expenses for Espy was when it had brought him, as a congressman, to
California to speak at a convention. He stated that Sun-Diamond had no issues
pending before USDA during Espy's tenure there and that MPP had never been an
issue that would rise to the level of the Secretary of Agriculture. Douglas also
stated that he provided Espy with the tickets the two had used to attend a Chicago
Bulls-Phoenix Suns basketball championship game in Chicago and that, with the
exception of a $500 contribution to a birthday party for Espy in November 1993,
he had not given any gifts to Espy. In truth, Douglas had provided all of the above
identified gifts from Sun-Diamond to Espy, the company had numerous matters
pending before Espy and USDA during 1993 and 1994, and the tickets to the Bulls-Suns NBA game had come from the president of the Quaker Oats Company, not
Douglas (see Section II.A.4.).
Douglas lied again to the FBI two weeks later when, in a subsequent
interview, he told agents that Espy paid for Dempsey's trip to Greece to attend the
INC meeting and that he was unaware of any gifts, contributions or favors given
Espy by Sun-Diamond. All of these statements were false, and Douglas knew at the
time he made them that they were false.
f. Prosecution Decisions
As a result of the events described above, OIC brought indictments:
- against Sun-Diamond Growers of California for illegal gratuities under 18
U.S.C. § 201(c)(1)(A) (see Section III.B.2.a); and
- against Richard Douglas for illegal gratuities under 18 U.S.C. § 201(c)(1)(A)
and false statements under 18 U.S.C. § 1001 (see Section III.B.2.b).
Also, as a result of its entire investigation, including the events described
above, OIC included in the indictment sought against former Secretary Espy
charges for illegal gratuities under 18 U.S.C. § 201(c)(1)(B) and interstate travel to
receive illegal gratuities under 18 U.S.C. § 1952 (see Section III.B.3).
(3) Gifts from Oglethorpe Power, Smith Barney, and EOP Group
Oglethorpe Power Corporation, an electric-power cooperative, tried to
persuade the United States government to forgive substantial prepayment penalties,
totaling approximately $300 million, on a federal loan it wanted to prepay.
Although the decision lay with the Department of the Treasury, USDA guaranteed
the bonds and administered the program. Oglethorpe's investment banker, Smith
Barney, and its political consultant, EOP Group, enlisted Espy's direct intervention
to assist the company in its effort to avoid the penalties. At the same time, Smith
Barney and EOP facilitated Espy's receipt of things of value - specifically, a ticket
to the January 1994 National Football League Super Bowl. Additionally, by
providing employment to Espy's girlfriend, EOP was able to gain direct access to
Espy and his office and to use that access to benefit its clients, including
Oglethorpe.
a. The Donors
Oglethorpe Power Corporation was an electricity generation and
transmission cooperative, with principal offices in Tucker, Georgia, a suburb of
Atlanta. In 1993, Oglethorpe provided wholesale electric service to 39 of 42
electric membership corporations in Georgia, serving approximately 2.3 million
residents. In 1993, Oglethorpe had revenues of approximately $1.1 billion and
assets of $5.3 billion.
Smith Barney, Inc. was an investment banking, securities trading, and
brokerage firm, with principal offices in New York City. Smith Barney was a
wholly-owned subsidiary of The Travelers, Inc., a publicly held financial services
holding company. As an investment banking firm, Smith Barney underwrote debt
and equity issues for United States and foreign corporations and for state, local and
other governmental authorities. One of Smith Barney's clients was Oglethorpe.
Steven Carosso, a managing director of Smith Barney's Public Power Group in
its Municipal Securities Division, was responsible for Oglethorpe as a client.
EOP Group was a political consulting firm that provided analytical support
and advice on agricultural and other issues to companies with business matters that
involved the United States government. Michael J. O'Bannon was the principal
of EOP. O'Bannon and Espy had been friends from shortly before Espy was first
elected to Congress in 1986. However, O'Bannon stated that they became close
friends only after Governor Clinton was elected President in 1992, when Espy was
considering whether to seek the post of Secretary of Agriculture in the new
administration.
In early 1993, after Espy became the head of USDA, Smith Barney hired
EOP and O'Bannon to lobby Espy and two other USDA officials - Wardell
Townsend, Assistant Secretary for Administration, and Bob Nash, Undersecretary
for Rural Development - on behalf of its client, Oglethorpe. O'Bannon hired
Patricia Dempsey, Espy's girlfriend, to work for EOP, beginning June 7, 1993; she
then worked for EOP through March 1995; during that period, she communicated
with Secretary Espy's staff on behalf of Oglethorpe. In 1994, Oglethorpe hired
O'Bannon specifically to secure a meeting with Espy.
In 1993 and 1994, EOP acquired a number of other clients with matters
before USDA. One of these, FMC Corporation, retained EOP to represent its
interests regarding konjac flour (a powdered root derivative that could be used as a
binder in meat products, with USDA approval) and carbofuran (a pesticide applied
to crops that was subject to possible EPA restrictions). During 1993 and 1994,
EOP submitted briefing papers to USDA, and O'Bannon even drafted a letter to
the Food and Drug Administration concerning konjac flour, for signature by the
appropriate USDA official.
b. Donors' Interest in Espy's Official Acts
Congress enacted the Rural Electrification Act of 1936 (7 U.S.C. § 901, et
seq.) (the Act) to facilitate the provision of electric service to rural consumers by,
among other things, making federal loans available to companies seeking to provide
such service. The Act established the Rural Electrification Administration (REA)
as an agency within USDA to serve as the principal guarantor of capital for electric
cooperatives. REA also administered the federal loan program in which Oglethorpe
and other electrical cooperatives participated. The actual lender of the funds to the
electric cooperatives was the Federal Financing Bank (FFB), an agency within the
Department of the Treasury. The Secretary of the Treasury supervised and
directed the FFB and served as chairman of its Board of Directors.
In 1975, Oglethorpe entered into a mortgage-and-loan contract with FFB and
thereafter borrowed funds under the terms of the contract and various promissory
notes. By the early 1990s, Oglethorpe had approximately $3.1 billion in loans
outstanding with FFB. REA was the guarantor of FFB's loans to Oglethorpe. The
pre-1983 loans carried substantial prepayment penalty terms.
With Smith Barney, EOP, and others working as its agents, Oglethorpe
requested permission in 1993 to prepay the approximately $3.1 billion in
outstanding loans with a reduction in penalties. REA favored permitting Oglethorpe
to prepay the loans with substantially reduced penalties because this would lower
power costs to rural consumers and free up capital to permit REA to make loans to
other power cooperatives. It was FFB's policy, however, to require borrowers to
pay all prepayment penalties. If FFB had agreed to prepayment and refinancing of
the loans and Oglethorpe refinanced the loans by issuing debt securities, Smith
Barney could have expected to have a significant role in a possible offering of debt
securities as lead underwriter, and could have earned approximately $10 million in
gross revenues.
By late March 1993, Smith Barney retained numerous consultants to work on
the issue of "FFB prepayments." One of these consultants, EOP, was hired
specifically to target USDA and Espy. Smith Barney told Oglethorpe that the
Washington consultants understood their roles as assisting with Oglethorpe's
"desire to have negotiated an administrative elimination or reduction of prepayment
penalties by no later than the end of June 1993."
On June 15, 1993, Oglethorpe formally submitted a proposal to Treasury to
prepay the REA loans. The key provision of the proposal was that the Treasury
Secretary would use his explicit statutory authority to waive prepayment penalties
of approximately $300 million on Oglethorpe's FFB advances outstanding as of
July 2, 1986.
Espy first intervened on Oglethorpe's behalf concerning the proposal on
August 19, 1993. He wrote to Secretary of the Treasury Lloyd Bentsen:
We strongly support the proposal and recommend that
Treasury approve Oglethorpe's application for
prepayment. . . . [signed 'Mike']
By late December 1993, Oglethorpe had heard from its Washington
consultants that Treasury would not approve the prepayment request. On
December 29, 1993, Smith Barney sent O'Bannon 36 pages of background
information that included talking points and briefing memoranda concerning the
refinancing proposal. Carosso at Smith Barney had called O'Bannon to tell him
that "things were at a critical point" and that Espy "had not written or called"
Secretary Bentsen in "some time." Oglethorpe and O'Bannon then pressured Espy
to intercede again with Secretary Bentsen.
O'Bannon called Espy, and Espy said that he would not call Secretary
Bentsen but would write a letter. On O'Bannon's recommendation, Thomas D.
Kilgore, president and chief executive officer of Oglethorpe, wrote to Espy on
January 3, 1994, expressing his concern over the anticipated imminent rejection of
the proposal by Treasury and requesting a meeting. The next day, O'Bannon again
requested Espy write Secretary Bentsen, and O'Bannon drafted a letter for Espy's
signature. O'Bannon's assistant faxed the proposed letter to Espy's confidential
assistant, Eloise Thomas. Later, Espy's girlfriend Patricia Dempsey, who was in
EOP's employ at Espy's request, called Thomas to complain about delays in Espy
sending the letter to Secretary Bentsen. Kimberly Schnoor, Counselor to Secretary
Espy, testified that when O'Bannon learned that Espy was in Europe and had not
sent the letter, he became "very short and terse with me because I had not
completed the letter yet, and the Secretary told him that it would be completed."
On January 4, 1994, Espy sent the following letter to Secretary Bentsen:
Dear Lloyd:
I am writing to follow up on my previous correspondence
of August 19, 1993 to you regarding my support for the
request of Oglethorpe Power Corporation (Oglethorpe)
to prepay its Rural Electrification Administration (REA)
loan. I reiterate my strong support of Oglethorpe's
proposal and recommend approval of its application for
prepayment. In particular, I wanted to bring to your
attention that the Office of Management and Budget has
also concurred with the support of the requested
prepayment.
I appreciate your attention to this matter. If you have any
questions regarding the Department's recommendation, I
would be pleased to discuss it with you or provide you
with further details.
Sincerely,
[signed 'Mike']
Mike Espy
Secretary
Espy's office faxed the letter to EOP, which, in turn, faxed it to Carosso at Smith
Barney. On January 5, 1994, Schnoor faxed Espy, who was in London, England,
confirmation that his letter on behalf of Oglethorpe to Bentsen had been hand-delivered to the Treasury Secretary and that she had called O'Bannon to advise him
the letter had been delivered.
At about this same time, Espy also unsuccessfully lobbied White House
Chief of Staff Leon Panetta to advocate Oglethorpe's position.
O'Bannon's and Espy's last-minute efforts on behalf of Oglethorpe were
unsuccessful. On January 7, 1994, Treasury rejected Oglethorpe's prepayment
proposal. Specifically, the FFB wrote the following to Kilgore:
It is longstanding Treasury policy . . . to deny requests
for waivers of prepayment premiums because such
premiums inure to the benefit of all taxpayers. After
careful analysis, Treasury has concluded that approving
Oglethorpe's request for a waiver of prepayment
premiums would result in a substantial cost to taxpayers
(approximately $286 million) at a time of severe budgetary
constraint. Moreover, granting the requested waiver
would benefit only one particular group or class to the
detriment of all taxpayers.
Although Treasury turned down Oglethorpe's proposal, Oglethorpe, Smith
Barney, and EOP continued to lobby Espy to persuade Treasury to reconsider its
position and permit prepayment and refinancing of the loans. On January 11, 1994,
O'Bannon spoke with Espy concerning Treasury's rejection of Oglethorpe's
prepayment proposal.
On January 12, 1994, during a meeting with Smith Barney and Oglethorpe
representatives, O'Bannon said that he believed they could have the matter
reconsidered and that the appeal was "winnable." He also stated that Espy would
be in Atlanta, Georgia for the Super Bowl and that he would arrange a meeting with
Espy at Oglethorpe headquarters, near Atlanta, when Espy would be in town for the
football game. He further said that Espy would need tickets for the game. On
January 13, 1994, Oglethorpe hired EOP directly and assigned it responsibility for
coordinating, preparing and transmitting an appeal to Espy and to
facilitate a meeting between the CEO of [Oglethorpe] for
the purpose of reviewing the appeal with the Secretary of
Agriculture as soon as possible after the letter is
completed.
Under the terms of EOP's engagement, Oglethorpe would determine after the
meeting with Espy whether to continue to employ EOP. On January 14, 1994,
Smith Barney sent Oglethorpe and O'Bannon a proposed outline for an appeal
letter to Espy.
O'Bannon succeeded in arranging a meeting between Espy and the principals
of Oglethorpe in Atlanta to coincide with Espy's trip to the Super Bowl. On
January 27, 1994, Kilgore wrote Espy confirming the January 29 meeting and lunch
among Oglethorpe senior officials, Espy and O'Bannon at Oglethorpe's corporate
offices. Carosso at Smith Barney received a copy of Kilgore's letter by fax. In
preparation for the meeting, a lobbyist working with Oglethorpe sent a memo to
Oglethorpe management with suggestions. He wrote that
meetings with Cabinet members do not come easily. Use
this time to ask for concrete action. . . . Secretary Espy
should be given a plan. . . . This White House inter-agency group will be able to bring all of the cabinet agencies to the table. Alone, USDA & OMB cannot win
against Treasury. . . . [A]nother action item might be for
[Espy] to arrange such a meeting [with Bentsen].
On January 29, 1994, Espy met with O'Bannon and Oglethorpe executives at
Oglethorpe's headquarters in a suburb of Atlanta. (39) Later that day, O'Bannon gave Espy a ticket for the next day's Super Bowl. He had obtained the ticket from
Oglethorpe and Smith Barney. Within two weeks of the Super Bowl, O'Bannon
spoke with Espy about the Oglethorpe appeal. Also, on February 4, 1994, less
than a week after the meeting with Espy at Oglethorpe, Kilgore issued Oglethorpe's
appeal letter asking Espy to help persuade the administration to reconsider the
buyout proposal. Kilgore requested that Espy "elevate our proposal and its policy
ramification within the Administration for reconsideration."
Espy did as Oglethorpe requested by "elevating" the matter within the
administration. On an unknown date between February 1, 1994 and February 17,
1994, Espy discussed the refinancing proposal with Vice President Albert Gore. (40)
Espy then told O'Bannon about his discussion with Gore. On February 17, 1994,
Espy sent the following letter to Jack Quinn, then Gore's Chief of Staff: (41)
Dear Jack:
I'm writing to follow up on the brief conversation I had
with the Vice President . . . concerning the Oglethorpe
Power Corporation. Enclosed please find a copy of
Oglethorpe's letter to me asking for a reconsideration of
Treasury's pre-payment denial. Also, enclosed is a copy
of FFB's letter to Oglethorpe.
As you will remember, USDA under our REA loan
guarantee program authority, approved Oglethorpe's
proposal to 'graduate' from the program after repaying
@ $3B in accrued debt and interest and @ $200M in
prepayment penalties. It seems to us that consistent with
our 'reinventing' philosophy, we should allow financially
strong companies like Oglethorpe to 'exit' this subsidy
program and then turn our focus towards businesses with
a greater need.
Jack, I know you're busy - but, I wish you would give
this matter your close attention. This is the largest client
in the USDA-REA loan program. I'd be pleased if they
could be allowed a graceful exit.
Sincerely,
[signed 'Mike']
Mike Espy
Although Quinn never raised Espy's letter with the Vice President, he assigned
Linda Lance, a member of the Vice President's domestic policy staff, to look into
the Oglethorpe issue. On March 3, 1994, O'Bannon and Stanley Hill, an
Oglethorpe vice president, met with Lance.
In March 1994, O'Bannon submitted to Oglethorpe an invoice for services
rendered in February 1994, in which EOP identified certain services it had
provided, in particular O'Bannon's work, including the following:
- Met with the Secretary of Agriculture and REA
officials to discuss the next steps concerning the
reconsideration of Oglethorpe's proposal.
- Obtained assurances from the Vice President's
office that the Oglethorpe proposal will be
reconsidered.
In March 1994, following the meeting with Lance, O'Bannon's lobbying
efforts continued. Among other things, O'Bannon drafted a letter for Carosso to
send to Lance, containing information relevant to the proposal. On April 5, 1994,
Kilgore wrote to Espy "to obtain a change in the Administration's policies
governing waivers of pre-payment penalties so that healthy REA co-ops . . . have
an incentive to pre-pay their existing debt. . . ." On April 12, 1994, Carosso met
with O'Bannon in Washington, D.C. concerning the refinancing.
On April 17, 1994, Lance wrote a memo to Quinn to update him on
Oglethorpe, advising him that "their detailed calculations [were not]
encouraging. . . . Based on what I know now, I believe White House involvement
to alter the Treasury position would be inappropriate both substantively and
politically." Also on April 17, 1994, Espy raised the matter of Oglethorpe
refinancing with Vice President Gore for a second time. Quinn's written response
to Lance was: "Can we discuss? We need to satisfy Espy that we took a good
look, e.g., by having a [meeting with] USDA, OMB, [and] Treas[ury]."
By late April, Oglethorpe realized that it had little chance of succeeding with
its appeal, but Espy's role in attempting to persuade the White House to force
reconsideration remained prominent. On May 18, 1994, Lance wrote another
memo to Quinn to advise him that "Treasury was very upset about what they
viewed as political pressure from . . . the White House. . . . [T]he only reason we
met with these [Oglethorpe] folks at all was because Espy asked the VP [Vice
President] to review the issue and, as you know, I've always had serious
reservations about our playing any role in this."
Nevertheless, Oglethorpe made one last try with Espy. On June 1, 1994,
Espy met with O'Bannon, other EOP and Oglethorpe representatives, three senior
USDA officials about refinancing of Oglethorpe's loan. EOP continued to work
for Oglethorpe through July 1994.
In sum, Espy made great efforts on behalf of EOP's client, Oglethorpe -
including the extraordinary step of taking its proposal to the Vice President - at a
time when, as discussed below, EOP had hired Espy's girlfriend and Oglethorpe
and EOP had provided Espy with a ticket to the Super Bowl.
c. Gifts Given
In late April 1993, Espy asked O'Bannon if he would talk to Patricia
Dempsey, his girlfriend, about job prospects. By June 7, 1993, O'Bannon had
hired Dempsey to work at EOP as a seminar planner and staff associate at a salary
of $17 per hour; her compensation over 22 months totaled over $63,000. Dempsey
worked for EOP from June 1993, throughout Espy's tenure as Secretary, until
March 31, 1995, even though O'Bannon received complaints about her job
performance from other employees and partners at EOP, and from EOP clients. (42)
O'Bannon used Dempsey to communicate directly with Espy on two issues of
significant concern to two of EOP's clients. (43) O'Bannon even drafted
correspondence for Espy's signature to Secretary of the Treasury Bentsen, which
he transmitted to Espy through Dempsey.
In concert with Oglethorpe and Smith Barney, EOP also gave Espy a 1994
Super Bowl ticket. Espy met with Oglethorpe's executives on January 29, 1994 to
discuss how Espy could further assist in persuading Treasury to agree to
Oglethorpe's proposal for the prepayment of its loans. Shortly after the meeting
concluded, O'Bannon provided Espy with a Super Bowl ticket.
Oglethorpe obtained the ticket O'Bannon gave to Espy from Carosso at
Smith Barney. On January 12, 1994, Carosso, O'Bannon and other Oglethorpe
and Smith Barney representatives met to discuss the strategy for securing
reconsideration of the loan proposal. During the meeting, O'Bannon advised the
group that Espy would be in Atlanta for the Super Bowl and suggested that he
arrange a meeting with Espy there. According to another participant, whose
memory of this aspect of the meeting was the most complete of those who testified
about the meeting, O'Bannon said Espy or someone in Espy's entourage needed a
ticket. (44)
On January 28, 1994, Carosso telephoned Philip D'Amico, a vice president
of Bowne, Inc., financial printers in Atlanta, to request that he arrange for the
purchase of three tickets to the Super Bowl. Carosso asked Bowne to advance
payment of $6,600 for the 1994 Super Bowl tickets to an Atlanta-based ticket
scalper and to have the tickets delivered to Oglethorpe for O'Bannon to pick up.
The same day, Bowne, acting upon Carosso's request, paid $6,600 to the ticket
scalper for three tickets to the 1994 Super Bowl. The face value of each ticket was
$250. Carosso and D'Amico understood that Bowne would bill Smith Barney for
the cost of the tickets. Later that day, three tickets to the Super Bowl game were
delivered to Bowne for O'Bannon.
On January 29, 1994, Espy met with O'Bannon and other Oglethorpe
executives at Oglethorpe's headquarters in a suburb of Atlanta to discuss the REA
loan prepayment. Later that day, O'Bannon gave Espy one of the three Super
Bowl tickets that Carosso arranged for and charged to Smith Barney. (45)
On January 30, 1994, Espy attended the 1994 Super Bowl but reportedly did
not sit in the seat for which Smith Barney paid. He apparently attended the game
using the ticket supplied by the Fernbank Museum. (See discussion at II.A.5.c).
OIC could not determine what Secretary Espy did with the ticket he received from
O'Bannon.
Invoices issued to Smith Barney initially disclosed Smith Barney's role in
obtaining the ticket for Espy. On March 1, 1994, Bowne issued a $6,600 invoice to
SMITH, BARNEY, HARRIS, UPHAM & CO., INC.
Attn: STEVEN B. CAROSSO
with a description that stated, in pertinent part:
PROVIDING 3 SUPERBOWL TICKETS @$2,200.00 EACH.
D'Amico stated that he sent the invoice to Carosso. However, the invoice was not
processed for payment at Smith Barney, indicating that Carosso never sent the
invoice for payment. Instead, Carosso undertook to conceal the purchase of and
payment for the Super Bowl tickets.
On June 6, 1994, Carosso instructed D'Amico to delete the reference to the
Super Bowl from Bowne's invoice to Smith Barney. As a result of Carosso's
instruction, D'Amico completed an "Invoice Inquiry," an internal Bowne form, to
change the description on the invoice. The instructions on the Invoice Inquiry read:
CHANGE LANGUAGE ON INVOICE TO READ
'PRINTING CONSULTATION FEE ON
OGLETHORPE POWER PROJECT.'
On June 14, 1994, Carosso instructed D'Amico to delete the word
"consultation" from Bowne's invoice to Smith Barney. As a result of that
telephone call, Bowne sent a new invoice to Smith Barney in the amount of $6,600
containing the following false description:
SMITH, BARNEY, HARRIS, UPHAM & CO., INC.
Attn: STEVEN B. CAROSSO
PD
PRINTING FEE ON OGLETHORPE POWER PROJECT.
On June 30, 1994, Carosso submitted directly for payment, or instructed a
Smith Barney employee to submit, the invoice containing the false description
through a "Request for Payment" form to his superiors and others, including
accounts payable. On July 19, 1994, Smith Barney issued a $6,600 check to
Bowne in payment of the invoice containing the false description. Smith Barney
also entered into its accounts payable detail ledger, its permanent financial record, a
payment of $6,600 to Bowne for "printing expenses." (46) The undisputed evidence
established that the payment was for three tickets to the 1994 Super Bowl, one of
which was given to Espy.
In approximately August 1994, after newspaper articles first appeared about
Oglethorpe's possible connection to Espy's attendance at the Super Bowl,
Carosso called O'Bannon "to ask whether there was any trouble about the tickets."
O'Bannon told Carosso "no," believing that Carosso wanted to know what
O'Bannon did with the tickets - "and I just wasn't about to tell him." But Carosso
knew that O'Bannon asked for the Super Bowl tickets because he wanted to have
them for Espy. In a later interview, Carosso claimed that the tickets were for
O'Bannon, that he never saw the first invoice from Bowne, and that the change in
the invoices had nothing to do with Espy.
Additionally, in the Fall of 1993, O'Bannon, who also represented the
American Crop Protection Association (ACPA), invited Secretary Espy to speak
at its conference at the Greenbriar Resort in West Virginia from September 26-29,
1993. Espy accepted and attended. ACPA paid his hotel bill of $449.71. In
addition, O'Bannon paid Espy's bills for a $100 massage and a $20 skeet-shooting
session that, in turn, O'Bannon charged to ACPA. Espy's staff repeatedly advised
him that O'Bannon's payment of Espy's hotel bill was a conflict-of-interest and
that he needed to reimburse O'Bannon. (Espy had applied for, and had received
reimbursement from USDA on October 26, 1993.) However, he did not reimburse
O'Bannon for the hotel bill until August 25, 1994, 11 months later, after the
Attorney General had applied for appointment of an Independent Counsel.
d. Summary Timeline
The following timeline sets out chronologically the gifts Oglethorpe, Smith
Barney and EOP gave to Espy, and the significant events related to their effort to
obtain a prepayment penalty waiver:
| Date |
Event |
|---|
| March 1993 |
Oglethorpe hires EOP to lobby USDA and Secretary Espy on its refinancing proposal. |
| April 1993 |
Espy asks O'Bannon to give Dempsey "career counseling." |
| June 7, 1993 |
Gift given: Dempsey employment at EOP as "Seminar Planner and Staff Associate" from June 1993 to March 1995 (total compensation - $63,861) |
| June 15, 1993 |
Oglethorpe formally submits a proposal for a waiver of prepayment penalty to Treasury. |
| August 19, 1993 |
Espy sends a letter in support of Oglethorpe's proposal to the Treasury Secretary. |
| September 26-29, 1993 |
Gift given: Weekend stay at Greenbriar Resort in West Virginia paid for by American Crop Protection Association, facilitated by O'Bannon (cost $569) |
| January 4, 1994 |
Espy sends a letter drafted by O'Bannon in support of Oglethorpe's proposal to the Treasury Secretary. |
| January 7, 1994 |
Treasury rejects Oglethorpe's proposal. |
| January 11, 1994 |
O'Bannon speaks with Espy regarding Treasury's rejection. |
| January 12, 1994 |
O'Bannon and other Oglethorpe and Smith Barney officials decide to arrange a meeting with Espy to coincide with the Super Bowl, and to obtain a ticket to the game for Espy. |
| January 29, 1994 |
Espy meets with Oglethorpe senior staff and O'Bannon at Oglethorpe headquarters in a suburb of Atlanta, Georgia. |
| January 29, 1994 |
Gift given: Super Bowl ticket (cost $2,200) |
| February 4, 1994 |
Oglethorpe sends an appeal letter to Espy asking him to elevate the proposal within the administration for reconsideration. |
| February 17, 1994 |
After a brief discussion with Vice President Gore, Espy sends a letter to Vice President Gore's chief of staff requesting the Vice President's consideration of Oglethorpe's proposal. |
| March 3, 1994 |
O'Bannon and an Oglethorpe vice president meet with a member of Vice President Gore's domestic policy staff to discuss Oglethorpe's proposal. |
| April 17, 1994 |
Espy has a second conversation with Vice President Gore regarding Oglethorpe's proposal. |
| June 1, 1994 |
Espy and other senior USDA officials meet with O'Bannon and others concerning the refinancing of the Oglethorpe loan. |
e. Prosecution Decisions
As a result of the events described above, OIC brought a civil complaint
against Smith Barney, Inc. for the tort of participating in Espy's breach of the
fiduciary duty he owed to the United States and of interfering with Espy's agency
relationship with USDA and the Executive Branch. (47) (This was apparently the first
civil claim of its kind brought to address an offense in the nature of a gratuity to a
public official.) OIC pursued the matter civilly because a criminal charge, which
could have forced the company's closure under the securities laws, was
disproportionate to the offense. The complaint further charged Smith Barney with
supplementing the salary of an officer and employee of the Executive Branch as
compensation for his services in violation of 18 U.S.C. §§ 209 and 216(b) (see
Section III.E.1.a).
Also as a result of the entire investigation, including the events described
above, OIC included in the indictment sought against former Secretary Espy
charges for honest services fraud under 18 U.S.C. §§ 1343 and 1346 and illegal
gratuities under 18 U.S.C. § 201(c)(1)(B) (see Section III.B.3).
During the investigation, OIC granted O'Bannon immunity from prosecution
to compel his testimony before the grand jury. There was insufficient evidence to
prove that anyone at EOP other than O'Bannon was involved in or knowledgeable
about the Super Bowl tickets to Espy, and OIC consequently did not bring charges
against O'Bannon or EOP.
Oglethorpe (through the acts of its principals) and Carosso participated in
giving the Super Bowl ticket to Espy, and in altering the Bowne invoices Carosso
attempted to conceal the purchase of the tickets. However, given the disposition of
the civil case against Smith Barney, credibility questions surrounding necessary
witnesses, the existence of conflicting testimony on key events, and Espy's
acquittal on related charges, OIC, in an exercise of prosecutorial discretion,
determined not to bring charges against Oglethorpe or Carosso.
4. Gifts From Quaker Oats
The Quaker Oats Company is a major food processor whose meat-processing operations, in particular, are subject to USDA regulation. On one occasion, Espy solicited and received National Basketball Association championship game tickets from Quaker Oats' president.
a. The Donor
The Quaker Oats Company is based in Chicago, Illinois, and its shares
are publicly traded on the New York Stock Exchange. It manufactures a variety of
food products that are sold in more than 35 countries around the world, including
"Quaker" brand hot and ready-to-eat cereals, the sports beverage "Gatorade,"
prepared rice and pasta, pancake mixes and syrups, and other products. The
company reported net sales of $5.73 billion in 1993 and $5.95 billion in 1994, and
net income of $171.3 million and $231.5 million, in those years.
William D. Smithburg was Quaker Oats' chief executive officer.
Smithburg also served as chairman of the Board of Directors of the Grocery
Manufacturers Association (GMA), a trade association that represented and
advocated on behalf of companies that processed and manufactured food and
beverage products.
b. Donor's Interest in Espy's Official Acts
At the time of Espy's tenure, Quaker Oats manufactured three products that
contained meat: Van Camp Pork and Beans (the nation's leading brand of canned
pork and beans), Wolf Brand Chili, and Celeste Pizza. These products represented
approximately $180 million of the company's nearly $6 billion in annual sales, or
about 3% of Quaker Oats' business.
Because these products contained meat, USDA, and therefore Espy, had
regulatory power over this aspect of Quaker Oats' business under the Meat
Inspection Act, 21 U.S.C. § 601 et seq. Under the act, Quaker Oats had to apply
annually to USDA for inspection of its plants that processed meat products. If the
company committed certain violations of the act, USDA could withdraw inspection
and effectively close the plants.
Pursuant to this regulatory power, USDA, in March of 1993, requested a
recall of up to 1.8 million pounds of Quaker Oats' Wolf Brand Chili when it
discovered that the product was contaminated with sand. On June 8 of that year,
USDA ruled that the recalled chili was unfit for human consumption and had to be
destroyed. The company estimated that the resulting recall and destruction of the
chili cost it more than $1 million.
Quaker Oats also participated in the commodity purchase program, through
which USDA purchased various goods and thus was a direct customer of the
marketers of agricultural products, including Quaker Oats. USDA purchased more
than $4.5 million of commodities from Quaker Oats in 1993 and slightly more than
$2.5 million in 1994.
Manley Molpus, a GMA lobbyist and the association's chief executive
officer, arranged a dinner in Washington, D.C. on June 3, 1993, at which he,
Smithburg, and Espy discussed the business of food processing and manufacturing
in general, and Quaker Oats in particular. This was the first meeting between
Smithburg and Espy.
c. Gifts Given
In June of 1993, the Chicago Bulls advanced to the National Basketball
Association (NBA) Finals against the Phoenix Suns. After winning three of the first
four games in the series, the Bulls were within one game of becoming only the third
team in NBA history to win three consecutive championships. Consequently,
tickets to Game Five of the series were highly prized and difficult to obtain. The
game, to be held in Chicago, coincided with a previously scheduled speech by
Espy at the graduation of the Chicago Agricultural High School on June 18, 1993.
Espy was aware that Chicago Bulls player Michael Jordan was a spokesman
for Quaker Oats' Gatorade. On June 17, 1993, Espy directed his confidential
assistant, Eloise Thomas, to telephone Smithburg's office at Quaker Oats and
request two tickets for the June 18 basketball game. Thomas then called
Smithburg's secretary and requested two tickets for Espy. Smithburg's secretary
relayed the request to Smithburg, who agreed to provide Espy two of his four
personal tickets for the game. On the morning of June 18, Espy's security detail
picked up the tickets from Quaker Oats' offices and provided them to Espy.
Espy used the tickets to attend the game with Richard Douglas, Sun-Diamond Growers of California's senior vice president in charge of government
affairs, and the two sat in Smithburg's seats, approximately 15 rows from the
court. Smithburg attended the game using one of Quaker Oats' eight tickets.
During halftime, Espy and Douglas thanked Smithburg for providing their tickets.
The tickets had a face value of $45 but were commanding a price in the range of
$500 each from ticket scalpers.
Smithburg stated that there was a great deal of demand on him for those
tickets, because they were for the NBA Finals. He admitted that one of the reasons
he gave Espy the tickets was because Espy was the Secretary of Agriculture, but he
stated that he did not give Espy the tickets "for or because of official acts."
Smithburg stated that neither Espy nor any member of Espy's staff proposed
reimbursing Smithburg for the tickets.
About a week after the game, Douglas gave Espy $50 and told him to add
another $50 and reimburse Smithburg for the tickets. Douglas told Espy that Espy
could not accept gifts from Smithburg or Quaker Oats, because he had no
relationship with Smithburg prior to becoming Secretary of Agriculture. Espy did
not reimburse Smithburg until August 25, 1994, shortly after Quaker Oats informed
the media, and the media reported, that Espy had received tickets to the game from
Smithburg. By this date, Espy and Douglas already had falsely told federal agents
that Douglas received these tickets from an NBA player. (These statements are
discussed in detail in Section II.B.1.b).
d. Prosecution Decisions
As a result of the entirety of its investigation, including the events described
above, OIC included in the indictment sought against former Secretary Espy
charges for wire fraud under 18 U.S.C. §§ 1343 and 1346, illegal gratuities under 18
U.S.C. § 201(c)(1)(B), and violation of the gift provision of the Federal Meat
Inspection Act, 21 U.S.C. § 622 (see Section III.B.3).
OIC brought no charges against Quaker Oats or William Smithburg. Neither
Quaker Oats nor Smithburg initiated an offer of any gifts to Espy or sought through
the gift given to influence official action at USDA. Espy solicited the NBA Finals
tickets from Smithburg, and Smithburg provided Espy his personal, not company,
tickets. Moreover, when media reports first appeared stating that Espy attended the
basketball game and before any public suggestion that his tickets came from
Quaker Oats, the company issued a press release stating that Smithburg had
provided Espy with the tickets. OIC concluded that neither Quaker Oats nor
Smithburg should be prosecuted.
5. Gifts From Fernbank Museum
The Fernbank Museum received USDA grant money to present a Smokey
Bear exhibit during Espy's tenure. Fernbank offered Espy two tickets to the 1994
Super Bowl, to make an official appearance with Smokey Bear at halftime. Espy,
through his office, subsequently asked for and received two additional tickets to the
Super Bowl and used all four, even though the Smokey Bear halftime presentation
ultimately was canceled, and there was then no official reason for him to be at the
Super Bowl.
a. The Donor
Fernbank, Inc., was a private, nonprofit organization based in Atlanta,
Georgia. It owned the Fernbank properties and the Fernbank Museum of Natural
History. Fernbank was formed in 1938 to purchase 70 acres of forest, now known
as Fernbank Forest, for preservation. Later, Fernbank worked in conjunction with
the DeKalb County School System, educating school children in nature studies and
operating the Fernbank Science Center, which received approximately 800,000
visitors a year during the early 1990s. The Fernbank Museum of Natural History
opened in 1992 and had approximately one million visitors a year.
b. Donor's Interest in Espy's Official Acts
During the summer of 1993, USDA, through one of its subordinate agencies,
the Forest Service, began planning the 50th Anniversary Celebration for Smokey
Bear, the official Forest Service mascot and a registered trademark of USDA.
Among the proposed year-long festivities was a traveling exhibit to be displayed in
various cities around the country.
Fernbank, through an intermediate consultant, applied for and received
approximately $71,000 in grant money from USDA to design, construct and
display the Smokey Bear traveling exhibit, which opened on February 4, 1994 at the
museum in Atlanta. The museum later extended the exhibit and obtained additional
grant money.
In an effort to promote public awareness of the Smokey Bear 50th
Anniversary Celebration and the traveling exhibit, Fernbank and the Forest Service
attempted to schedule an appearance for Smokey Bear at the National Football
League's Super Bowl, which was to be held on January 30, 1994 in Atlanta. To
lend additional credibility to the exhibit, Fernbank and the Forest Service decided
to invite Espy to both the Super Bowl event and the traveling exhibit's museum
opening. Fernbank and the Forest Service wanted Espy to appear and participate
during the Super Bowl game-day festivities with a costumed Smokey Bear.
Organizers hoped the media would broadcast Espy's participation with Smokey
Bear to the Super Bowl television audience. The annual professional football
championship historically ranks as the top television event of the year, attracting
more U.S. viewers than any other single broadcast.
c. Gifts Given
On December 8, 1993, Rankin Smith, a Fernbank trustee and owner of the
Atlanta Falcons football team, wrote to Espy to invite him to launch the traveling
exhibit by attending the Super Bowl. On the same day, Dr. Kay Davis, Fernbank's
executive director, invited Espy to attend the February 4, 1994 opening of the
traveling exhibition at the museum. On December 27, 1993, Espy accepted Smith's
invitation to the Super Bowl and also accepted the invitation to attend the opening
of the museum exhibit. However, when Smith invited Espy to the Super Bowl
event and when Espy accepted the invitation Fernbank had not yet obtained tickets
to the sold-out game.
Throughout December 1993 and January 1994, Kim Dunn, Fernbank's
associate director, worked closely with Espy's office to schedule his activities for
the weekend. In addition to her last-minute efforts to locate tickets to the game for
Espy, Dunn also attempted to obtain tickets to Super Bowl-related events and to
reserve a hotel room for him.
On approximately January 22, 1994, after much effort, Fernbank obtained
two tickets to the Super Bowl. The tickets were purchased directly from the Atlanta
Falcons for $350, using Smith as a contact. Dunn obtained the tickets believing
that one ticket would be for Espy and the other for the person playing Smokey
Bear. She called Stephanie Hague at Espy's office to inform her that she had the
two tickets. During this conversation, Hague, at the direction of Espy's
confidential assistant Eloise Thomas, insisted that Espy required two additional
tickets so his children could also attend the game.
Fernbank obtained the second set of tickets through a contact that Fernbank
President Robert C. McMahan had in the Atlanta community. To purchase this
second pair of tickets expeditiously, Dr. Davis, Fernbank's executive director,
wrote a personal check to the ticket owners. Fernbank later reimbursed Dr. Davis
$507 for the two tickets.
More than a week before the January 30 Super Bowl, Fernbank and USDA
learned that the National Football League would not permit Smokey Bear and Espy
to make an appearance either at halftime or during pre-game festivities. The Forest
Service immediately informed Espy's office. Betty Stern, Espy's travel
coordinator, made a note on January 21, 1994 that the Forest Service called and
informed her that "nothing official going to happen w/Smokey." Thomas testified
that she knew the proposed Smokey appearance was not going to happen
approximately a week before Espy was to leave for the trip to Atlanta. There was
no official reason therefore for Espy to attend the Super Bowl.
Nevertheless, Espy attended the game with the four tickets Fernbank
provided. Espy picked up the tickets on January 28 and, despite his
representations to Fernbank, did not use the tickets to take his children to the Super
Bowl. Instead, he took two acquaintances from Mississippi and Richard Douglas,
senior vice president for government affairs for Sun-Diamond Growers of
California.
During the game, a 20-second Smokey Bear 50th Anniversary public-service
announcement was shown twice on the giant Jumbotron television-like screen at the
stadium. No event calling for the Secretary of Agriculture's attendance was staged.
No stadium public-address announcement was made to the crowd that the
Secretary was present, and the Smokey Bear public-service announcement did not
refer in any way to Espy. Furthermore, Espy did not attend the February 4 opening
of the Smokey Bear exhibit at the Fernbank Museum, even though he flew to
Atlanta at government expense and attended the Super Bowl with tickets supplied
by Fernbank.
On September 14, 1994, five days after the Independent Counsel was
appointed to investigate Espy, Espy sent a $700 check to Fernbank as
reimbursement for the Super Bowl tickets.
d. Prosecution Decisions
As a result of the entire investigation including the events described above,
OIC included in the indictment sought against former Secretary Espy charges for
wire fraud under 18 U.S.C. §§ 1343 and 1346 and illegal gratuities under 18 U.S.C.
§ 201(c)(1)(B) (see Section III.B.3).
OIC concluded that no criminal charges should be brought against Fernbank
Museum. Fernbank intended that the tickets be used for an official purpose.
Consequently, OIC determined that Fernbank's conduct in providing these tickets
did not warrant prosecution.
6. Gifts From Robert Mondavi Winery
In October 1993, Espy traveled to a winery owned by Robert Mondavi
Corporation (Mondavi) in California, and acting on a request of Richard Douglas,
Sun-Diamond Growers of California senior vice president and Espy's traveling
companion, Mondavi gave Espy a gift of six bottles of premium wine. During the
visit, executives and employees of the winery discussed with Espy numerous issues
pending at USDA for which he could perform official acts to the benefit of the
winery and the wine industry as a whole. Then, in March 1994, Mondavi hosted a
dinner in Washington, D.C. that Espy and his girlfriend attended. At the dinner,
matters pending before USDA were discussed, and Espy was invited to use the
"guest house" at Mondavi's Napa Valley Winery.
a. The Donor
Robert Mondavi Corporation, based in Northern California, was founded
in 1966 by Robert Mondavi and his elder son, R. Michael Mondavi. Michael
Mondavi was the president and CEO in 1993 and 1994, and Robert Mondavi was
chairman of the board. Mondavi was the largest exporter of premium California
wines, selling wines in 90 countries. Mondavi conducted an initial public offering in
1993, and its stock trades on the NASDAQ national market system. It is one of the
nation's largest wine producers.
b. Donor's Interest in Espy's Official Acts
During 1993 and 1994, Mondavi actively lobbied Secretary Espy and other
USDA officials on several issues in which they had an interest. An internal
memorandum from Mondavi executive Herb Schmidt to senior officials written two
days after Espy's visit to the winery in October 1993 highlights some of the issues
discussed with Espy and of interest to Mondavi:
[W]e have embarked on a program of inviting cabinet
secretaries to visit Napa during the next 9 months. . . .
The first visit took place this past Friday, October 29.
United States Secretary of Agriculture, Mike Espy,
visited . . . (the first visit of a secretary since 1983).
During his briefings at [the Mondavi winery, Espy]
expressed the following feelings:
Health - Clinton administration believes wine in
moderation is good for you! Important since his
department is in charge of the nutrition of the nation.
Market Promotion Programs - Believes they need
support but reform (perhaps should be removed from
Wine Institute[ (48)]).
NAFTA [North American Free Trade Agreement] -
Thanked . . . for our unconditional support and noted it
will not go un-rewarded.
Research Funding - Will make available greater USDA
funding for research into grapevine pests and diseases.
[O]ne thing is clear, we have an unprecedented
opportunity to make a difference on national policy
regarding moderate consumption of wine. We must seize
the opportunity! It will not happen again anytime soon.
It is an ideal situation for political progress in terms of
wine industry problems.
The health issue mentioned in Schmidt's memo refers to the "United States'
Dietary Guidelines for Americans." These guidelines, which are jointly promulgated
by USDA and the Department of Health and Human Services (HHS) every five
years, advise Americans what foods to consume in what quantities to remain
healthy. The 1990 version of the dietary guidelines discouraged the drinking of
alcoholic beverages, specifically stating that "[d]rinking them has no net health
benefit, is linked with many health problems, and can lead to addiction. Their
consumption is not recommended." However, studies in the early 1990s had found
some health benefits in moderate wine consumption, and Mondavi wanted this
finding included in the next dietary guidelines. The fourth edition of the dietary
guidelines, issued in 1995, eliminated the recommendation against alcohol
consumption and included the following statements, which were consistent with
Mondavi's position:
Alcoholic beverages have been used to enhance the
enjoyment of meals by many societies throughout human
history. If adults choose to drink alcoholic beverages,
they should consume them only in moderation . . . .
Current evidence suggests that moderate drinking is
associated with a lower risk for coronary heart disease in
some individuals.
The second matter of interest referenced in the Schmidt memo was the
Market Promotion Program (MPP), a USDA-administered grant program designed
to increase U.S. exports of agricultural commodities. (The details of the MPP are
discussed in Section II.A.2.b.(2) of this Report, above). Through the Wine
Institute, Mondavi received MPP funds of $79,295 for 1993 and $70,295 for 1994.
Mondavi management believed that MPP funds should be spent predominantly on
generic advertising and promotion to increase foreign sales of wine produced in the
United States. It advocated a general reduction in the amount of MPP funds
authorized for "brand marketing" - i.e., advertising by specific wine brands.
The third subject referenced in the Mondavi memo was the North American
Free Trade Agreement (NAFTA), an agreement the Clinton administration worked
to implement in late 1993 to create a free-trade bloc for North American countries.
Mondavi believed that implementation of NAFTA would be beneficial to the state
of California, including its wine industry, and consequently supported the
administration's efforts. Mondavi also supported the General Agreement on Trade
and Tariffs (GATT), which facilitates international trade.
The last matter listed in Mondavi's internal memo, research funding, was of
particular concern to Mondavi at the time of Espy's visit. USDA provided funding
to various universities in California for research concerning wine. Mondavi, along
with other California vintners, sought USDA's commitment of additional research
funds to combat the spread of phylloxera, a pest that was devastating vineyards in
California. During Espy's visit, Mondavi officials pulled grapevines from the
ground to show Espy the damage done by phylloxera and to encourage an increase
of funding for a pesticide. In his remarks at a reception following his meeting with
Mondavi officials, Espy acknowledged to the attendees:
This insect is harming grapes and the economy. We will
move federal agricultural research funds to the front
burner to help the wine industry deal with the
problem . . . . We've got money for research. We can
do more than we have been doing and I commit to you
we will.
As a related matter, Mondavi was also concerned about preserving the use of
the pesticide methyl bromide to fight pests affecting vineyards. (For a discussion
of methyl bromide, see Section II.A.2.b.(1)).
In addition to the issues listed in Schmidt's memo, Mondavi had an interest
in two other USDA actions and programs: (1) in or about late 1993, USDA was
considering a cut in funding for the Soil Conservation Service's program to fight
soil erosion, an action Mondavi opposed; (2) during 1993 and 1994, Mondavi was
advocating that the wine industry be provided federal marketing orders, funds
collected and disbursed by USDA, to promote marketing of particular agricultural
products to specific geographic areas.
c. Gifts Given
OIC's investigation revealed that on October 4, 1993, Douglas telephoned
Schmidt and asked if Espy could visit the Mondavi winery in Napa Valley on
October 29, 1993. Douglas told Schmidt that Espy would be traveling to San
Francisco, California to deliver a speech and that Douglas wanted Espy to visit
nearby Napa for broader wine-industry exposure. Shortly thereafter, Schmidt
telephoned Douglas and told him that senior officials of the winery and other
interested Napa Valley vintners would be available to meet with Espy on October
29, 1993. Douglas told Espy that Mondavi would be a company whose board of
directors he might want to join after leaving USDA.
In a subsequent telephone call, Douglas told Schmidt that Espy and Patricia
Dempsey, Espy's girlfriend, as well as Douglas's own girlfriend, Patricia Kearney,
would remain in the San Francisco Bay Area over the weekend after his visit to
celebrate a private event. Douglas then asked Schmidt, in substance, whether he
could get some wine from the winery for Espy's group. Schmidt understood that
they were not intending to pay for the wine and, although he knew it was wrong to
provide gifts to Espy, he agreed to supply the wine.
On October 29, 1993, Espy visited the Mondavi winery in California and
discussed matters of concern that were pending before him. After the meeting,
Espy and Douglas received a tour of the facilities. Between the meeting and the
tour, Douglas asked Schmidt whether he had the wine for Espy, and Schmidt
replied, in substance, that the wine would not be a problem.
Following the tour of the vineyards, Espy attended a reception at another
Napa Valley winery owned by Mondavi. Douglas again brought up the subject of
the wine with Schmidt, who sent a Mondavi employee to obtain wine from the
winery store. Schmidt told the employee that the wine was for Espy. The
employee drew six bottles of premium wine from the company's retail gift shop.
The employee wrote on the receipt that the purpose of the wine was a "GIFT FOR
FED. AG. SEC." The total retail value of the six bottles of wine was $187.
The employee immediately returned to the winery with the six bottles of wine
that he had drawn for Espy. Upon seeing the employee arrive at the winery with the
wine, Schmidt and Douglas escorted the employee to the parking lot. Douglas
advised Schmidt and the employee that Espy could not receive the wine directly but
that it would be "OK if it was put in Douglas's car" for Espy. The wine was then
placed into one of the two cars carrying Espy's traveling party. Neither Espy nor
Douglas offered to or did pay for the six bottles of wine. Mondavi did not ask
Espy or Douglas to pay for the wine.
Four months later, on March 8, 1994, Mondavi hosted a dinner in a private
room at Kinkead's Restaurant in Washington, D.C. to celebrate the second
American Wine Appreciation Week. Espy attended the dinner with Dempsey.
During the dinner, a senior official of Mondavi spoke to those in attendance,
including Espy, about, among other things, the healthful effects of wine
consumption and federal market orders for wine. The total cost of the dinner was
$1,660. The total value of the dinner to Espy for himself and Dempsey was $207.
Espy was not asked to and did not pay for the March 8, 1994 dinner that he and
Dempsey attended and Mondavi hosted.
On March 18, 1994, shortly after the dinner, Schmidt sent a memorandum to
senior officials of Mondavi that recounted, in part:
Our meeting with some of the top officials of our
government was very effective. . . . They were more than
pleased to hear our point of view and want to be helpful.
The same day, a senior official of Mondavi wrote a letter to Espy that
included the following:
It was an honor to have you join us for dinner last week
at Kinkead's. . . . It was a pleasure to meet Pat
[Dempsey]. What a lovely woman.
Please know that you have a standing invitation to visit us
in Napa. . . . We do have a guest house which could be
made available to you.
d. Prosecution Decisions
As a result of the events described above, OIC brought a civil complaint
against Robert Mondavi Winery for the tort of participating in Espy's breach of
the fiduciary duty he owed to the United States and of interfering with Espy's
agency relationship with USDA and the Executive Branch. OIC pursued the matter
civilly because the company and its officers and employees cooperated extensively
with the investigation. The complaint further charged Mondavi with supplementing
the salary of an officer and employee of the Executive Branch as compensation for
his services in violation of 18 U.S.C. §§ 209 and 216(b) (see Section III.E.1.a).
OIC did not bring charges against Espy for these gifts. The evidence did not
support a finding that Espy solicited the wine and there was insufficient evidence to
demonstrate that he was fully aware of the circumstances under which it was
acquired.
7. Gifts From Morgan Stanley
During the investigation, OIC investigators received information that Espy
and his girlfriend Patricia Dempsey attended the 1993 annual Congressional Black
Caucus Foundation (CBCF) Awards Dinner on September 18, 1993, using tickets
provided by a principal in the investment-banking division of Morgan Stanley.
Although Morgan Stanley was not regulated by USDA, it owned a significant
interest in one of the nation's largest pork producers, a company that was subject
to USDA regulation. OIC investigated the matter thoroughly to determine whether
Espy violated any criminal law in accepting the tickets and whether Morgan Stanley
violated any federal criminal law by providing the tickets to Espy.
a. The Donor
Morgan Stanley, based in New York City was a global financial services
firm that maintained leading market positions in each of its businesses - securities,
asset management and credit services. In 1994, the firm had more than 36,000
employees and managed approximately $128 billion in assets.
Charles N. Atkins II was employed as a public-finance investment banker,
specializing in student loans, at Morgan Stanley in New York City. Atkins first met
Espy in 1971 at Howard University. Both were involved in student government and
became friends. After college, Atkins and Espy kept in contact with each other,
and Atkins attended Espy's confirmation hearings in January of 1993 as a guest of
Espy.
b. Donor's Interest in Espy's Official Acts
Morgan Stanley itself had no matters pending before USDA and was not
regulated by the Department. Morgan Stanley did, however, have a merchant-banking fund that invested in private companies. In 1993, that fund owned
approximately 70% of Premium Standard Farms, Limited Partnership, then the
nation's fourth-largest pork producer. USDA regulated pork production under the
Federal Meat Inspection Act. 21 U.S.C. § 601 et seq.
c. Gifts Given
On or about September 8, 1993, Atkins submitted a Morgan Stanley check
request in the amount of $25,000 for a check payable to the CBCF. (49) The request listed as its purpose "Sponsor and Supporter tables at the Congressional Black
Caucus Foundation Annual Awards Dinner - 9/18/93" and at the top bore the
notation: "RUSH." A $25,000 check made payable to the "CBC Foundation, Inc."
was drawn on a Morgan Stanley account the following day. For this payment to
the CBCF, Morgan Stanley received, among other things, 10 tickets for seating at a
"platinum" tier table at the Foundation's annual awards dinner, which was held on
Saturday, September 18, 1993 at the Washington Convention Center, Washington,
D.C.
Atkins phoned Espy and, through Espy's scheduler, Eloise Thomas, offered
him two of the tickets, which Espy accepted. Some time later, Thomas asked
Atkins if he had another ticket available. Atkins agreed to provide another ticket
and ultimately left three of the 10 dinner tickets at the Foundation's office for
Espy's use. Espy, Thomas and Dempsey attended the dinner, using the Morgan
Stanley tickets, and sat at the table Morgan Stanley purchased. Tickets to the
event, not including seating at a platinum table, cost $500 each.
d. Prosecution Decisions
OIC's investigation did not develop evidence that Atkins or Espy specifically
knew of Morgan Stanley's interest in matters pending before USDA or relating to,
or substantially affecting, Premium Standard Farms. The evidence did not support
a finding that Atkins or Morgan Stanley gave Espy the tickets to the CBCF dinner
"with intent to influence" him in the discharge of his duties under the Meat
Inspection Act (21 U.S.C. § 622) or "for or because of any official act performed
or to be performed" by him (18 U.S.C. § 201(c)), or that Espy received the tickets
for such purpose. Viewing the totality of the evidence, OIC, in the exercise of
prosecutorial discretion, concluded that this matter did not warrant prosecution.
8. Espy's Acceptance of Gifts Unrelated to Agriculture
While investigating Secretary Espy's receipt of gifts from entities with
business before USDA, OIC also determined that Espy had received gifts provided
by persons without agricultural ties. These gifts are briefly discussed here.
a. Inaugural Party in Espy's Honor and Event Tickets
OIC uncovered evidence of a number of additional gifts that Espy and his
girlfriend, Patricia Dempsey, received from Patrick C. Koch, a Washington, D.C.
lobbyist. Koch, a lawyer, had been a registered lobbyist since 1982, principally
representing the telecommunications industry. Koch first met Espy while Espy was
a congressman; he stated that he liked Espy and thought he "was going places."
On Monday, January 18, 1993, the evening prior to a presidential inaugural dinner
that Espy attended as the guest of Tyson Foods, Inc., Koch threw a party at the
City Tavern Club in Washington, D.C. in honor of Espy's appointment as
Secretary of Agriculture. The cost of the party to Koch exceeded $10,000. More
than 100 persons attended, most invited from a list provided to Koch by Espy's
congressional office.
Additionally, Koch recalled giving Espy and Dempsey tickets for the
Washington Capitals hockey team and other events, such as a Michael Bolton
concert and the "Ice-Capades." He claimed he could not recall if these gifts were
made while Espy was a congressman or Secretary of Agriculture. Dempsey
admitted knowing that, like Richard Douglas of Sun-Diamond Growers of
California and Michael O'Bannon of the EOP Group, Koch was a person who
could obtain tickets to sporting events for her and Espy.
OIC did not find evidence of criminal culpability related to Koch's conduct
with Espy. Koch advised that he primarily represented the telecommunications
industry rather than agriculture and had never represented a client at USDA. When
asked why he spent $10,000 on a party for Secretary-designate Espy, he stated the
event had "business value" because it would provide an opportunity for Koch and
his clients to "meet and greet" Espy's colleagues in Congress. He stated he did not
give gifts to Espy because of any interest in the Secretary-designate's official
actions, and OIC uncovered no evidence to the contrary. Espy was legally
required to disclose the gifts he received from Koch on his public financial
disclosure form (see Section II.B.2.) but did not. In the exercise of prosecutorial
discretion, OIC did not charge Espy with violation of criminal law on the basis of
this omission.
b. March 1994 Beverly Hills, California Trip
Following a lead developed in the FBI investigation preceding the
appointment of the Independent Counsel, OIC also investigated whether Secretary
Espy violated any federal law in accepting an all-expense-paid trip to Beverly Hills,
California from Ebony and Jet magazine publishers Johnson Publishing Company,
Inc.
In December 1993, Johnson Publishing selected Espy to receive the
company's "Trailblazer Award" at its Fifteenth Annual American Black
Achievement Awards presentation on Sunday, March 13, 1994 in Hollywood,
California. To encourage attendance at the taping of the awards show, the
company provided award recipients and one guest, including Secretary Espy and
his guest Patricia Dempsey, round-trip airfare to Los Angeles, three nights
accommodations at The Beverly Hilton Hotel in Beverly Hills, limousine
transportation to and from the airport and the awards show, meals during their stay,
and tickets to a pre-show reception and a post-show gala at The Beverly Hilton
Hotel's penthouse restaurant.
OIC concluded that neither Secretary Espy nor Johnson Publishing violated
any criminal law by engaging in this activity. The benefits Espy received appeared
to be provided by Johnson Publishing for non-official reasons. The company was
not regulated under the Meat Inspection Act, and OIC discovered no relationship
between the company and the Department of Agriculture. However, Secretary
Espy was legally required to disclose his receipt of this travel and hospitality from
Johnson Publishing on his public financial disclosure form (see Section II.B.2.) but
did not. In the exercise of prosecutorial discretion, OIC decided not to charge
Espy with a violation of criminal law on the basis of this omission.
c. $2,800 Monotype
OIC's investigation disclosed that Secretary Espy accepted an art work
valued at $2,800 from Mississippi-born artist William Dunlap.
Espy and William R. Dunlap met through the "Mississippi Society," an
informal social organization for native Mississippians living in Washington, D.C.,
shortly after Espy was first elected to Congress. To assist Congressman Espy in
decorating his new office, Dunlap provided him with a piece of art. The two men
maintained some social contact into the early 1990s.
Shortly after Espy was appointed Secretary of Agriculture, Dunlap met with
Espy on several occasions at the National Museum of American Art, National
Gallery of Art, and the Corcoran Gallery of Art to select pieces of art to hang in the
Secretary's suite of rooms at USDA. (Cabinet members are allowed to borrow art
from national museums to decorate their offices.) After making these selections,
Dunlap provided Espy a hand-colored monotype portraying a scene from the
Mississippi Delta. Although that particular monotype had not been sold, Dunlap
advised that one similar in size and content had sold for $2,800.
Dunlap had no business before USDA. He stated that he provided Secretary
Espy the monotype because none of the other paintings selected for hanging in the
Secretary's suite of offices were of Mississippi, because he admired Espy
personally, and because he wanted a piece of his work included among the others
to be displayed at USDA.
While Secretary Espy's receipt of this art did not violate either the Meat
Inspection Act or the gratuities statute, Espy did not report his receipt of this gift
on his public financial disclosure form as required by federal law. OIC included
this and some of the other omissions from his 1993 disclosure form as one count in
the indictment it sought against former Secretary Espy (see Section III.B.3).
B. Espy's Concealment of Gifts Received
In addition to the substantive offenses for which it investigated Espy, OIC
focused on incidents of concealment or non-disclosure by which Espy attempted
to deflect scrutiny of his actions. Some of these actions proved to be prosecutable
offenses, and the grand jury charged them in the indictment against Espy. These
acts fell into three categories: false statements to federal officials, failure to make
legally required disclosures, and after-the-fact reimbursements.
1. False Statements to Federal Officials
Secretary Espy was indicted for making false statements to three federal
agencies or offices that made inquiries into his conduct - USDA's Office of
Inspector General, the Federal Bureau of Investigation, and the White House
Counsel's Office.
a. False Statements to the USDA Inspector General
On March 17, 1993, The Wall Street Journal reported that Espy and USDA
Acting Assistant Secretary for Marketing and Inspection Services Patricia Jensen
accepted tickets to sporting events from Tyson Foods, Inc. USDA's Office of
Inspector General (OIG) commenced an investigation into the Jensen allegations
and opened discussions with the Department of Justice (DOJ) regarding the Espy
allegations. OIG and DOJ decided that OIG should meet with Espy to discuss the
allegations that he accepted football tickets from Tyson Foods and, if the
allegations were confirmed, refer the matter to DOJ's Public Integrity Section for
investigation.
On April 1, 1994, USDA investigative agents interviewed Espy about the
Wall Street Journal article. Espy confirmed that he attended a Dallas Cowboys
football game using a ticket provided by Tyson Foods and that he watched the
game from a Tyson Foods skybox. The investigators then asked Espy whether he
had received any other thing of value from an outside source. Espy expressly
limited his response to Tyson Foods and then stated that he had stayed overnight at
a Tyson Foods management complex in Arkansas. Espy further stated that he had
flown back to Washington, D.C. the next morning on a Tyson plane because he
was directed to return to the White House for dinner with the President and there
were no available commercial airline facilities to return him to Washington, D.C. in
time to attend the dinner.
Documentary evidence, however, established that as early as 10 days before
the flight, Espy had planned to return to Washington, D.C. on a Tyson Foods
plane, and that Espy's staff had previously made commercial reservations from
Arkansas to Washington National Airport, which he directed his staff to cancel.
Espy did not disclose to the OIG agents that he had met his girlfriend, Patricia
Dempsey, in Dallas and had attended the game with her, that Tyson Foods paid for
Dempsey's airfare to and from Dallas, or that he also had met her in Russellville for
the party.
During the interview, Espy reviewed, but did not show the agents,
documents that the agents assumed were the trip itineraries that he had submitted to
USDA for his travel to Dallas, Texas (where he attended the Dallas Cowboys
football game) and for his travel to Russellville, Arkansas (where he stayed at the
Tyson Foods management complex). The agents requested copies of Espy's
itineraries for those two trips and Espy told the agents that he would provide them.
One of the agents informed Espy that he would attach those itineraries to a report
to DOJ.
On April 8, 1994, Espy asked his confidential assistant, Eloise Thomas, to
pull copies of those itineraries. Thomas retrieved copies of those itineraries from
Betty Stern, Espy's USDA travel coordinator, and brought them to Espy. After
receiving the Dallas itinerary, Espy told Thomas to take out the "personal stuff,"
because "it wasn't relevant." In doing so, Espy pointed at specific items on the
itinerary to indicate the "personal stuff" he wanted removed, which were the
references to his girlfriend, Tyson, and the football game. At Thomas's direction,
Stern, who was unaware that the itineraries would be provided to OIG, made the
indicated deletions from the computer version of Espy's itinerary and printed out a
new copy.
The following excerpt from Espy's itinerary for Saturday, January 15, 1994
indicates, in [italic underline] font, the items removed on Espy's instructions:
| 11:50 a.m. |
Arrive Dallas, Texas, Dallas/Ft. Worth International Airport. Meet Pat Dempsey. Leave aiport [sic] via Lone Star Limo Service for Hotel Crescent Court, 400 Crescent Court. (Lone Star Limo 214-229-2100.)
Kinsella: 12:58PM LV Dallas via AA 1256; 4:42PM AR DC Natl.
OVERNIGHT: Hotel Crescent Court (personal)
PHONE: 214-871-3200
FAX #: 214-871-3200
(Confirmation # 130176)
(FYI: Don and Ramona Tyson will be staying at The Mansion on Turtle Creek, 2121 Turtle Creek Blvd. Phone: 214-559-2100.) |
In Espy's itinerary for the following day, Sunday, January 16, the information shown in strikeout font was deleted at Espy's instruction:
| 10:00 a.m. |
Leave hotel via limo to attend brunch at stadium, Irving, Texas. |
| 11:30 a.m. |
Green Bay vs. Dallas, 2nd Round National Football Conference playoffs. |
| 6:23 p.m. CST |
Leave Dallas via American Flight 524 (snack, non-stop).
Seat assignments: 11E, Dempsey 11D.
CONTACT: AA Reserv. PHONE: 800-433-7300. |
| 10:03 p.m.
| Arrive Washington National Airport. |
When Thomas gave the altered itinerary to Espy, he reviewed it again before
directing her to make it available to OIG. OIG received the itinerary from Thomas
on April 8, 1994, redacted as shown above, and, unaware that information had been
deleted, provided it to the Department of Justice, as it had told Espy it would.
b. False Statements to the FBI
On June 1, 1994, FBI special agents interviewed Espy. The agents asked
Espy if he could recall any time when he accepted favors, benefits or gifts from any
organizations or companies other than Tyson Foods. He responded that he could
not. At the time Espy made this statement, he had received a number of gifts and
favors from companies and organizations other than Tyson Foods. As this Report
details elsewhere, he personally had received approximately $6,000 in gifts from
Sun-Diamond Growers of California, a National Football League Super Bowl ticket
from EOP Group and Oglethorpe Power, employment for Dempsey from EOP
Group, tickets to a National Basketball Association championship game from the
Quaker Oats Company, four Super Bowl tickets from Fernbank Museum, and three
tickets to the 1993 Congressional Black Caucus Foundation Awards Dinner from
Morgan Stanley.
In the June 1, 1994 interview, the agents also asked Espy who had provided
him with a limousine and driver in Dallas. Espy responded, "I didn't ask whose car
it was, and I didn't want to know." Thus, Espy claimed he was wilfully ignorant of
benefits he was receiving and did not want to know where they came from.
Espy also told the agents that Richard Douglas of Sun-Diamond had
provided him with the tickets to the NBA championship game that he in fact had
received from the CEO of Quaker Oats. Five days later, in a June 6, 1994 interview
with an FBI agent, Douglas corroborated this false story. Douglas stated that he
had provided the tickets for the NBA game in Chicago and that he had received
them for free from a friend who was an NBA basketball player.
Douglas later admitted that he was lying about this incident at Espy's
request. Douglas knew that Espy acquired the two tickets from the chief executive
officer of Quaker Oats. Indeed, Douglas had told Espy that he should not have
solicited the tickets and should make reimbursement. Douglas stated that Espy had
called him shortly after the June 1, 1994 interview, admitted that he had lied to the
FBI about the source of the Chicago Bulls tickets, and asked Douglas, who was to
be interviewed a few days later, to "cover for him." Douglas understood that Espy
was asking him to lie to the FBI about the source of the playoff tickets, and
Douglas did so.
c. False Statements to the White House Chief of Staff
As discussed in Section I.C.4, above, on September 30, 1994, White House
Chief of Staff Leon Panetta asked Espy to meet him at the White House to discuss
allegations involving Espy's personal use of a government-leased Jeep and
Dempsey's scholarship from Tyson Foods, neither of which had previously been
publicly known. By the time of the September 30 meeting, the allegations that had
publicly surfaced included Secretary Espy's attendance at the Dallas Cowboys
football game and the Russellville Musical Celebration as a guest of Tyson Foods;
his attendance at the Bulls-Suns NBA finals as a guest of the President of Quaker
Oats; his attendance at the January 1994 NFL Super Bowl as a guest of Fernbank
Museum; Dempsey's receipt of a job from the EOP Group; and his brother's
receipt of a campaign debt retirement fundraiser hosted by agricultural interests.
Answering Panetta's questions about USDA's lease of the Jeep kept in
Mississippi, Espy stated that, although it was located in his old congressional
district, he was using the vehicle for purposes related to his duties as Secretary of
Agriculture and that he had approval of USDA counsel for the lease of the Jeep.
Espy did not disclose to Panetta that he was also using the Jeep for personal use,
that he had represented to USDA counsel that the Jeep was for use in the
Washington, D.C. area, and that counsel had only approved its use in Washington,
D.C. in lieu of a chauffeured limousine.
After discussing Espy's use of the Jeep and Dempsey's scholarship from
Tyson Foods, Panetta asked Espy whether there were any other matters about
which the White House should be concerned:
I said, how much - how much else is out there that's
going to come out, that you know, that will continue to
impact on your ability to do your job. And the indication
from the Secretary was that, you know, that pretty much
everything that had been uncovered had already been
uncovered and that was it . . . that, look, what you
have - what you see is what you have, and that's it.
Espy did not tell Panetta about a number of gifts he knew he and his family
and girlfriend had received from agricultural interests, including the following: four
$1,500 tickets to a 1993 inaugural dinner from Tyson Foods; $3,100 in cash from
Douglas so that Dempsey could travel to Greece; a $2,427 set of luggage from
Douglas and Sun-Diamond; over $4,000 in tickets and limousines to the U.S. Open
tennis tournament in New York for himself and Dempsey from Douglas and Sun-Diamond; $10,000 in campaign contributions for Espy's brother orchestrated by
Douglas; the $2,200 Super Bowl ticket from EOP's Michael O'Bannon; and the
1993 Congressional Black Caucus Foundation Awards Dinner tickets from Morgan
Stanley worth at least $500 each.
With regard to the two allegations that Panetta raised at the White House
meeting - the government-leased Jeep and the Tyson Foods scholarship - Panetta
felt "that the responses were not adequate, as far as . . . the appearances of
impropriety." Panetta informed Espy that he would expect Espy's resignation on
the following Monday morning. Shortly thereafter, Espy submitted his resignation
effective December 31, 1994. Espy recused himself from meat and poultry issues
for the 2-month remainder of his tenure.
2. False Statements in Disclosure Reports
Espy also failed to disclose on his public financial-disclosure reports many
of the things of value he received during 1993 and 1994 that he was legally required
to divulge.
As a federal official, Espy was required to file an SF-278 public financial-disclosure form, reporting, among other things, gifts, travel, entertainment, meals
and lodging he personally received from any one source in a calendar year totaling
above $250. The SF-278 is designed to allow federal officials and the public to
review the financial activities of public officials to determine compliance with
applicable federal laws and regulations. The form also provides the government
with a method of reviewing whether actual conflicts of interest exist between the
filer's private activities and public duties, regardless of whether the filer believes
that conflicts exist.
Before submitting the completed form to his or her agency, each filer must
certify that the statements "made on this form and all attached schedules are true,
complete and correct to the best of my knowledge and belief." The instructions to
the form warn the filer that a "knowing and willful falsification of the information
required to be filed by section 102 of the [Ethics in Government] Act may also
subject you to criminal prosecution and sentencing under 18 U.S.C. §§ 1001 and
3571."
On his SF-278 financial disclosure report covering the calendar year 1993,
Espy reported that he received:
- from the Minister of State for the Nation of Turkey, a "Turkish silk prayer
rug" valued at $250;
- from Fernbank Museum in Atlanta, "Football tickets (Smokey Bear
Anniversary Event)" valued at $350; and
- from the Japanese government, "Pressed wood plaque; lacquered wine
goblets" valued at $143.
Espy failed to report the following: (50)
- the value of one seat at a $1,500-per-seat inaugural event provided by Tyson
Foods;
- luggage worth approximately $2,427 from Douglas and Sun Diamond;
- the value of his entertainment ($500) during the Tyson Foods weekend party
in Russellville, Arkansas;
- the value of his U.S. Open ticket and limousines in New York City ($2,100
for the ticket to both days' matches and $123 for the limousine
transportation) paid for by Douglas and Sun Diamond during a U.S. Open
tennis weekend;
- the $500 ticket to the Congressional Black Caucus Foundation Awards
Dinner he received from Morgan Stanley;
- his $111 ticket to the Washington Bullets-New York Knicks basketball game
from Douglas and Sun Diamond;
- the meals from Sun-Diamond Growers of California;
- the $2,800 framed lithograph from William Dunlap;
- the January 18, 1993 City Tavern Club party in Espy's honor, and other gifts
from Patrick Koch; and
- the $569 hotel bill, massage, and hunting lesson at the Greenbriar Resort,
paid by the American Crop Protection Association and by O'Bannon of
EOP.
Donald D. Downing was the director of the Employee Relations Division of
the Office of Personnel and the alternate designated agency ethics officer for
USDA in 1993 and 1994. Downing received Espy's SF-278 for 1993 on June 30,
1994, after granting Espy an extension. After reviewing Espy's SF-278 for 1993,
Downing prepared a list of questions regarding Espy's receipt of football tickets
from the Fernbank Museum (51) and informed Espy that Fernbank was a prohibited source. Downing gave the questions to Wardell Townsend, assistant secretary for
administration at USDA, who told Downing he would present them to Espy.
Downing never received any response from either Espy or Townsend.
In a continuing effort to ensure that Espy's SF-278 indicated no problems,
Downing's office on January 3, 1995 followed up its earlier questions with a further
inquiry about the Fernbank Museum tickets:
Please provide the following: 1. The date you received the
tickets; 2. The source, if known, from which Fernbank
Museum received the tickets; 3. The reason you were
given the tickets; and 4. The number of tickets and face
value of each. We request that you provide us requested
information by February 17, 1995. If you should need
assistance, please contact Dave Spradlin . . . .
David Lee Spradlin was an attorney and an ethics specialist in the Office of
Personnel at USDA. Spradlin received no communication from Espy or from
anyone acting on Espy's behalf regarding the questions raised by Mr. Downing.
Because Downing's questions were not answered, neither Downing nor Spradlin
could make a final evaluation of Espy's 1993 SF-278.
On February 17, 1995, Spradlin received Espy's SF-278 for 1994, which
reported that he had received:
- from G-Tech, Inc., in Boca Raton, Florida, "Airline ticket, hotel room
incident to job interview as consultant on project unrelated to USDA
12/20/94" valued at $1,080;
- from Ascom Timeplex, Inc. in Irvine, California, "Airline ticket, hotel room
incident to job interview as consultant on project unrelated to USDA 11/18-20/94" valued at $2,123.
Espy failed to report the following items of value that he had received:
- his share ($484) of the limousine and parking charges in Dallas provided by
Tyson Foods;
- two additional Super Bowl tickets from Fernbank Museum, valued at $507;
- the Super Bowl ticket from Oglethorpe/Smith Barney/EOP worth $2,200;
- the Beverly Hills trip from Johnson Publishing; and
- the crystal bowl and meals from Sun-Diamond Growers of California.
Espy's counsel argued at trial that Espy did not "intentionally" fill out the
forms wrong and asserted that Espy was either too busy or too poorly served by
his staff to complete them accurately. In the same vein, he argued that Espy failed
to make the required disclosures because the forms were simply too complicated:
You will find that those financial disclosure forms are so
dog-gone complicated, there is a whole unit over at the
government just to help the people deal with the fact that
people keep screwing up the forms. That's how
complicated the dog-gone form is. He made a mistake.
The fact he made a mistake in filling out the form is not a
crime. It's a mistake.
Espy's inability to fill out the forms appears to have been exaggerated. As a
congressman, Espy had been required to file annual financial disclosure statements
setting forth income, gifts, and reimbursements from outside sources. (See Section
II.A.2.a). These forms were similar, though not identical, to the SF-278 forms he
was required to file as Secretary of Agriculture. Moreover, Espy rebuffed the
efforts of his designated agency's Ethic's officer, Downing, to obtain clarification
on various items on his SF-278 1993 report.
3. After-the-Fact Reimbursements
Espy made reimbursements for many of the gifts he received, but those
reimbursements generally came only after the events became public or after the
Independent Counsel was appointed. Espy made these after-the-fact
reimbursements contending that he had always intended to reimburse for things of
value from agricultural interests. The grand jury found probable cause to believe
that these reimbursements were part of Espy's efforts to conceal his receipt of
unlawful gifts, and included allegations relating to the reimbursements in the honest-services fraud counts of the Espy indictment. (Honest-services fraud is grounded
in a public official's efforts to conceal information from the public for his personal
benefit. See discussion in Section III.B.3.a.)
These reimbursements included the following:
- On March 17, 1994, The Wall Street Journal reported that Espy received a
ticket to a Dallas Cowboys football game in January from Don Tyson, the
chairman of Tyson Foods. The next day, March 18, Espy sent Tyson a
payment of $68 for the ticket. With the payment, Espy included the
following note:
Dear Don - Here is my check for $68.00 to reimburse
you for the Dallas-Green Bay football ticket. I enjoyed
everything. To serve in government in this environment
is very difficult. Best wishes! Mike.
Espy dated the check March 10, 1994, but the envelope in which he sent the
check was postmarked March 18, 1994. A review of Espy's canceled checks
surrounding the check to Don Tyson revealed that Espy had written dates later than
March 10, 1994 on checks earlier in the series. The evidence supported the
inference that Espy wrote the reimbursement check after the Wall Street Journal
article was published and backdated the check to make it appear that he had
intended to reimburse Don Tyson before the matter became public.
- On June 1, 1994, special agents of the FBI interviewed Espy and asked him
about his travel to Russellville, Arkansas in May of 1993 to attend the
birthday party hosted by Don Tyson. Shortly after Espy's attendance at the
Russellville party, his travel coordinator, Betty Stern, had requested an
invoice from Archibald Schaffer of Tyson Foods so that USDA could
reimburse them for Espy's lodging. At Schaffer's request, Don Allen of the
Arkansas Poultry Federation (APF) had given her in July 1993 an invoice that
indicated that the APF had provided lodging to Espy at an approximate cost
of $69.55. The invoice had been submitted with Espy's travel voucher, and
USDA had reimbursed Espy for the amount. (52)
However, despite periodic reminders from his travel coordinator, Espy did not
pay the invoice until June 2, 1994, one day after the FBI interviewed him about
the trip. Espy, through Stern, sent a letter to the APF with the reimbursement that stated:
Please find enclosed a check from Secretary of
Agriculture Mike Espy in the amount of $69.55. This is
payment of his lodging expense the night of May 15,
1993, per your enclosed invoice. Sorry for the delay in
reimbursement.
- On August 7, 1994, the media reported that Espy had received tickets for the
Chicago Bulls-Phoenix Suns NBA championship game on June 18, 1993, for
himself and Douglas of Sun-Diamond, from William Smithburg, chief
executive of the Quaker Oats Company. In June 1993, approximately one
week after the game, Douglas gave Espy $50 in cash and told him that he
should reimburse Smithburg. Despite this admonition, Espy did not make
any reimbursement until the media reported the incident nearly a year later.
On August 25, 1994, Espy sent Smithburg a check for $90, with a note that
stated:
Last year, you provided Richard Douglas and me with
two tickets for the Chicago Bulls-Phoenix Suns playoff
game. In reviewing my travel itineraries and expense
records, I recently discovered that, by oversight, I have
not yet reimbursed you.
- Following the August 9, 1994 request by the Attorney General for the
appointment of an Independent Counsel, Espy sent a check on August 25,
1994, for $449.71 to the American Crop Protection Association as
reimbursement for his September 1993 lodging at the Greenbriar Resort.
This lodging had been arranged and paid for by EOP's O'Bannon. Espy
did not send reimbursement for the $100 massage or the $20 skeet-shooting
lesson he received during his stay at the Greenbriar Resort.
- On September 9, 1994, the Special Division of the United States Court of
Appeals appointed the Independent Counsel to investigate Espy's
acceptance of gratuities, gifts and things of value. On September 14, 1994,
Espy sent a check in the amount of $700 (payable to "Fernbank Museum")
to a museum trustee for four tickets to the January 30, 1994 Super Bowl,
with a letter stating:
Enclosed is my personal check in the amount of $700.00
to reimburse the Fernbank Museum for the cost of four
tickets to the January, 1994 Superbowl Game in Atlanta.
- Also following the September 9, 1994 appointment of the Independent
Counsel, Espy made a September 15, 1994 payment of approximately
$6,204 to USDA for his personal use in Mississippi of a Jeep Cherokee
vehicle, for which USDA made lease payments. With his check for
$6,204.40, Espy included a letter that stated:
In January 1993, I requested that the Department of
Agriculture (USDA) assume the lease of a 1993 Jeep
Grand Cherokee for my use on official business in
Mississippi, in lieu of car service provided by the
Government. The request was granted and on February
1, 1993, USDA assumed the two-year, high-mileage lease
with Chrysler Credit at $775.55/month.
From February 1, 1993 to September 30, 1993, the Jeep
was part of USDA's Office of Inspector General (OIG)
fleet in Mississippi and was kept at the airport in Jackson,
Mississippi. It was made available to OIG agents for
their use when the vehicle was not being used by me. On
October 1, 1993, I purchased the Jeep from Chrysler
Credit to convert it to my exclusive personal use in the
Washington area.
The lease of the Jeep by USDA was completely proper
and appropriate given the number of official business
trips I made to Mississippi. However, because I
occasionally used the Jeep for some personal uses (such
as transporting my children from home to school), I have
decided to reimburse the USDA for the cost of the lease
to avoid even the slightest appearance of impropriety.
Accordingly, enclosed please find a personal check in the
amount of $6,204.40 made payable to USDA.
Contrary to the assertions in this letter, the Jeep was not part of the OIG's
fleet in Mississippi, nor was it approved to be kept in Mississippi for Espy's use
there. (See Section II.C.1.a.)
In addition to the above reimbursements, following the appointment of an
Independent Counsel on September 9, 1994, Espy's girlfriend, Patricia Dempsey,
also made purported reimbursements of benefits she had received from Tyson
Foods. On September 13, 1994, she sent Don Tyson a check in the amount of
$1,239.55 for gifts related to the Russellville trip and the Dallas Cowboys football
trip, with a letter stating:
As you know, there have been several press accounts . . .
questioning the propriety of two social events that you
invited me to which involved the presence of Secretary
Mike Espy. . . .
. . . I would like to reimburse you for the Arkansas
Poultry Federation charter flight as well as the expenses
that I incurred through your generosity. I am enclosing a
check for $1,239.55. I would appreciate your forwarding
the amount of $830.00 to the Arkansas Poultry
Federation to cover the charter flight. Listed below you
will find a breakout of the expenses.
| May 1993 |
| Airfare to and from Russellville | $ 830.00 |
| Friday night accommodations at Tyson's Facilities | 69.55 |
| Subtotal $ 899.55 |
| January 1994 |
Sedan for airport pick up/drop off service provided
at the stadium and mall | $ 275.00 |
| Ticket to Dallas football game | 65.00 |
| Total $1,239.55 |
The letter did not include any reference to, or repayment for, the $1,009
airplane ticket that Tyson Foods lobbyist Jack Williams purchased for Dempsey to
travel to Dallas for the football game and submitted as an expense to Tyson Foods.
On the same date, Dempsey also sent a check for $1,200.00 to John Tyson
at the Tyson Foundation as reimbursement for the scholarship she had received,
with a letter stating:
To avoid even the slightest appearance of impropriety, I
would like to reimburse the Foundation for the
scholarship that was awarded to me to continue my
education. I have enclosed a check for $1,200.00 made
payable to the Foundation. . . .
Subsequently, Dempsey's two checks bounced because of insufficient
funds, and Dempsey, through her attorney, requested their return stating in part:
As you know, the checks were submitted to Ms.
Dempsey's bank and returned due to insufficient funds.
She has made arrangements to borrow the money to
cover these checks, but now . . . wishes to retain the kind
gifts that Mr. Tyson provided her and retain the
scholarship money which she had already used to pay for
her tuition during the spring semester of 1994.
Dempsey's checks were eventually returned to her, and she made no further
efforts to reimburse Tyson Foods.
4. Prosecution Decisions
As a result of the events described above, OIC brought an indictment against
Richard Douglas for false statements under 18 U.S.C. § 1001. (See Section
III.B.2.b.)
Also, as a result of the entire investigation, including the events described
above, OIC included in the indictment sought against former Secretary Espy
charges for false statements under 18 U.S.C. § 1001, witness tampering under 18
U.S.C. §§ 1512(b)(2)(A) and (B), and 1512(b)(3), and honest services fraud under
18 U.S.C. §§ 1341, 1343, and 1346. (See Section III.B.3.)
C. Espy's Other Abuses of Office for Personal Benefit
In the course of examining the benefits that Secretary Espy had received
while in office, to determine whether any might constitute illegal gratuities, OIC
uncovered certain other instances in which Espy's conduct appeared to violate
federal regulations. These additional matters are detailed below.
1. Abuses Related to Government Vehicles
Shortly after the appointment of the Independent Counsel, the Department of
Justice referred to the OIC the related allegation that an Espy automobile loan had
been paid for by a government contractor. During the course of the investigation,
the following information came to light.
a. USDA Lease of Jeep Cherokee
USDA maintains an executive car pool of leased vehicles for official
business. The pool consists of two Lincoln Town Cars and five or six smaller cars
leased by the General Services Administration (GSA). By statute, the Secretary of
Agriculture is provided home-to-office transportation and all transportation
necessary to perform official USDA business. These services are normally
provided by a USDA Lincoln Town Car and driver.
Members of Congress are also entitled to use cars at government expense.
House rules entitle members to reimbursement for the long-term lease of
automobiles used exclusively in the conduct of the members' official duties. Espy
leased such a vehicle during each of his three terms in Congress, kept it at the
Jackson, Mississippi airport while he was away from his district and used it in
Mississippi while there. On December 21, 1992, following his third reelection to
Congress and three days before President-elect Clinton formally nominated him to
be Agriculture Secretary, Espy leased a new Jeep Grand Cherokee for 24 months at
$775.55 per month.
In the early weeks of January 1993, before he assumed the position of
Secretary, Espy told Wardell Townsend, his congressional chief of staff, that he
wanted to use the Jeep in Washington, D.C. in lieu of a Town Car and chauffeur.
Espy asked Townsend to find out whether this was allowed and whether the Jeep
lease could be transferred to USDA.
Townsend called James Michael Kelly at the USDA's Office of General
Counsel and asked Kelly about Espy's use of a Jeep as his official vehicle at
USDA. Townsend's question focused on two points: (1) could Espy use a Jeep
rather than a Town Car for official transportation, and (2) was Espy required to use
a driver to commute. Townsend gave Kelly the impression that Espy wanted to use
a Jeep rather than a Town Car for official purposes in Washington, D.C. so that he
would be viewed as "a man of the people." Kelly did not know and was not told
that Espy had already leased a Jeep Cherokee in Mississippi.
Kelly told Townsend that regulations did not require a specific type of
vehicle or a driver, and therefore Espy could use a Jeep and could drive himself.
Kelly took pains to point out that USDA vehicles could be used only for official
government purposes and could not be used for personal transportation.
Kelly recalled speaking repeatedly on this issue with Townsend and at least
once, during the transition between administrations after the 1992 elections, with
Ronald Blackley, Espy's designated USDA chief of staff. The clear implication
Kelly received from these conversations was that USDA would surrender the
Lincoln Town Car and lease a Jeep instead.
Townsend also called John Kratzke, director of USDA's Office of
Operations, to inquire about USDA's assumption of the Jeep's lease. (The Office
of Operations ultimately is responsible for the procurement and maintenance of
property by USDA.) Townsend explained to Kratzke that Espy would substitute
the Jeep for the car and chauffeur to which Espy was entitled. Kratzke believed
that USDA could therefore save money by leasing one fewer Town Car. Kratzke
called Norman Downs, chief of USDA Executive Services. (Executive Services
provides the Secretary of Agriculture with daily operational services, and the
executive car pool falls within its budget.) Kratzke asked Downs to determine
whether USDA could take over a lease from a House member, and told Downs to
call Townsend regarding the request. Downs called Townsend, who reaffirmed
that Espy wanted to use the Jeep in lieu of a Town Car and driver.
Shortly after he assumed the position of Agriculture Secretary, Espy asked
Downs if the Jeep lease had been transferred to USDA. Downs informed Espy that
the issue was under review. Espy reaffirmed to Downs that he would be using the
Jeep for home-to-office transportation in Washington, D.C.
At some point, the USDA procurement office determined that it could lease a
Jeep Grand Cherokee for less than $775.55 per month. When this information was
relayed to Espy, who had personally signed the 24-month lease for this particular
Jeep, he insisted, through Blackley, that he wanted the same Jeep that he had had as
a congressman.
USDA assumed the lease on Espy's Jeep Cherokee, effective February 1,
1993, and began making the $775.55 monthly payments. Even though the federal
government is self-insured, USDA also assumed Espy's personal insurance on the
Jeep, paying $713.28 to Michael Matlock, Espy's insurance agent and brother-in-law.
Contrary to his representations to USDA, Espy did not bring the Jeep to
Washington, D.C. He kept it at the Jackson, Mississippi airport and put it to
personal use when he was in Mississippi. Several people reported that they saw
Espy using the Jeep for personal business and even rode with Espy in the Jeep on
personal outings. Espy also used the Jeep for USDA business when he was in
Mississippi, and one member of Espy's security detail claimed to have used the
vehicle on several occasions while doing advance work for Espy's trips to
Mississippi.
While he kept the Jeep in Mississippi, Espy also availed himself of the USDA
Lincoln Town Car and driver in Washington, D.C. USDA driver logs show that,
by March 1993, Espy was using a Town Car and driver for official use and soon
after for daily home-to-office transportation. Pursuant to GSA's contract, new
Lincoln Town Cars were acquired in March of 1993, with no reduction in the
USDA fleet.
In the summer of 1993, President Clinton issued a presidential directive
ordering each department to reduce its automobile fleet size by 50%. Shortly
thereafter, Ronald Blackley, by this time Espy's USDA chief of staff, approached
an agent of the USDA Office of Inspector General (OIG) and asked whether the
OIG's Jackson, Mississippi office could store and maintain the Jeep. Blackley
represented that OIG would be permitted some use of the Jeep when Espy did not
need it. OIG refused this unusual request, believing that making the vehicle
available to them would merely be a cover for the Jeep's expenses.
Pursuant to the presidential directive, USDA took an inventory of its fleet.
The lease of the Jeep, its housing in Mississippi, and Espy's use of it came to light.
USDA chose not to continue paying for the Jeep as of September 30, 1993.
Bound by his original 24-month lease with the dealership, Espy thereafter personally
made the payments. He brought the Jeep to Washington, D.C. in December of
1993, claiming reimbursement from USDA for the mileage - 1,070 miles at $0.25
per mile (USDA's standard reimbursement for using a personal car for official
USDA business) for a total of $267.50.
On September 15, 1994, less than a week after the Independent Counsel was
appointed, Espy submitted to USDA his personal check for $6,204.40,
representing lease payments for the Jeep of $775 a month for eight months. With
the check he submitted a letter stating that he had used the Jeep for some personal
business and was therefore reimbursing the government for the cost of the lease.
b. Use of USDA Ford Explorer
By September 1994, OIG also was investigating whether Espy used for
personal purposes another USDA-leased automobile, over which he had taken
control for more than 10 months. The OIG's Headquarters Investigation and
Protective Operations Division leased two cars for official business, one of which
was a 1993 Ford Explorer. On or about July 3, 1993, Espy obtained the keys to
the Ford Explorer and drove it away. It appears that OIG personnel repeatedly
requested return of the vehicle, but Espy nevertheless continued to use it for more
than 10 months. (53)
On April 25, 1994, OIG received a "hotline" complaint that Wardell
Townsend, USDA assistant secretary for administration, had authorized the lease
of a vehicle to the Secretary for personal use. Having no knowledge of the Jeep
Espy had leased in Mississippi, OIG personnel thought the complaint was referring
to the OIG's Explorer. As a result of the hotline complaint, Acting Inspector
General Chuck Gillum became aware that Espy had the OIG's Explorer. Gillum
ordered his subordinates to secure the vehicle's prompt return. Espy returned the
Explorer to OIG on May 7 or 8, 1994.
The evidence supports the inference that Espy used the Explorer for
personal business. The car Espy owned in Washington, D.C. remained parked at a
USDA parking space during the 10 months he retained the Explorer. The Explorer
thus appears to have been his only source of personal transportation in the
Washington, D.C. area until the end of December 1993, when he retrieved the Jeep
leased in Mississippi. Additionally, Espy's confidential assistant Thomas recalled
receiving a telephone call from Patricia Dempsey, Espy's girlfriend, who had to
borrow money from Thomas because while Dempsey was using the Explorer
around Washington, D.C., the vehicle had been "booted" (i.e., a lock was placed
on one of its wheels because of outstanding parking tickets). The Explorer's car-phone bills, moreover, revealed a large number of weekend calls from the Explorer
on dates on which Espy's calendars and itineraries revealed no USDA business.
Finally, upon its return, the Explorer's odometer registered an added 5,477 miles,
which suggested significant personal use, given that Espy often employed a USDA-leased Town Car for official business and for home-to-office transportation.
c. Jeep Payments by Government Contractor
Questions of impropriety surrounding Espy and motor vehicles extended
beyond his personal use of vehicles leased by USDA. An allegation also arose that
a prohibited source had made payments on the Jeep Cherokee after the Secretary
personally assumed the lease. On August 10, 1994, a radio talk-show host
announced over the air in Seattle, Washington that an individual had provided him
with documents revealing that a government contractor had paid certain of Espy's
debts, including an automobile loan. OIG referred the matter to the DOJ Public
Integrity Section. On September 14, 1994, Attorney General Janet Reno referred to
the Independent Counsel, as a related matter, whether a "[d]ebt of Secretary Espy,
including an automobile loan, have been paid by a government contractor."
The OIC investigation disclosed that in September of 1993, Espy discussed
with Algernon Cooper, an acquaintance and Washington, D.C. attorney who
represented the National Association of Minority Automobile Dealers (NAMAD),
that he was about to begin making monthly payments of $775.55 on the Jeep
Cherokee. Cooper thought the payments were high and advised Espy that the
monthly amount could be reduced through refinancing. Cooper subsequently
arranged for Espy to meet with Benjamin Fitzpatrick, a member of NAMAD who
owned an automobile dealership in Seattle, Washington. Fitzpatrick refinanced the
Jeep Cherokee by paying off the pending lease, then selling the Jeep to Espy
through a five-year loan financed by Chrysler Credit. The net effect of the
refinancing was to lower the Secretary's monthly payments to $423.25 per month,
with payments to begin in November 1993.
Espy, however, failed to make his monthly payments for November and
December 1993. When no payment had been received from Espy by January of
1994, Fitzpatrick informed Cooper of Espy's delinquency. Cooper wrote two
checks on his personal checking account totaling $846.50 for Espy's November
and December payments and mailed them to Chrysler Credit. On the same day,
Cooper mailed Espy a letter explaining that he had made Espy's payments and
enclosed an unsecured personal promissory note for $846.50 for Espy's signature.
Four days later, on January 25, 1993, Espy mailed Cooper a check for $846.50 and
a letter stating that he thought the car payments did not begin until January 1, 1994.
Cooper explained to investigators that he covered Espy's payments without
request by Espy, because he felt responsible for the arrangement between Espy and
Fitzpatrick. The investigation confirmed that Cooper was not a government
contractor with business before USDA and found only that he represented a few
clients with de minimis issues before USDA.
d. Prosecution Decisions
As a result of the entire investigation, including the events related to the
procurement of the Jeep Cherokee, OIC included in the indictment sought against
former Secretary Espy a charge of honest-services fraud under 18 U.S.C. §§ 1341
and 1346. (See Section III.B.3.)
The evidence uncovered surrounding the OIG Explorer suggested that
Secretary Espy made personal use of this government vehicle. Title 31, United
States Code, Sections 1344 and 1349 prohibit personal use of government
automobiles and require a mandatory minimum penalty of a 30-day suspension for
any violation. However, OIC concluded that Espy's use of the OIG Explorer did
not amount to criminal conduct and it was not made a subject of criminal
indictment.
OIC's investigation confirmed that Algernon Cooper wrote two personal
checks totaling $846.50 to cover Espy's overdue payments on his Jeep Cherokee.
The evidence indicated, however, that these payments were not made to influence
official action at USDA. Cooper had little if any interest in USDA decisions; he
made the payments without Secretary Espy's knowledge or request, because he felt
responsible for the Jeep purchase agreement, and he immediately informed Espy of
his actions and requested that Espy execute a promissory note to repay him. Espy
reimbursed Cooper the full amount within the week, stating that he did not know the
payments were due. In light of these facts, OIC concluded that neither Cooper nor
Espy committed a criminal offense through these acts.
2. Abuses Related to Official Travel
OIC's investigation also disclosed numerous improprieties by Secretary
Espy related to his official travel.
a. Travel Expenses Paid by Subordinates and Others
Federal employees whose duties include official travel are routinely provided
credit cards by their agencies to cover travel-related expenses. After returning from
official travel, the employees submit travel vouchers detailing their travel-related
expenses and corresponding receipts. The agencies then reimburse the employees
by check, with which the employees pay off the credit card charges. Employees
are personally liable for all charges on their credit cards, but this system lessens the
need for employees to use their own cash to cover expenses necessitated by
official travel.
During his term in office, Secretary Espy had his subordinates and others
"pick up the tab" on approximately $1,500 of his official travel-related expenses.
Espy directed subordinates traveling with him to pay bills on at least 11 separate
occasions, often stating that he did not have his government credit card or that he
was in a hurry. On other occasions, Espy allowed outside sources, including
prohibited sources, to pay expenses incurred by his travel. Secretary Espy
thereafter submitted travel vouchers and received reimbursement checks from
USDA for the expenditures others paid at his direction. Upon receiving such
reimbursement, the Secretary often kept the entire amount without reimbursing the
subordinate or outside source who had actually paid his bill.
Whenever Espy's USDA travel coordinator, Betty Stern, became aware that
another had paid Espy's reimbursable expenses, she attached a "post-it" adhesive
note to the Secretary's travel vouchers, indicating to Espy that he needed to make
reimbursement. As the list of subordinates to whom Espy owed money grew,
Stern generated lists that identified the individual creditors and the amounts owed
by Espy. Stern prepared a "checks needed" list in July 1993, October 1993,
November 1993, January 1994, March 1994, May 1994, and June 1994, and two
such lists in August 1994. Stern provided the lists to Espy's confidential assistant,
Eloise Thomas, who personally presented them to the Secretary.
As an example, Stern's June 1994 list reminded Espy of the following
amounts he owed others for picking up his travel-related expenses:
| June 13, 1994 |
| Eloise [Thomas]/Fred [Slabach]/Kim [Schnoor] |
| |
SECRETARY ESPY'S OUTSTANDING TRAVEL
**NOTE: CHECKS NEEDED FROM SECRETARY ESPY** |
| |
| 1993 |
| 5/2-6/93 | Trip to Brussels |
| | (Telephone expenses) |
| | Check payable to: USDA-FAS |
$200.61 |
| | (Secy. received reimbursement 7/26/93) |
| 5/21-26/93 | Trip to Greece/Italy |
| | (Meals/valet expenses paid by Kim) |
| | Check payable to: Kim Schnoor |
$93.06 |
| | (Secy. received reimbursement 7/27/93) |
| 5/27-6/3/93 | Trip to Mississippi/Louisiana/California |
| | (Overnight expenses 5/28, 29 & 5/31) |
| | Check payable to: Steve Kinsella |
$99.89 |
| | Check payable to: Meg Evans |
$95.20 |
| | (Secy. received reimbursement 7/19/93) |
| | Check payable to: Eloise Thomas |
$88.78 |
| | (Secy. received reimbursement for reclaim 8/23/93) |
| 6/19-20/93 | Trip to Annapolis, MD |
| | (Overnight expenses) |
| | Check payable to: Ronald Blackley |
$112.73 |
| | (Secy. received reimbursement 7/15/93) |
| 8/8-9/93 | Trip to Dallas, TX |
| | (Overnight expenses) |
| | Check payable to: Steve Kinsella |
$68.00 |
| | (Secy. received reimbursement 10/26/93) |
| 9/26/93 | Greenbrier, WV |
| | Overnight expenses at The Greenbrier paid for my [sic] Michael O'Bannon - conflict of interest- need to reimburse O'Bannon. |
? |
| | (10/13 voucher filed for M&IE rate only. Secy. received reimbursement 10/26. Wrote O'Bannon to bill Secy. for hotel expenses.) |
| 10/9-22/93 | Asian Trip |
| | (Tokyo hotel expenses $49.60 and $80.00 given Secy. by ATO-Hong Kong paid by Kim) |
| | Check payable to: Kim Schnoor |
$129.60 |
| | (11/9 voucher sent NFC) |
| 12/1-7/93 | Brussels/Geneva |
| | (Hotel expenses paid by Bill Sanders-OIG) |
| | Check payable to: Bill Sanders |
$331.41 |
| | (Secy. not due reimbursement - had $1,000 travel advance. 1/26 voucher sent NFC) |
| |
| 1994 |
| 1/18-19/94 | Louisiana |
| | Missing hotel receipt. Holding voucher |
? |
| | (Wrote Farm Credit Council requesting they bill Secy. for hotel expenses.) |
| 3/16-17/94 | Florida |
| | (Hotel expenses paid by New York Cotton Exchange) |
| | Check payable to: NY Cotton Exchange |
$150.00 |
| | (Holding voucher for Secretary's check.) |
| 3/23-24/94 | Missouri/Indiana |
| | (Hotel expenses paid by Chris Golightly- IN OIG agent. Reid wrote check to Chris Golightly reimbursing him.) |
| | Check payable to: Millard Reid |
$117.69 |
| | (4/7 voucher sent NFC) |
In addition to Stern's lists, three of the Secretary's senior advisors
counseled Espy on different occasions that he needed to repay these individuals.
When confronted by his advisors, Espy provided excuses for his failure to make
the payments, asserted that he would pay them back, and complained about his
financial situation.
Although Espy received reimbursement from USDA for these payments of
his travel-related expenses, he did not repay the persons who had picked up his
tabs. Even after Espy's conduct came under inquiry, Espy reimbursed only those
expenditures paid for by prohibited sources and not those paid for by his
subordinates at USDA. In the end, these subordinates wound up out-of-pocket for
the advances they had provided to Espy.
b. The $71,000 Plane Charter to Facilitate Attendance at a Birthday Party
Sometime during the Fall of 1993, Patricia Dempsey and Richard Douglas
began arranging a surprise party for Secretary Espy's 40th birthday on November
30, 1993. To further the effort, Dempsey and Douglas arranged a lunchtime
meeting with USDA staff members to discuss the event. The group was asked to
present names of people who should be invited and to make financial contributions
of between $75 and $500. Douglas, Kearney, O'Bannon, and Atkins each
contributed $500.
After plans for the party were under way, Douglas contacted USDA
Associate General Counsel James Michael Kelly and inquired whether there was
anything wrong with holding a birthday party for Espy if it was small in nature and
paid for by limited contributions from a handful of close personal friends such as
himself. Kelly understood Douglas and Espy to be longtime friends and responded
that, if put on in that form, a party would be okay. Kelly subsequently told OIC
investigators that he could not recall if Douglas had mentioned to him a specific
dollar amount for contributions, but stated that he would have advised Douglas that
$500 was excessive.
Dempsey asked the USDA staff whether she should invite Don Tyson to the
party and at least one staffer responded that she should not. Dempsey nevertheless
extended an invitation to Don Tyson, who responded that he would be out of the
country and could not attend.
In all, Dempsey and Douglas collected at least $7,500 for the party.
Dempsey arranged for the party to be held on November 30, 1993 at 6:30 p.m. at
the Sequoia Restaurant in Washington, D.C. The total bill for the party was slightly
over $6,700.
Meanwhile, after seven years of negotiations, General Agreement on Tariffs
and Trade (GATT) talks were reaching a conclusion in late 1993 in Brussels,
Belgium. On or about November 28, 1993, Espy was informed that he had to
attend the GATT negotiations on December 1. Travel arrangements were made for
Espy and four support personnel to fly to Brussels via commercial airlines.
However, if Espy adhered to these travel arrangements, he would have been unable
to attend his November 30 birthday party. (Espy knew about the party, although it
was supposed to be a surprise.) Attempts were made to accommodate the
Secretary, but all available commercial flights from Washington to Europe
necessitated Espy's departure before the party.
Espy told his chief of staff, Ronald Blackley, that he was not going to miss
the birthday party and directed him to charter a plane to transport Espy and his
group to Belgium late in the evening of November 30, after the party. Blackley,
through Espy's USDA travel coordinator, Stern, priced charters and learned that
such a charter would cost approximately $70,000. Blackley told Espy of the cost
and recommended Espy fly commercial instead, warning him that he would be
called on the charter expense by the White House. Espy responded that he was not
going to miss the party and directed Blackley to charter the plane. Blackley signed
a contract for the charter of a private Gulfstream aircraft to fly Espy and his staff
from Washington National Airport at 9:00 p.m. on November 30, 1993 to Brussels,
Belgium. The total price of the charter was $71,096, plus costs for catering and
phone charges to be invoiced after the trip was completed.
On the evening of November 30, Secretary Espy attended the birthday party.
He then drove to Washington National Airport, where he met the members of his
support staff shortly before 9:00 p.m. Before Espy boarded the chartered plane,
one of the pilots informed him that the plane was having mechanical difficulties and
that efforts were being made to correct the problem. The plane ultimately was
repaired but only after National Airport's 10:00 p.m. noise curfew, so it could not
depart.
Espy and the USDA staff flew to Brussels the next morning via commercial
airlines. Espy noted in his diary that he was glad he attended the party and also that
he was able "to avoid a 71K cost of a charter jet." Bad weather had postponed the
talks in Brussels, so Espy arrived in time for the discussions despite having left
Washington, D.C. later than planned. USDA did not have to pay for the charter.
c. Frequent Travel to Mississippi at Government Expense
Before the Independent Counsel's appointment, the press raised questions
regarding the number of trips Secretary Espy made at taxpayer expense to his home
state of Mississippi. OIC looked into this issue during the early stages of its
investigation as part of its effort to determine if Espy was meeting with any donors
while in Mississippi. Evidence revealed that Espy traveled to Mississippi 18 times
during his first 16 months in office. The majority of these trips were arranged
around weekends and afforded him considerable free time in Mississippi.
In particular, there were seven trips during which Secretary Espy visited
Mississippi on a weekend and had at least one entire day free, and three additional
trips during which Espy had one short event scheduled on a weekend day. Many
of the trips were predicated on or extended because of Espy's attendance at one or
two brief events, including one-on-one meetings - often with supporters whom
Espy had appointed to state USDA positions in Mississippi.
As examples, Espy's itineraries reveal the following trips to Mississippi
during 1993 and 1994 at government expense:
| Friday, 3/26/93 | Arrives Jackson at 3:30 p.m.; one hour meeting (4:30 to 5:30 p.m.) with George Irvin, State Director FmHA, and Norris Faust, State Director ASCS. |
| Saturday, 3/27/93 | Off duty |
| Sunday, 3/28/93 | Leaves for Seattle at 7:00 a.m. |
| * * * * * |
| Thursday, 9/30/93 | Arrives Jackson at 8:30 p.m. |
| Friday, 10/1/93 | 30 minute radio interview; 45 minute local newspaper interview. |
| Saturday, 10/2/93 | Off duty |
| Sunday, 10/3/93 | Off duty; departs Jackson at 5:55 p.m. |
| * * * * * |
| Saturday, 10/30/93 | Arrives Jackson at 3:58 p.m. (Nothing scheduled that day) |
| Sunday, 10/31/93 | Meeting with George Irvin, State Director FmHA, in hotel lobby at 5:00 p.m. |
| Monday, 11/1/93 | Departs Jackson at 12:30 p.m. |
| * * * * * |
| Friday, 2/25/94 | Arrives Jackson, 5:20 p.m. (Secretary cancels speech in Biloxi, MS) |
| Saturday, 2/26/94 | Tours pecan plantation and gives speech from 12:00 to 2:00 p.m. |
| Sunday, 2/27/94 | Nothing scheduled |
| Monday, 2/28/94 | Addresses his children's school at 9:30 a.m.; departs Jackson at 12:00 noon |
| * * * * * |
| Thursday, 5/26/94 | Arrives Jackson at 8:30 p.m. |
| Friday, 5/27/94 | Meets with Norris Faust, State Director ASCS, at 9:00 a.m. |
| Saturday, 5/28/94 | Mississippi School for Mathematics & Science (all day) |
| Sunday, 5/29/94 | No schedule |
| Monday, 5/30/94 | Meets with Rodalton Hart at 11:00 a.m.; departs Jackson at 2:00 p.m. |
The Secretary possessed the discretion to travel as he deemed appropriate to
conduct official business. However, the travel records support Espy's statement
to USDA Associate General Counsel James Michael Kelly in January 1993 that he
planned on visiting Mississippi often to see his children (see Section II.D.1).
d. Prosecution Decisions
Federal regulations prohibit a public official from causing subordinates to
pay for the official's expenses. Specifically, 5 C.F.R. § 2635.302 prohibits any
federal employee from, directly or indirectly, coercing or accepting a gift from a
subordinate. A related regulation, 5 C.F.R. § 2635.702(a), also precludes an
employee from using his public office for private gain, stating:
Inducement or coercion of benefits. An employee shall
not use or permit the use of his Government position or
title or any authority associated with his public office in a
manner that is intended to coerce or induce another
person, including a subordinate, to provide any benefit,
financial or otherwise, to himself or to friends, relatives,
or persons with whom the employee is affiliated in a
nongovernmental capacity.
OIC determined that no criminal charges should be brought based upon
Espy's actions in causing subordinates to pay for his travel expenses, but it did
introduce at Espy's trial evidence relating to this conduct as proof of his motive
and intent in accepting the unlawful gratuities for which he was indicted.
Espy's order to charter the plane to Belgium appears to have been a willful
misuse of government funds notwithstanding the aborted journey. However, the
signature on the charter agreement was Blackley's, and only Blackley could have
testified that Espy gave the order to charter the plane. Blackley was not available to
testify at the time of Espy's indictment, because his appeal of his own conviction
was pending and he would have asserted his Fifth Amendment privilege if called.
OIC determined not to bring charges against Espy for these actions.
Secretary Espy's frequent travel to Mississippi was governed by, among
other rules and regulations, the Federal Travel Regulations. Federal Travel
Regulation § 301-1.3 states in pertinent part:
An employee traveling on official business is expected to
exercise the same care in incurring expenses that a
prudent person would exercise if traveling on personal
business. Excess costs, circuitous routes, delays, or
luxury accommodations and services unnecessary or
unjustified in the performance of official business are not
acceptable under this standard.
Federal Travel Regulation § 301-1.101(b)(3), further provides:
Travel authorizing officials shall authorize or approve only
that travel necessary to accomplish the agency mission in
the most effective and economical manner.
As the Secretary of Agriculture, Espy authorized his own travel, and had significant
discretion in doing so. Accordingly, no charges were brought regarding these
activities.
D. The Role of Espy's Staff in Avoiding Abuses
One explanation that Espy offered for his conduct, both during the
investigation and during his trial, was that he was inattentive to ethical matters
because of the press of business and therefore relied on his staff to handle such
details. For example, during Espy's June 23, 1994 interview with the FBI, he
acknowledged that the Secretary of Agriculture could not accept gifts from
individuals or companies regulated by USDA but advised, in substance, that he did
not concern himself with "prohibited sources" because he had schedulers and
staffers who watched over his travel and other activities to ensure his compliance
with ethics regulations and the Meat Inspection Act. Espy's counsel reiterated this
argument at his trial, emphasizing that the Secretary's office was "in chaos" during
1993 and suggesting that this instability contributed to inadvertent ethical errors.
The contention was that Espy's staff had let him down. The facts, however,
were otherwise.
1. Instruction and Counseling on Ethical Matters
One way in which Espy's staff at USDA could protect him from ethical
breaches was to make sure that he was aware of the restrictions to which he was
subject. Espy rebuffed the efforts made to educate him on these matters.
As detailed in Section I.B.2.b, almost immediately upon his selection as
Secretary of Agriculture, Espy was given various memoranda designed to make him
aware of the ethical regulations that applied in his new position in the executive
branch. Specifically, he received materials regarding the prohibitions against gifts
to public officials and the requirements regarding financial disclosure.
On December 29, 1992, within one week of his nomination to the post of
Secretary of Agriculture, Espy received a memorandum from Vice President-elect
Albert Gore's chief of staff summarizing the federal ethics rules. The
memorandum informed incoming administration officials that the ethics rules
required financial disclosure through annual financial disclosure reports
(government form SF-278) and that the rules forbade acceptance of gifts from
prohibited sources, with a few exceptions (such as gifts under $20). On the same
date, Espy also received a memorandum from the transition counsel specifically
regarding inaugural events and gifts. The memorandum warned:
As the Inaugural approaches, it is important that
presidential designees be aware of the federal rules
governing the receipt of gifts by executive branch
employees - including attendance at receptions, parties
and other events.
On January 22, 1993, the day Espy was sworn in as Secretary of Agriculture,
a personnel assistant at USDA gave him a copy of the Standards of Ethical
Conduct for Employees of the Executive Branch and told him that "it was a book
he should read." The document included the ethical regulations regarding the
receipt of gifts by executive-branch employees.
All appointees and employees of USDA were also to receive ethics briefings.
James Michael Kelly, USDA's associate general counsel, was one of the
department's ethics counselors and an advisor to USDA's ethics program. He was
responsible for "shepherding" all USDA presidential appointees through conflict-of-interest issues in relation to the filing of financial disclosure forms, and for
providing guidance on ethical issues. Kelly had the immediate responsibility for
briefing Espy on these matters.
Espy scheduled a meeting in his office with Kelly for the afternoon of his
swearing in as Secretary of Agriculture on January 22, 1993. Kelly prepared a list
of ethics issues to address at the meeting. The meeting, however, proved to be
simply a "meet-and-greet" among Espy, Kelly and four or five other heads of
USDA agencies; no substantive discussion of ethics issues took place.
At the conclusion of the meeting, Espy had a brief side discussion directly
with Kelly. Espy stated that while he had been a member of Congress he had
traveled to Mississippi on as many weekends as he could, because his children
lived in Mississippi. He said that he wished to continue this practice while he was
Secretary and that he would be looking for Kelly's assistance in making such travel
happen as often as possible. (54) Espy told Kelly that he had mentioned this to the
President-elect when Clinton offered him the Secretary position and that the
President-elect indicated that he understood. Kelly replied that he would be willing
to give Espy every assistance he could but that he knew of no issue more sensitive
for any political appointee than repeated trips to his hometown.
A meeting was subsequently scheduled for January 29, 1993, at which Kelly
was to provide an ethics briefing for Secretary Espy and his staff. Members of
Secretary Espy's staff attended, but Espy did not. Kelly gave another ethics
briefing to many of the new presidential appointees at USDA on May 20, 1993, but
Espy did not attend this meeting, either. Kelly discussed with Kimberly Schnoor,
counsel to the Secretary, the need for Espy to have an ethics briefing, but such a
briefing never occurred.
In addition to particularly tailored briefings, ethics briefings were held as a
matter of course at USDA. Five to eight such briefings occurred during 1993, at
which Hatch Act matters (i.e., rules prohibiting officials from engaging in certain
forms of political activity, such as soliciting contributions for political campaigns),
travel rules and regulations, and conflict-of-interest matters were discussed. Espy
attended none of these briefings.
2. Espy's Reliance on Staff to Prevent Ethical Lapses
The evidence established that Espy's staff had in fact worked hard to keep
him in line with ethical laws and regulations but that Espy simply did not share their
concerns. Indeed, his staff largely succeeded in their endeavor, at least as to gifts
coming to Espy at USDA. However, Espy received most of the gifts that OIC
investigated while he was away from USDA and outside the scrutiny of his staff.
Espy's staff, like the staff for prior Secretaries, maintained a "gift log" that
recorded all gifts that arrived at USDA for Secretary Espy's benefit. (Under ethics
regulations, Secretaries could accept gifts worth less than $20.) USDA staff also
advised Espy on ethical matters and even returned inappropriate gifts that arrived at
USDA; whether Espy heeded his staff's advice was not within their control.
For example, in March 1993, C&G Railway Company presented Espy with a
signed, limited edition art print. Margaret Lynne Jenkins Finnerty, a confidential
assistant in the Office of the Secretary, asked Michael Kelly, USDA's associate
general counsel, to prepare a memo on whether the print could be accepted.
Kelly's memo addressed the applicable regulations and concluded that Espy could
not accept the print because C&G Railway Company was a prohibited source
under the ethics regulations. Sharron Harris, Espy's Executive Assistant, advised
him that he could not keep the print, and she believes that it was returned. Harris,
who had worked for Espy since 1986 and had received an ethics briefing upon
entering USDA, stated that she spoke with Espy often about possible conflicts of
interest, including not accepting gifts from people who did business with USDA.
Harris stated that Espy thought she was too "technical" in her ethics
determinations.
Similarly, on May 10, 1993, only days before the Tyson Foods' Russellville
"Musical Celebration," (known to Espy's staff only as an Arkansas Poultry
Federation event), three CDs and one cassette tape arrived at the USDA for
Secretary Espy as a gift from Tyson Foods. John Maynor, then Espy's
confidential assistant, returned the gifts to Tyson Foods as unacceptable because
they had an estimated value of $60 and were from an agricultural interest.
Steven Rolf Kinsella, USDA's press secretary, also advised Espy regarding
ethics matters. Kinsella stated that he personally informed Espy on a number of
occasions not to take anything of value from a prohibited source. When he
became aware that the Smokey Bear half-time events at the Super Bowl were
canceled, Kinsella advised Kim Schnoor, Espy's USDA counsel, that Espy should
not use the tickets for the event he had received from the Fernbank Museum
because there was no official reason for his attendance. Schnoor advised Espy of
Kinsella's recommendation, but he attended anyway. Kinsella and Schnoor both
also advised Espy that he should not travel to Mississippi as much as he did.
Kinsella even gave Espy old news articles criticizing Cabinet officials for traveling
to their home states frequently, but Espy disregarded his advice.
Betty Stern, Espy's USDA travel coordinator, attempted to make sure no
difficulties arose regarding Espy's travel. Stern questioned the purposes of trips
and, when it came to her attention that others had covered Espy's travel-related
expenses, Stern prepared lists advising Espy of persons he needed to reimburse.
Stern further identified on these lists whether the person who picked up Espy's
expenses was a prohibited source, to emphasize the need for reimbursement.
Ronald Blackley, Espy's Chief of Staff, also advised Espy on at least one
ethics-related matter. When Blackley learned that Espy did not want to fly on a
commercial airline to Belgium because he would miss his birthday party, and
instead wanted to spend $70,000 on a charter plane, Blackley advised Espy against
the charter and warned him that the White House would question the charter. Espy
disregarded Blackley's advice and ordered the charter (although in the end he did
not take the flight because of mechanical difficulties).
Thus, Espy's staff did try to keep him out of ethics-related problems.
Indeed, several staff members stated that they specifically discussed with Espy the
issue of acceptance of gifts from persons with business before USDA. Espy's
lapses seem to have been less the result of his staff's failure to protect him than
they were the result of his own failure to heed the staff's advice, or of his active
concealment of his actions from his staff.
E. Henry Espy Campaign Offenses
Shortly after Espy left Congress to become Secretary of Agriculture, his
brother Henry Espy lost the special election to fill his congressional seat and
became saddled with campaign debts in excess of $150,000. Secretary Espy was
concerned that his political support in his home community could erode if the
indebtedness was not repaid. He therefore personally confirmed to a bank holding a
substantial loan for the debt that he would assist in the retirement of Henry Espy's
indebtedness. This campaign debt raised a possible avenue by which agricultural
interests could confer benefits on the Secretary - i.e., via assistance to his brother.
By letter dated September 14, 1994, the Attorney General referred to OIC as
a related matter the allegation that "Secretary Espy hosted a fundraising dinner,
attended by agriculture lobbyists, the purpose of which was to retire the campaign
debt of his brother." This allegation was premised, in part, on an anonymous
"hotline" complaint received by the USDA's Office of Inspector General (OIG).
The complaint stated:
[O]n about the last Thursday in April 1994, Secretary
Espy, Former California Representative Tony Coelho,
and Richard Douglas hosted a dinner for approximately
eight agricultural lobbyists. The dinner was held at the
116 Club. Henry Espy also attended. Richard Douglas
told the lobbyists that Mike Espy wanted to attend but
that he could not. Douglas said that they needed to raise
money to retire the debt of Henry Espy and that each of
them should raise $10,000. Coelho said that it was a
matter of great importance that Espy remain a good name
in Mississippi politics and that is why they should retire
Henry's debt.
After the Attorney General referred the matter to the Independent Counsel, OIC
undertook a thorough investigation that uncovered a wide range of criminal acts
undertaken to garner Secretary Espy's favor by assisting Henry Espy.
OIC's investigation established (1) that a fundraiser had indeed been held
(not on the last Thursday of April but on the last Thursday of March 1994); (2) that
Secretary Espy had planned to, but had not, attended the event; (3) that Tony
Coelho had requested the attendees to assist in the retirement of Henry Espy's
debt; and (4) that Richard Douglas, senior vice president of Sun-Diamond Growers
of California, a multi-crop agricultural cooperative, had hosted the event. OIC also
found that $10,000 in campaign contributions had been deposited in a Henry Espy
campaign account at a Washington, D.C. bank the day following the fundraiser,
and that Douglas was the account's only signatory.
The investigation followed the flow of the $10,000 into other Henry Espy
campaign accounts, into which additional funds had been deposited from a wide
variety of sources, including cash deposits in excess of $20,000. The effort to
determine the sources and purposes of these campaign contributions resulted in a
wide-ranging investigation that uncovered numerous violations of law and led to the
prosecution of four entities and six individuals:
- Sun-Diamond Growers of California and its senior vice-president, Richard
Douglas;
- Crop Growers Corporation and two of its principals, John Hemmingson
(chairman of the board, chief executive officer, and president) and Gary
Black (chief financial officer);
- Henry Espy;
- Alvarez Ferrouillet, a New Orleans lawyer, his law firm Ferrouillet &
Ferrouillet, and his insurance brokerage company Municipal Healthcare
Cooperative, Inc.; and
- James Lake, a partner in Robinson Lake Sawyer and Miller, a Washington,
D.C.-based public-relations firm and Sun-Diamond's principal outside
lobbyist in Washington.
The investigation also led OIC to refer evidence of other campaign violations
(which proved not to be related to Secretary Espy) by Sun-Land Products, Inc., a
wholly-owned subsidiary of Sun-Diamond Growers, to the Department of Justice (55), and by American Family Life Assurance Company of Columbus, Georgia to the
Federal Election Commission.
1. Unlawful Campaign Contributions to Obtain Access to Secretary Espy
The common theme in the campaign contribution violations prosecuted by
OIC was that agricultural interests used Henry Espy's financial distress as an
opportunity to gain favor with his brother, the Secretary of Agriculture, who had
taken an active interest in paying down his brother's campaign debt. In fact,
agricultural interests actively supported Henry Espy's campaign both before and
after the March 1993 primary election as a means of getting close to the Secretary,
and several of these interests broke the law in doing so.
a. Henry Espy's Campaign Attracts the Interest of Agribusiness
Henry Espy lived in Clarksdale, Mississippi, where he owned and operated a
funeral home. From 1989 to 1997, he was Clarksdale's mayor, and from 1992 to
1995 he served as president of the National Conference of Black Mayors, an
organization created to provide management and technical-support resources to
mayors across the country.
In early 1993, Henry Espy ran in the Democratic primary election for
Mississippi's Second Congressional District seat, which his brother had held for
six years and had vacated upon becoming the Secretary of Agriculture. As soon as
Henry Espy announced his candidacy, numerous agribusiness donors contributed,
many with little if any connection to Mississippi's Second Congressional District.
According to reports filed by the Henry Espy campaign with the Federal Election
Commission (FEC) for the period January 1993 through April 19, 1993, the number
of out-of-state contributors totaled 165, nearly equal to the campaign's 181
Mississippi contributors; contributions also came from 61 out-of-state political
action committees (PACs), compared to eight in-state PAC contributors.
In his election bid, Henry Espy used several of the same campaign
organizations that had served his brother. One of these, Creative Campaign
Consultants, Inc. from Washington, D.C., coordinated a Henry Espy fundraiser
held on February 23, 1993 at the Beneficial Town House in Washington, D.C.
Approximately 75 to 100 persons attended, including Secretary Espy, and $50,000
to $75,000 was raised. The invitees included lobbyists for and representatives of
various agribusinesses.
Secretary Espy asked the fundraising coordinator to report to him on the
agribusinesses that supported his brother's effort and provide the names of the
persons who "attended and/or contributed." In a March 2, 1993 memorandum to
Secretary Espy, marked "confidential," the coordinator wrote:
It was great seeing you last week at Henry's Washington
fundraiser. . . . We had good participation from
agriculture groups in supporting the event last week. As
you requested, following are the names of people who
attended and/or contributed . . . .
The memo identified 43 agribusinesses that had supported the fundraiser and listed
the amounts each paid or pledged.
Among the 43 names, Jack Williams, a lobbyist for Tyson Foods, Inc.,
appeared as having contributed $5,000 for Tyson Foods, based in Springdale,
Arkansas, and $5,000 for Riceland Foods, Inc. of Stuttgart, Arkansas. The only
other $5,000 contribution was from the Mid-American Dairymen cooperative of
Springfield, Missouri, which Williams also represented. FEC records reflect that
Tyson Foods-related persons and entities also contributed to the Henry Espy
campaign as follows: Joe Fred Starr, Sr., vice president, $1,000; Don Tyson,
chairman of the Board of Directors, $1,000; Jack Williams, lobbyist, $1,000;
Leland Tollett, vice chairman of the Board of Directors, president and CEO,
$1,000; and Tyson Foods' PAC, $2,000.
In addition, Sun-Diamond PACs, whose contributions Douglas controlled,
contributed as follows: Diamond Walnut Growers, Inc., $1,000; Sunsweet
Growers, Inc., $1,000; and Sun Maid Growers, Inc., $1,000.
b. Crop Growers Insurance Becomes Involved in the Henry Espy Campaign
Among the agribusiness supporters of Henry Espy's campaign was Crop
Growers Insurance, Inc., based in Great Falls, Montana. This privately held
company sold and serviced federal multi-peril crop insurance (MPCI) to farmers.
In 1994, Crop Growers Insurance and several of its constituent crop insurance-related companies, including Crop Growers Software, Inc. and Prairie Mountain
Insurance, Inc., joined to form a public holding company, Crop Growers
Corporation (Crop Growers).
(1) The USDA Role in Crop Insurance Reform Becomes Important to Crop Growers Insurance
The federal government has offered crop insurance since 1930 to protect
farmers against crop loss resulting from drought, floods and other natural disasters.
The Federal Crop Insurance Program was revised extensively in 1980, yet by the
early 1990s, USDA and Congress perceived the need for further substantial
revision of the program. By 1992, it became well known within the crop-insurance
industry that MPCI would undergo major changes that could directly affect
industry profits.
At that time, crop insurance was available only through private companies,
and few farmers carried it. As a result, Congress annually passed ad hoc legislation
to assist farmers hit by natural disasters. During the late 1980s and early 1990s,
Congress, the General Accounting Office and other oversight bodies grew
dissatisfied with the crop-insurance program because it cost too much money,
while farmers grew dissatisfied because they felt the program was not providing
enough protection against losses. When Espy became Secretary of Agriculture in
January 1993, crop-insurance reform was already a priority at USDA, and major
floods in the Midwest in July and August 1993 brought the issue to a head. USDA
held a crop-insurance roundtable that summer, leading to the formation of a USDA-led task force.
The task force generally proposed eliminating ad hoc disaster aid and
replacing it with an ongoing crop-insurance program. It planned to do this by
offering catastrophic coverage that farmers could obtain for a small processing fee.
Other levels of coverage could still be purchased through private insurers. Under
the plan, crop insurance was to be "linked" with participation in other farm
programs - a farmer would have to carry crop insurance in order to participate in
government subsidy programs - so that farmers essentially would be required to
purchase crop insurance. The idea was to provide crop insurance in a very
economical and accessible form.
The proposed reforms raised concern among private crop insurers eager to
know who would sell the new insurance to farmers. Initial proposals included
alternatives under which the federal government, through the Agricultural
Stabilization and Conservation Service (ASCS), would provide crop insurance
directly to farmers. This would have eliminated Crop Growers Insurance and other
private crop-insurance companies from the program and undermined their financial
viability.
The USDA-led task force also considered the use of a dual-delivery system,
whereby farmers could purchase their coverage either through a private insurance
agent or through a local USDA office. Crop insurers supported a single-delivery
system, under which catastrophic coverage would be available exclusively through
private insurers. Ultimately, to move the legislation forward, the task force issued
an internal decision memorandum on January 19, 1994 that recommended a
compromise - a dual-delivery system, but one that limited the availability of
coverage through government offices to those areas where it was most needed.
The private insurers were to retain most of their market in the dual-delivery system.
In a public-disclosure document issued in connection with its initial public
offering of common stock in 1994, Crop Growers noted that federal crop-insurance reform proposals could have a very direct bearing on the profitability of
private crop insurers:
Crop Growers expects that a majority of its revenues will
continue to be derived from its [multi peril crop
insurance] business for the foreseeable future . . . .
The Federal Crop Insurance Reform Act of 1994, which
was proposed by the Secretary of Agriculture on March
2, 1994 . . . provides for significant reform to the current
Multiperil Crop Insurance Program. The Secretary of
Agriculture has also proposed a comprehensive
'Blueprint for Financial Soundness' strategy to improve
the financial integrity and actuarial soundness of the
MPCI program.
* * * *
. . . No assurance can be given that any ultimate
enactment or implementation of the Federal Crop Reform
Act or the Blueprint [for Financial Soundness] will not
materially adversely affect [Crop Growers'] results of
operations and financial condition. (Emphasis added.)
2. Crop Growers Insurance Makes Illegal Campaign Contributions to Henry Espy
On January 30, 1993, the same day that Henry Espy filed his Statement of
Candidacy with FEC, Danny Baxley, a Crop Growers Insurance regional manager
in Mississippi, telephoned John Hemmingson, Crop Growers' chief executive
officer, president, chairman of the board, and largest shareholder, to suggest that he
contribute to and raise money for Henry Espy's congressional campaign.
Hemmingson, who had made very few political contributions in the past, (56) committed to raise $40,000 on Henry Espy's behalf.
On February 1, 1993, Hemmingson met with Barry Coday, Crop Growers
Insurance's controller, and Gary Black, Crop Growers Insurance's executive vice
president, chief financial officer, treasurer, second-largest shareholder, and a
director. The purpose of the meeting was to discuss contributing to Henry Espy's
campaign. Hemmingson knew that corporate contributions to a federal candidate
were illegal. Nevertheless, he directed Black and Coday to devise a method by
which individuals would contribute to the campaign and receive reimbursement
from Crop Growers Insurance constituent companies.
Hemmingson, and others acting at his direction, carried out this plan by
soliciting Crop Growers Insurance employees and agents to act as conduits for
illegal corporate contributions. These persons, who had never heard of Henry
Espy and had no interest whatsoever in contributing to Henry Espy's campaign,
nevertheless complied with Hemmingson's direction. Between January 31 and
February 3, 1993, 23 individuals, including seven members of Crop Growers
Insurance's senior management, acted as conduits for $1,000 apiece in illegal
contributions. (57) By late March 1993, Hemmingson had solicited and obtained three additional conduit contributions of $1,000 each to Henry Espy's campaign,
for a total of $26,000 in illegal contributions in 1993.
Crop Growers Insurance and its constituent companies reimbursed in full the
conduit contributors for writing the $1,000 contribution checks to the Espy
campaign. The companies falsely recorded the reimbursements in their financial
books and records as travel reimbursements, travel advances, payments for the
purchase of computers, expense-account advances, crop-loss adjustments,
consulting fees, commissions and desktop-publishing labor costs.
On March 31, 1993, Henry Espy lost the primary election for his brother's
former congressional seat. In the process, his campaign amassed a debt totaling
between $150,000 and $200,000. In an effort to pay down the debt, Henry Espy
contacted Crop Growers Insurance's Baxley, requesting additional financial
assistance. Baxley responded by again calling Hemmingson and asking him to
raise additional funds. On April 21, 1993, Henry Espy's campaign debt reduction
manager told one creditor of the campaign that his outstanding bill would be taken
care of with financial help from, among others, "Fruit Growers," which he
described as a trade association in the West that had something to do with
insurance and did a lot of business with Secretary Espy.
Although it failed to file many of the FEC reports required by federal
regulations, the Henry Espy for Congress Committee filed Reports of Receipts and
Disbursements with FEC in March and August 1993. In the reports, the committee
listed the contributions received during the period January 1, 1993 through June 30,
1993 and identified the 26 Crop Growers Insurance conduits as contributors. The
reports did not identify any of the Crop Growers Insurance constituent
corporations as the true contributors to the campaign.
3. Crop Growers Insurance Obtains Access to Secretary Espy
By early April 1993, Hemmingson gained the access he had sought to
Secretary Espy through Henry Espy. Hemmingson laid the groundwork on
February 28, 1993, when he traveled to Mississippi to meet with Henry Espy.
During this meeting, Hemmingson learned that Henry Espy was not familiar with
crop insurance and explained the program. By early March, Henry Espy had
arranged the first meeting between his brother Secretary Espy and Hemmingson.
In anticipation of this first meeting with the Secretary, scheduled for April 14,
1993, Hemmingson hired as a consultant James Cason, the immediate past manager
of the Federal Crop Insurance Corporation an agency within USDA. On March 4,
1993, Hemmingson and Cason met in Washington, D.C. to begin preparing
Hemmingson for his meeting with the Secretary. By letter dated March 19, 1993,
Cason sent Hemmingson the "talking points I agreed to provide you for your
meeting with Secretary Espy." Cason also suggested that the text of
Hemmingson's cover letter to the Secretary include the following statement:
Perhaps, at some time in the future, we will be able to
arrange a Mississippi tour for you and Congressman
Henry Espy if our efforts on his behalf are successful
(this part has to be subtle). (Emphasis added.)
In the resulting April 7, 1993 letter and talking points sent to Espy,
Hemmingson said that he wanted to discuss crop and disaster insurance, among
other issues, at their meeting a week later in Washington, D.C. In the 18 pages of
correspondence, Hemmingson expressed concern about the Secretary's positions
on crop insurance, disaster assistance, area-yield plans, private-sector insurance
delivery, limits on covered crops, and similar regulatory issues relevant to Crop
Growers' business activities.
Hemmingson's personal calendar reflected a meeting on April 14, 1993
among Hemmingson, Secretary Espy and Henry Espy at USDA in Washington,
D.C. (At trial, Hemmingson denied that this meeting took place.) Additionally, on
July 27, 1993, Hemmingson met with Secretary Espy and Henry Espy at USDA,
and the discussion focused on crop insurance. According to Hemmingson, the
meeting addressed an updated version of Cason's "talking points" letter and only
lasted a few minutes. Henry Espy stated that he, Hemmingson, and Secretary Espy
were present at both the April 14, 1993 and the July 27, 1993 meetings. Henry
Espy indicated that the April meeting took about 15 minutes and that crop
insurance and retirement of his campaign debt were discussed. During the June
meeting, according to Henry Espy, Hemmingson discussed crop insurance, satellite
identification of crops, and crop mapping.
On August 24, 1993, Hemmingson sent a second letter to Secretary Espy,
addressing the potentially "drastic" effect on private insurers of proposed reform
legislation that would make the federal government the sole deliverer of multi-peril
crop insurance. In addition to sending the letter directly to the Secretary,
Hemmingson faxed it to Henry Espy, with the note: "These thoughts are for
Mike's consideration in response to the recent rumors regarding the ASCS
involvement in the crop insurance program."
Henry Espy later facilitated another meeting between Hemmingson and
Secretary Espy. On February 15, 1994, Crop Growers Insurance, at
Hemmingson's direction, purchased airplane tickets for Henry Espy and his
girlfriend to travel to Washington, D.C. Henry Espy accompanied Hemmingson to
his meeting with Secretary Espy in the Secretary's office at USDA on February 24,
1994. During the meeting, Secretary Espy gave Hemmingson a private preview of
the crop-insurance reform legislation that would be introduced in Congress the
following week. On the following day, February 25, 1994, Secretary Espy
disclosed this information publicly to a group of prominent representatives of the
crop-insurance industry. Secretary Espy had the Federal Crop Insurance Reform
Act of 1994 introduced in Congress on March 2, 1994. The Act, which called for
a dual-delivery system for crop insurance, won congressional approval in October
1994 by a wide margin.
On March 24, 1994, in a third letter to Secretary Espy, written on behalf of a
business associate, Hemmingson sought reduction of the waiting period for the
planting of corn after a pesticide had been used in a cornfield. The letter had
nothing to do with crop insurance, and it demonstrated the extent to which
Hemmingson had cemented this relationship with the Secretary.
c. Henry Espy Borrows Money to Cover His Campaign Debts
In his effort to win the Democratic nomination for the congressional seat
formerly occupied by his brother, Henry Espy spent far more than he had raised in
campaign contributions. In the aftermath of his March 31, 1993 primary-election
defeat, Henry Espy faced a campaign debt in excess of $150,000.
(1) Ferrouillet Arranges a Fraudulent Loan
In February 1993, Alvarez T. Ferrouillet, Jr., a New Orleans lawyer,
volunteered to help Henry Espy retire his campaign debt. Ferrouillet was a 50%
partner of the law firm of Ferrouillet & Ferrouillet (F&F), which specialized in
personal-injury matters. He also conducted an insurance business through his
corporate alter ego, Municipal Healthcare Cooperative, Inc. (MHC). Ferrouillet
sought to expand his insurance business through the National Conference of Black
Mayors, an organization in which Henry Espy, as mayor of Clarksdale, Mississippi,
was a member. In 1993, Henry Espy served as president. Ferrouillet had
supported Henry Espy in his unsuccessful congressional bid and had hosted a
campaign fundraiser in New Orleans in March 1993. The next month, he became
chairman of the effort to retire Henry Espy's campaign debt.
Henry Espy and Ferrouillet came under increasing pressure to address
campaign creditors' demands for payment on non-sufficient funds (NSF) checks.
On April 21, 1993, for example, Nick Clark of Nick Clark Printing in Jackson,
Mississippi, called Ferrouillet, demanding payment on a $5,000 NSF check for
printing services, and told Ferrouillet that he would file charges with the district
attorney for passing a bad check if he was not paid. Ferrouillet assured Clark that
the bill would be paid, that he was in the process of obtaining a loan, that two
fundraisers had been planned, and that a company located in the West called "Fruit
Growers," which did a lot of business relating to insurance with Henry Espy's
brother, would take care of Clark's bill. Other campaign creditors resorted to
referring bad checks to the district attorney or filing suit against Henry Espy.
In response to continuing pressure from campaign creditors, Henry Espy
and Ferrouillet obtained a loan from the First National Bank of Clarksdale,
Mississippi (FNB Clarksdale) to pay off the debt. The bank, however, refused to
make the loan unless it had collateral, and Henry Espy did not have collateral to
support a $75,000 loan. On April 28 and again on May 3, 1993, Ferrouillet and
Henry Espy, in order to qualify for the loan, submitted an application that falsely
represented to the bank's loan officer that Henry Espy was due a $75,000
commission from Ferrouillet's shell insurance company, MHC. They represented
that the $75,000 commission was for services rendered by Henry Espy since April
1992 in assisting MHC with securing government and private contracts.
Ferrouillet also represented that he had been in communication with federal-election authorities at FEC and had confirmed that the proposed lending agreement
was the best manner for handling the liquidation of Henry Espy's campaign debt.
Ferrouillet had not in fact had such contact with FEC. Moreover, FEC campaign-finance regulations prohibit, as an excessive campaign contribution, a loan
guarantee in the amount discussed with FNB Clarksdale.
Ferrouillet signed the loan papers as guarantor, on behalf of his law firm
F&F. FNB Clarksdale issued the loan on May 4, 1993, and Henry Espy deposited
the $75,000 into a new campaign account at FNB Clarksdale, opened under the
names of Henry Espy and Alvarez Ferrouillet. From the account, Henry Espy and
Ferrouillet paid themselves $5,000 and $1,500, respectively, and then used the
balance to pay off pressing campaign debts.
Even with the proceeds from the FNB Clarksdale loan, the campaign
remained under intense pressure from campaign creditors, many of whom
threatened legal action. Nick Clark Printers and Campaign Performance Group, a
campaign direct-mail consultant based in Alexandria, Virginia, ultimately sued
Henry Espy personally to obtain payment on outstanding balances owed by the
campaign. Both plaintiffs obtained judgments and garnished the wages that Henry
Espy received as mayor of Clarksdale.
(2) Secretary Espy Involves Himself in Retiring the Fraudulently Obtained Loan
Pressure to pay down the campaign debts reached not only Henry Espy and
Ferrouillet, but also Secretary Espy. Some creditors of the Henry Espy campaign
who had also worked on Michael Espy's congressional campaigns contacted
Secretary Espy in an effort to have their overdue bills satisfied. Nick Clark of Nick
Clark Printing wrote Secretary Espy, and attempted to reach him by telephone on at
least two occasions, in an effort to have his $12,000 bill paid. Secretary Espy
made and kept several handwritten notes regarding Henry Espy's debt. A note
dated August 26, 1993 specifically referred to the Nick Clark bill and the money
owed by the campaign to two campaign consultant organizations.
Throughout 1993 and early 1994, Secretary Espy held several meetings at his
USDA office with Henry Espy and Ferrouillet (and sometimes USDA staff) to
discuss reducing the campaign debt. He also confided to his USDA counsel that
he had received calls regarding payment of these debts and that he was concerned
about the impact his brother's outstanding debts would have on his family name
and his ability to run for office in the future.
Henry Espy, Secretary Espy, and Ferrouillet decided that additional
fundraisers could assist in paying down the campaign debt. Secretary Espy
instructed his Counselor, Kimberly Schnoor, to put together a list of "agricultural
people" to solicit in retiring Henry Espy's campaign debt, and twice reminded her
to do so. Schnoor stated that she did not put together such a list because she
believed it would be unethical to do so.
Ferrouillet used the contemplated fundraisers and Secretary Espy's
participation to postpone collection on the $75,000 loan. Although the original loan
agreement imposed a loan repayment date of June 15, 1993, Ferrouillet sought and
obtained repeated deadline extensions. FNB Clarksdale initially extended the loan
until September 30, 1993 on Ferrouillet's representations that fundraisers were
scheduled and that Henry Espy, purportedly according to FEC rules, was ineligible
to receive reimbursement for monies obtained through fundraisers if he used
personal funds to pay off the loan. When the loan was not repaid by September
30, Ferrouillet sought an additional extension from FNB Clarksdale, explaining that
fundraisers had been delayed because Secretary Espy, who was assisting in the
campaign-debt retirement, had been unable to secure permission from the White
House to participate. Ferrouillet wrote to the bank:
The postponement was the result of Secretary of
Agriculture, Mike Espy's, inability to secure White House
approval for his personal involvement in the scheduled
fund raisers; the same being vital to the success of the
fundraisers raisers.
On September 24, 1993, Mayor Espy and I had a meeting
with Mike at the Secretary's office in Washington, D.C.
at which time he informed us that he had received the
President's approval to go forward with the fund raiser
in Washington, D.C.[ (58)]
Mike suggested that we have
both fund raisers combined into one and have that one
held in the Washington, D.C. area.
I have put together a steering committee in Louisiana and
the invitations are being worked up now. Secretary Espy
envisions no problems in raising $200,000. . . .
In fact, no fundraisers were actually held, and none were apparently scheduled
between October 1993 and February 1994.
In mid-November 1993, the bank granted another extension of the loan, to
December 31, 1993. Secretary Espy himself wrote a note to a senior bank officer
on November 30, 1993:
This note is to confirm my willingness to assist my
brother, Henry, in the retirement of his debt incurred in
his most recent campaign for Congress.
Hopefully, all outstanding and disputed amounts for
services rendered to the Henry Espy for Congress
Committee can be paid by February 1, 1994. I will give it
my best effort.
Respectfully,
Mike Espy
Three days later, Secretary Espy wrote a note in his diary that said:
Fundraiser for Henry (200-K) to retire his debt. Maybe
it can be done.
When the loan remained unpaid by December 31, 1993, the bank declared it
substandard and sent the matter to its attorney for collection.
d. The First Installment of the Loan Is Paid with Illegal Campaign Contributions
In early January 1994, Ferrouillet and Henry Espy again met with Secretary
Espy at his office in Washington, D.C. and requested the Secretary's assistance in
paying down the campaign debt. Secretary Espy stated that he would get the
assistance of Douglas of Sun-Diamond in raising funds and reducing the debt.
Shortly thereafter, Ferrouillet sent Secretary Espy a fax itemizing the details and
amounts of the campaign debts.
Douglas initially discouraged Secretary Espy from participating in his
brother's campaign-debt problems, but the Secretary persisted. Douglas then
agreed to assist in the effort. According to Douglas, Secretary Espy was
concerned about his brother's debt because it could harm his credibility and name
with people in Mississippi, where he aspired to run some day for United States
senator or for governor.
Douglas committed to help by raising $10,000 for the retirement of Henry
Espy's campaign debt. At Espy's direction, Fred Slabach, his Assistant Secretary
for Congressional Relations, opened a private mailbox to receive checks and letters
for the Henry Espy campaign. Douglas took the key to the mailbox and told
Secretary Espy he would control it.
(1) Douglas Solicits Illegal Campaign Contributions
Douglas set out to assist Secretary Espy in retiring Henry Espy's debt in
several ways. He first contacted James Lake of Robinson Lake Sawyer and Miller
(Robinson Lake), a Washington, D.C. public relations firm. Sun-Diamond had
used Robinson Lake lobbying services since 1983. Robinson Lake also
represented other agricultural entities with business before USDA, but Sun-Diamond was one of its most important and long-standing clients. Douglas, who
was responsible for Sun-Diamond's political and lobbying activities, maintained an
office in Robinson Lake's Washington, D.C., headquarters. James Lake, a
founding partner of Robinson Lake, had recommended to Sun-Diamond that it hire
Douglas in the first place. Lake oversaw the Sun-Diamond account and took his
directions on Sun-Diamond matters from Douglas. Lake regularly reported to
Douglas on the status of issues directly impacting Sun-Diamond. In 1993,
Robinson Lake was on a monthly retainer of $20,000, plus expenses, with Sun-Diamond.
Douglas asked Lake to solicit $5,000 in contributions. Lake responded that
he did not know anyone who would want to contribute. Douglas assured Lake that
Sun-Diamond would reimburse the contributions through a false-billing scheme and
told Lake to request $5,000 in reimbursement from Robinson Lake for tickets to a
dinner for the Joint Center for Political and Economic Studies, which Lake had not
actually attended that year. Robinson Lake would submit an invoice to Sun-Diamond for the dinner, and Douglas would approve the invoice.
Lake wrote one $1,000 check (the maximum contribution from an individual
permitted under federal law) to Henry Espy's campaign and asked four other
persons at Robinson Lake to do likewise. One refused, and three complied. Lake
provided the four $1,000 checks to Douglas. Following Douglas's instructions,
Lake created and submitted a false bill in the amount of $5,000 to Robinson Lake
for the Joint Centers' dinner. Robinson Lake invoiced that amount to Sun-Diamond, Douglas approved it for payment, and Sun-Diamond paid it. Lake
reimbursed the contributors from the Sun-Diamond payment, including himself, and
kept the extra $1,000. As a result of this conduit scheme, Henry Espy's campaign
received $4,000 in illegal corporate contributions, originating from Sun-Diamond
but given in other persons' names.
Beyond the $4,000 obtained through Lake, Douglas secured another $6,000
in contributions for the Henry Espy campaign. He wrote $3,000 in contributions
from two Sun-Diamond PACs and obtained $2,000 from clients of his own, who
had matters before USDA. Finally, Douglas made a personal contribution of
$1,000, bringing the contributions he gathered to a total of $10,000.
(2) Douglas Organizes the 116 Club Fundraiser
Douglas, with the assistance of former California Congressman Tony
Coelho, (59) also organized a Henry Espy fundraiser to be held at the 116 Club, a
private club in Washington, D.C. Douglas sent invitations on Sun-Diamond
letterhead to "a small gathering of supporters of Mayor Henry Espy." The
invitations stated that "[t]he purpose of this dinner meeting is to seek your advice
and counsel on how best to assist Henry in retiring his debt." The fundraiser
occurred on March 31, 1994. Douglas and Coelho met with Secretary Espy
immediately before and told him not to attend. The Wall Street Journal article,
"Tyson Foods, With a Friend in the White House, Gets Gentle Treatment From
Agriculture Agency," had appeared two weeks earlier, citing "complaints about
selective enforcement" of federal rules by USDA and saying that "the Tyson-Clinton connection stands out even in a department long faulted for a tendency to
accommodate agribusiness interests."
All of the approximately 12 fundraiser participants either worked for or
represented agribusinesses. They included Crop Growers' Hemmingson, who had
engineered $26,000 in illegal corporate conduit contributions for Henry Espy's
campaign before the election.
During the dinner, Douglas solicited each of his guests to raise $10,000 to
help Henry Espy retire his campaign debts. Coelho told the guests that the
fundraiser was not about the Secretary of Agriculture and that they were not
supposed to say or think they were there because of Secretary Espy. He said very
little about Henry Espy, except that he needed money and that the Espy name
should not be tarnished. No contributions were made at the dinner.
After the dinner, at Henry Espy's hotel room, Ferrouillet, Douglas and
Hemmingson met with Henry Espy. An argument ensued between Douglas and
Henry Espy when Douglas stated that Secretary Espy wanted him to control the
money. Douglas asserted that he would deposit money raised by the fundraiser
into a campaign account that he would control. Henry Espy protested and
requested that he be given the money. Douglas refused and telephoned Secretary
Espy, who told his brother that Douglas would control the money.
On April 1, 1994, the day after the 116 Club fundraiser, Douglas deposited
the $10,000 in contributions he had previously accumulated - from Lake, Sun-Diamond PACs, his own clients, and himself - into a new Henry Espy for
Congress Committee account at Washington Federal Bank in Washington, D.C.
Douglas held sole authority to write checks on the account. Douglas stated that he
would clear any checks he wrote from that account with Secretary Espy prior to
writing them. Shortly thereafter, Secretary Espy wrote in his diary
Tony Coelho might become [White House] C[hief] of
S[taff]!! Anyhow he & R[ichard] D[ouglas] agreed to
raise $ for Henry. Good 100K.
In the end, Douglas only wrote one check from the account - for $4,000 to pay a
longtime Henry Espy campaign debt to a Secretary Espy campaign worker who
had worked for Henry Espy's campaign. Douglas then wired the rest of the money
to Ferrouillet for a Henry Espy campaign bank account in New Orleans, Louisiana.
By mid-May, the only contributions that followed the 116 Club dinner were
the $10,000 that Douglas had previously raised. Ferrouillet and Henry Espy,
however, needed at least $75,000 to satisfy the FNB Clarksdale loan of May 4,
1993.
Ferrouillet wrote the bank's lawyer a letter on May 17, 1994. He said the
reason the fundraiser failed was that their efforts in Washington, D.C. had been
sabotaged and that most of the contributors ran for cover because of telephone
calls from the news media. He wrote that Henry Espy's associates had withdrawn
because they did not want to be associated with the "influence peddling" that had
"raised its ugly head" in Washington. Ferrouillet explained that Henry Espy and he
were going to "several pre-arranged meetings" and, unlike the D.C. fundraiser,
these meetings would be "not at all dependent" on the "Washington personalities
and will likely take the heat off the Washington coalition allowing it to be more
effective."
(3) Ferrouillet Makes the First Repayment on the Delinquent Loan
In May and June of 1994, Ferrouillet spoke with representatives of FNB
Clarksdale on numerous occasions regarding repayment terms for the $75,000 loan.
On June 21, 1994, Ferrouillet called Tom Ross, the attorney for the bank, to
forestall the bank from enforcing the guarantee given by F&F, the law firm in which
Ferrouillet was a half partner. Ferrouillet worked out an agreement by which
Ferrouillet would give the bank three checks, each in the amount of $25,000,
postdated June 30, July 30 and August 30, 1994. On June 28, 1994, Henry Espy
and Ferrouillet opened a Henry Espy for Congress bank account at Omni Bank in
New Orleans, Louisiana, with an initial deposit of $60 in cash. That same day,
Ferrouillet sent to Ross the three $25,000 postdated checks, all drawn on the Omni
account.
On July 1, 1994, Ferrouillet deposited $9,000 in contributions into the Omni
account, $7,000 of which had come from persons related to AFLAC (as discussed
in Section II.E.3). On July 5, Ferrouillet transferred into the Omni account the full
$14,475 balance then in the Washington Federal Bank account, controlled by
Douglas. (This amount included the $10,000 raised by Douglas, and $4,475 in
other contributions collected in April and May and deposited into the account on
June 1.) On July 12, Ferrouillet deposited a $2,000 check from his personal
account, bearing the notation "Loan to Henry Espy," into the Omni account,
bringing the balance to $25,499. By July 12, the June 30, 1994 check to FNB
Clarksdale had been returned twice because of insufficient funds. On July 14,
Ferrouillet wired $25,000 from the Omni account to FNB Clarksdale as the first
installment to pay down the loan.
e. The Second Installment of the Loan Is Paid with an Illegal Campaign Contribution
By June 21, 1994, the date of Ferrouillet's agreement with FNB Clarksdale to
provide three postdated checks for $75,000, the Henry Espy campaign-debt
retirement effort had proven futile. Unable to raise the necessary $75,000 through
legitimate means, Ferrouillet turned to illegal methods to help pay down the loan.
Specifically, he designed a scheme, with the assistance of Crop Growers'
Hemmingson, to funnel $20,000 in illegal corporate contributions into the
campaign's coffers.
This scheme followed on the heels of Hemmingson's $26,000 in illegal
contributions to the Henry Espy campaign in 1993. The earlier contributions
provided Hemmingson access to Secretary Espy, which he sought to maintain.
Because of his 1993 contributions, Hemmingson was invited to the 116 Club
fundraiser of March 31, 1994. After the event, he joined Henry Espy, Ferrouillet,
and Douglas in Henry Espy's hotel room for further discussion of the campaign-debt retirement efforts. Shortly thereafter, on May 12, 1994, Ferrouillet sent a letter
of thanks to Hemmingson over Henry Espy's name, stating:
I am further grateful to you for the immediate and much
needed assistance you pledged in helping me retire my
congressional campaign debt. Friends who come to the
aide [sic] of friends are never forgotten.
(1) Hemmingson Provides a $20,000 Contribution From Crop Growers Corporation
On June 28, 1994, the day on which Henry Espy and Ferrouillet opened the
Omni Bank account in Louisiana, Ferrouillet and Hemmingson fabricated a phony
$20,000 legal services agreement between F&F and Crop Growers Corporation,
the holding company Hemmingson controlled and whose assets included Crop
Growers Insurance. The first paragraph of the "engagement letter" recited its
purported purpose:
[Ferrouillet & Ferrouillet is] pleased that you
[Hemmingson] have chosen our firm to represent you as
Special Corporate Counsel in connection with the
development of a comprehensive healthcare plan which
your firm might co-sponsor, along with Municipal
Healthcare Cooperative Inc., for presentation to and
implementation within the membership of the National
Conference of Black Mayors.
The engagement letter called for a $20,000 retainer to be paid to F&F. In
exchange, according to the contract, F&F would perform a series of detailed,
identified tasks, including developing the comprehensive healthcare plan, issuing
detailed, monthly computer-generated statements that reflected related costs,
preparing status reports, and retaining all files for three years.
The engagement letter was, however, simply a means to disguise and conceal
a $20,000 illegal corporate contribution from Crop Growers Insurance to Henry
Espy's campaign fund. Neither Ferrouillet nor F&F ever performed any legal
services under the contract, and Ferrouillet covertly funneled the money into the
Henry Espy fund.
Hemmingson amended the contract's $20,000 retainer provision, adding "to
be earned at $1,000.00 per month starting August of 1994." Then, on July 26,
1994, Hemmingson sent Ferrouillet a $20,000 check, drawn on a Crop Growers
Insurance account, payable to "Alvarez T. Ferrouillet, Jr., Attorney at Law."
Crop Growers recorded the $20,000 retainer as a prepaid legal expense in the
financial books of its subsidiary, Crop Growers Insurance. By identifying the
disbursement as a prepaid expense amortized over 20 months, Hemmingson
minimized the likelihood that the entry would be questioned by outside auditors.
No Crop Growers entity had any record of statements, correspondence or
work product from F&F or Ferrouillet to support the expenditure, other than the
engagement letter and the check. Furthermore, the companies maintained no
records related to healthcare plans or insurance connected with Ferrouillet.
Ferrouillet's name did not appear in Hemmingson's calendars for 1992 through
1995. Indeed, Kristen Juras, an outside counsel to Crop Growers who became the
company's general counsel in December 1994 and who was responsible for dealing
with law firms the company retained, did not learn of the alleged relationship with
F&F and the existence of the sham engagement letter until approximately October
1995, just weeks before OIC issued grand-jury subpoenas to Crop Growers. Juras
testified that the only documents in Crop Growers' possession that referred to any
relationship with Ferrouillet or his law firm were the engagement letter and the check
paid to F&F.
Similarly, F&F had no record of Crop Growers. Eric Ferrouillet, Alvarez
Ferrouillet's brother and the firm's managing partner, kept the firm's books and
financial records. He did not become aware of the engagement letter and related
$20,000 check, or his firm's purported representation of Crop Growers, until after
OIC's investigation of the matter began. F&F primarily did personal-injury
litigation and did not have in its files any monthly statements, time sheets or status
reports - or any work product whatever - for any Crop Growers entity or
Hemmingson. In fact, Ferrouillet and his law firm performed no services at all for
Crop Growers.
(2) The $20,000 Check Is Laundered
On July 28, 1994, Ferrouillet cashed the $20,000 check that he and
Hemmingson had fraudulently procured from Crop Growers Insurance at the
Evergreen Supermarket, a corner grocery store in the Algiers section of New
Orleans. He stated that he wanted all the cash in $100 bills. Abdel Judeh,
Evergreen's owner and Ferrouillet's friend and longtime client, provided Ferrouillet
with $5,000 cash immediately and said that he needed a week to obtain the $15,000
balance. Judeh then deposited the $20,000 check into the grocery store's bank
account. Within the week, Judeh withdrew the balance from the grocery store's
account and provided Ferrouillet $15,000 in $100 bills. Because the amount of the
cash transaction exceeded $10,000, Judeh was required by law to complete a
federal currency-transaction report (CTR). He did not do so, however, thereby
effectively concealing the source of the funds.
On August 8, 1994, Ferrouillet deposited $10,000 in $100 bills, along with
$800 in checks, into the Henry Espy for Congress bank account at an Omni Bank
branch in Kenner, Louisiana, a suburb of New Orleans. The Omni Bank teller who
took the deposit completed a CTR for the transaction. Ordinarily, banks require
CTRs only for cash transactions in excess of $10,000, unless the transaction
involves suspicious circumstances. The teller who handled the transaction stated
that he filled out the CTR because he thought the deposit was suspicious. He left
it to superiors at the bank to decide whether to indicate on the CTR that the
transaction was suspicious and whether to make an immediate report of the
transaction to the government (as is generally required for cash transactions a bank
determines are suspicious). The bank did not. The teller further testified that
Ferrouillet became "irate" when he requested Ferrouillet's driver's license to
complete the CTR.
Two days later, on August 10, 1994, at 5:18 p.m., Ferrouillet made a $9,000
cash deposit, also in $100 bills, into the same account at the same branch.
(Because this transaction involved less than $10,000, it did not require completion
of a CTR.) The following morning, at 9:20 a.m., Ferrouillet deposited $1,000 in
$100 bills into the same account at a different Omni Bank branch, located in
Metairie, Louisiana, another suburb of New Orleans. On August 19, 1994, after the
second of the postdated $25,000 checks given as security to FNB Clarksdale had
bounced, Ferrouillet wired the proceeds of the Crop Growers Insurance check,
plus $1,000 additional (for a total of $21,000), from Omni Bank to FNB Clarksdale.
The wire transfer represented the second installment on the balance on the Henry
Espy campaign loan. After this installment, the balance of the loan stood at more
than $36,000.
f. Ferrouillet and Henry Espy Make the Final Payments on the Loan
On August 30, 1994, the date of the final postdated $25,000 check, the Omni
Bank account in Louisiana had a balance of only $231. On September 8, 1994,
Ferrouillet deposited $4,000 in contributions into the Omni account and wired the
funds to FNB Clarksdale on September 12, 1994. On September 16, 1994,
Ferrouillet deposited another $4,000 in contributions into the Omni account and
wired the funds to FNB Clarksdale on October 13, 1994.
Ferrouillet did not make an additional payment on the $75,000 loan until May
1995, two months after OIC agents interviewed him. Alvarez and Eric Ferrouillet
opened a Municipal Healthcare Cooperative, Inc. (MHC) checking account on May
19, 1995 at the First National Bank of Commerce in New Orleans (First NBC), with
a $70,000 check from AFLAC. (60) MHC was Ferrouillet's shell insurance company.
On May 25, 1995, Henry Espy and Ferrouillet signed a "Receipt and Release" that
purported to reduce the amount owed by Ferrouillet to Henry Espy (per their earlier
representations to FNB Clarksdale) from $75,000 to $20,000. Ferrouillet then
provided Henry Espy a $20,000 check, drawn on the MHC account, and Henry
Espy endorsed it back to MHC. On May 26, 1995, Ferrouillet wired $20,000 from
the MHC account directly to FNB Clarksdale; the transfer left a balance of
$12,014.64 still due on the bank's loan to Henry Espy. Ferrouillet deposited the
$20,000 check, which Henry Espy had endorsed back to MHC, into the MHC
account at First NBC.
On the same day they signed the "Receipt and Release," Ferrouillet and
Henry Espy entered into another agreement, under which Henry Espy borrowed
$12,014.64 from GD & Associates Investments, an entity controlled by F&F and
used primarily to lend money to clients of the firm. Ferrouillet then gave Henry
Espy a $12,014.64 check (the precise amount still due on the Henry Espy loan),
drawn on Ferrouillet's personal account and payable to "First National Bank of
Clarksdale." On or about May 30, 1995, Henry Espy met FNB Clarksdale's
president in a Wal-Mart parking lot in Clarksdale, where he delivered the check.
The check from Ferrouillet subsequently bounced because of insufficient funds.
On October 20, 1995, Eric Ferrouillet wrote a $12,500 check to Alvarez
Ferrouillet, purportedly representing Alvarez Ferrouillet's interest in their law
partnership. That same day, Ferrouillet deposited the check into his personal
account and used the proceeds to purchase a $12,269.84 cashier's check.
Ferrouillet sent the cashier's check to the attorney for FNB Clarksdale. Thus, on
October 24, 1995, almost 28 months after the first maturity date on the loan and
after OIC had subpoenaed records from Ferrouillet, Ferrouillet finally paid off the
$75,000 loan.
2. Concealment of Campaign Offenses
Both Hemmingson and Ferrouillet knew that corporations may not contribute
to federal political campaigns and, accordingly, designed a scheme to disguise the
contributions that would be made by Crop Growers. Because of this scheme,
Hemmingson later caused Crop Growers, when it became a public company, to
violate a number of statutes requiring public corporations to keep complete and
accurate financial books and records. Crop Growers' books did not disclose the
$46,000 in illegal contributions that were made to the Henry Espy Campaign in 1993
and 1994. Similarly, Ferrouillet lied to OIC interviewing agents when questioned
about the sources of cash deposits in the campaign account.
a. Crop Growers Conceals Its Illegal Campaign Contributions in Its SEC Filings
In 1993 and 1994, Hemmingson created a public holding company, Crop
Growers Corporation, from the various crop-insurance entities he controlled,
including Crop Growers Insurance, Crop Growers Software, Inc., and Prairie
Mountain Insurance, Inc. The company retained KPMG Peat Marwick as
independent auditors to perform an audit of its books, records, and accounts for
the preparation of financial statements that the Securities and Exchange
Commission (SEC) required Crop Growers to file as a condition to its public
offering. Crop Growers summarized the records of its subsidiaries in the new
holding company's financial statements, as required by the accounting rules.
The documents created in this process contained substantial
misrepresentations. The books and records relied upon in preparing these financial
statements included those in which Hemmingson had concealed the company's
illegal contributions to Henry Espy's congressional campaign - $23,000 in 1993,
and $20,000 in 1994. These statements contained no disclosures of these illegal
contributions. Hemmingson, Black, and Coday also made written and oral
representations to the auditors that there had been no illegal conduct and, based on
those false representations, the auditors provided an "unqualified opinion"
concerning Crop Growers' financial statements that permitted it to proceed with its
public offering.
The SEC also requires the disclosure of various "Risk Factors" - factors
that may be of concern to prospective purchasers of securities. Crop Growers did
not disclose at least six significant factors: (1) Crop Growers violated the Federal
Election Campaign Act (FECA) by making illegal campaign contributions; (2) it had
a material contingent liability for potential criminal and civil penalties as a result of
the FECA violations; (3) its financial statements were misleading; (4) it had
maintained false books and records; (5) Crop Growers Insurance, Crop Growers
Software, and Prairie Mountain Insurance - and their key officers - faced potential
criminal and civil sanctions in addition to those possible under FECA; and (6) these
corporations were potentially subject to restrictions on their ability to operate
before the USDA as a result of the illegal conduct. Each of these risks jeopardized
the company's insurance license, ability to obtain reinsurance, and market
acceptance.
Between June 23, 1994 and November 30, 1994 Crop Growers sold
approximately 3,900,000 shares to the public, realizing approximately $36,000,000.
b. Ferrouillet Makes False Statements to Federal Investigators
On March 27, 1995, OIC investigatory agents interviewed Ferrouillet. The
agents showed him a copy of the initial $10,000 cash deposit receipt from Omni
Bank, representing the first deposit of laundered funds originating from Crop
Growers, and inquired as to the source. Ferrouillet explained that the money came
from donations by several individual contributors. To support this statement,
Ferrouillet presented the agents with a document entitled "CASH DONORS,"
listing 46 individuals and corresponding amounts purportedly donated by each
contributor.
On July 18, 1995, OIC agents began contacting the persons named on the
"CASH DONORS" list to determine whether they had contributed to the Henry
Espy for Congress Committee. Only one person had contributed. On July 21,
1995, while the interviews were continuing, Ferrouillet telephoned OIC and told a
supervising agent that OIC agents should not waste their time calling the balance of
the people on the "CASH DONORS" list, because they had not given
contributions. Rather, Ferrouillet asserted, they had pledged money to support
Henry Espy. That statement, too, was false, as none of the persons on the list had
pledged any money or other support to the Henry Espy for Congress Committee.
3. AFLAC's Illegal Contributions to the Henry Espy Campaign
In August 1994, while attempting to determine the source of the $20,000 cash
deposit Ferrouillet made to the Henry Espy for Congress debt-retirement account,
OIC investigators discovered an unlawful conduit-contribution scheme carried out
by Warren B. Steele II, vice president of marketing administration for American
Family Life Assurance Company of Columbus, Georgia (AFLAC). The purpose
of the scheme was to funnel corporate funds from AFLAC to Henry Espy's
campaign-debt reduction efforts.
AFLAC is a New York Stock Exchange-listed company that sells
supplemental health insurance to individuals. The company is a global insurer of
more than 40 million people, predominantly in the United States and Japan. In
1996, AFLAC's revenues approached $8 billion, and its assets topped $30 billion.
In late November 1992, AFLAC, through Steele, began working with
Ferrouillet and his newly formed company, MHC, to offer supplemental health-insurance products to municipalities. Ferrouillet and Steele intended to use the
National Conference of Black Mayors (NCBM), of which Henry Espy was then
president, as their principal vehicle to present the MHC proposals to municipalities.
To further this effort, AFLAC hosted a cocktail reception for the NCBM
Board of Directors at an NCBM weekend conference at Hilton Head, South
Carolina in December 1992. The next day, Ferrouillet presented his MHC proposal
to the NCBM board. Henry Espy, as NCBM president, approved a resolution
establishing a committee to study the proposal and, a few months later, the NCBM
board accepted the MHC plan.
Atlanta, Georgia and Memphis, Tennessee were selected as the first
municipalities to which MHC would attempt to sell this supplemental health
insurance. Ferrouillet and AFLAC worked to secure these deals throughout the
remainder of 1993 and most of 1994. Through this activity, Steele had several
contacts with NCBM and Henry Espy. He was told in late 1993 that Henry Espy
had a pressing campaign debt and that Ferrouillet had cosigned a loan to help
reduce the debt.
On April 28, 1994, Paul Amos, AFLAC's board chairman, attended an
NCBM awards luncheon in Washington, D.C. and received NCBM's "President's
Corporate Responsibility Award" on behalf of AFLAC. At this meeting, he first
met Henry Espy.
Henry Espy and Ferrouillet arranged a meeting with Paul Amos at AFLAC's
corporate office in Columbus, Georgia for June 29, 1994. Paul Amos did not
know the purpose of the meeting, but after some pleasantries, Henry Espy and
Ferrouillet informed him of the pressing campaign debt and solicited his assistance.
Paul Amos discussed the legality of contributions to Henry Espy's campaign
with Joey Laudermilk, general counsel and corporate secretary of AFLAC's Board
of Directors, who was present during the meeting. Upon being informed that he
and his wife could each contribute $1,000, Paul Amos prepared two $1,000 checks
for the campaign - one from him and one from his wife. Laudermilk, who oversaw
the contributions of AFLAC's political action committee, AFLAC-PAC, prepared
a $5,000 check from AFLAC-PAC to the campaign. (These contributors complied
with Federal Election laws).
In July of 1994, Henry Espy sent Dan Amos, AFLAC's president and chief
executive officer (and Paul Amos's son), a letter thanking him for his generosity in
helping to retire the campaign debt. Dan Amos provided Steele a copy of the letter,
on which he had written,
Warren, we need to discuss this matter, Dan.
The following month, Dan Amos, Laudermilk and Steele met to discuss Henry
Espy's campaign-financing difficulties.
In late August, Steele telephoned AFLAC's sales coordinator for the state of
Georgia, Don Beck, and said he wanted Beck and his wife each to donate $1,000 to
the Henry Espy campaign. When Beck balked at contributing, Steele assured him
that AFLAC would "take care" of him. Beck made the two $1,000 contributions,
and Steele subsequently caused AFLAC to reimburse Beck by way of a $2,700
check purportedly for "administrative support." (The extra $700 was a
reimbursement for taxes that would have to be paid for the $2,700 of income.)
Beck recorded the deposit of this check as reimbursement for the campaign
contribution.
At about the same time, Steele had a similar conversation with Tom Giddens,
AFLAC's regional sales coordinator for Atlanta, Georgia. Steele asked Giddens
and his wife each to contribute $1,000 to Henry Espy's campaign fund and assured
them that AFLAC would "take care" of them. After Giddens and his wife
contributed $2,000, Steele sent Giddens an AFLAC check for $2,700 to reimburse
him for the contributions and the estimated taxes on the $2,700 in income. (61) Steele,
testifying pursuant to a grant of immunity from prosecution, subsequently admitted
that he knew his actions were illegal and that they violated federal campaign laws.
On May 17, 1995, although the city of Atlanta had not yet enrolled with
AFLAC, the company provided Ferrouillet $70,000 as a commission advance on
the Atlanta contract, a portion of which Ferrouillet eventually used to pay off the
remainder of the Henry Espy loan from FNB Clarksdale.
4. Prosecution Decisions
As a result of the events described above, OIC brought indictments:
- against Crop Growers Corporation, John Hemmingson, and Gary Black for
conspiracy to defraud the United States and to violate federal election laws
under 18 U.S.C. § 371, false statements under 18 U.S.C. § 1001, falsifying
corporate books and records under 15 U.S.C. §§ 78m(b)(2)(A) and 78ff(a),
securities fraud under 15 U.S.C. §§ 77q(a) and 77x, and false statements to
auditors under 17 C.F.R. § 240.13b2-2 and 15 U.S.C. § 78ff(a) (see Section
III.C.1.a);
- against Henry Espy, Alvarez Ferrouillet, Ferrouillet & Ferrouillet, and
Municipal Healthcare Cooperative, Inc. for conspiracy to make false
statements under 18 U.S.C. § 371 and false statements to a federally insured
bank under 18 U.S.C. § 1014 (see Section III.C.2);
- against Alvarez Ferrouillet for interstate transportation of stolen property
under 18 U.S.C. § 2314, money laundering under 18 U.S.C.
§§ 1956(A)(1)(b)(i) and (ii) and 1957, and false statements under 18 U.S.C.
§ 1001 (see Section III.C.2);
- against John Hemmingson for interstate transportation of stolen property
under 18 U.S.C. § 2314 and money laundering under 18 U.S.C.
§§ 1956(A)(1)(b)(i) and 1957 (see Section III.C.2);
- against Sun-Diamond Growers of California for wire fraud under 18 U.S.C.
§§ 1343 and 1346 and illegal campaign contributions under 18 U.S.C.
§§ 441b(a), 441f and 437g(d)(1)(A) (see Section III.B.2.a);
- against Richard Douglas for mail fraud under 18 U.S.C. §§ 1341 and 1346,
and illegal campaign contributions under 18 U.S.C. §§ 441b(a), 441f and
437g(d)(1)(A) (see Section III.B.2.b).
Also as a result of the events described above, OIC brought a criminal
information against James Lake for wire fraud under 18 U.S.C. §§ 1343 and 1346
and for illegal corporate and conduit campaign contributions under 2 U.S.C.
§§ 441b(a) and 437g(d)(1)(A) (see Section III.B.2.c).
Because the AFLAC contribution did not appear to be related to Secretary
Espy and because the company did not direct or endorse the alleged activities, OIC
elected not to prosecute AFLAC or its employees and instead referred the matter to
the Federal Election Commission. (See Section III.F.2.)
F. Other Conflicts of Interest Within the Department of Agriculture
OIC's investigation of possible gratuities given to Secretary Espy uncovered
evidence of conflicts of interest surrounding the actions of Secretary Espy and his
chief of staff, Ronald Blackley. As the investigation progressed, OIC developed
evidence of indictable offenses committed by Blackley and others with whom he
was affiliated. Ultimately, the Special Division of the United States Court of
Appeals for the District of Columbia Circuit referred jurisdiction over these matters
to the Independent Counsel.
1. Ronald Blackley's Earlier Employment with USDA and Congressman Espy
Ronald H. Blackley served as Secretary Espy's Chief of Staff from January
1993 to February 1994. Prior to that, he had been one of Congressman Espy's
district representatives and had both worked for USDA and represented clients
before USDA. Blackley used his government experience and contacts to his profit
in his private-sector work, and continued to assist and receive payments from his
private sector clients when he returned to government service.
In 1983, Blackley started Mississippi Rice Services, the first of his two
agriculture-related businesses in Mississippi. Mississippi Rice Services was a sole
proprietorship that brokered rice between Mississippi farmers and wholesale
purchasers.
Toward the end of 1983, Blackley began exploring the possibility of working
at the USDA's county office in Greenville, Mississippi as a field assistant. A field
assistant carries out duties that include visiting area farms to measure crop
production for compliance with USDA programs. Before hiring him, Blackley's
future supervisor warned him that his rice brokerage business could create a
conflict of interest with his responsibilities at USDA. Blackley was instructed that
he must keep his brokerage business separate from his duties as a USDA field
assistant and that he could not use his USDA position to solicit clients for
Mississippi Rice Services.
With this clear instruction, Blackley was hired. For approximately the next
four years, Blackley worked as a field assistant for USDA, visiting area farms to
measure crop production. In 1987, Blackley was forced to resign from USDA
when his supervisor discovered that he was using his USDA position to benefit his
personal business.
Shortly after his resignation, Blackley started his second business, Ron
Blackley & Associates, through which he provided consulting services to farmers
in Mississippi who sought to do business with USDA, including applying for
subsidy payments. Using the experience he gained while working at USDA,
Blackley advised his clients on rules and regulations pertaining to USDA programs,
helped them prepare the necessary paperwork, and even represented them at
hearings before USDA.
In May 1989, while still operating Mississippi Rice Services and Ron
Blackley & Associates, Blackley rejoined the federal government as the part-time
district agricultural representative for Congressman Espy, who then represented
Mississippi's Second Congressional District. Blackley's responsibilities in his new
government job included assisting Espy's constituents with agriculture-related
problems. From May 1989 until December 1992, Blackley simultaneously served
as Congressman Espy's agricultural representative and continued to run both
Mississippi Rice Services and Ron Blackley & Associates.
2. Blackley Becomes Espy's Chief of Staff
Following the 1992 presidential election, President-elect Clinton nominated
Representative Espy to become the Secretary of Agriculture. Espy then tapped
Blackley to be his chief of staff. In early January 1993, Blackley traveled to
Washington, D.C. to help Espy prepare for his Senate confirmation hearings.
In preparation for Espy's hearings, Blackley received numerous ethics
materials and briefings from the President-elect's transition team, which had the
task of educating incoming officials about, among other issues, federal ethics
regulations. Included in these materials was a briefing book that specifically
described the various ethics rules and regulations prohibiting conflicts of interest,
the receipt of gifts, and the misuse of an employee's official position. The
materials included a discussion of the prohibition against certain outside
employment. Blackley also received a copy of the Standards of Ethical Conduct
for Employees of the Executive Branch, which described limitations on outside
earned income and restrictions against accepting things of value from "prohibited
sources." The materials stressed the importance of accurate and full disclosure on
the federal government's Public Financial Disclosure Report, form SF-278.
Shortly before Espy's confirmation hearing on January 14, 1993, Blackley's
earlier conflicts of interest during his tenure with USDA in Mississippi came to the
Senate Agriculture Committee's attention. Espy and Blackley were advised of the
problem. On the day of the hearing, Blackley drafted a memorandum to Espy in
which he said that he had been "dissolving" his financial interests from the time that
Espy had asked him to serve as chief of staff and that, as of the date of the
memorandum, Blackley's only income was from his government salary as Espy's
district congressional representative. Blackley's memorandum was false - he had
not disposed of his financial dealings in the manner represented and he continued to
enjoy income from his private businesses. The Senate and the President-elect's
transition team relied on Blackley's false statements in the confirmation process.
After he became chief of staff, Blackley continued to press the interests of
his private business associates before USDA and received money from them. In
total, while he held his USDA chief-of-staff position, Blackley received at least
$22,025 from associates who had business before USDA and who were receiving
USDA subsidies.
3. Blackley's Receipt of Funds from Charles Fuller
One of the associates from whom Blackley continued to receive money while
serving as USDA chief of staff was longtime friend Charles Fuller, with whom
Blackley had numerous business relationships. Fuller and Blackley, for example,
each owned a 50% interest in Buck Brush, Inc., a farm-operating entity in
Mississippi and Louisiana that received substantial sums of money from USDA in
1993. Immediately before becoming USDA chief of staff, Blackley transferred his
ownership interest in Mississippi Rice Services to Fuller.
Fuller was a prohibited source of gifts for Blackley because Fuller owned
and operated Buck Brush and operated M&T Partnership in Mississippi, which
received USDA subsidies, and received yearly conservation subsidy payments
while eligible for other subsidies from USDA for an Arkansas farming operation. (62)
Despite Fuller's prohibited-source status, Blackley received 10 checks during 1993
signed by Fuller and deposited into Blackley's checking accounts. These
payments are summarized below.
| DATE |
PAYOR |
PAYEE |
CHECK AMOUNT |
|---|
| 1/5/93 |
Buck Brush
By Charles Fuller |
Ron Blackley |
$ 2,500.00 |
| 2/8/93 |
M&T Partnership
By Charles Fuller |
Ron Blackley |
$ 1,000.00 |
| 2/8/93 |
Mississippi Rice Services
By Charles Fuller |
Ron Blackley |
$ 1,000.00 |
| 3/12/93 |
Mississippi Rice Services
By Charles Fuller |
Sharon Blackley |
$ 450.00 |
| 3/13/93 |
Mississippi Rice Services
By Charles Fuller |
Sharon Blackley |
$ 400.00 |
| 5/6/93 |
Mississippi Rice Services
By Charles Fuller |
Sharon Blackley |
$ 200.00 |
| 7/14/93 |
Mississippi Rice Services
By Charles Fuller |
Ron Blackley |
$ 5,000.00 |
| 8/25/93 |
Acct. #802-8070831 |
Sharon Blackley |
$10,000.00
Cashier's Check
#069-96218055 |
| 8/25/93 |
Checking Acct. Withdrawal
By Charles Fuller |
Blackley |
$ 200.00 |
| 12/15/93 |
Mississippi Rice Services
By Charles Fuller |
Ron Blackley |
$ 275.00 |
|
|
TOTAL: |
$21,025.00 |
These payments to Blackley were made and concealed, in part, through the use of
Blackley's wife, Sharon Blackley. Fuller made four of the checks payable to
Sharon Blackley, and all but two of the checks were deposited into the joint
account of Ron and Sharon Blackley.
4. Blackley's Receipt of Funds from David Cochran
After becoming Espy's chief of staff, Blackley also maintained a close
financial relationship with another longtime friend and agricultural client, David T.
Cochran. Cochran ran the farming operation known as Coco Planting Company,
which received approximately $300,000 in USDA subsidies in 1993 alone. As a
consultant, Blackley had assisted Coco Planting in numerous ways, including
preparing its farm plans, which enabled Cochran to qualify for hundreds of
thousands of dollars of USDA subsidies, and representing Coco Planting in USDA
appeal hearings.
In 1992, the USDA county office in Greenville, Mississippi rejected a part of
Coco Planting's farm plan. As a result, Cochran would have received far less
money from USDA subsidy payments than he was seeking. Cochran appealed the
decision, with Blackley's assistance, but USDA denied the appeal at the state level
and ultimately at the National Appeals Division in Washington, D.C.
In the normal course of business at USDA, this would have exhausted the
appeal process. However, once Blackley became chief of staff in early 1993, he
ordered two subordinates at USDA to review the Cochran decision, as well as the
denial of subsidies to two other Mississippi farmers on whose plans Blackley had
worked. Shortly thereafter, Cochran's case was reopened, all previous rulings
were overturned, and Cochran received approximately $32,000 in additional
subsidies from USDA.
Less than two months after Cochran received these additional USDA
subsidies, his wife wrote a $1,000 check, nominally payable to Blackley's son,
Ronald H. Blackley, Jr. Blackley's son testified that he had never received the
proceeds of this check and had never seen the check. The check was drawn on the
Coco Planting account and deposited into the elder Blackley's checking account.
5. Blackley's Involvement in USDA Program Fraud by Supporters of Espy
In the course of its investigation, OIC uncovered two instances in which
Espy's close associates committed a type of USDA program fraud known as the
"Mississippi Christmas Tree," by which farmers, through a variety of false
statements, claim unwarranted subsidies from USDA, and related offenses.
Blackley had ties to both fraudulent claims. He had prepared and advocated one of
the fraudulent subsidy applications and had arranged for the preparation of the
other.
a. Rodalton Hart and Hart Farms
One individual OIC investigated regarding USDA program fraud was
Rodalton Hart, a Mississippi farmer and Espy supporter. Hart and Espy first met
in 1986, while Hart was serving as a County Supervisor for the State of Mississippi,
and subsequently became close personal friends. Hart actively supported Espy's
congressional races and, after Espy became Secretary of Agriculture, advised Espy
on whom he should appoint to state USDA positions.
Hart owned and operated Hart Farms, a farming operation of more than 4000
acres in Mississippi. Hart Farms participated in the Price Support and Product
Adjustment Program, administered by the Agricultural Stabilization and
Conservation Service (ASCS) of USDA. The program provided that, if the market
price for certain crops, including cotton and rice, fell below target prices set each
year by Congress, the government would pay subsidies known as "deficiency
payments" to participating qualified farm entities.
ASCS determined the annual amount of such subsidies, in part, by the
number of persons or entities that owned and operated the farming operation, as
deficiency payments were limited to $50,000 per eligible entity. Eligibility
requirements included but were not limited to the following: the extent to which a
person was "actively engaged in farming"; the contribution made by a person to the
farming operation through such things as capital contribution; a person's active
personal labor on the farm and/or active management of the farm; a person's
separate and distinct interest in the land or crop involved and separate responsibility
for such interest.
To apply for these subsidies, farming operations submitted "farm plans"
annually to ASCS, identifying the persons and entities that owned and operated the
farming operation. The $50,000-per-entity limitation provided a strong incentive to
structure farm plans to maximize the number of entities that could claim a subsidy.
A "Mississippi Christmas Tree" was a farm plan scheme that overstated the
number of entities owning and operating the farm so as to increase the amount of
subsidies that USDA paid.
In late 1992 or early 1993, Blackley called David Clanton, an ASCS County
Executive Director in a different county who had reviewed numerous farm plans for
ASCS approval. Blackley told Clanton to help Hart with his farm plans. Norris
Faust, an Espy supporter who was appointed Mississippi ASCS State Executive
Director in early 1993, also told Clanton that Hart was coming to see him about his
farm plans and instructed Clanton to "make it work."
During a subsequent meeting, Clanton helped Hart and one of his brothers
deceptively restructure their farming operation to inflate its deficiency-payment
eligibility. Hart and Clanton created, on paper only, five partnerships, each
consisting of two members of the Hart family, as follows:
| Partnership | Partners |
|---|
| Hart Farms | Larry and Dennis Hart |
| C & D Farms | Cleveland and Chester Hart |
| J & R Farms | James and Raymond Hart |
| J & P Farms | John and Prince Ella Hart |
| R & C Farms | Rodalton and Carmella Hart |
The Harts then prepared and filed with ASCS five separate farm plans, one
for each partnership, in which each partnership claimed to be an independent
farming operation. To support this assertion, the farm plans each stated that their
respective owners (all Hart family members) resided in Mississippi and operated
their own farming operation. Clanton also assisted the Harts in dividing, again on
paper only, the farming operation's equipment among the five fictitious farming
operations so as to make the farm plans more likely to pass ASCS muster. The
farms plans withstood ASCS review, and the Hart farming operation received
$461,072.99 in deficiency payments from 1993 to 1995, at least $300,000 of which
was the result of the fictitious farm plans.
During interviews with OIC agents, Rodalton Hart and other members of the
Hart family admitted that the family had one large farming operation, with one large
pool of equipment, and that they divided the operation and equipment on paper to
secure additional USDA subsidies. Furthermore, a number of these Hart family
members lived out of state and contributed little, if anything, to the farming
operation.
b. Brook Keith Mitchell, Sr. and Five M Farming Enterprises
The other individual OIC investigated regarding program fraud was Brook
Keith Mitchell, Sr. (Mitchell), a Mississippi farmer for whom Blackley served as a
paid consultant. Mitchell, a longtime Espy friend and supporter, was an advisor to
Espy while Espy was a congressman and served, along with Blackley, on
Congressman Espy's Farm Advisory Committee. He continued to advise Espy
after Espy became Secretary of Agriculture. Mitchell held several fundraisers for
Espy's congressional races and later for Espy's brother Henry's congressional
race. At least once in 1987 Mitchell also apparently gave Blackley a small cash
gratuity while Blackley was working for USDA. Mitchell also issued a $300 check
to Espy on June 20, 1992, which he stated was intended as a contribution to
Espy's congressional campaign and not a payment to Espy personally. However,
financial records disclosed that Espy deposited the $300 check into his personal
checking account.
Mitchell owned and operated Five M Farming Enterprises, a 4,700-acre
farming operation in Greenville, Mississippi. Five M participated in the Price
Support and Product Adjustment Program.
Through his consulting firm, Ron Blackley and Associates, Blackley assisted
Mitchell in developing a farm plan for Five M Farms. In April 1992, Mitchell
submitted a farm plan to ASCS, which he and Blackley had drafted, that artificially
inflated the number of Five M's owners to make the farming operation eligible for
additional and unwarranted federal subsidies. The farm plan stated that three
corporations - wholly owned by Mitchell's two sons, who were then full-time
students - would contribute 50% of the active personal management of Five M's
farming operation, thus making the three entities eligible for deficiency payments.
In fact, neither of Mitchell's sons was actively engaged in the management of the
farming operations.
In 1992, the Mississippi ASCS implemented a rule requiring applicants to
identify students who supposedly controlled entities claiming subsidies. The rule
required Mitchell to disclose the status of his sons as students. Students were not
automatically disqualified from receiving subsidies, but their identification assisted
reviewers in making accurate determinations of their contributions to a farming
operation. By letter dated April 30, 1992, the Mississippi State ASCS Office
concluded that the three "entities" wholly owned by Mitchell's two sons were not
"actively engaged in farming" under the federal regulations and therefore were not
entitled to subsidy payments. Specifically, the state office determined that the
sons' management contributions were not essential to the profitability of Five M's
farming operation and that the sons' management contributions were not
commensurate with their claimed share of Five M's operation.
Mitchell appealed the decision to the Mississippi State ASCS Committee.
Blackley, then serving as an aide to Congressman Espy but acting as a paid
consultant for Mitchell, represented Five M. After reviewing the materials that
Mitchell submitted and holding an informal hearing on August 25, 1992, the
committee denied Five M's appeal. Mitchell then appealed to the National Appeals
Division (NAD) of ASCS in Washington, D.C. NAD reviewed the case file, held
another informal hearing (at which Blackley again represented Five M), and reached
the same result, concluding that Mitchell's two sons were not actively engaged in
the farming operation. This would normally have ended the appeal process.
6. Blackley and Secretary Espy's Efforts on Behalf of Mitchell
According to Mitchell, Espy told Mitchell shortly after the 1992 presidential
election that if he were appointed Secretary of Agriculture, Mitchell would not have
to worry about his deficiency-payment appeal, which NAD had rejected. Hart also
advised David Clanton in or about March of 1993 that Espy wanted the Mitchell
appeal "taken care of." Blackley told Mitchell that if he, Blackley, became USDA
chief of staff, Mitchell's deficiency-payment appeal would "be taken care of."
After Blackley was appointed chief of staff, Mitchell called Hart and asked for help.
Hart told Mitchell he would contact Espy's confidential assistant. Two hours later,
a representative of ASCS in Washington, D.C., who had been contacted by
Blackley, called Mitchell to assure him that ASCS would look further into his
appeal.
Shortly before becoming USDA chief of staff and again after taking the
position, Blackley directed the ASCS Administrator's Office in Washington D.C.
to review the Five M decision, as well as those of Coco Planting Company and
another farming operation on whose farm plan Blackley had worked. Pursuant to
Blackley's request, ASCS's acting administrator removed Five M's case from
NAD and ordered his own office to review the decision.
In reviewing Five M's appeal, David Grahn, Special Assistant to the ASCS
Administrator, scheduled a telephone call with Mitchell to question him about his
sons' participation in the Five M farming operation. When Grahn called, Mitchell
and his sons (pursuant to Mitchell's request) each intentionally misrepresented the
sons' contributions to the farm. In response to Grahn's request for
documentation, Mitchell created fictitious documents supporting the Mitchells'
misrepresentations and faxed copies to Grahn in Washington D.C.
Relying on these false statements, Grahn concluded that Mitchell's sons
were actively engaged in the farm, and recommended that the administrator reverse
the decisions of the Mississippi State ASCS Office and NAD. As a result, on
August 5, 1993, ASCS awarded Five M an additional deficiency payment of
$179,520. In the following years, Mitchell submitted essentially the same farm plan,
requesting deficiency payments for six entities, including the three "entities"
composed entirely of his two sons. Pursuant to these farm plans, Five M received
$776,860 in deficiency payments for the crop years 1992 through 1995.
At about the same time, Espy took actions that had the effect of making it
easier for Mitchell to claim subsidies. By at least March 1993, Espy had selected
Mitchell to sit on the Mississippi State Committee of ASCS, a committee that hears
appeals of farm plans that have been disapproved at the county level, as Five M's
had in 1992. The fact that Mitchell had an active appeal of a disapproved plan
made his appointment to the state committee problematic. According to Clanton,
who was involved in the matter, Norris J. Faust, Espy's handpicked ASCS state
executive director for Mississippi, stated that Blackley was pulling strings in
Washington to influence Five M's appeal. Mitchell's appointment became effective
in May of 1993.
On the morning of March 8, 1993, Espy, Blackley, and Faust met at the
federal building in Jackson, Mississippi, and Faust was sworn in as ASCS state
executive director for Mississippi. Mitchell, Hart, and other proposed members of
the Mississippi State ASCS Executive Committee were also in attendance. The
entire group had lunch at a local restaurant and then went to the Mississippi State
ASCS office, where they held an informal meeting. Espy left at some point during
the meeting.
During the afternoon meeting of March 8, 1993, Blackley and Mitchell
encouraged Faust to exercise his new power as state executive director to rescind
the Mississippi state ASCS regulation that required farmers to identify students
claiming federal subsidies through ASCS farm plans. (By March of 1993, the
regulation had been revised to require farmers to identify all persons listed on farm
plans who had significant outside interests.) Without conferring with the agency's
program specialist, Faust honored the request of Blackley and Mitchell and signed
an order eliminating the Mississippi regulation.
Faust's action contravened the agency's normal protocol. The rescission of
the regulation opened the way for Mitchell to collect farm subsidies on behalf of his
sons without disclosing the fact that they were full-time college students and had
insignificant involvement in the operation of Mitchell's farm.
As part of its investigation, OIC sought to determine to what extent Blackley
and/or Espy intervened in the Mitchell appeal and whether Espy knew about or was
involved in the rescission of the Mississippi state ASCS regulation. In an interview
with Special Agents detailed to OIC, Mitchell admitted that when he first received
Grahn's phone call, he knew he would have to misrepresent the involvement of his
sons, because the two sons, in fact, had not contributed and were not contributing
to the management of the farming operation as he had previously stated. Rather,
one son contributed approximately 2% toward the management of the farm, and the
other did not play any active role in the farm's management, because he was away
at college throughout most of the year. Mitchell admitted that he advised his sons
to misrepresent their contribution to the farming operation to Grahn and that it was
his initiative to mislead ASCS.
OIC also questioned Faust before a federal grand jury in the course of its
investigation. As to the events surrounding his rescission of the Mississippi state
regulation, Faust stated that he conferred with ASCS program specialists, Robert
Williams and Tom Breland, before making the decision to rescind that regulation.
Faust also stated that, on the morning of his grand jury appearance, he had spoken
with Breland who advised him that John Tanner, the payment limitation program
specialist, assisted in drafting the rescission notice. Faust asserted that he did not
see, participate in, or direct the drafting of the rescission notice, but "left it up to
the specialists to do what they thought was right on it." However, both Williams
and Breland denied discussing the matter with Faust in advance of the rescission.
Other evidence also was inconsistent with Faust's sworn testimony.
Specifically, Williams was not an ASCS program specialist at all. Breland,
although an ASCS program specialist, was a specialist in conservation and had no
involvement in the Payment Limitation Program - the program affected by the
Mississippi regulation. Moreover, Breland testified that he had not conferred with
Faust before Faust's decision to rescind the Mississippi regulation and that he did
not participate in drafting the rescission notice. Nor had Tanner, ASCS's payment
limitation program specialist, conferred with Faust prior to the rescission or
participated in the drafting. Indeed, Tanner was out of town on the day in question
and, upon his return the following week, Faust informed him that he had rescinded
the state regulation and asked him to resign because Faust believed their views
differed over how accessible program subsidies should be to farmers.
7. Blackley's Failure to Disclose Receipts from Agricultural Interests
On June 28, 1994, Blackley submitted his SF-278 Public Financial Disclosure
Report for 1993, in which he failed to list his receipt of the 11 payments from Fuller
and Cochran. The law required him to report: (1) all sources of income that
generated more than $200 during 1993 for himself, his wife or his son; (2) all gifts
from one source totaling $100 or more in value received by himself, his wife or his
son in 1993; (3) all liabilities in excess of $10,000 owed by himself, his wife or his
son to any one creditor at any time during 1993; and (4) any agreement or
arrangement for the continuation of payments of money during 1993.
Later in 1994, OIG was investigating Blackley's possible conflicts of interest.
By this time, Blackley had been removed as chief of staff and was working in
another area of USDA. On November 28, 1994, Blackley signed under oath a 21-page, typewritten declaration, in which he falsely stated the following: (1) that he
had severed himself from all of his prior business and financial interests, including
Mississippi Rice Services, Ron Blackley & Associates and Buck Brush, Inc., when
he became chief of staff; (2) that the only income he earned from January 22, 1993
(i.e., his first day as chief of staff) to November 28, 1994 (i.e., the date of the
declaration) was his USDA salary; and (3) that the absence of any outside business
interests or income had been documented in his financial disclosure report, which
he had signed and submitted on June 28, 1994.
In June 1995, Blackley moved to yet another high-level government
position, this time at the United States Agency for International Development (US
AID), where he was required to maintain a "top secret" security clearance. In 1996,
OIC obtained indictments against the Mitchells and their farming operation, Five M,
for making false statements and submitting false documents to USDA; the
indictment referred to an unindicted co-conspirator who had assisted the
defendants in submitting their false documentation to USDA. Surmising that
Blackley was the unindicted co-conspirator, US AID's OIG interviewed him about
the matter. On August 15, 1996, Blackley signed a sworn written statement in
which he stated: "After I ended my consulting business and entered U.S.
Government service, I did not receive any remuneration of any kind from Mitchell
or anyone else." He gave this statement to OIG agents from US AID.
8. Petition to the Special Division
To avoid needless jurisdictional disputes in investigating the above matters,
OIC informally suggested to the Attorney General that she refer them expressly to
OIC as related matters pursuant to 28 U.S.C. § 594(e), the referral provision of the
Independent Counsel Statute. The Attorney General declined to make the referral.
OIC then applied to the Special Division for a referral under the same statute,
which empowers both the Attorney General and the Special Division to make the
referral. The Department of Justice opposed this application, on the grounds that
the matter was not related to the Independent Counsel's prosecutorial jurisdiction
and that the Special Division did not have the power to make a referral that the
Attorney General had refused to make. In a published decision, the Special
Division held that it did have the power to refer a matter to an independent counsel
after the Attorney General had declined to do so and that the subject matter was
sufficiently related to justify a referral. In re Espy, 80 F.3d 501 (D.C. Cir. 1996).
Specifically, the Special Division referred to the Independent Counsel the
following related matter:
The jurisdiction and authority to investigate and prosecute
any violation of any federal law, other than a Class B or C
misdemeanor, by any organization or individual, related to
any application, appeal, or request for subsidy made to or
considered by the United States Department of
Agriculture, for which Secretary of Agriculture Alphonso
Michael (Mike) Espy and/or his Chief of Staff Ronald
Blackley intervened in the application, approval, or review
process.
In re Espy, Div. No. 94-2, April 1, 1996 Order of Special Division of D.C. Circuit;
see also United States v. Blackley, 167 F.3d 543, 545 (D.C. Cir. 1999).
9. Prosecution Decisions
As a result of the events described above, OIC brought indictments:
- against Ronald H. Blackley for false statements under 18 U.S.C. § 1001 (see
Section III.D.1.a.);
- against Five M Farming Enterprises, Brook Keith Mitchell, Sr. and Brook
Keith Mitchell, Jr. for conspiracy under 15 U.S.C. § 714m(d) and for false
statements under 15 U.S.C. §§ 714m(a) and 714m(b)(ii) (see Section
III.D.2.);
- against Norris Faust for perjury under 18 U.S.C. § 1623 (see Section
III.D.2.a.(5)).
The investigation also indicated that Hart Farms had defrauded USDA of
federal subsidies for the program years 1993 through 1995, implicating Rodalton
Hart, his brothers (Larry, Raymond, Chester, James, Cleveland and John), his
nephew (Dennis), his wife (Carmella) and his sister-in-law (Prince Ella). Because
OIC determined that this matter could be handled by USDA OIG, it was referred
back to that agency. (See Section III.F.4.)
G. Other Matters Investigated by the Office of Independent Counsel
OIC's investigation of possible illegal gratuities given to Secretary Espy
included a thorough review of his finances, the sources of funds to him personally
or for his accounts, and his relationship to the donors of gifts he received. This
review uncovered the additional offenses described below.
1. Richard Douglas Mortgage Offenses
OIC investigated the relationships among Richard Douglas, Sun-Diamond
Growers of California, and Secretary Espy in connection |
