AGA Today
Tab in Scam At Tax Office In D.C. Nears $50 Million
By
Carol D. Leonnig
Washington Post Staff Writer
Wednesday, February 20, 2008; A01
Federal authorities think that nearly $50 million was stolen in an
embezzlement scheme run out of the D.C. tax office, more than double the
amount they had previously uncovered, four sources close to the
investigation said.
The
corruption at the D.C. Office of Tax and Revenue went undetected much
longer than initially thought, the sources said, extending back almost
20 years. In addition to tracking the missing money, authorities are
looking into gifts suspected of being provided to co-workers and others
by the woman accused of leading the scam, former tax office manager
Harriette Walters.
The
scheme is the largest corruption case in the city's history. Witnesses
have told investigators that Walters, who is accused of issuing larger
and larger bogus tax refund checks over the years, lavishly spread the
wealth, the sources said.
Security guards got cash, office mates got free meals and virtually
anyone who made a request got something, said the sources, who spoke on
condition of anonymity because the investigation is ongoing.
Two
of the sources, who are familiar with the accounts of witnesses, said
the gifts included $35,000 to a co-worker who wanted to remodel her
house, $25,000 in cash and luxury gifts to an assistant whom Walters
began mentoring and $15,000 each to help two co-workers' daughters pay
for renovations and credit card bills.
Walters repeatedly lent huge chunks of cash to colleagues with no
requests for repayment, the two sources quoted witnesses as saying. And,
said the sources, citing witnesses, Walters paid for her goddaughter's
college tuition and a New Jersey home for $855,000. The goddaughter's
attorney declined to comment on the case.
Since
Walters was arrested in November, authorities have issued subpoenas for
financial records, interviewed dozens of witnesses and built a more
complete picture of what happened, the sources said.
Prosecutors told a judge soon after Walters was arrested that they had
confirmed she had helped steal $20 million in fraudulent refund checks
since 2004. But the estimated losses have been growing as federal
investigators have delved further into records at the Office of Tax and
Revenue and found dozens more fraudulent checks made out to city
employees. Sources said that the total is nearing $50 million.
In
early December, a Washington Post analysis found that $44.3 million in
suspicious property tax refund checks had been issued by the office from
1999 to 2007, the period for which computerized city records were
available. The Post identified 160 checks that lacked court orders
required for legitimate large refunds and were made out to companies
that were either fictitious or were not due a tax refund .
The
higher the official theft total, the greater the potential penalty faced
by Walters and the nine other people charged in the case.
Authorities are scrutinizing the activities of at least 40 people who
have not been charged and are trying to determine whether they received
things of value or were involved in financial transactions with those
accused of being conspirators, according to interviews and documents
reviewed by The Post. Those people are largely city employees who signed
off on refund paperwork and others who received the gifts in question.
Witnesses have told authorities in recent weeks that Walters and a small
cadre of friends began issuing bogus refund checks for modest amounts
and erasing property tax bills as early as 1989. They told authorities
that Walters told them that, by manipulating the manual, paper-based
records of the office, they could prevent supervisors and computer
tracking systems from checking behind them, the sources said.
Walters, 51, a 25-year tax office employee, remains jailed without bond
on charges that she and others generated fraudulent property tax refund
checks and used doctored paperwork and front companies to cash them. Her
attorney, Steve Tabackman, declined to discuss the case.
"In
the midst of an ongoing investigation, we're simply not in a position
right now to comment on The Post's reporting," Tabackman said.
Only
one other tax office employee has been charged in the case: Diane Gustus,
54, a tax specialist who worked under Walters. Gustus's attorney, A.
Scott Bolden, said he has been independently researching who received
things of value from Walters.
"The
gift-giving and cash-giving was so prevalent, it should be embarrassing
to the D.C. government that this culture was allowed to exist and
expand," Bolden said.
Bolden confirmed that the Gustus family received cash and valuable gifts
from Walters. He said that his clients weren't aware that the money and
gifts were tainted and that Walters told co-workers she inherited
considerable wealth from family in the Virgin Islands.
"The
government says they got things," Bolden said. "My response is: Who
didn't?"
The
new details raise more questions about the level of supervision in the
Office of the Chief Financial Officer, which failed to detect the fraud
in the largest agency under its umbrella. In the past decade, mostly
under the leadership of Natwar M. Gandhi, the office has spent more than
$100 million on a new computer system for the tax office and at least $1
million a year on external city audits.
The
potential penalties in the case are growing, even as lawyers say that
some defendants are in plea negotiations. Those charged in a conspiracy
to steal $20 million to $50 million would face an estimated 15 to 20
years in prison under federal sentencing guidelines. Those charged with
helping to steal $50 million or more could face as much as 30 years.
Federal prosecutors in the District and Maryland, where many of the
banking transactions took place, have said they are determined to get
back as much of the missing money as possible.
Court
records show that prosecutors are also trying to determine which city
employees knew or should have known that they were close to a massive
crime in progress.
William Sullivan, a criminal defense lawyer and former prosecutor,
predicted that authorities will try to criminally charge some gift
recipients under the legal theory of "willful blindness." In those
cases, Sullivan said, prosecutors must show evidence that the defendants
intentionally ignored "red flags" that would make a reasonable person
suspect a crime.
Based
on witness accounts, there were signs of trouble. Walters took young
women in her office, even those she knew only casually, on four-figure
shopping sprees at Saks and Neiman Marcus and picked up the tab,
according to information provided to authorities. Witnesses have told
investigators that Walters also gave hundreds of dollars, over time, to
security guards outside the tax agency's North Capitol Street office,
the sources familiar with the probe said.
It
was not unusual, sources said, for Walters to give a wad of cash to her
assistant to buy breakfast or lunch for her 15-member office -- two or
three times a week.
Some
of the missing city money went toward buying property in the Washington
area, New Jersey and the Caribbean, prosecutors have said, as well as
for luxury cars, Louis Vuitton handbags and gambling trips to Atlantic
City and Las Vegas.
The
houses and cars can be sold by the government to reclaim some of the
money for taxpayers, and the designer goods will probably bring some
fraction of their original purchase prices at public auction. Much of
the money is gone forever, investigators said.
Alethia Grooms, a former D.C. government employee who is among those
charged in the case, has told authorities about what might be the
beginnings of the scheme, her attorney, Kevin McCants, confirmed.
As
early as 1990, McCants said, Walters told Grooms and a few other friends
about how they could get free city money through bogus tax refund
checks. Walters said there was no backup computer system to notice the
manipulated checks, McCants said.
Grooms got a check for a little more than $4,000 in 1990, records show.
McCants said she is "very remorseful" but didn't continue taking city
money or know about the ongoing scam until Walters contacted her in 2003
trying to cash another refund check.
"She
was dumbfounded that Harriette had been doing it on a continuing basis
all this time," McCants said. "She thought this was done a couple of
times and then it was over. But then she learned it had been going on
uninterrupted, and the stakes had grown obviously much higher."
Staff
writer Paul Duggan, database editor Dan Keating and staff researcher Meg
Smith contributed to this report.