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December 28, 1995

The Honorable William S. Cohen
Chairman
The Honorable Carl Levin
Ranking Minority Member
Subcommittee on Oversight of
     Government Management and
     The District of Columbia
United States Senate
Washington, DC

Dear Senator Cohen and Senator Levin:

     Please accept this letter as my annual report to Congress as required of each Independent Counsel pursuant to 28 U.S.C. Section 598(a)(2).(1)

I
BACKGROUND

   Following media reports that Secretary of Agriculture Alphonso Michael Espy and his girlfriend, Patricia Dempsey, had improperly accepted gifts of tickets to sporting events, lodging, trips on a corporate jet, and other personal favors from Tyson Foods, Inc. ("TFI"), and pursuant to a request from Attorney General Janet Reno that an independent counsel be appointed to investigate, the Special Division of the United States Court of Appeals for the District of Columbia appointed me as Independent Counsel on September 9, 1994. The Court directed me to "investigate to the maximum extent authorized by the Independent Counsel Reauthorization Act of 1994 whether Alphonso Michael (Mike) Espy, Secretary of Agriculture, ha[d] committed a violation of any federal criminal law, . . . relating in any way to the acceptance of gifts by him from organizations or individuals with business pending before the Department of Agriculture."(2) The Court's grant included "jurisdiction and authority to investigate other allegations . . . of violations of any federal criminal [felony], developed during the investigation and connected with or arising out of that investigation." Finally, the Court granted me prosecutorial jurisdiction to 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. . . ."(3)

   Allegations of misconduct by then-Secretary Espy first surfaced publicly on March 17, 1994, when the Wall Street Journal reported that TFI was receiving lenient treatment from the United States Department of Agriculture ("USDA") on a number of pending regulatory issues. That article alleged that Secretary Espy had benefited from the largesse of TFI. The USDA Office of Inspector General promptly investigated the matter and concluded that Secretary Espy may have violated 21 U.S.C. 622 by accepting gifts from TFI. The matter was referred to the Department of Justice.

   The Department of Justice ordered a relatively limited FBI investigation of Secretary Espy's conduct and activities relating to TFI. The FBI interviewed thirty-seven persons. The truthfulness and accuracy of the information provided by individuals during those interviews is within my investigative authority. DOJ chose not to use a grand jury in its investigation, and the Public Integrity Section recommended on June 24, 1994 that prosecution be declined. On June 30, concurrently with the passage of the Independent Counsel Reauthorization Act of 1994, the Assistant Attorney General recommended the matter be referred for the appointment of an independent counsel. The investigation lay dormant until my appointment on September 9, 1994.

II
THE INVESTIGATION TO DATE

   Since the inception of my investigation which commenced shortly after my appointment, I have been, and continue to be, committed to conducting our investigation in this matter as promptly as possible, consistent with:

  • Fundamental fairness to and due regard for the rights of those investigated and of the government;
  • Impartiality and comprehensiveness in the examination and determination of the relevant facts and circumstances; and
  • Compliance with the letter and spirit of the statutory requirements for a responsible and cost-effective investigation.

   Because Federal Rule of Criminal Procedure 6(e) prevents disclosure of the matters pending before the grand juries, and because of the practical necessity of keeping investigative matters confidential prior to prosecution, I am not at liberty to discuss the details of our investigation. I can, however, report that our investigation has used grand juries in the Districts of Columbia and Mississippi. We are approaching the time for making prosecutive decisions regarding some individuals and organizations.

   To date we have prosecuted James H. Lake, a Washington lobbyist, who, on October 23, 1995, pleaded guilty to wire fraud and election law violations before the United States District Court for the District of Columbia. Mr. Lake -- a principal in the lobbying and public relations firm of Robinson Lake Sawyer Miller ("Robinson Lake") and lobbyist for a major California agricultural entity -- made illegal campaign contributions to retire the campaign debt of Secretary Espy's brother, Henry Espy, who had run unsuccessively for the Secretary's former seat in the House of Representatives. Mr. Lake is currently scheduled to be sentenced on January 26, 1996. It is anticipated that his sentencing will be continued to a later time. A copy of the plea agreement, information and statement of facts filed in court in support of Mr. Lake's plea are attached. Appendices I-III. As part of Lake's plea, Robinson Lake and its corporate parent, Bozell, Jacobs, Kenyon & Eckhardt, Inc. entered into an agreement whereby Robinson Lake submitted itself to the FEC's jurisdiction and, inter alia, agreed to enter into a conciliation agreement requiring it to pay whatever civil penalties the FEC deems appropriate; to formulate and implement a special training program about the prohibitions of the Federal Election Campaign Act; and to effect and implement corrective action in its own internal activities for reporting and detecting errors, irregularities and illegal acts. Appendix IV. Should further prosecutive decisions be taken, they will be described in my next Annual Report.

III
ADMINISTRATIVE & FINANCIAL REPORT

   Consistent with the statutory provisions regarding cost controls and administrative support that are part of the Independent Counsel Reauthorization Act of 1994, I have conducted all activities from the date of my appointment "with due regard for expenses" and have "authorized only reasonable and lawful expenditures." 28 U.S.C. Sections 594(I)(1)(A)(i) & (ii). To that end, I have hired staff who were known to me and were familiar with Independent Counsel operations and relevant Federal laws and regulations to administer office operations. My Deputy, Charles G. Bakaly, III, has been assigned the duty of reviewing all expenditures and determining, and when appropriate, certifying that all expenditures are reasonable and in accordance with law. Id. Section 594(I)(1)(A)(iii).

   Attached to this report is a summary of all expenditures by my office for fiscal year 1995 (Appendix V) and October 1995 (Appendix VI). As the attached summary indicates, the largest category of expense (51% of all expenditures) is personnel costs. At the outset of the investigation, I determined that detailing of available government personnel -- including attorneys, agents, accountants, and office staff -- to this office provided highly experienced and qualified investigative and administrative personnel at the most cost-effective rates for such personnel. Approximately 60% of the professional staff is now on detail from other federal agencies.

   Office rent also represents a significant portion of expenditures to date. As with staffing, I have devoted significant attention to office space issues in order to ensure cost-effective use of all federal funds. From September 1994 through early January 1995, the office was located in the basement of the Thurgood Marshall Building.(4) These temporary quarters, which initially consisted of three rooms (subsequently expanded to six rooms), proved woefully inadequate as attorneys, agents, and other staff members joined the office. The lack of suitable space hampered our investigation efforts in the months of October - December 1994. Careful consideration of our space requirements and attendant costs led me to relocate the office to 103 Oronoco Street in Alexandria, Virginia.(5) This location offered easy access to Washington, D.C. and the airport at rents that were at least 30% below the cost of comparable space in Washington, D.C. Our office rent is less than $25 per square foot, whereas similar space in Washington, D.C. would cost between $35 and $45 per square foot.

   As noted in the summary through October 1995 (Appendix VII), approximately fifty-one percent of our expenditures are attributable to personnel costs; twelve percent to office automation; fourteen percent to travel; ten percent to rents, communication and utilities; ten percent to contractual services and three percent to office supplies and printing.

IV
CONCERNS

   While the detailing of available government personnel has provided my office with experienced and qualified personnel, certain Federal laws have contributed unnecessarily to turnover among my staff. The Energy Policy Act of 1992 requires that travel reimbursements for employees working for more than one year be considered reimbursements for "indefinite travel," and thus reportable as taxable income. As a result, one experienced federal prosecutor has terminated his employment with my office and returned to his home district and three valued investigators will be forced to do the same within the next thirty days.(6)

   A similar problem adversely impacting the selection and effectiveness of the independent counsel and his investigative and prosecutorial staff is the position limiting temporary duty travel to one year, with a possible six month extension.(7) Eighteen months into the investigation, the independent counsel is forced to choose among relocating, personally absorbing the travel and living costs attendant to the position, or resigning.(8)

   None of those courses of action is in the public interest. Relocation is likely to be impractical for personal and professional reasons, such as effectively mandating abandonment of private practice.(9) Resignation would cause undue delay, derailing the investigation until a suitable replacement could be identified and brought up to speed. The remaining choice is for the independent counsel to subsidize the federal government by absorbing the travel and living costs for a Washington, D.C. presence, which will inevitably make public service intolerably expensive for many otherwise highly qualified persons.

   No doubt the intent of this provision was to speed along independent counsel investigations. However, experience and history have demonstrated that it is impossible to predict the duration of an independent counsel investigation at the outset, and that numerous factors, including jurisdictional and constitutional challenges to independent counsel's authority, cause unforeseeable delays. While these challenges are unavoidable, their

resolution necessarily takes time (often inordinate amounts of time) and significantly interferes with the prompt progress of the investigation.

   While this provision of law could be viewed as an attempt by Congress to induce a rapid resolution of the independent counsel investigation, this effective financial penalty on an independent counsel whose investigation lasts more than a year and a half could impinge upon or perhaps even negate the presumption of regularity that must be accorded this independent government entity. If indictments were to issue, an independent counsel might be accused of "rushing to judgment" against the interests of fundamental fairness. Conversely, if a matter is closed within the limited time period, the suspicion might linger that the independent counsel took a shortcut approach that left important avenues unexplored, lending support to charges that an investigation was incomplete. Neither scenario serves the public good or reinstates the public faith in government that is the rationale for the independent counsel. In any evaluation of the Independent Counsel statute, I respectfully suggest Congress consider and address the concerns noted above.

   If you have any questions with respect to this report or my work as independent counsel, I would be please to respond to them.

Respectfully,

 

 

 

Donald C. Smaltz
Independent Counsel

1. This section provides: An independent counsel appointed under this chapter shall submit to Congress annually a report on the activities of the independent counsel, including a description of the progress of any investigation or prosecution conducted by the independent counsel. Such report may omit any matter that in the judgement of the independent counsel should be kept confidential, but shall provide information adequate to justify the expenditures that the office of independent counsel has made. Back

2. In re Alphonso Michael (Mike) Espy, Order Appointing Independent Counsel at 3 (D.C. Cir. September 9, 1994).Back

3. Ibid. Back

4. This space was provided pursuant to 28 U.S.C. Section 594(I)(3), which requires that the "Administrator of General Services, in consultation with the Director of the Administrative Office of the United States Courts, shall promptly provide appropriate office space for each independent counsel." Back

5. Consistent with the statutory requirement of 28 U.S.C. Section 594(I)(3), the Administrator of General Services determined that rental of this space would be less costly than obtaining additional space in a federal office building. Back

6. This problem is not resolved by detailing only local attorneys, agents and administrative staff. First, the number of suitable employees available for detailing in agencies located in Washington, D.C. is insufficient to support the staffing needs of all independent counsel. Second, such geographic restriction on qualified personnel limits the ability of independent counsel to employ additional talented and experienced individuals available, a result which could not have been intended by Congress. Back

7. After 1 year of service under this chapter, an independent counsel and persons appointed under subsection (c) shall not be entitled to the payment of travel, per diem, or subsistence expenses under subchapter 1 of chapter 57 of title 5, United States Code, for the purpose of commuting to or from the city in which the primary office of the independent counsel or person is located. The 1-year period may be extended by 6 moths if the employee assigned duties under subsection (I)(1)(A)(iii) certifies that the payment is in the public interest to carry out the purpose of this chapter. 28 U.S.C. Section 594(b)(3)(A). Back

8. For any investigation likely to exceed eighteen months, the pool of potential independent counsels may be limited to persons in the area where the investigation will be conducted (usually the District of Columbia) or to persons willing to pay for the privilege by funding their own travel and subsistence while performing these duties. Back

9. As a practical matter, there should not be an expectation that the independent counsel will abandon his or her practice. By statute, independent counsel is a WAE employee, paid only for the actual hours of work, not to exceed 80 hours in any pay period. He or she accrues no leave and receives no benefits -- no health care, no retirement. At the end of the independent counsel's investigation, without a practice to return to, he or she is essentially unemployed. Back

 

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