Former CEO And President Of Real Estate Investment Company Pleads Guilty To Embezzling $1.6 Million And Evading Taxes

Department of Justice
U.S. Attorney’s Office
Southern District of New York

FOR IMMEDIATE RELEASE
Tuesday, May 23, 2017

Joon H. Kim, the Acting United States Attorney for the Southern District of New York, announced that ROCKWELL GAJWANI pled guilty today to one count of wire fraud and three counts of tax evasion in connection with embezzling over $1.6 million from the Manhattan-based real estate investment company for which he had served as chief executive officer and president. As part of his plea, GAJWANI agreed to pay $1,975,068.04 in restitution and $1,612,841 in forfeiture. GAJWANI pled guilty before United States District Judge Loretta A. Preska.

Acting U.S. Attorney Joon H. Kim said: “As he admitted today, for years Rockwell Gajwani siphoned money from his employer’s accounts, lining his own pockets with more than $1.6 million. Instead of working diligently as his company’s CEO, Gajwani put his efforts into concealing his crimes and hiding his ill-gotten gains from the IRS. Thanks to the dedicated work of the Postal Inspection Service and the IRS, Gajwani will now be held to account for his crimes.”

According to the Complaint, the Indictment, and other statements made in open court:

From October 2011 through March 2013, GAJWANI was the chief executive officer and president of a real estate investment company based in Manhattan (the “Manhattan Real Estate Company”). During this period, GAJWANI took more than $1.6 million in company funds to which he was not entitled by, among other means, making wire transfers from the company’s bank account to his personal bank account, writing company checks to himself, and making cash withdrawals from the company’s bank account.

To accomplish this scheme, among other means, GAJWANI took steps to conceal his true salary and to conceal from the Manhattan Real Estate Company’s parent company (the “Parent Company”) the amount of money he had taken from the Manhattan Real Estate Company’s bank account.

Beginning in late 2012, the director of accounting for the Manhattan Real Estate Company (the “Director of Accounting”) asked GAJWANI for details regarding GAJWANI’s compensation on more than one occasion, and GAJWANI repeatedly said he would get such details to her, but failed to do so. On another occasion, in connection with a request from the Parent Company for financial information, GAJWANI told the Director of Accounting not to provide that information to the Parent Company. To further conceal the funds he had taken from the Manhattan Real Estate Company, GAJWANI directed employees of the Manhattan Real Estate Company to lump the compensation of all employees together in accounting materials provided to the Parent Company, so that GAJWANI’s compensation would not be listed separately from the aggregate figure. GAJWANI also directed certain employees of the Manhattan Real Estate Company not to communicate with employees of the Parent Company.

Over the course of his employment, GAJWANI wrote himself over $940,000 in checks from the Manhattan Real Estate Company’s bank account, and wired over $1.7 million to his personal bank account. Although some of these funds were purportedly for expenses, by the end of his employment GAJWANI had taken over $1.6 million more from the Manhattan Real Estate Company’s bank account than he was entitled to under his employment agreement.

GAJWANI also concealed his fraud on the Manhattan Real Estate Company. Specifically, on two occasions in May 2012, wrote checks to an employee of the Manhattan Real Estate Company (“Employee-2”) from the company’s bank account. wrote “expenses” in the memo line of each check, although neither check was meant to pay company expenses, and instructed Employee-2 to write a check in return directly to GAJWANI himself. Employee-2 did so on both occasions. In this manner, was able to secure over $30,000 in payments that GAJWANI appeared to receive from Employee-2 but in reality were funds GAJWANI had taken from the Manhattan Real Estate Company.

In addition to defrauding the Manhattan Real Estate Company, GAJWANI did not file tax returns or pay taxes for his legitimate salary or for the money he had secured through fraud. Ultimately, in July 2015, after he learned of a criminal investigation, GAJWANI filed tax returns for calendar years 2011, 2012, and 2013. Each of those returns included false representations. For tax year 2011, the federal income tax return that GAJWANI filed understated GAJWANI’s actual income by more than $480,000, and included over $85,000 in false, impermissible tax deductions. For tax year 2012, the federal income tax return that GAJWANI filed included over $260,000 in false, impermissible tax deductions. For tax year 2013, the federal income tax return that GAJWANI filed underreported GAJWANI’s actual income by $270,000.

* * *

GAJWANI, 53, of Darien, Connecticut, pled guilty to one count of wire fraud, which carries a maximum sentence of 20 years in prison, and three counts of tax evasion, each of which carries a maximum sentence of five years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the Judge. As part of his plea, GAJWANI agreed to pay $1,975,068.04 in restitution and $1,612,841.04 in forfeiture.

GAJWANI is scheduled to be sentenced by Judge Preska on September 12, 2017, at 4:00 p.m.

Mr. Kim praised the outstanding investigative efforts of law enforcement personnel at U.S. Postal Inspection Service and the Internal Revenue Service, Criminal Investigation Division.

The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Jonathan Cohen and Andrew D. Beaty are in charge of the prosecution.

Janet Labuda on Trade by the Numbers

By Janet.Labuda@FormerFedsGroup.Com

Recently, President Trump sent a memo directing Secretary of Commerce, Wilber Ross, to initiate an investigation of steel and aluminum products. The rarely used investigative authority found under section 232(b)(1)(A) of the Trade Expansion Act of 1962 (19 U.S.C. 1862(b)(1) determines any detrimental trade activity affecting U.S. national security.

In addition, the Presidential memo lists other “core industries such as…vehicles, aircraft, shipbuilding, and semiconductors. The administration considers these as “critical elements of our manufacturing and defense industrial bases, which we must defend against unfair trade practices and other abuses.”

The Secretary of Commerce reports to the President, within 270 days of initiating the investigation and focuses on whether the importation of the article in question is in such quantities or under such circumstances as to threaten to impair the national security. The President can concur, or not, with the Secretary’s recommendations, and take action to “adjust the imports of an article and its derivatives,” or other non-trade related actions as deemed necessary.

Another trade remedy is found in Section 301 of the Trade Act of 1974. This law provides the United States with the authority to enforce trade agreements, resolve trade disputes, and open foreign markets to U.S. goods and services. It is the principal statutory authority under which the United States may impose trade sanctions on foreign countries that either violate trade agreements or engage in other unfair trade practices. When negotiations to remove the offending trade practice fail, the United States may take action to raise import duties on the foreign country’s products as a means to address the trade imbalance.

Under section 332 of the Tariff Act of 1930 (19 U.S.C. 1332), the U.S. International Trade Commission (USITC) conducts investigations into trade and tariff matters upon request of the President, the U.S. House Committee on Ways and Means, the U.S. Senate Committee on Finance, either branch of the Congress, or upon the Commission’s own initiative. The USITC has broad authority to investigate matters pertaining to the customs laws of the United States, foreign competition with domestic industries, and international trade relations.

The USITC can also conduct investigations using section 337, to determine whether there is unfair competition in the importation of products into, or their subsequent sale in, the United States. Section 337 declares the infringement of a U.S. patent, copyright, registered trademark, or mask work to be an unlawful practice in import trade. It also declares unlawful other unfair methods of competition and unfair acts in the importation and subsequent sale of products in the United States, the threat or effect of which is to destroy or substantially injure a domestic industry, prevent the establishment of such an industry, or restrain or monopolize trade and commerce in the United States.

Section 337 investigations require formal hearings held before an administrative law judge. If a violation is found, the USITC may issue orders barring the importation of certain products into the United States. In addition to requesting long-term relief, complainants also may move for temporary relief pending final resolution of the investigation based on a showing of, among other things, irreparable harm in the absence of such temporary relief.

Subtitle A of title VII of the Tariff Act of 1930, as added by the Trade Agreements Act of 1979 (19 U.S.C. § 1671 et seq.) and subsequently amended, provides that countervailing duties will be imposed when two conditions are met: (a) the U.S. Department of Commerce (Commerce) determines that the government of a country, or any public entity within the territory of a country, is providing, directly or indirectly, a countervailable subsidy with respect to the manufacture, production, or export of the subject merchandise that is imported or sold (or likely to be sold) for importation into the United States and (b), in the case of merchandise imported from a Subsidies Agreement country, the USITC determines that an industry in the United States is materially injured or threatened with material injury, or that the establishment of an industry is materially retarded, by reason of imports of that merchandise.

If Commerce determines that a countervailable subsidy is being bestowed upon merchandise imported from a country that is not a Subsidies Agreement country, a countervailing duty can be levied on the merchandise in the amount of the net countervailable subsidy without a USITC determination of material injury.

In addition, Subtitle B provides that antidumping duties will be imposed when two conditions are met: (a) Commerce determines that the foreign subject merchandise is being, or is likely to be, sold in the United States at less than fair value, and (b) the USITC determines that an industry in the United States is materially injured or threatened with material injury, or that the establishment of an industry is materially retarded, by reason of imports of that merchandise.

Sections 201 to 204 of the Trade Act of 1974 (19 U.S.C. 2251 to 2254) concern investigations conducted by the USITC to determine if a product is being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to a domestic industry.

If the USITC makes an affirmative determination, it recommends to the President the action that will address the serious injury or threat and facilitate positive adjustment by the industry to import competition. The President makes the final decision on remedy, including the form, amount, and duration.

There is no doubt that the current administration will use every available tool to initiate investigations and take action where such investigations determine injury to U.S. domestic industry by foreign imports. Continue to keep track of the announcements by the White House, Commerce, the USITC and CBP, and don’t get tripped up on the numbers.

Former CEO Pleads Guilty to Investment Fraud Scheme

Department of JusticeU.S. Attorney’s Office

Eastern District of Virginia

FOR IMMEDIATE RELEASE

Monday, May 22, 2017
ALEXANDRIA, Va. – A former chief executive officer of an investment company pleaded guilty today to her role in an investment fraud scheme involving foreign exchange currency.
According to the statement of facts filed with the plea agreement, Angelina Lazar, 54, a Canadian citizen from Windsor, Ontario, was the Chairman and CEO of Charismatic Exchange, Inc., an investment firm in Las Vegas. From May 2005 through February 2007, Lazar solicited individuals to invest money in foreign exchange currency funds she managed. As part of the scheme, Lazar guaranteed investors a monthly return of 20 percent or more. However, Lazar falsely represented her experience, her success rate, how funds would be invested, and how funds were ultimately spent. For example, Lazar told investors her company used special software program to facilitate and enhance her ability to successfully trade foreign currencies. In truth, Lazar did not possess the software nor did her company ever purchase it. Likewise, Lazar showed investors trading reports that purportedly validated executed foreign currency trades resulting in significant profits. In fact, the trading reports represented only simulated currency trades and no money was actually invested. As a result of her fraudulent conduct, victim investors suffered at least $20,000 in losses.
As part of her plea agreement, Lazar will be immediately deported from the United States to Canada.
Dana J. Boente, U.S. Attorney for the Eastern District of Virginia; and Andrew W. Vale, Assistant Director in Charge of the FBI’s Washington Field Office, made the announcement after U.S. District Judge Liam O’Grady accepted the plea and announced the sentence. Assistant U.S. Attorney Uzo Asonye prosecuted the case.
A copy of this press release is located on the website of the U.S. Attorney’s Office for the Eastern District of Virginia. Related court documents and information is located on the website of the District Court for the Eastern District of Virginia or on PACER by searching for Case No. 1:09-cr-175.

Labuda on Fake News and Trade

Former CBP Official, Janet Labuda at FormerFedsGroup.Com, provides us with her take on the importance of verifying the accuracy of news information in an emerging world news can longer be taken at face value.

 Janet.Labuda@FormerFedsGroup.Co

Over the last few months the fake news dilemma has featured prominently in the media. Day in and day out we receive bits and bytes of information through social media and other electronic sources that many read and take to be the truth, the whole truth, and nothing but the truth, regardless of how outlandish the claim or the source.

Such bits of information are rarely vetted either through our own personal “common sense” filters or through other reliable filters . This usually happens because we are pressed for time and simply can’t find the few minutes needed to verify and validate the information presented to us. What is even more problematic is that many of us pass on such unfiltered misinformation through broad electronic social networks thus perpetuating and exacerbating the problem.

The same holds true for the data we collect in the area of international trade. Customs uses data to drive every element of its trade facilitation and enforcement programs. Data collection and its subsequent crunching, dicing and slicing is the bedrock of their risk management processes. Decisions by Customs to focus on certain areas of potential non-compliance, on shifting resources to contain  perceived risk, and on pinpointing companies and their transactions for audit, and further scrutiny are made on what data is reported.

The key questions for companies are: how reliable is the data that is reported, and who is responsible to ensure that the data is accurate and reliable? In addition, what internal controls are followed to vet information. Compliance means reporting accurate information on the transaction to substantiate adherence to legal and regulatory requirements. U.S. Customs and Border Protection enforces strict record keeping requirements, which state “the accuracy of import (and export) information is important not only because it affects the revenue, but because accurate trade information and statistics are important in determining trade policy, the future eligibility of certain goods or goods from certain countries for special programs, the impact of imports on domestic industries, and the effectiveness of various trade agreements and programs.”

Companies need to established sound practices of filtering data received as well as   self-generated. If data is not regularly tested and validated it leaves your company in a vulnerable position. By reporting incorrect data to regulatory agencies, whether you yourself file, or you use a broker to file on your behalf, your company may be subject to unnecessary enforcement reviews, and penalties.

When it comes to data reporting, garbage in, garbage out is not acceptable anywhere in the supply chain. Only accurate and reliable data can help to keep your company insulated from risk.

Recommended Amicus Brief on Section One Summary Judgment Standard

Here is a link to a brief filed by a number of professors asking the Supreme Court to clarify the standard to be applied by districts courts to a defendant’s motion for summary judgment in a Section One antitrust case,  evergreen – petition for certiorari – amicus brief – filed copy – 4.21.17 – evergreen partnering group v. pactiv corp.  The petition notes:

“[C]ircuit courts are mired in an abiding difference of opinion concerning the appropriate interpretation of the summary judgment paradigm in cases brought under Section 1 of the Sherman Act as applied to circumstantial evidence.”

*******   Click Here for the Rest of the Story   ******* 

 

 

 

New biofuels green case filed by USDOJ

New Jersey Feedstock Processor Gets Five Years for Conspiracy to Commit Biofuel Fraud

Department of Justice
Office of Public Affairs

FOR IMMEDIATE RELEASE
Friday, April 7, 2017

The owner of a New Jersey feedstock collector and processor was sentenced today for his role in a scheme that generated over $7 million in fraudulent tax credits and renewable fuels credits (RIN credits) connected to the purported production of biodiesel fuel, as well as his subsequent attempts to obstruct a Grand Jury investigation into the fraud.

Malek Jalal, 52, was sentenced to 60 months in prison to be followed by three years of supervised release.  He was also sentenced to pay $1,017,087 in restitution, and a $12,500 fine.

Acting Assistant Attorney General Jeffrey H. Wood for the Department of Justice’s Environment and Natural Resources Division, U.S. Attorney Benjamin C. Glassman for the Southern District of Ohio, Acting Special Agent in Charge Frank S. Turner II for the Internal Revenue Service Criminal Investigation, and Acting Special Agent in Charge John Gauthier of EPA’s Criminal Enforcement Program in Ohio announced the sentence handed down today by Senior U.S. District Court Judge James L. Graham.

The RFS program is a national policy, authorized under the Energy Policy Act of 2005 and expanded under the Energy Independence and Security Act of 2007, which requires a certain volume of renewable fuel to be produced to replace or reduce the quantity of petroleum-based transportation fuel, heating oil or jet fuel.  Tax credits incentivize businesses to produce renewable fuel like biodiesel.

According to his plea, Jalal, who owned Unity Fuels of Newark, New Jersey, engaged in a scheme with other coconspirators to fraudulently claim tax credits and RIN credits multiple times on the same fuel.  Jalal did this by buying fuel from a New York-based company, blending it with other materials, and selling it back to the same New York-based company.

Jalal also admitted to obstruction of justice. According to his plea, Jalal knowingly modified and destroyed records after receiving a Grand Jury subpoena from the Southern District of Ohio. Jalal also directed an employee of Unity Fuels to fabricate false records that were provided to the Grand Jury in an attempt to hide the fraud scheme.

“Unlawful acts like those at issue in this case defraud the U.S. Government, harm American taxpayers and consumers, and undermine energy and environmental laws enacted by Congress,” said Acting Assistant Attorney General Wood. “As today’s plea demonstrates, the Department of Justice will continue to pursue and prosecute those who seek to line their own pockets through RFS fraud.”

“Environmental programs are not immune from fraud,” U.S. Attorney Glassman said. “The surest way to deter this and all fraud is to catch the criminal and ensure that he is punished for the crime. That’s what we’re doing here.”

“At the IRS, protecting taxpayer money is a matter we take extremely seriously. An integral part of the agency’s mission involves detecting and catching those who claim fraudulent tax credits,” stated Frank S. Turner II, Acting Special Agent in Charge, IRS Criminal Investigation, Cincinnati Field Office. “The object of these schemes is to defraud the government and the taxpaying public.”

“Violations of renewable fuels laws can have serious impacts on the marketplace and hurt companies that play by the rules,” said Larry Starfield, Acting Assistant Administrator for the Office of Enforcement and Compliance Assurance at EPA.  “EPA and its law enforcement partners are committed to ensuring a level playing field for businesses that follow the rules by pursuing those who blatantly violate the law.”

Assistant Attorney General Wood and U.S. Attorney Glassman commended the cooperative investigation by law enforcement, as well as Department of Justice Trial Attorney Adam Cullman, Senior Trial Attorney Jeremy Korzenik and Assistant United States Attorney J. Michael Marous, who represented the United States in this case.

Janet Labuda on: “Putting Yourself in Custom’s (CBP’s) shoes”

 Janet.Labuda@FormerFedsGroup.Com

Last week, President Trump signed two Executive Orders (EO) that will affect the use of U.S. Customs and Border Protection (CBP) trade resources. The first is a direct call to step up enforcement of trade laws with a special emphasis given to anti-dumping and countervailing duty cases. The second EO focuses on the trade deficit. The deficit numbers are driven by the value that is declared to CBP upon entry of goods. While there may be some minor adjustments by the Commerce Department’s Census Bureau, generally such information is gleaned from CBP entry data. Ultimately, CBP will be called upon to ensure that the value declared upon entry is correct, thus giving the Administration a more accurate accounting of the deficit. It is clear that trade law enforcement will be on agency’s front burner. After the EOs were published, Acting CBP Commissioner Kevin McAleenan stated “the men and women of CBP are committed to enforcing the trade laws of the United States to defend the economic competitiveness of domestic industries against unfair trade practices and dangerous counterfeits that could harm consumers.”

* * * * Click Here for the Rest of the Story* * * * *

Green Grants and Grantees are now in #GFPFE crosshairs and there is no bag limit

The Economist’s handy graph showing the breakdown of the Trump Administration’s Proposed Budget shows in stark budgetary terms what US government agencies are facing.  I have reviewed the proposed budget and have concluded that it is the strongest indicator yet that the Trump Administration intends to reinvigorate Grant Fraud and Procurement Fraud Enforcement (#GFPFE).  The graph shows a change in overall agency funding and portends an intra-agency reorientation that is likely to effect grantees or contractors that have been awarded or are currently working on Grants or Contracts awarded by Environmental Protection Agency (EPA) or Department of Energy (Energy).

Let’s review:

  • Review and Recap of Current Posture:

I have previously laid out  here out about why conditions are perfect for a renaissance in Grant Fraud and Procurement Fraud Enforcement (GFPFE). I took the Department of Energy’s enforcement temperature here, I looked at an EPA-OIG audit of laboratories here, and I noticed a NASA-OIG audit announcement of ground and ocean temperatures here. Last week there was an NPR story on case by case review of individual EPA scientists while newly minted EPA Administer Scott Pruitt made statements here questioning the connection between human activity and climate change while raising questions about the measurement of global temperatures. Then a top level EPA transition official, David Schnare, resigned, but not before acknowledging that while ” the vast majority of career staff at the EPA… are dedicated public servants,…there are a small handful “who were definitely antagonistic” to Trump and Administrator Scott Pruitt. “They’re here for some other reason. They’re here for a cause,” he was quoted as saying in The Hill.

  • Presidential Shift in Priorities Always Wins:

EPA career civil servants who think nobility of purpose protects them in the face of an overwhelming Presidential Administration shift in priorities should pay a visit to the Antitrust Division’s field offices in Atlanta, Cleveland, Dallas and Philadelphia (punch line: they no longer exist).  The Antitrust Division Criminal Program’s Senior Litigators, who woke up on 911 in the World Trade Center Marriott, eagerly supported a GFPFE initiative whose purpose was to “protect the supply chain of goods and services to the nation’s warfighter.” Their tireless work and willingness to support other components of USDOJ in GFPFE efforts became a liability when a new Presidential Administration changed the definition of success from number of cases filed to the number of cases not filed (for anyone wanting to learn about the important competition enforcement function Antitrust Division Field Offices performed can start with the dearly departed Philadelphia Field Office’s Chief Robert E Connolly’s column here). The bottom line is Presidential shift in priorities always wins over perceived nobility of purpose of career public servants.

  • Nobility of Purpose in combatting CO2 is going to be challenged

I know it will come as a shock to many, but there are many scientists–legitimate scientists–who do not come to the same conclusions about the connection between rising CO2 levels and rising temperatures.  I have no idea what the truth is, but I recognize that when you have a President and heads of the EPA and Energy who doubt the warming narrative and view expenditures in that regard to be a waste of money. It would behoove everyone in the risk assessment business to understand what they think and read what they read.  If you restrict your news to the Washington Post and the New York Times, you are flying blind.  Worse, your clients will be flying blind. It is important to recognize that the outgoing administration saw this coming and adorned future budgets with global warming money that will be hard to cut out.  That will stimulate efforts to try.

  • Let’s Look At the Proposed Budget for Department of Energy:

The preamble states:

[The Budget] reflects an increased reliance on the private sector to fund later-stage research, development, and commercialization of energy technologies and focuses resources toward early-stage research and development. It emphasizes energy technologies best positioned to enable American energy independence and domestic job-growth in the near to mid-term.

My translation: Grants for developing green technologies are drying up.  No more Solyndras.

The preamble states:

It also ensures continued progress on cleaning up sites contaminated from nuclear weapons production and energy research and includes a path forward to accelerate progress on the disposition of nuclear waste. At the same time,the Budget demonstrates the Administration’s strong support for the UnitedStates’ nuclear security enterprise and ensures that we have a nuclear force that is second to none. The President’s 2018 Budget requests $28.0 billion for DOE, a$1.7 billion or 5.6  percent decrease from the 2017 annualized CR level. The Budget would strengthen the Nation’s nuclear capability by providing a $1.4 billion increase above the 2017 annualized CR level for the National Nuclear SecurityAdministration, an 11 percent increase.

My translation: Grants for development of nuclear energy capabilities and military nuclear applications are back in vogue.  $6.5 billion in clean-up funds will be oriented towards nuclear.  The important factor to consider is that, in all likelihood, this changes the mix of responsive contractors.

  • Let’s look at EPA proposed budget:

The Compliance Assurance budget is lowered to $419 million, which is $129 million below the 2017 annualized CR level. It “better targets” EPA’s Office of Research and Development (ORD) at a level of approximately $250 million, which would result in a savings of $233 million from the 2017 annualized CR level. ORD would prioritize activities that support decision-making related to core environmental statutory requirements, as opposed to extramural activities, such as providing STAR grants.

It supports Categorical Grants with $597 million, a $482 million reduction below 2017 annualized CR levels. These lower levels are in line with the broader strategy of streamlining environmental protection. This funding level eliminates or substantially reduces Federal investment in State environmental activities that go beyond EPA’s statutory requirements.

It eliminates funding for specific regional efforts such as the Great Lakes Restoration Initiative, the Chesapeake Bay, and other geographic programs. These geographic program eliminations are $427 million lower than the 2017 annualized CR levels. The Budget returns the responsibility for funding local environmental efforts and programs to State and local entities, allowing EPA to focus on its highest national priorities.

It eliminates more than 50 EPA programs, saving an additional $347 million compared to the2017 annualized CR level.

My translation: Grants for development of green technologies and reducing CO2 emissions are slashed.  EPA is being oriented around traditional toxins to land, water and air.  Its administration of $100 million to fix Flint Michigan’s water problems and orientation around poisoning will help with the repositioning. 

So while Energy moves onto new contractors for a nuclear spend, EPA moves towards traditional environmental problems and even NASA will now move, happily for many, toward an ambitious space program, all three agencies move away from green and CO2 mitigation programs.  Current contractors and grantees in these areas have a dual problem.  First, the funding in these areas is drying up.  Second, any problems that are found in the award or administration of grants or contracts in these now shuttered programs have a lower risk of causing collateral damage to supporters of the new Administration and they undermine the case against shuttering those programs.  Within the investigative agent community and auditing community examining procurements and grants in these shuttered program areas, investigation carries even lower risk and even higher reward (imagine how an indictment early next week alleging a massive fraud scheme involving a company that had been administering a major grant would be received by the Administration that is looking to justify a shift in funding priorities).  Investigative agents, many of whom in the prior Administration felt professionally stunted because of managerial interference against developing fraud and corruption cases have now been unshackled.  Inquiries that could never blossom into full blown investigations using IG subpoenas and active grand juries can now be taken out from from the back of desk drawers or they can be reopened with the support of career mid-level management looking to take action that will be looked upon favorably when the permanent Inspector General arrives later in the year.

 

People for People (PFP), DOJ-OIG and #GFPFE

By Bradford.Geyer@GeyerGorey.Com

Changes in enforcement priorities dictate when grant irregularities are referred to enforcement agencies.  This case involving People for People (PFP) provides a good example of that principal.  In reviewing the reports and correspondence, it appears that the matter remained bottled up in DOJ OIG-Audit.  Had it been referred to the investigative agents within the agency you can see how the alleged conduct referenced in the 2013 audit report could have stimulated investigation perhaps with the support of a US Attorney’s Office. Here are the report’s conclusions:

“PFP did not fully comply with the grant requirements we tested. We found material weaknesses in PFP’s internal controls, expenditures, drawdowns, FFRs, progress reports, budget, and program performance resulting in the questioned costs totaling $893,445. These weaknesses resulted in PFP providing multiple sets of accounting records during the audit, even though the grants had ended. We found that PFP charged $420,729 to the grant for personnel and fringe benefit costs that were unallowable. We found that PFP charged direct costs of $34,834 to the grant for unallowable expenditures, and $9,631 to the grant that could not be adequately supported. PFP also charged indirect costs of $232,754 to the grant for unallowable expenditures. PFP drew down $195,497 in grant funds in excess of the accounting records. We found PFP could not support the amounts drawn down or reported on the Federal Financial Reports. PFP could also not provide a correct account of grant charges per grant budget category to ensure proper budget management. Additionally, we found that PFP did not have procedures in place to ensure the timely submission of Federal Financial Reports and progress reports, nor did it ensure that progress reports provided supported information. We also determined that PFP did not meet the goals and objectives of the grants.”   

The Grantee here received grant payments from the government for $893,445 based on unallowable and unsupported grant expenditures.  This would have been seen by agents as a major problem. The “multiple sets of accounting records” (whether or not ultimately defensible) would have attracted attention.   Agents might have seen another red flag and opportunity in what seems to be a reference in the audit report to a redacted executive who abruptly exited the grantee.  A quick interview of this exited executive or some interviews around the subject of the exit would be seen as possibly carrying a beneficial reward risk ratio.   We can’t know for sure, but the file doesn’t seem to indicate that agents were copied on the correspondence or reports so they may not have known about it.   

Under many enforcement regimes the conclusions above might have caused an immediate referral  from audit to investigative agents within the OIG and likely to a US Attorney’s Office.  Instead, People for People was permitted to implement what looks like an informal corporate integrity agreement drafted by the government while it was permitted to pay back one half million dollars over a period of years.  As someone who represents grantees I understand how honest, ethical and well-intentioned grantees can find themselves in situations comparable to this one,  but investigative agents within enforcement agencies are rarely persuaded by benign explanations for otherwise suspicious conduct.  I also can see how this result may have been extraordinarily evolved while it maximized public welfare benefits.  It is just I know from first hand experience that agents and prosecutors rarely seem to be motivated by such notions.  

It would be interesting to understand the factors that were considered within DOJ-OIG that dictated that this matter to remain “in house” within an audit component rather than being referred to the US Attorney’s Office or USDOJ Criminal Division.  While patience and forgiveness are wonderful traits we don’t often see those traits exhibited as strongly as they seem to have been exhibited here and matters like these when reviewed by new leadership could contribute to a view that there was somewhat lax enforcement of grant spending in recent years.

Update: DOJ OIG Audit of People for People, Inc., Results in Repayments Totaling More Than $554,000 Department of Justice (DOJ) Inspector General Michael E. Horowitz announced today that People for People, Inc., of Philadelphia, PA, has made cash repayments of more than $554,000 to the DOJ as a result of a DOJ Office of the Inspector General (OIG) grant audit. The OIG’s audit report, which we released in 2013, assessed People for People’s management of two grants from the DOJ Office of Justice Programs (OJP). These grants were intended to fund mentoring programs for children of prisoners. We concluded that People for People had not complied with various grant requirements, and we identified $893,445 in unallowable and unsupported grant expenditures. The report included 13 recommendations to improve People for People’s grant management and address these questioned costs. Since the audit, People for People has worked closely with OJP to implement all of our recommendations for management improvements and provided us with additional documentation sufficient to address approximately $339,000 of the questioned costs. The more than $554,000 in cash repayments announced today were made to address the balance of the questioned costs, which primarily related to expenses for which accounting records were insufficient, salary payments that were unallowable, and payments for rent, telephone bills, and other indirect costs that had not been approved by OJP. The OIG’s August 2013 report is available on the OIG’s website at the following link: https://www.oig.justice.gov/reports/2013/g7013007r.pdf.

 

Trade Risks (Part 3): Trade Preference Programs

by Janet Labuda

In recent hearings on Capitol Hill, Peter Navarro of the National Trade Council talked about the need for free, fair, and reciprocal trade agreements. According to Secretary of Commerce, Wilbur Ross, the United States, Canada, and Mexico will engage in discussions to modernize the North American Free Trade Agreement starting in early summer.

As we all know, the United States canceled its participation in the multi-lateral Trans-Pacific Partnership agreement, stating that any new agreements would most likely be bi-lateral in nature. Regardless of how the state of play turns out, the ability to administer, monitor, and enforce these agreements will be crucial to their success.

Currently, the United States has free trade agreements with twenty countries. In addition, there are legislative initiatives such as the African Growth and Opportunity Act,  the Caribbean Basin Initiative, and the Haiti HOPE Act that are meant to provide an economic stimulus to the foreign countries involved, if certain conditions are met.

There are two rules of origin that enter into the trade process, one for non-preferential treatment, and one for preferential treatment of goods. What is basic to the use of any preferential agreement is the description of the product to enable an accurate classification in the Harmonized Tariff Schedule. The classification, linked to the country of origin, will be key to meeting the requirements or conditions necessary to claim a benefit under a preferential trade program. It should be noted that origin, or where the product was made, as opposed to where the product was purchased or obtained is what drives preference.

In general, legislative trade programs tend to have easier preference requirements compared to negotiated Free Trade Agreements (FTAs). Most FTAs contain similar origin requirements which include:

  • Employing the “wholly obtained” criterion for goods that are wholly the growth, product, or manufacture of a particular country. On the other hand, for goods that consist in whole or in part of materials from more than one country, the majority of U.S. preferential rules of origin schemes are based:
    • on a change in name, character, and use (substantial transformation) and
    • on a required minimum local value content; unless specified otherwise, the cost of foreign materials may not be included in local value content unless they undergo a double substantial transformation.
  • Other preferential rules of origin (e.g., NAFTA preferential rules of origin) are based on a tariff-shift method and/or regional value-content method for goods that are not wholly obtained from the applicable region or country.

Therefore knowledge of the origin of various components will be key to obtaining preferential treatment.

One of the more complex rules involves the manufacturing of wearing apparel. While many exceptions can be negotiated, the basic rule for textile imports claiming preference include a yarn forward rule of origin. This means that the yarn must originate in a partner country, the downstream fabric production must be originating in a partner country, and the assembly must occur in a partner country.

It does not matter which rule of origin you are claiming or for what product. What matters is that everyone in the supply chain understands the conditions of preference and possesses documentary evidence supporting the preferential claim of reduced, or duty free, treatment. It is imperative that all participants in the supply chain know that a claim of preference under a special trade rule will be made.  Each participant in the supply chain needs to understand what documents are required to show production, to support the claim. Enforcement of trade preference programs is complex; traditionally non-compliance has often exceeded 20% of claims reviewed.  In most instances the participants in the supply chain failed to maintain adequate records.

It is recommended that for every product for which a preference will be claimed, a manufacturing log be created and updated as any changes to the production occurs.  Begin with the purchase order that provides an in-depth description of the final product. Identify components used and their origin.  Describe each step of the manufacturing process, and maintain backup documents showing the process from beginning to end.  This will go a long way in effectively dealing with Customs inquiries as both Congress and the Administration are calling for stepped up enforcement of U.S. trade laws.