Case Study 4- Governor Gone Wild- and Chapter 6 Part 1

Case Study 4- Governor Gone Wild- and Chapter 6 Part 1 -...

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Unformatted text preview: Governor Gone Wild: Governor Gone Wild: The Blagojevich Scandal White Collar Crime CRJU E491W­ Fall 2011 William C. Smith “If it isn't the most corrupt state in the United States, it's certainly one hell of a competitor.” ­ FBI Agent Robert Grant on the State of Illinois “It's truly stunning what people will do when they're motivated by greed and backed by clout.” ­ U.S. Attorney Patrick Fitzgerald Rod Blagojevich Rod Blagojevich Rod Blagojevich, a Democrat, was elected the 40th Governor of Illinois in 2002 and served two terms, until 2009, when he was impeached and removed from office. Prior to Blagojevich’s election, ethics scandals had plagued the previous administration of Republican George Ryan and Blagojevich campaigned on the theme of “ending business as usual” in state government. When campaigning for re­election in 2006, Blagojevich proposed a strict new ethics law and stated that if his ethics law had existed when former governor George Ryan had been in office, his corruption might not have occurred. Within a year of taking office with a vow to reform Illinois government, Blagojevich found his administration already under the eye of the federal corruption investigators who took down his predecessor, George Ryan. Administration officials who Blagojevich had appointed to key state boards overseeing hospitals and state investments were accused by investigators of selling favorable decisions before state boards for bribes or campaign contributions. On June 7, 2004, Stuart Levine, a longtime Republican who had been reappointed by Blagojevich to the Illinois Health Facilities Planning Board, abruptly resigned on the eve of several important hospital expansion votes. On July 2, 2004 Levine also resigned from his seat on the board of the state Teachers' Retirement System (TRS). The resignations were the first indications that the Blagojevich administration was under federal criminal investigation. On May 9, 2005, Levine was indicted on federal corruption charges of using his political influence to receive at least $9.5 million through various kickback schemes related to suburban hospital expansions and to extort millions of dollars from a medical school and a related charity. Shortly after Blagojevich took office, questions also began to emerge about his fundraising activities. Federal subpoenas were soon issued to numerous gubernatorial associates, including Blagojevich’s top fundraiser, Antoin “Tony” Rezko. In August 2006, federal investigators began reviewing Blagojevich’s campaign fund and contributions as well as his personal finances. Prosecutors soon accused the governor’s top fundraisers of scheming, almost from the beginning of his administration, to make money off their influence. On October 11, 2006, Rezko was federally indicted on charges that he used his influence as one Rod Blagojevich's closest advisers and fundraisers to seek millions of dollars in kickbacks and campaign donations from firms that were seeking state business. The indictment alleged that Rezko schemed to extort businesses that came before two state boards with the help of his co­conspirator Stuart Levine. The indictment also alleged that Rezko worked to secure Levine's reappointment to two state boards, by using “his relationships and influence with high­ranking State of Illinois officials” so the two could pull off their extortion plans. “If in fact these allegations relating to Tony are true, he betrayed my trust. He lied to me. He deceived me. But a lot more important than that, he violated the public trust. And I feel a tremendous sense of personal betrayal. But no one is above the law and everybody is accountable to the law and God forbid he did these things. And I pray that he didn't, but if he did, he is going to have to be held accountable and answer to that.” ­ Rod Blagojevich on Rezko’s Indictment After nearly three months of testimony that covered the innermost workings of the Blagojevich administration, Rezko was convicted of using his political ties to the governor to orchestrate a multimillion­ dollar kickback scheme. Among the most explicit testimony at the trial was that of former Illinois Finance Authority Executive Director Ali Ata who testified that he attended a meeting at Rezko's offices with Rezko and Blagojevich before he was hired. At the meeting, Ata said, he brought a $25,000 check that was placed on the table in front of Blagojevich, who then mentioned a state job. On October 27, 2006, Stuart Levine pleaded guilty to one count each of mail fraud and money laundering in exchange for a sentence of 5 1/2 years in prison and his continued cooperation in ongoing investigations of state government. He faced life imprisonment had he not entered into a plea agreement. In his agreement, Levine placed himself at the center of a plan to enrich himself, Rezko, and their associates. The plea agreement detailed Levine's efforts to solicit kickbacks of millions of dollars from nine investment firms seeking contracts with TRS, and in one case, a $1.5 million political contribution for a public official identified as Rod Blagojevich. In 2006, Rod Blagojevich's wife, Patricia, earned more than $113,000 on four real estate commissions through Anita Mahajan, the owner of a Chicago drug­testing company, K.K. Bio­Science, who had a longstanding, no­bid state contract. Anita Mahajan's drug­testing contract with the state's child welfare agency was worth about $739,000 in 2006. Anita Mahajan and her husband Amrish, a bank president, were longtime friends of the Blagojevich family and donated $10,000 to Rod Blagojevich's political campaigns. On March 9, 2007, the Cook County Prosecutor’s Office charged Anita Mahajan with felony theft, money laundering, making a false statement on a vendor application, wire fraud and two charges centering on operating a continuing financial crimes enterprise which billed the state for more than $2 million in services her drug­screening firm never performed. Mahajan acknowledged that as much as half of the state revenues her company collected since 2002 “were obtained by fraudulently billing the state for work that was never performed.” An audit of the firm’s billings for 2006 showed the fraud rate was 70 percent of the total submissions. Contractor with links to Blago gets probation, $200K in Contractor with links to Blago gets probation, $200K in fines August 22, 2011|By Jason Meisner | Tribune reporter A former state contractor with close ties to ex­Gov. Rod Blagojevich was sentenced to four years of probation and ordered to pay $200,000 in fines and restitution Monday after pleading guilty to billing the state for drug tests her company never performed. Anita Mahajan, 60, the wife of a major Blagojevich fundraiser, dabbed at her eyes with a tissue and apologized as she stood before Judge James Obbish to plead guilty to a reduced count of theft of $99,900. Ethics Reform? Ethics Reform? In May 2008, the state legislature presented to Rod Blagojevich, for signature, a reformed state ethics bill. Blagojevich, who pledged to reform business­as­usual while raising record amounts of political cash, stated he would not sign the ethics bill, passed by overwhelming majorities, because “it doesn't go far enough.” Blagojevich argued that the strength of his campaign fund was what allowed him to push for reform and he declined to voluntarily restrict his campaign fundraising. “You weaken yourself politically; you'll never change anything. What you're going to do is empower those forces down there in Springfield who've been part of that old way of doing business.” On July 30, 2008, the Chicago Tribune reported that in the month since the legislature passed the ethics bill that would outlaw his ability to take donations from state contractors, Blagojevich ramped up his efforts by collecting more than a quarter of a million dollars from those who did business with the state. Blagojevich took in roughly $1.9 million in donations for the first six months of 2008, and a Tribune analysis found that at least $399,000 came from more than 125 state contractors, or employees of state contractors, who had been awarded more than $1.1 billion in state business since Blagojevich was first elected. On October 23, 2008, federal investigators subpoenaed records involving John Wyma, a top fundraiser and former Blagojevich aide, who, as a lobbyist, represented a hospital company, Provena Health, that won a favorable state ruling for a new heart program. The company's for­profit affiliate donated $25,000 to Blagojevich's campaign a month after the state's action. The subpoena sought records about Provena's lobbying relationship with Wyma, the donation and the company's efforts to win approval for the heart program. On October 30, 2008, William Cellini, a prominent Blagojevich fundraiser, and a lobbyist friend of the governor's, was indicted for conspiracy to commit mail fraud, extortion conspiracy, attempted extortion and soliciting a bribe in conjunction with his efforts to extort a Hollywood producer into making a Blagojevich campaign donation. Federal authorities also subpoenaed Cellini’s fundraising records and began seeking the cooperation of convicted influence peddler Antoin “Tony” Rezko. The Beginning of the End The Beginning of the End On December 5, 2008, The Chicago Tribune reported that federal authorities had made covert tape recordings of Blagojevich with the assistance of some of his closest confidants and former aides, including John Wyma, who had agreed to cooperate with investigators. On December 8, Blagojevich commented on the Tribune report as follows: “I should say if anybody wants to tape my conversations, go right ahead, feel free to do it. I appreciate anybody who wants to tape me openly and notoriously, and those who feel like they want to sneakily, and wear taping devices, I would remind them that it kind of smells like Nixon and Watergate.” On December 9, 2008, FBI agents called on Blagojevich in the early­morning hours to tell him he was being arrested. Blagojevich asked them, “Is this a joke?” Blagojevich was led away in handcuffs and U.S. Attorney Patrick Fitzgerald announced, at a later news conference, that Blagojevich and his chief of staff, John Harris, were also being accused of trying to sell the Senate seat vacated by Barack Obama and of pressuring the Tribune to fire editorial writers critical of Blagojevich. On December 19, 2008, in his first public remarks about the charges against him, Blagojevich stated “I will fight, I will fight, I will fight. Until I take my last breath. I have done nothing wrong.” On December 30, 2008, Blagojevich appointed former Illinois Attorney General Roland Burris to the U.S. Senate seat vacated by Barack Obama, defying state Senate leaders who have vowed to block anyone picked by the governor. On January 23, 2009, while pending impeachment, Blagojevich launched a “media blitz,” appearing on numerous television shows, including “The Today Show” and “Good Morning America” where he told Diane Sawyer" that he considered appointing Oprah Winfrey as senator to replace Barack Obama. Even after his subsequent removal from office, the media blitz continued as Blagojevich appeared on “The Late Show with David Letterman,” where he stated “I've been wanting to be on your show in the worst way for the longest time,” to which Letterman replied, “Well, you're on in the worst way, believe me.” On January 9, 2009, Blagojevich was impeached by the Illinois House and sent to trial in the Senate. On January 29, 2009, after a three day trial, the Illinois Senate votes Blagojevich out of office by a vote of 59­0. After his removal, Blagojevich told the senate that “Just because I'm not the governor anymore doesn't mean I'm going to stop fighting.” On April 2, 2009, Blagojevich was indicted on an additional 16 racketeering, fraud and extortion counts, including allegations that he delayed a $2 million grant to a public charter school while trying to extort campaign cash and that he threatened to withhold future state business from financial institutions that refused to hire his wife. Blagojevich's effort to profit, both personally and for his Friends of Blagojevich campaign fund, was so pervasive that federal prosecutors labeled the racketeering scheme the “Blagojevich Enterprise.” On April 14, 2009, Blagojevich pleaded not guilty to the charges at his formal arraignment. On July 8, 2009, John Harris, Blagojevich’s former chief of staff, entered into a plea bargain in which he agreed to provide details surrounding how Blagojevich intended to use his power to appoint a successor to Barack Obama in the U.S. Senate as a means to enrich himself. Harris and other former aides and confidants of Blagojevich, including John Wyma, agreed to testify against Blagojevich at his trial. On June 8, 2010, Rod Blagojevich’s federal corruption trial began in Chicago. In all, Blagojevich was charged in 24 counts with misusing his powers as governor to extort campaign contributions from those seeking legislation, appointments or other favors. On August 17, after 14 days of deliberations, the six­ man, six­woman jury convicted Blagojevich on just one of the 24 felony counts he faced, a charge that he had lied to FBI agents about his intense involvement in campaign fundraising. The counts on which the jury could not agree framed the heart of the government claims that Blagojevich schemed to profit from his post from his earliest days in office and that in 2008 he attempted to auction off the U.S. Senate seat vacated by President Barack Obama. Federal prosecutors indicated they will retry Blagojevich on the charges on which the jury deadlocked. The retrial date was set for April 20, 2011. June 27, 2011 Jury Finds Blagojevich Guilty of Corruption By MONICA DAVEY and EMMA G. FITZSIMMONS CHICAGO — A jury on Monday convicted Rod R. Blagojevich, the former governor of Illinois, of a broad pattern of corruption, including charges that he tried to personally benefit from his role in selecting a replacement for President Obama in the United States Senate. Mr. Blagojevich, a Democrat who former aides say once envisioned himself as a future presidential contender, was found guilty of most of the 20 federal counts against him: 17 counts of wire fraud, attempted extortion, soliciting bribes, conspiracy to commit extortion and conspiracy to solicit and accept bribes. Hybrid White Collar Crime Hybrid White Collar Crime Part 1 White Collar Crime CRJU E491W­ Fall 2011 William C. Smith Hybrid White Collar Crimes Hybrid White Collar Crimes Some major forms of white collar crime are not easily classified as corporate, occupational, or governmental crime. They are hybrids that combine attributes of two or more types of established forms of white collar crime. Three significant hybrid types of white collar crime are state­corporate crime, crimes of globalization, and finance crime. State­Corporate Crime State­Corporate Crime State­corporate crimes are illegal or socially injurious actions that occur when one or more institutions of political governance pursue a goal in direct cooperation with one or more institutions of economic production and distribution. In other words, state­corporate crimes occur when the state or its agencies cooperate with corporations to commit crimes. The premise for the concept of state­ corporate crime is that modern states and corporations are overwhelmingly interdependent. Distinctions Distinctions State­corporate crime can be distinguished from other basic types of white collar crime: Corporate crime addresses deviance within the context of a corporation and acts by the corporation; Political crime addresses crime directed at the state; and State crime, or “state­organized crime,” addresses crimes committed by government organizations Generally, the analysis of state­corporate crimes focuses on the actual relationship between the state and corporations which are dependent on the state for their profitability. The convergence of government and private interests makes possible a wider range of criminal activity than that provided by either corporate or state­organized crimes independently. Why It Happens Why It Happens To be able to operate as a commercial business entity, the modern corporation requires a legal infrastructure of regulation and oversight within which to exploit the relevant markets profitably. The infrastructure is provided by the government of each state in which the corporation operates and links government and corporate interests. States rely on businesses to provide an economic base consistent with the government's political policies. Without policies supportive of their economic activities, businesses will not be profitable and will not be able to provide the economic support that the state desires. In some cases, this symbiosis leads to the commission of crimes. An Historical Example An Historical Example An historical example of state­corporate crime occurred during the Holocaust, where the Nazi government under Hitler cooperated with German and American corporations in order to gain mutual benefits such as forced labor for corporations and supplies for the military. In recent years, the complicity of American or U.S. based corporations in the Holocaust has come to light. The Holocaust was, to a significant degree, a form of state­corporate crime. The global conglomerate ITT produced communications and armaments networks for Nazi Germany and, after World War II, sued the U.S. government for war damages to some of its German operations. IBM facilitated the massive Nazi effort to identify and deport Jews and other perceived enemies of the state to concentration camps with its Hollerith machines and Thomas Watson Sr., the founder of IBM, accepted a medal from Adolf Hitler for his company’s efforts. Subsidiaries of Ford and General Motors built trucks for the Nazis and used forced or slave labor in Germany to enhance their corporate profits. Contemporary Examples Contemporary Examples Private mercenaries U.S. military functions have been increasingly “outsourced” to private companies, who use their close government connections to obtain lucrative contracts and then often overcharge the government for their services. Outsourced contracts are subject to abusive practices due to a lack of governmental oversight. Privatized corporate military operations now draw an estimated $100 billion in business worldwide each year, much of it going to top U.S. corporations like Halliburton, DynCorp, Lockheed Martin, Grumman, and Raytheon. Custer Battles Custer Battles was a newly formed company, headquartered in Newport, Rhode Island, with no experience in the security industry, when it landed one of the first contracts issued in Iraq in the spring of 2003 to secure the airport. The no­bid contract was worth $16 million when it was awarded in the chaos after the fall of Saddam Hussein. The company subsequently won $100 million in contracts to provide security services in Iraq but was accused of billing the occupation authority for nonexistent services, or grossly inflating bills for services provided. On March 9th, 2006, a federal jury in Virginia found Scott Custer, Michael Battles and Joseph Morris had defrauded the United States “by filing grossly inflated invoices for work in the chaotic year after the Iraqi invasion.” Custer Battles was banned from further Department of Defense contracting and now appears to be defunct. KBR, Inc. Very large, non­competitive contracts of $10 billion for work in Iraq were awarded to KBR. KBR, formerly Kellogg Brown & Root, is an American engineering, construction and private military contracting company, headquartered in Houston, and until 2007 was a subsidiary of Halliburton. KBR has been accused of international bribery charges, trading with countries in violation of international sanctions, and systematic overcharging of the U.S. government. On February 6, 2009, the Justice Department charged KBR with paying “tens of millions of dollars” in bribes to Nigerian officials in order to win government contracts for the construction of a natural gas plant on Bonny Island, in violation of the Foreign Corrupt Practices Act. KBR pleaded guilty and was ordered to pay $420 million in penalties, nearly all of which was covered by Halliburton. More than 20 federal lawsuits naming KBR and seeking class­action status were filed in late 2008 and 2009 over its practice of operating “burn pits” at U.S. bases in Iraq and Afghanistan and exposing soldiers to smoke containing dioxin, asbestos and other harmful substances. The pits were used to burn “every type of waste imaginable,” including petroleum­oil­lubricating products, hydraulic fluids, biohazard materials (including human corpses), medical supplies (including those used during smallpox inoculations), polyvinyl chloride (PVC) pipes, animal carcasses, and dangerous chemicals. KBR's maintenance work in Iraq was criticized after reports of soldiers being electrocuted from faulty wiring. KBR was charged by the Army for improper installation of electrical units in bathrooms throughout U.S. bases with the result that an Army Special Forces soldier, Staff Sergeant Ryan Maseth, died by electrocution in his shower stall on January 2, 2008. In January 2009, the US Army CID investigator assigned to the case recommended that Maseth's official cause of death should be changed from “accidental” to “negligent homicide.” KBR supervisors were blamed for failing to ensure electrical and plumbing work were performed by qualified employees, and for failure to inspect the work In February 2009, KBR was awarded a $35 million Pentagon contract involving major electrical work, even though it was under criminal investigation in the electrocution deaths of two U.S. soldiers in Iraq. In May 2010, KBR was also selected for a no­bid contract worth as much as $568 million through 2011 for military support services in Iraq. In 2003, a group of businessmen with close ties to President George W. Bush, including his former campaign manager, Joe M. Allbaugh, who also served as the director of the Federal Emergency Management Agency, set up a firm called New Bridge Strategies for the express purpose of advising companies on how to obtain lucrative reconstruction contracts in Iraq following “Operation Iraqi Freedom.” In 2005, Allbaugh was hired by then Halliburton subsidiary KBR “as a consultant to provide strategy support for our Government and Infrastructure business.” ...
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