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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

        a. The Donors

        b. Donors' Interest in Espy's Official Acts

        c. Gifts Given

        d. Summary Timeline

        e. Prosecution Decisions

      4. Gifts From Quaker Oats

        a. The Donor

        b. Donor's Interest in Espy's Official Acts

        c. Gifts Given

        d. Prosecution Decisions

      5. Gifts From Fernbank Museum

        a. The Donor

        b. Donor's Interest in Espy's Official Acts

        c. Gifts Given

        d. Prosecution Decisions

      6. Gifts From Robert Mondavi Winery

        a. The Donor

        b. Donor's Interest in Espy's Official Acts

        c. Gifts Given

        d. Prosecution Decisions

      7. Gifts From Morgan Stanley

        a. The Donor

        b. Donor's Interest in Espy's Official Acts

        c. Gifts Given

        d. Prosecution Decisions

      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

        a. OIC's Investigation

        b. Attorney General Referral

        c. Prosecution Decisions

      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

          (1) The Charges

          (2) The Trial

          (3) Sentencing

          (4) The Appeal

          (5) Postappeal Prosecution Decisions

        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

          (1) The Charges

          (2) The Plea Agreement

          (3) Sentencing

          (4) Federal Election Commission Conciliation Agreements

      3. The Case Against Former Secretary Espy - United States v. Alphonso Michael Espy

        a. The Charges

        b. Pre-trial Dismissals and Appeal

        c. The Trial

    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.

          (1) The Charges

          (2) Plea Agreement

          (3) Sentencing

          (4) The Appeal

          (5) Administrative Action

        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

        a. The Complaint

        b. The Settlement Agreement

      2. United States v. Robert Mondavi Corp.

        a. The Complaint

        b. The Settlement Agreement

    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.