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STATEMENT OF INDEPENDENT COUNSEL DONALD C. SMALTZ
INTRODUCTION Mr. Chairman, Members of the Committee -- I appear before you today pursuant to subpoena issued under your oversight responsibilities for government operations. I will provide information consistent with my responsibilities as a federal prosecutor and all applicable laws, including Federal Rule of Criminal Procedure 6(e), which prohibits me from revealing any grand jury material. On August 8, 1994, Attorney General Reno filed an Application with the Special Division of the United States Court of Appeals for the District of Columbia Circuit for an Independent Counsel to investigate whether any violations of federal criminal law were committed by Secretary of Agriculture Espy, and to determine whether prosecution was warranted. That five-page Application reviewed the background and surrounding allegations against then-Secretary Espy, the nature of some of the gratuities allegedly received by Espy, the applicable criminal statutes, the strictures of the Independent Counsel Act, the Attorney General's findings, and a Statement of Recommended Jurisdiction. A copy is submitted at Exhibit 1. Approximately one month later -- on September 9, 1994 -- I was sworn in as Independent Counsel, with a broad jurisdictional grant that authorized me to investigate to the maximum extent authorized by law whether Secretary Espy "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 . . . . [and] to investigate other allegations or evidence of violation of any federal criminal law . . . developed during the Independent Counsel's investigation" of Secretary Espy and "connected with or arising out of that investigation." A copy of the Special Division's Order is submitted as Exhibit 2. To date, my office has successfully investigated and prosecuted a variety of individuals and businesses for a wide-range of federal criminal law. We have obtained convictions of 7 individuals, 4 corporations, and 1 law firm, and civil damages and fine of $1,050,000 from a major securities broker dealer. To date, we have recovered more than $4.5 million in fines and penalties. A summary identifying the prosecutions we initiated to date, and the results of those proceedings, is submitted as Exhibit 3. Our prosecutions have included convictions of one corporation and its senior vice president of giving Secretary Espy in excess of $6,000 in gratuities; illegal campaign contributions under the Federal Election Campaign Act; falsification of corporate books and records to conceal $46,000-worth of illegal campaign contributions under the Foreign Corrupt Practices Act; interstate transportation of stolen property and money laundering resulting from a $20,000 illegal campaign contribution; false statements to the Federal Election Commission, a federally insured bank, federal investigators, and federal agencies. The Committee has inquired of the circumstances behind our recent successful prosecution of Ronald H. Blackley, and my concerns about the delays that resulted from the Department of Justice's opposition to that prosecution. I believe this case illustrates some of the impediments to effective law enforcement that can result from efforts by DOJ to rein-in the most fundamental attribute that Congress has conferred on the independent counsels -- namely, their independence. On December 1, 1997, we convicted Ronald H. Blackley of three counts in violation of 18 U.S.C. ¤ 1001. Defendant Blackley, as Chief of Staff to the Secretary of Agriculture, was the "alter-ego" of the Secretary of Agriculture. He was one of the most powerful persons in USDA, which in 1993 had a budget in excess of $60 billion and over 100,000 employees. As Chief of Staff, Blackley had significant input and considerable influence in many of the wide variety of USDA programs and decisions including government subsidies to agri-businesses. Blackley was convicted of three counts of lying to hide $22,000 he received in 1993, in violation of 18 U.S.C. ¤ 1001, from Mississippi agri-businesses he previously represented. These businesses sought and received in excess of $400,000 in USDA subsidies in the one year that Blackley served as Espy's Chief of Staff, and Blackley attempted to influence and reverse a USDA decision not to provide one of those businesses with the amount of subsidies it requested. In January 1993, prior to Mr. Espy's confirmation as Secretary of Agriculture, issues arose as to possible conflicts of interest between defendant Blackley and various Mississippi agri-business entities he had represented. Blackley had served as an agriculture aide to Mississippi Congressman Espy from 1989 until Espy was appointed Secretary of Agriculture. Beginning sometime in 1987, he operated a private consulting firm -- Ron Blackley & Associates -- which, among other things, advised agri-businesses seeking farming subsidies from USDA. In response to conflict of interest allegations and questions raised by Senate Agriculture Committee staff members, Blackley claimed that he had severed all his business relationships, and in January 1993 had no personal business interests. He said that his only source of income was the Congressional salary he was receiving as a Congressional aide to then Congressman Espy. Espy, on January 21, 1993, appointed Blackley as his Chief of Staff at USDA. The jury found in Count One that defendant Blackley knowingly and willfully made false, fictitious and fraudulent statements and representations by omitting to disclose the $22,000 he received from Mississippi agri-businesses on his 1993 Public Financial Disclosure Report. Blackley, as a senior government official in the Executive Branch, was required by the Ethics in Government Act to file complete and accurate Public Financial Disclosure Reports so the reviewing agency and the public would know of any conflicts of interest. The agri-businesses that gave Blackley the $22,000 had been clients of Blackley's consulting business and had matters pending before USDA. In February 1994 defendant Blackley changed jobs from Chief of Staff to Chairman of the Loan Resolution Task Force of USDA. In August 1994, after the Attorney General filed her application for appointment of an Independent Counsel to investigate allegations of misconduct by Secretary Espy, the Office of Inspector General of the USDA commenced an investigation of Blackley. Allegations had arisen that, while Chief of Staff, Blackley had intervened on behalf of certain Mississippi agri-businesses who were former clients of Blackley's consulting business and who had appeals pending before USDA. The USDA-IG's investigation disclosed that in 1993, out of a total of only ten nationwide agri-business appeals to reach the highest USDA senior review level in Washington, D.C., five of these were from Mississippi. Each of these five involved a former client of Blackley, and each was granted some relief after Blackley as Chief of Staff intervened. During the course of that USDA-IG investigation, defendant Blackley made statements to the agents that he had severed all prior business and financial interests upon being appointed Chief of Staff; that in 1993 he received no income or consulting fees directly or indirectly from previous clients; that his only income was his USDA salary; and that his 1993 Financial Disclosure Report was correct. The jury found defendant Blackley guilty of Count Two, which charged that in November 1994, Blackley made these false representations and concealed the $22,000 in a sworn statement that he gave to those investigating agents. In 1995 defendant Blackley resigned from the USDA and became a Special Assistant to the Administrator -- United States Agency for International Development. On May 23, 1996, following the investigation by the Office of Independent Counsel, the grand jury indicted Five M Farming Enterprises, Brook Keith Mitchell, and his son, Brook Keith Mitchell, Jr., for conspiracy to defraud the USDA and false statements to illegally obtain $700,000 in USDA subsidies. Blackley was identified as an unindicted co-conspirator in the Five M/Mitchell scheme and, after that disclosure, the USAID Inspector General commenced an investigation to determine whether Blackley's Top Secret security clearance should be withdrawn. The jury convicted Blackley of Count Three which charged that he lied to USAID-IG investigators in a sworn statement he gave them that, "after I ended my consulting business and entered U.S. Government service I did not receive any remuneration of any kind from Mitchell or anyone else." The evidence at trial revealed that defendant Blackley not only accepted more than $22,000 from Mississippi agri-business entities regulated by USDA, he also attempted to influence, and have reversed, an adverse decision concerning one of these entities that had received over $300,000 in subsidy payments from the USDA in 1993, and then lied repeatedly by denying his receipt of the $22,000 -- on his Public Financial Disclosure Form; to the Inspector General of USDA; and to the Inspector General of USAID. Each of the three Counts of 18 U.S.C. ¤ 1001 of which Blackley was convicted carries a maximum of five years imprisonment and a $250,000 fine, and the date for Blackley's sentencing has been set for February 12, 1997. This corrupt activity by a senior executive government official undermines the public's confidence in the regulatory process and suggests to the public that government largesse goes not necessarily to those most entitled to it -- but to those who are cozy with the regulators or to those who are willing to purchase it. As the Supreme Court observed:
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