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