This is my fourth annual report to Congress pursuant to 28 U.S.C. ' 595(a)(2). On February 20, 1998, I filed my third report detailing the status of the investigation and prosecutions, including the convictions, civil settlement, collection of more than $10 million in fines and penalties for the United States Treasury, and the 39-count felony indictment by a District of Columbia grand jury of former Secretary Espy. The totals now are 15 prosecutions, eight guilty pleas, one adjudication of guilt pursuant to a nolo contendere plea, two civil settlements, eight convictions by jury, one pre-trial diversion, four referrals to other agencies with public dispositions, penalties and fines for the United States Treasury of $11,438,000, and restitution totaling $796,860. There have been five not-guilty verdicts involving defendants: Alphonso Michael Espy, Henry W. Espy, Jr., Norris Faust, Gary A. Black, and John J. Hemmingson, who was acquitted of offenses tried in the District of Columbia but convicted of separate offenses in New Orleans, Louisiana. All that remains before submission of our Final Report is resolution of three active appeals B one awaiting ruling from the Supreme Court, one decided by the D.C. Circuit for which defendant has announced an intention to seek Supreme Court review, one in briefing before the D.C. Circuit and scheduled for argument in May B and one potential appeal not yet formally noticed.

On September 14, 1994, Attorney General Reno referred to me for investigation the related matter of Secretary Espy hosting a March 31, 1994 fund-raising dinner attended by agricultural lobbyists, the purpose of which was to retire the campaign debt of his brother, Henry Espy. This brother ran for the Congressional seat Mike Espy vacated when he resigned to serve as Secretary of Agriculture. During the campaign, Henry Espy incurred a debt exceeding $100,000, and the campaign failed to file numerous reports with the Federal Election Commission (AFEC@). The AHenry Espy Campaign Cases@ included United States v. Alvarez T. Ferrouillet, Jr. and John J. Hemmingson (Eastern District of Louisiana); United States v. Crop Growers Corp., John J. Hemmingson and Gary A. Black (District of Columbia); United States v. Henry W. Espy, Jr., Alvarez T. Ferrouillet, Jr., Municipal Healthcare Cooperative, Inc., and Ferrouillet and Ferrouillet (Northern District of Mississippi); and In the Matter of American Family Life Assurance Company (Federal Election Commission). Additionally, the James Lake, Sun-Diamond, and Richard Douglas prosecutions, and the AFLAC referral, all discussed below, involved illegal contributions to the Henry Espy campaign debt retirement.

The defendants appealed their convictions and we appealed the downward departure from the Sentencing Guidelines. On July 8, 1998, I argued the government's case before the Fifth Circuit. On September 30, 1998, in an opinion reported at 157 F.3d 347 (5^th Cir. 1998), the Fifth Circuit affirmed both defendants= convictions on all counts, but also affirmed the 12-month sentence.

On January 3, 1997, the trial court dismissed for lack of venue four counts addressing these officials= falsifying corporate records and lying to the company=s independent auditors. With the concurrence of the Department of Justice, on April 17, 1997, I referred these four counts to the United States Attorney for the District of Montana for reindictment and trial. I made the referral for several reasons B (1) the important policy reasons for pursuing prosecution of these counts B i.e., the integrity of a public company=s books and records, and representations to independent auditors; (2) our confidence in the strength of the evidence; and (3) the initial interest expressed by the United States Attorney=s Office to pursue the dismissed charges. Because the United States Attorney=s office is no longer pursuing the matter, and because we are at the end of the investigation and the remaining counts do not relate to the giving of gratuities by a prohibited source, I transferred this matter on September 3, 1998, to the Public Integrity and Fraud Sections at the Department of Justice for final disposition. On December 8, 1998, Joshua R. Hochberg, Chief of the Fraud Section, advised me of the Department of Justice=s final decision to decline prosecution.

On April 1, 1996, the Division for the Purpose of Appointing Independent Counsels of the United States Court of Appeals for the District of Columbia Circuit, pursuant to my application, referred me for investigation and prosecution violations of federal law, other than Class B or C misdemeanors, Aby any organization or individual, related to any application, appeal or request for subsidy made to or considered by [USDA] for which [Secretary Espy] and/or his Chief of Staff Ronald Blackley intervened in the application, approval, or review process.@ In re Espy, 80 F.3d 501 (D.C. Cir. (Special Division) 1996). Ronald H. Blackley was the Chief of Staff at USDA between January 21, 1993 and February 1994. The referral and investigation led to prosecutions in United States v. Five M Farming Enterprises, Inc., Brook K. Mitchell, Sr. and Brook K. Mitchell, Jr. (District of Columbia); United States v. Norris J. Faust, Jr.(Southern District of Mississippi); United States v. Ronald H. Blackley (District of Columbia); and United States v. Richard E. Blackmore (Southern District of Mississippi).

In my November 1996 report, I advised you of the disposition of this case. Five M Farming Enterprises and its principal Brook Keith Mitchell, Sr., pleaded guilty on November 13, 1996 to conspiracy to defraud the USDA by making false and fraudulent statements to obtain more than $700,000 in farm deficiency payments (crop subsidies) from 1992 through 1995 in the flagrantly abused AMississippi Christmas Tree@ scheme, making false statements to the USDA and submitting false entries in books and records. Five M was Mitchell=s farming company based in Mississippi. Between May 1993 and May 1996, Mitchell was an Espy appointee to the five-member Mississippi Agricultural Stabilization and Conservation Service State Committee. A third defendant, Brook Keith Mitchell, Jr., concluded a one year pre-trial diversion program on November 13, 1997.

On December 1, 1997, a jury convicted Ronald Blackley of three counts of false statements relating to his receipt of $22,025 in 1993 from prohibited sources (Mississippi agribusiness interests), after he became Secretary Espy=s Chief of Staff at USDA. Blackley made false statements on his 1993 Public Financial Disclosure Report, failing to disclose his receipt of the payments, and he subsequently lied to federal agents about these matters. On March 18, 1998, the trial court departed upward from the Sentencing Guidelines and sentenced Blackley to 27 months in jail and three years supervised release. The trial court also denied the defendant=s motion for bail pending appeal.

Blackley appealed his conviction, essentially on three grounds B that the prosecution was beyond the Independent Counsel=s jurisdiction, that the indictment failed to advise him adequately of the nature of the charges against him, and that the trial court failed to give a specific instruction to the jury on one element of a charged crime. On January 26, 1999, a unanimous three-judge panel of the D.C. Circuit affirmed the three-count conviction and 27-month sentence. Circuit Judge Stephen F. Williams, the author of the Court=s opinion, wrote that

[c]oncealment of such receipts, especially in the context of a financial disclosure form intended to bring suspicious influences to the surface and in response to questions of inspectors general, tends not only to prevent discovery of underlying crimes such as receipts of bribes or gratuities, but also to reflect the perpetrator=s consciousness of guilt in those receipts.

The Court of Appeals has denied Blackley=s petition for rehearing, made with a suggestion of rehearing en banc. He has declared an intention to seek Supreme Court review.

This prosecution and conviction arose out of criminal conduct investigated by this Office. However, I referred the matter to the Department of Justice to pursue the Government=s case. On March 25, 1998, a grand jury in the Southern District of Mississippi returned a 53-count indictment charging Blackmore with bank fraud in the disbursement of loan proceeds to fictitious and nominee borrowers and false and fraudulent promissory notes. A jury convicted him of conspiracy, 11 counts of aiding and abetting misapplication of bank funds, and five counts of aiding and abetting false entries on bank records. On January 19, 1999, the trial court sentenced Blackmore to four years and three months in jail, to be followed by five years of supervised probation/release, and ordered him to pay $842,621 in restitution.

Sun-Diamond Growers of California, Inc. is an agricultural cooperative with more than 4,500 growers. In 1994, Sun-Diamond=s combined sales and revenues were $670 million. Sun-Diamond also is the parent of Sun-Land Products of California, a for-profit corporation that processes and makes dried fruits and nuts. Between 1986 and 1997, Richard Douglas served as Sun-Diamond=s senior vice president of corporate affairs with responsibility for the co-op=s interests in Washington, D.C. The Sun-Diamond cases include United States v. Sun-Diamond Growers of California (District of Columbia); United States v. Richard Douglas (Northern District of California); United States v. James H. Lake (District of Columbia); United States v. Sun-Land Products (Northern District of California); and In the Matter of Sun-Land Products (Federal Election Commission).

In September 1996, a jury convicted Sun-Diamond of three felonies B illegal gratuities and two counts of wire fraud; and five Federal Election Campaign Act counts B one illegal corporate political contribution count and four illegal conduit contribution counts. On May 13, 1997, the court sentenced Sun-Diamond to five years probation, with special conditions, and a $1,500,000 fine.

Sun-Diamond appealed its conviction to the D.C. Circuit. On March 20, 1998, the D.C. Circuit, while affirming the conviction on the mail fraud and illegal campaign contribution counts, reversed the gratuities conviction because it found a jury instruction to be improper. In its decision, the D.C. Circuit adopted an interpretation of the gratuities statute that would permit regulated entities to give gratuities to gain the generalized goodwill of federal officials. This interpretation conflicted with decisions of the Second, Third, Fifth and Ninth Circuits. Judge Wald, concurring in the June 18, 1998 denial of the United States' petition for rehearing en banc, found the decision=s

interpretation of 18 U.S.C. ' 201(c)(1)(A) (1994) so as not to cover any gifts or gratuities made by a regulated company to high officials of the regulating agency troubling. Given the choice, I would have construed the statutory prohibition as the Fifth Circuit has done.[] However, I have concluded that calling for a vote on the en banc petition would be futile in this case. . . . I admit that the main distinction the panel draws between gifts motivated by an official's Aposition@ and gifts motivated by an official's Aacts@ eludes me altogether.

The Information charged Douglas with lying to the FBI in June 1994 by representing that the only time Sun-Diamond paid any expenses for Secretary Espy was when Sun-Diamond brought then-Congressman Espy to California to speak at a convention. In fact Douglas gave the following illegal gratuities to Espy: (1) Hartmann luggage valued at $2,427; (2) tickets, limousine services, and meals valued at approximately $4,590 for the Secretary and the Secretary=s girlfriend to attend the U.S. Open Tennis Tournament in New York; (3) meals valued at approximately $665; (4) $3,100 in cash for the Secretary=s girlfriend so that she could accompany Espy to the World Tree Nut Congress in Athens, Greece; and (5) a minimum of $7,000 in contributions to be made to the Congressional campaign debt retirement of Henry Espy, the Secretary=s brother. The Information also charged Douglas with making a false statement to the FBI by representing that Sun-Diamond had no issues pending before the Department of Agriculture subsequent to Espy becoming Secretary of Agriculture. In fact, Douglas knew that the following matters were pending before the USDA and Secretary Espy: (1) funding for research for alternatives to the pesticide methyl bromide in the event the Environmental Protection Agency would restrict or prohibit its use; (2) an Environmental Protection Agency regulation to phase out and eliminate the use of methyl bromide; (3) approval of the Market Promotion Program funding for the raisin industry, which would financially benefit Sun-Maid Raisins, a Sun-Diamond member cooperative; (4) a study of the Market Promotion Program, with a view to giving agricultural cooperatives preferences that were designated for small entities; (5) various pesticide issues, in addition to methyl bromide; (6) the federally funded School Lunch Program; and (7) the Teamsters strike of Sun-Diamond member cooperative Diamond Walnut. Finally, the Information charged Douglas with claiming falsely that he obtained tickets to a June 1993 Chicago Bulls-Phoenix Suns championship basketball game in Chicago for himself and Secretary Espy at no cost from Douglas= friend, a professional basketball player. In fact, Douglas knew that Secretary Espy had obtained the tickets from the Chief Executive Officer of Quaker Oats, a prohibited source.

Under the Plea Agreement, the Government agreed to dismiss the remaining outstanding charges against Douglas B the Government=s appeal of the pretrial dismissal of two false statement counts, the Government=s appeal of the granting of Douglas= motion for judgment of acquittal on the gratuities count for lack of venue, and a pending mortgage fraud case. The Plea Agreement obligated Douglas to cooperate with this Office=s ongoing investigations and to testify in the Espy trial.

During its investigation of Sun-Diamond=s gifts to Espy, this office discovered additional criminal violations by a Sun-Diamond affiliate, Sun-Land Products, and referred these matters to the Department of Justice. Consequently, Sun-Land Products of California pleaded guilty in the Northern District of California to a two-count Criminal Information charging that, in 1992 and 1993, it illegally made conduit contributions totaling $37,000 to two federal political campaigns in violation of the Federal Election Campaign Act. Sun-Land made these conduit contributions using stipends paid to non-management directors. As part of the Plea Agreement entered on August 26, 1998, Sun-Land paid a total of $480,250 and entered into a conciliation agreement with the Federal Election Commission. The payment encompassed the maximum possible $400,000 criminal fine, $250 in special assessments, and an $80,000 civil penalty to the FEC.

In pleading guilty, Sun-Land admitted that, in 1992 and 1993, its Board of Directors approved a $2,500 stipend to be paid to non-management directors with the suggestion that they be used for political contributions to political organizations or candidates to whom Sun-Land wanted contributions to be made. In 1992, after issuing the stipends, Sun-Land Asuggested@ that the Bush-Quayle >92 Primary Committee Inc. receive contributions. The total amount of the contributions to Bush-Quayle from non-management directors who received the stipend, and in some cases certain family members, was $16,000. In 1993, after issuing the stipends, Sun-Land Asuggested@ that Campaign America, Senator Robert Dole=s political action committee, receive contributions from the stipend scheme. The total amount of the contributions to Campaign America from non-management directors who received the stipend, and in some cases certain family members, was $21,000. The stipends were corporate funds intended for political contributions, which Sun-Land disguised to appear as individual contributions and presented as a group to each of the specified campaigns.

This Office uncovered and substantially investigated the unlawful stipend scheme during its investigation of illegal gratuities by Sun-Diamond and its member cooperatives to former Secretary Espy. Once we determined that Sun-Land did not use the stipends as a means of giving things of value to Secretary Espy or to contribute to Espy=s brother=s Congressional campaign, I turned over the completed investigation to the Department of Justice=s Public Integrity Section for prosecution.

D. Super Bowl Atlanta and Smokey Bear B Espy=s Tickets

On December 29, 1997, Tyson Foods, Inc. pleaded guilty to a one-count criminal information charging that the company gave more than $12,000 in illegal gratuities to Secretary Espy for or because of official acts Espy performed or would perform. Tyson Foods, Inc.=s sentence included payment of $6-million in fines and investigative costs, full compliance with a comprehensive corporate compliance program, and probation.

Since the plea, we have with staff of the Department of Agriculture focused on monitoring Tyson Foods= implementation of the Compliance Agreement. The following are some of the issues we have addressed: (1) appointment of the Ethics Compliance Officer B the government rejected four candidates for the position proposed by Tyson Foods management before agreeing to the appointment of a candidate with appropriate credentials and no prior affiliation with the company; (2) review, evaluation, comment and revision of certain internal controls, policies and procedures, and implementation of those systems; (3) review and issuance of comments to the Corporate Code of Conduct and Compliance Policy; (4) identification for Tyson Foods of those officials at certain federal agencies with whom any contact would require entry in a contact log; and (5) review of quarterly Compliance Reports.

On June 26, 1998, a jury convicted Williams of two counts of making false statements to government agents. Specifically, he concealed his knowledge of (1) Tyson Foods= having gratuities worth $1,119 to Secretary Espy and others, (2) the Tyson Foundation scholarship to Secretary Espy=s girlfriend, and (3) the nature of Williams= relationship with Secretary Espy and Dempsey. On November 2, 1998, the trial court sentenced Williams to pay a $5000 fine.

The jury also returned a verdict of guilty against Schaffer on two counts of giving illegal gratuities to Secretary Espy B a $2,556 gratuity in connection with the Tyson birthday party in violation of the Meat Inspection Act and a $6,000 gratuity for four tickets to a Presidential inaugural dinner in violation of the gratuities statute. On September 21, 1998, the trial court granted Schaffer=s post-verdict motion for judgment of acquittal and set aside the jury=s verdict. The Government is appealing the trial court=s ruling, and Schaffer has cross-appealed, asserting that if his conviction is reinstated he is entitled to a new trial. Briefing is complete, and the D.C. Circuit will hear oral argument on May 12, 1999, pursuant to the Government=s motion to expedite.

This case was the second civil action for damages and civil penalties, and followed the structure of our 1997 case against Smith Barney under a tort theory of interference with an agency relationship by a non-government person or entity. Mondavi admitted legal liability and accepted responsibility for the conduct of its principal internal lobbyist for participating in and procuring a violation of Secretary Espy=s fiduciary duty to the United States and for interfering with his agency relationship with the Department of Agriculture and Executive Branch.

In addition to the $100,000 penalty, the Settlement with Mondavi included (1) a public education program, (2) Mondavi=s agreement to institute a comprehensive compliance program, which included the appointment of an Ethics Compliance Officer responsible directly and collectively to the General Counsel, President and C.E.O., and Chairman of the Board of Directors, and (3) payment of $20,000 toward the cost of the Independent Counsel's investigation. Meriting particular note is the public education program, wherein Mondavi committed to spend at least $30,000 and work in conjunction with a leading California graduate business school or university to sponsor free lectures and panel discussions focused on the bribery, gratuity and campaign finance laws and corporate compliance issues. The purpose of the program is to educate current and future business leaders about the importance of the laws prohibiting or limiting the giving of gratuities to government officials. Mondavi is also required to publish a monograph addressing corporate compliance with the bribery, gratuity and campaign finance laws, and distribute it to industry-recognized vintners and wine-making businesses in the United States and trade associations representing the wine industry by May 21, 1999. Finally, Mondavi agreed to sponsor and cause to be published not fewer than three articles addressing issues of legal compliance in corporate dealings with public officials by July 2000.

Former Secretary Espy faced trial on 38 felony counts of wire and mail fraud, accepting illegal gratuities, violations of the Meat Inspection Act and the Travel Act, tampering with a witness and causing a criminal act to be done. The charges also included violating his duty to provide honest services to the American public by taking more than $35,000 in things of value for his own benefit, and the benefit of his girlfriend and his family, from prohibited sources during a 15-month period in 1993 and 1994. Upon conclusion of the Government=s case at trial, and on motion of the defendant, the court dismissed eight counts. The thirty counts that went to the jury consisted of three basic categories of allegations B (1) Espy took things of value, directly or indirectly, in violation of the ethical and criminal prohibitions against public officials accepting such things; (2) Espy did not disclose those things of value on his Public Financial Disclosure Forms (SF-278), as required by law; and (3) when federal investigators from the USDA-Office of Inspector General and the FBI questioned him about his acceptance of these gifts and favors, Espy made false statements and submitted altered documents to the investigators.

During the course of the investigation and before a trial date had been set for these charges, I applied to the Special Division to refer prosecutorial jurisdiction over Auncovered evidence of other serious violations of law by Secretary Espy and others close to him.@ In re Espy, 145 F.3d 1365, 1367 (D.C. Cir. (Special Division) 1998). In a public court filing, Espy=s lawyers described the matter as Athe management of Mr. Espy=s congressional campaign account,@ noting that the government intended to offer evidence that:

Espy=s counsel wrote that

Athe amount of money allegedly embezzled from the campaign account is significant. Indeed, it is roughly three times the total value of [the] gratuities charged in the indictment [of Michael Espy],@

A(1) Mr. Tom Espy, Mike Espy=s brother, and a former treasurer of his congressional campaign account; and (2) Mr. Wardell Townsend, an administrative assistant to Mr. [Michael] Espy during his tenure as Congressman from the Second District of Mississippi.@

On June 12, 1998, the Special Division denied my request for referral jurisdiction of the matter, agreeing with the Department of Justice=s position that the request amounted to an expansion of my jurisdiction beyond the authority of the Special Division. The panel found that the allegations did Anot involve any alleged misuse of the office of Secretary of Agriculture by Espy, any acceptance of payments or gifts from persons having business with that Department, or any similar pattern of conduct.@ The Department of Justice ultimately declined to investigate further or prosecute the referral.

This office=s appellate practice has encompassed all stages of an Independent Counsel=s investigative and prosecutorial jurisdiction B the grand jury investigation, post-indictment but pre-trial interlocutory appeals, and post-conviction relief. There currently are three post-trial matters before the appellate courts -- two before the Court of Appeals for the District of Columbia Circuit (United States v. Blackley (No. 98-3036) and United States v. Schaffer (Nos. 98-3123 and 98-3126)), and one awaiting the decision of the Supreme Court (United States v. Sun-Diamond (No. 98-131)). Additionally, in United States v. Five M Farming Enterprises, Inc., defendants have moved for leave to file a late notice of appeal. These matters are discussed above.

An additional appellate matter completed last year concerned the case against Secretary Espy. On pre-trial motions, the trial court dismissed three illegal gratuities counts under the Meat Inspection Act and one count of making false statements to the Executive Office of the President. The Government appealed, raising two issues B (1) whether the gratuities section of the Meat Inspection Act, which forbids the acceptance of things of value by Aany officer or employee of the United States authorized to perform any of the duties prescribed by this subchapter,@ applied to the Secretary of Agriculture; and (2) whether the false statement statute (18 U.S.C. ' 1001), which prohibits false statements made Ain any matter within the jurisdiction of any department or agency of the United States,@ reached false statements made to officials in the Executive Office of the President. On June 16, 1998, the D.C. Circuit, in United States v. Espy, 145 F.3d 1369 (D.C. Cir. 1998) reinstated the three gratuities counts, holding that the former Secretary was subject to the provision of the Meat Inspection Act forbidding the acceptance of gratuities by those Aauthorized to perform@ duties under the Act (id. at 1371). However, the D.C. Circuit agreed with Espy that his false statements to the Executive Office of the President were beyond the scope of 18 U.S.C. ' 1001, as the statute was written at the time. The applicable statute, 18 U.S.C. ' 6, has since been amended and would now clearly cover such statements.

(1) to the United States Attorney in Montana B the four Foreign Corrupt Practices Act counts against the two principal officers of Crop Growers Corp. dismissed for lack of venue in the District of Columbia, discussed supra at pages {3-4};

(2) to the Department of Justice B allegations against Richard Blackmore of program loan fraud in excess of $800,000, discussed supra at page 7;

(3)  to the Department of Justice B allegations that Sun-Land Products= Board of Directors used stipends for illegal corporate and conduit campaign contributions, discussed supra at page 12;

(4) to the Federal Election Commission B allegations that American Family Life Assurance Corporation (AFLAC) made conduit contributions to the Henry Espy debt retirement effort, discussed in my 1998 Report to Congress at page {6};

(5)  to the Department of Justice B allegations related to the concealment of funds removed from Mike Espy=s congressional campaign account, discussed supra at pages 21-22;

(6) to the Department of Justice B allegations of lodging, recreational amenities and meals improperly provided to another member of the Cabinet;

(7)  to the Department of Justice and the Federal Election Commission B allegations of a scheme to provide illegal conduit and corporate contributions to the political action committee of a senior member of Congress;

(8) to the Department of Justice B allegations that a major agribusiness provided gratuities to public officials, including members of Congress, outside of the Department of Agriculture; and

(9) to the Department of Justice B allegations of a second AMississippi Christmas Tree@ scheme in excess of $450,000 involving a ten-person farming operation.

The Independent Counsel Reauthorization Act of 1994 requires that I conduct all activities Awith due regard for expenses@ and Aauthorize only reasonable and lawful expenditures.@ 28 U.S.C. '' 594(l)(1)(A)(i) and (ii). I note again that we chose office space in Alexandria, Virginia, where our cost per square foot is significantly less than that for comparable space in the District. We continue to maintain a system of financial controls, internal to this office and with personnel from the Administrative Office of the United States Courts, that are effective in assuring that costs are reasonable and proper. The General Accounting Office=s Audit Report covering my office=s expenditures through March 31, 1998 verifies my accomplishment of this objective. To promote this goal, the staff I hired and retained to administer office operations were known to me, had experience with Independent Counsel operations, administration and financial management, and/or were familiar with the relevant federal laws and regulations.

Upon the completion of the Espy trial, we moved swiftly to reduce staff size. The number of attorneys has decreased from nine full-time and five active part-time to four full-time, one part-time assisting with appellate work, and another assisting with the Final Report and related matters. I expect to reduce further the full-time staff of attorneys to two by the end of June. There no longer are any agents assigned to this office from any agency, compared to seven agents and one on-call accountant before the Espy trial. I have downsized the administrative and support staff to the minimum needed for completion of the Final Report and final shutdown to the following B (i) the Administrative Officer; (ii) the Executive Staff Assistant who has maintained the filing system since I opened the office and who is responsible for archiving; (iii) my Confidential Assistant/Press Officer; (iv) the information systems administrator; (v) one Paralegal; (vi) one Legal Secretary; (vii) the Property Manager; and (viii) one Clerk. My staff is participating in an ad hoc working group with the National Archives in order to facilitate and expedite the archiving process which normally is undertaken after the final report is filed and the attorneys= fees issues resolved.

In my first report, I expressed concern about the hardship created by travel reimbursement and per diem regulations on detailees from other agencies. In my second report, I addressed the need to clarify the scope of an independent counsel=s statutory jurisdiction, investigative and prosecutorial, because of the numerous but meritless defense challenges to jurisdiction. In my third report, I wrote about various sources of delay in advancing and concluding Independent Counsel investigations, and discussed judicial inaction and non-action as sources of greatest delay. In this, my fourth report, I will touch on some of my views concerning the Independent Counsel statute, as you consider its fate, and will preview some additional substantive legislative and administrative issues that I intend to raise in my Final Report.

As long as we accept the fundamental proposition that APublic Service is a Public Trust,@ the need for an Independent Counsel statute in the American legal system remains. The primary purpose of the statute was to restore and maintain public confidence in the system=s ability to investigate wrongdoing by high-end Executive Branch officials. If the pundits are correct, the country apparently no longer has faith in the way Independent Counsels investigate and prosecute these high-profile matters. And if this is true, the opponents of Independent Counsel investigations have succeeded in destroying the statute and its purpose.

Initially, I advocated certain modifications to the statute. Because the statute most probably will not be renewed in the near future in a form resembling the present, I reluctantly join those recommending that it not be renewed at this time. There is in the public=s perception too much misunderstanding, too much invective, and too much disinformation about the statute=s provisions, how it works, and its actual application. The statute was not a bad one B it was well-intended and was and is necessary. It was the product of thoughtful consideration by the 95^th Congress, which had witnessed a country ravaged by the Watergate crisis. That Congress was well acquainted with the history of three Presidents arbitrarily dismissing special prosecutors; it had a sense of the constitutional issues and crafted a statute that passed constitutional muster. The Supreme Court confirmed the constitutionality of the statute in Morrison v. Olson, 487 U.S. 654 (1988), with one justice dissenting. Nonetheless, many of the statute=s numerous critics still persist in their dogmatic charge that the statute is in fact unconstitutional. This is a remarkable scenario indeed, where academics, senior government officials, and even presidents continually proclaim the unconstitutionality of a statute our Supreme Court has directly held is constitutional.

I agree with Deputy Attorney General Holder=s recent statement that Aactions and decisions under the Act both by Independent Counsels and by the Attorney General inevitably and unavoidably become such targets for attack that public confidence in the administration of justice in these high-profile cases has been undermined rather than enhanced.@ But, has anything changed since Attorney General Janet Reno appeared before you in 1993, after the statute last lapsed, concerning why these matters cannot be investigated by the Department of Justice? She then testified A[t]here is an inherent conflict whenever senior executive officials are to be investigated by the Department of Justice and its appointed head, the Attorney General.@ During her testimony, she quoted Archibald Cox=s testimony from the first enactment of the statute, that A[t]he pressure, the divided loyalty, are too much for any man, and as honorable and conscientious as any individual might be, the public could never feel entirely easy about the vigor and thoroughness with which the investigations were pursued. Some outside person is absolutely essential.@

Attorney General Reno=s premise was true then and is true today. The Department of Justice has in these situations a patent conflict of interest. The public needs to be assured that law enforcement has rooted out alleged or extant criminal conduct. If allegations are unfounded, an independent investigator can reassure the public that no cover-up occurred. Since Congress passed the Independent Counsel Act, only seven of 20 Independent Counsels have brought any criminal proceedings.

One warranted criticism of the statute=s current format is the inefficient framework for conducting criminal investigations and prosecutions. It is inefficient because each Independent Counsel must start from ground zero, literally creating a brand new, but temporary, law office from scratch. This process inevitably invites criticism for taking too long and spending too much money. But I disagree with Deputy Attorney General Holder that this Department of Justice is up to the task of investigating senior government officials and coping with these supercharged cases. The powerful evidence is the ACampCon@ task force of more than 100 Department of Justice lawyers and FBI agents, which went nowhere for approximately one year until Assistant United States Attorney Charles LaBella was Abrought in to inject the task force with a more aggressive spirit.@ Add to that the numerous investigations and prosecutions (about 30) of the seven Independent Counsels appointed since 1994, the Salt Lake City Olympic Games bribery probe, Ruby Ridge, Waco, and the Oklahoma City bombing. Consider whether the Department of Justice could have handled all of these cases competently. As long as senior government officials are alleged to have committed criminal acts, and, as this Attorney General testified, there is an inherent conflict of interest whenever Executive Branch officials are to be investigated by the Department of Justice and the Attorney General, then who is left to conduct the investigation? Someone outside the Department of Justice must conduct these investigations.

My Final Report to Congress will present for your attention several ideas for amending federal statutes or highlighting certain issues that have been derived from our experiences. At that time, in appropriate detail, we will discuss, inter alia, the following: (1) requiring agricultural cooperatives of a certain minimum size to make and keep financial records in a manner consistent with the books and records provisions of the Securities Exchange Act of 1934, (2) requiring agricultural cooperatives of a certain minimum size to provide, at a minimum, annual (financial) reports to the cooperative members and the Department of Agriculture; (3) including on all government forms warnings about the implications under 18 U.S.C. ' 1001 of making false statements; (4) imposing on judges who supervise federal grand juries specific time parameters for resolving grand jury matters, thereby reducing delays in grand jury proceedings;

(5) granting to the Department of Justice concurrent civil jurisdiction for enforcement of violations of Title 15 of the United States Code; (6) amending the Federal Sentencing Guidelines to recognize fully the severity of violations of federal law by senior government officials, including false statements to federal agents and other government officials, and (7) establishing within the Bureau of the Census a division or unit designed to work exclusively on jury selection in civil and criminal cases to compete with defense attorneys= use of jury consultants in high profile cases.

With the acquittal of Secretary Espy, some have questioned the success of the overall investigation. The proper gauge should be whether we fulfilled our statutory mandate to Afully investigate and prosecute,@ which we did. I stand confidently behind each and every decision to prosecute, decline prosecution and refer matters to other agencies. The fact that a jury decided to acquit Secretary Espy was certainly disappointing, particularly in light of the compelling evidence developed and presented. The prosecutor does not convict B rather, he is obligated to present fully and fairly all admissible evidence in support of the indictment. The jury is the body that determines whether to convict or acquit the defendant. But those looking for a statistical measure of our effort should weigh our 13 criminal prosecutions and two civil cases; criminal convictions of seven individuals, five corporations, and one law firm; two civil dispositions; several referred matters prosecuted by the Department of Justice and the Federal Election Commission; fines and penalties totaling $11,438,000; and restitution to the United States and corporate shareholders.

As I wrote last year, my cases have involved prosecuting both sides of the offense of illegal gratuities involving federal officials B the receiving and the giving. The motive for these illegal acts stems from the importance of access to and the ability to influence persons and entities regulated by the federal government. As the representatives of the people now charged with deciding who best can conduct such investigations in the future

Donald C. Smaltz Independent Counsel