Daylight in the Swamp

From the Wall Street Journal (via the EarlyBird):

U.N. Fires Officials At Its Afghan Fund

By Dion Nissenbaum

KABUL—The United Nations fired three officials running its $1.4 billion Afghanistan police trust fund as the first step in what is expected to be a broader shake-up at the program currently facing an internal investigation of mismanagement, according to U.N. and Western officials.

Problems with the Law and Order Trust Fund for Afghanistan became public last month, when The Wall Street Journal reported that international donors were concerned about possible abuses at the fund. The trust fund's main contributors are the U.S., the European Union and Japan.

While UNDP officials initially dismissed Journal reports about mismanagement allegations at Lotfa, the U.N. now says that its own investigation of problems at the fund preceded these articles—and that it is taking allegations of abuse seriously.

In other news, U.N. officials were outraged to discover that Spinal Tap isn’t a real band . . . .

Diversity is Strength! It’s also . . . corruption in public contracting.

From Sunday’s Dayton Daily News:

‘Disadvantaged’ firm wins millions in public contracts Daily News investigation brings up questions of firm’s true ownership. A wealthy developer, David C. Oakes, and his wife controlled a Washington Twp. company that won millions of dollars in public contracts under a federal program that gives a leg up to companies owned by disadvantaged people, a Dayton Daily News investigation found. Developer and civil engineer David C. Oakes and his wife, luxury-home builder Shery B. Oakes, controlled TesTech Inc. for years while the engineering company sought lucrative tax-payer-funded contracts claiming Egyptian-American Sherif Adel Aziz of Washington Twp. was the owner, the Daily News found. Egyptians are not a protected minority group under the Disadvantaged Business Enterprise, or DBE, program.  However, Aziz gained entry into the program as an African-American, saying he could trace his heritage to an African Nubian tribe through his religion.

Let me explain how this worked ten years ago.  Businesses that achieve DBE status are allowed to win public contracts at up to 10% more money than the actual lowest bidder.  The reason I know this is because at a major Air Force installation on the Florida panhandle, the contract for base services had been held by the ManTech corporation for a number of years.  But one year, the contractors started identifying themselves by a new name (I forget what; doesn’t matter in this context).  It turned out that a DBE had gotten the contract, and then turned around and subcontracted the entire operation back to ManTech, taking a 10% cut for themselves and . . . well, just themselves actually.  The contract winner didn’t actually have any employees nor any interest at all in actually doing the work.  All they had was a Designated Victim who could overbid by the 10%.

Keep in mind, none of this was a secret.  It was apparently entirely lawful.

Continuing . . .

Federal and state officials are investigating possible violations of DBE law by Aziz and have questioned TesTech’s relationship with two other companies controlled by David and Shery Oakes:  CESO Inc. and Design Homes and Development Co., the Daily News has learned. The newspaper's investigation, which followed a July 7 raid by FBI and federal transportation agents, uncovered a pattern of activities that raises questions about the true ownership of TesTech, and whether Aziz runs the company as he has repeatedly told government officials. For example: At the same time Aziz was seeking disadvantaged status in 2004 and calling himself the sole owner of TesTech Inc., Shery Oakes was telling a different government arm that she and David Oakes owned TesTech.  Shery, who like Aziz is an Egyptian-American, and David, who is white, are too wealthy to qualify for DBE status. Shery Oakes was twice listed on 2007 campaign finance reports ad TesTech’s owner.  David Oakes also signed paperwork filed with the Ohio Department of Health as TesTech’s president years after it received DBE status. Federal law requires that DBEs be independent from any other company to ensure that those qualifying for disadvantaged status actually run the business.  Yet a company owned by David Oakes, CESO Testing Technology, for years held federal and state licenses on equipment needed in TesTech’s work.  The two companies also had the same headquarters and shared letterhead, personnel and equipment. The name TesTech appears interchangeably with CESO Testing Technology and CESO Inc. in documents the companies filed with government entities.  Some documents list David Oakes as Aziz’s boss.  And though CESO Testing Technology was doing business under the TesTech name in Ohio, it never filed the required registration with the state. Neither Aziz nor the Oakeses agreed to be interviewed for this story, though in a prepared statement released Sept. 23 Aziz said, “I am currently and always have been the sole owner of TesTech Inc.” TesTech provides environmental assessments and a variety of engineering services that include drilling, field and laboratory testing and inspection work at construction sites.  The company’s public clients include Dayton International Airport; Dayton Public Schools; the county engineers in Montgomery, Warren and Greene counties; Wright-Patterson Air Force Base and the Veterans Affairs Medical Center. The company also won engineering work on federally funded highway projects, including reconstruction of Interstate 75 through downtown Dayton.  Private sector clients have included WalMart and Target.  According to its website, TesTech has 85 employees in Ohio, Michigan, Kentucky, Indiana and Missouri. The company reported annual sales in 2009 of $5.7 million, according to documents Aziz filed with the city of Dayton. The DBE program that TesTech used to win public contracts was meant to redress discrimination.  It gives small businesses owned by women, members of certain minority groups and other disadvantaged people preferential treatment in winning government contracts. The federal government has an “aspirational goal” of giving DBE companies 10 percent of contracts funded by the U.S. Transportation Department, said Steve Faulkner, spokesman for the Ohio Department of Transportation, which administers the program in Ohio. “Having DBE status gives you a piece of the pie,” said Eric Chaffee, who chairs the Project for Law and Business Ethics at the University of Dayton Law School. Penalties for DBE fraud can range from fines and restitution to exclusion from federal contracts and even imprisonment.  The Transportation Department’s Inspector General in fiscal 2008 helped to obtain 67 federal indictments, 09 convictions, 104 administrative actions against companies and the collection of $544 million in fines and restitution. More recently, the g0vernment stepped up enforcement after the Government Accountability Office in 2009 and 2010 found fraud and abuse in other federal contracting set-aside programs. “The main group that gets hurt (by DBE fraud) is the DBE owners who aren’t fraudulent,” said Tim Lohrentz of the Insight Center for Community Economic Development in Oakland, Calif.  Fraud also puts legitimate contractors of all races at a competitive disadvantage, he said, and “it puts doubt in the public mind about the program as a whole.”

Can’t have doubt about the program, now can we.  How touching the concern about the harm to “legitimate contractors of all races”, when putting white contractors at a “competitive disadvantage” is the point of the whole freakin’ program!

Continuing . . .

Federal Raid On July 7, federal agents executing a sealed warrant removed boxes from the Galleria building at 8534 Yankee St.  The building, which is owned by the Oakes-controlled Yankee Partners LLC, houses the headquarters of TesTech, CESO Inc., and Design Homes. Aziz, in a statement released after the raid, said, “We have been in discussions with the DOT over the last few years, responding to their questions about our company and we have cooperated fully.” Federal officials wouldn’t comment and have filed no charges. The Montgomery County Republican Party also has its headquarters in the Galleria building, paying $1000 a month in rent.  Party Chairman Greg Gantt said he moved the headquarters there last year after seeking out a landlord who was supportive of the party. The Oakeses and their companies are major political donors, contributing at least $79,700 since 2002 to the county GOP and mostly Republican national, state, and local candidates. “I don’t see any real connection between whatever issues are going on with the Department of transportation and our leasing space from (the Oakeses),” Gantt said.  “Based on my personal knowledge with them and what personal conversations we have had, they have a conservative Republican philosophy and that’s why they are supportive (of Republicans).”

I tried looking up the Oakeses on OpenSecrets.org, but all I could find was about $2500 in donations to congressman Mike Turner.

[Boring section about case details deleted.]

Continuing . . .

Minority heritage questioned Ohio and federal transportation officials are moving to strip TesTech of its DBE status.  On March 18, ODOT sent a letter to Aziz giving him the reasons for the decertification:  Officials believe he is not a member of a recognized minority group, makes too much money to qualify and isn’t the true majority owner. Aziz appealed the finding, signing the letter “president and Sole Shareholder” of TesTech.  A November hearing is expected. Aziz won the DBE certification on appeal in 2005 after being turned down by the state in 1998 and 2004. To be eligible for DBE status, companies must be at least 51 percent owned by socially and economically disadvantaged people, and those owners must be in control of day-to-day operations.  There are limits on a company’s gross receipts, and the personal net worth of a disadvantaged owner cannot exceed $1.3 million, an amount that was increased in January from $750,000.

Right.  Because having a net worth of six times the national median just isn’t enough.   The truly disadvantaged have a net worth ten times the median.

TesTech benefited greatly from its DBE status.  It’s impossible to know how much in taxpayer money the company was paid or how much it obtained as a DBE because TesTech did business with so many government entities.  But a Daily News review of area and state contracts found TesTech was paid at least $4.7 million since 2003 by the Ohio Department of Transportation, Montgomery County, the city of Dayton and Dayton Public Schools. TesTech’s DBE status assisted it in getting much of that work, contract documents and interviews show.

Um . . . duh?  What would be the other reason to have DBE status?

Continuing . . .

TesTech was incorporated in Ohio in 1997 by local attorney James Weprin, who has incorporated various Oakes companies.  After being turned down as a DBE by the state of Ohio in 1998, the company gained limited DBE status in 2002 through the Columbus Airport Authority and a year later through the Cincinnati/Northern Kentucky International Airport.  After Ohio approved TesTech as a DBE in 2005 it was certified by Michigan and Kentucky.  Aziz withdrew TesTech from Michigan’s DBE program in 2009 and the company was decertified by Kentucky in 2010 after TesTech briefly dropped out of Ohio’s program. Aziz, 49, holds bachelor’s and master's degrees in engineering, respectively, from Egypt’s Cairo University and Wright State University.  He was naturalized as a U.S. citizen in 1991.  Aziz and his wife, Dr. Nancy Zaki, own a $643,390 Washington Twp. home built on land they bought from Shery and David Oakes Ltd. in 2004 according to the Montgomery County Auditor. Aziz gave sharply different versions of his net worth to two separate government entities last year. In April 2010, when he applied for the city of Dayton’s set-aside programs for small, disadvantaged and minority businesses, he said he had a negative net worth of $46,145.  But when he reapplied in October 2010 for DBE status in Michigan, Aziz stated his net worth of $470,697.

I don’t see any reason to believe either of these numbers, but it says about the state of mortgage lending when an Egyptian immigrant can borrow that kind of money with so little capital.

[More boring case history deleted.]

Continuing . . .

The Oakeses live in their $2.3 million home in Washington Twp. where they hosted a major fund-raiser for the American Cancer Society, the Cattle Baron's Ball, in August 2010. Shery, 51, and her family emigrated from Egypt in 1965 and she was naturalized in the United States in 1974.  Her father, Bushra Migally, was a professor of economics at the University of Wisconsin, where Shery earned a bachelor's degree in business administration. In 1987 she established Design Homes and Development Co., the most high-profile of the couple's many companies. In 2007 reality TV star Anna Nicole Smith's lavish post-funeral reception was held at a $ 14.9 million vacation property in the Bahamas built by Design Homes and owned by Shery Oakes. It is not clear if she still owns the property. Shery also is chief executive of DHDC Inc., a real estate, construction and civil survey services company. She successfully applied for Minority Business Enterprise certification through the state for DHDC, stating she is an African-American. The MBE program, which does not place limits on personal net worth, opens doors to set-asides for public contracts but not the federally mandated access to the big pot of transportation money available to DBE companies. In 2004 Shery sought state assistance for construction of a new headquarters for the various Oakes companies. In her application, she identified the "Oakes Companies" as CESO Inc., CESO Testing Technology, TesTech Inc. and Design Homes - "all owned by David and Shery Oakes." "All of the Oakes Companies work hand in hand for each other in services,” she wrote in the application filed with the Ohio Department of Development. “No changes in ownership will occur.” That same year Aziz applied for federal DBE status, telling ODOT he was the owner of TesTech.

Does anyone still get rich by creating value anymore?  Or is it always just value transference.

[More boring ownership history deleted.]

Concluding . . .

Troubling questions Experts on DBE fraud say the results of the Daily News investi­gation raise troubling questions about the true ownership of Tes­Tech. "It certainly sounds like you have an affiliation problem here," said Edward DeLisle, a Philadel­phia attorney who specializes in DBE fraud cases. "The highest officer has to be the disadvantaged person. It (the title of president) certainly would signify that he (Oakes) has control." DeLisle said fraud in DBE con­tracts is becoming more common. In today's down economy, "you're seeing companies, just to stay alive, creating companies run by people that claim to be disad­vantaged," he said. "Companies are getting desperate, especially in the construction industry where the private industry has pretty much dried up." The U.S. Transportation Department's inspector general lists DBE fraud as its top priority. Common fraud schemes include use of front companies that do little or no actual work, or part­nering in illegal ways with DBEs, according to the IG website and a number of experts an the program. "The biggest one we see is, they will hire somebody to be the designated minority or veteran," said Earl Gregorich, who heads the Small Business Devel­opment Center at Wright State University. "(It's) kind of a straw man situation. It’s the most com­mon because it's the easiest one to pull off." Contact these reporters at (937) 225-7455 or lhulsey@DaytonDailyNews.com and (937) 225-2264 or tbeyerlein@DaytonDailyNews.com. Lynn Hulsey is an investigative reporter who covers government and politics for the Dayton Daily News. She is a graduate of the University of Dayton and has reported for the paper since 1995. Tom Beyerlein has won state and national journal­ism awards for investigative business reporting.

Let’s review the yummy diversiness:

• First generation immigrants claiming benefits for “discrimination;”
• Politically connected real estate developers;
• Racial redistribution at the expense of whites; and
• Government corruption.

When I first heard of this story, I almost couldn’t believe it.  Not because the story is unlikely; on the contrary, it’s all too likely.  But rather because I usually read about this kind of thing at Half Sigma, or iSteve, or VDare.  But in fact, this one article is the only reporting in the country on the Oakes/Aziz connection, and the bulk of it is behind the Daily News subscriber firewall.  I only found out about it because I have friends in Ohio.  It’s almost as if the media don’t want us to know about corruption in DBE contracting.

U.S. Companies Confusion over the Applicability of Afghani Tax Exemptions to DOD Contractors

SECRETARY OF DEFENSE CORRESPONDENCE ROUTING SLIP

Action Agency: UNDER SECRETARY OF DEFENSE FOR ACQUISITION, TECHNOLOGY & LOGISTICS Action Required: REPLY DIRECT - COMPONENT HEAD MUST SIGN Coordinate With: GC USP Document Type: INCOMING Special Instructions: FORWARD COPY OF REPLY TO CMD, R00M 3C843 Subject: U.S. COMPANIES CONFUSION OVER THE APPLICABILITY OF AFGHANI TAX EXEMPTIONS TO DOD CONTRACTORS

Suspense Date: July 1 2011 Routing Date: June 13 2011 CONTROL #: OSD 07202-11

INFORMATION DISTRIBUTION OFFICE DEPUTY SECRETARY OF DEFENSE EXECUTIVE SECRETARY EXECUTIVE SECRETARY REAR UNDER SECRETARY OF DEFENSE FOR POLICY UNDER SECRETARY OF DEFENSE, COMPTROLLER UNDER SECRETARY OF DEFENSE FOR PERSONNEL & READINESS DIRECTOR, ADMINISTRATION & MANAGEMENT DEPARTMENT OF DEFENSE GENERAL COUNSEL CHAIRMAN OF THE JOINT CHIEFS ,OF STAFF SECRETARY OF THE ARMY SECRETARY OF THE AIR FORCE SECRETARY OF THE NAVY OSD 07202-11

 

---

Marion C. Blakey
President and Chief Executive Officer
AEROSPACE INDOSTRIES ASSOCIATION
1000 Wilson Boulevard, Suite 1700
Arlington, VA 32209-3928
(703) 358-1000
June 8, 2011

The Honorable Hilary Rodham Clinton
U.S. Department of State
2201 C Street, NW
Washington, DC 20520

The Honorable Robert M. Gates
U.S. Department of Defense
1000 Defense Pentagon
Washington, DC 20301

Dear Secretary Clinton and Secretary Gates:

On behalf of the more than 350 members of the Aerospace Industries Association (AIA)I am writing this letter to raise an issue that is having a serious impact on U.S. companies supporting U.S. Government (USG) military operations and foreign policy in Afghanistan. The issue concerns the confusion over the applicability of Afghani tax exemptions to Department of Defense (DOD) contractors. The DOD's position is that the exemptions apply to both DOD prime contractors and their subcontractors, and the Afghani Ministry of Finance (MOF) Is taking the Position that the exemptions only apply to DOD prime contractors. The potential impact has ranged from the detention of contractor personnel and seizure of contractor property, contractors being precluded from performing work and DOD treating the taxes as "unallowable, to otherwise avoidable tax audit compliance costs. We respectfully request that the DOS and DOD move to immediately resolve this issue with the Afghani government. As you are aware, paragraph four of the U.S. - Afghanistan Bilateral Agreement, ratified by the Afghani Government through Diplomatic Note Number 202 on May 281 2003, provides that

The Government of the United States of America, its military and civilian personnel, contractors and contractor personnel shall not be liable to pay tax or other similar charges [landing, navigation, over flight or parking charges or overland transit fee or tolls] assessed within Afghanistan.

Although the language in the Bilateral Agreement (Note 202) seems to imply that USG subcontractors are not liable for taxes, the MOF informed businesses performing work under DOD contracts that they must collect Afghani taxes from their subcontractors or their business 1icerses will be revoked. Once a license is revoked, the MOF can remove the contractor from Afghanistan, detain contractor/subcontractor personnel, and seize equipment. Any of these actions will send a dangerous message to the contractor community and, in turn, will adversely impact our ability to support U.S. foreign policy and military operations in Afghanistan.

Both the DOD General Counsel, In a March 28, 2011 fact sheet, and the Commander of International Security Assistance Force/U.S. Forces - Afghanistan, by letter to the MOF dated March 9, 2011, have confirmed that under the Bilateral Agreement (Note 202) and Military Technical Agreement, DOD contractors, subcontractors and their non-Afghani employees are exempt from taxation by the Government of Afghanistan. This position competes with the position by the MOF. As such, the DOD has instructed its contractors and their subcontractors to ignore Afghani tax bills - effectively making the taxes, when paid, unallowable costs.  As a measure of caution, individual companies may request private letters of rulings from the MO seeking tax exemption status in the hopes that the MOF would agree. This precautionary measure, regardless of how the MOF rules, results in additional contractor costs that the DOD may also view as unallowable. If the taxes are required and are deemed as unallowable there will be a negative financial impact on the DOD contractors.

In addition, DOD contractors and their subcontractors are incurring tax audit compliance costs -- costs that would be avoided if there was a consensus between the MOF and the USG. Simply stated, the confusion has led to go/no go decisions for DOD contractors and their subcontractors.

Finally, certain DOS programs are taxable and contain DOS programs an exempt from Afghani taxation, creating an additional layer of confusion. There is no benefit to the USG when contractors receive different tax treatment depending an the agency they serve. It is our view that the preferred outcome is that all USG contractors have the same tax-free treatment regardless of which USG agency has contracted for their services.

We strongly request that the DOS and DOD work together to resolve this issue with the MOF, including obtaining the MOF's acknowledgement that the USG's position applies to all contractor work in Afghanistan since 2001 and that rulings from or other filings with the MOF are not required to establish tax exemptions for USG work. We would prefer that all USG contractors, both prime and subcontractor, working an behalf of the USG in Afghanistan, be exempt from all Afghani taxes (corporate, business profit, personal, etc.). However, if the USG decision is that USG contractors must pay Afghani taxes, contractors should be reimbursed for those taxes by the USG. Either position is workable, but the current confusion cannot be sustained. I would be happy to discuss this important issue further with you or your designated representatives at your convenience.

Best regards,

Marion C. Blakey

Power Corrupts

Steve Sailer points to a 2001 AP article on the conviction of a Chicago policeman for heisting jewelry stores:

Prosecutors had said previously that [former chief of detectives William]Hanhardt, although retired from the force, had been able to make use of police computers to get information about such matters as car rentals by jewelry salesmen. Many of the thefts were from automobiles parked by unsuspecting salesmen.

If you had asked me, I would have guessed that if police wanted to look at the records of a rental car company, they would have to appear before a magistrate, show probable cause, and obtain a warrant. I would have then conceded that, if the rental car company is not the subject of investigation, then the detectives should be allowed to see the records with the company's cooperation. But come to find out, police can see rental car records in real time from their own desks.

This is way too much power for the police to have, precisely because of this kind of scenario. There just isn't enough "check and balance" to put obstacles in the way of, not only rouge rogue policemen, but anybody else that can gain access to the police computers. At least the requirement that detectives physically visit the agency and formally make a request puts more people in the loop, and makes the bad actors easier to spot.

I'm so pissed, I can't even think of a clever title to this post

This makes me want to throw up:

NEW YORK – The many Bernard Madoff investors who withdrew money from their accounts over the years are now wrestling with an ethical and legal quandary.

What they thought were profits was likely money stolen from other clients in what prosecutors are calling the largest Ponzi scheme in history. Now, they are confronting the possibility they may have to pay some of it back.

The issue came to the forefront this week as about 8,000 former Madoff clients began to receive letters inviting them to apply for up to $500,000 in aid from the Securities Investor Protection Corp.

Lawyers for investors have been warning clients to do some tough math before they apply for any funds set aside for the victims, and figure out whether they were a winner or loser in the scheme.

Hundreds and maybe thousands of investors in Madoff's funds have been withdrawing money from their accounts for many years. In many cases, those investors have withdrawn far more than their principal investment.

"I had a call yesterday from a guy who said, 'I've taken out more money then I originally put in, but I still had $1 million left with Madoff. Should I file a $1 million claim?'" said Steven Caruso, a New York attorney specializing in securities and investment fraud.

"I'm hard-pressed to give advice in that situation," Caruso said.

I'm hard-pressed to keep my breakfast down.

Let me make it personal: 2008 left my investment portfolio about $50K poorer than it found it, roughly 40% of its value, about the market performance. Nobody is going to jail over these losses, and no one has been indemnified. These are the risks of equity investing.

Madoff's clients, in contrast, invested with a criminal, and furthermore someone that they probably suspected as a criminal. This criminal did, in fact, pay out profitably some of his early investors with the funds of later investors.

It requires incandescent sociopathy for such people to even consider going to this outfit, the "Securities Investor Protection Corp.", which I suspect is a codeword for "American taxpayer", to ask that their remaining balance with Madoff come out of my pocket and into theirs.

So here is my counter-proposal:

1. First, whatever link that the Securites Investor Protection Corp. (hereafter SIPC) has to the treasury should be severed. If investors what insurance against fraud, they should pay premiums like everybody else.
2. Second, the SIPC should take all necessary legal action to recover from Madoff's early investors every dime of profit they extracted.
3. Third, from such recovered funds, and whatever other funds that the government can extract from Madoff, the SIPC should pay out no more than $.60 on the dollar to Madoff's victims. This is the going rate of return for 2008, and they would be no more poorer than if they had invested in an index fund. This, until the money runs out. After that, they can take their pick of Madoff's appendages.

It Sucks to be a Minion

The recent arrest of the Democrat governor of Illinois gave me a thought, which might even be original:

There are powerful parallels between the Clintons and the Obamas and the effects that their rise to the presidency had on their erstwhile associates. In both cases, the men (and their wives) came from humble backgrounds; in both cases they saw (or, at any rate, used) politics as a means of making money. In both cases, they (and their wives) were deeply connected to various schemes of graft, sometimes shading into corruption, that enriched themselves and their close associates.

In both cases, their associates played important roles in their early political careers. Without knowing the details, I speculate that the associates rejoiced at the prospect of these men off to Washington: just think of the money that could be made there!

Except . . . it didn't turn out that way. In both cases, power brought visibility, and with visibility comes scrutiny. While the candidates themselves were unhindered, the associates not only saw no profit, but faced prison in the bargain.

The takeaway is this: both the national media and federal law enforcement have become adept at rooting out the kind of graft that otherwise goes unmolested at the local and state level. Those involved in such graft flourish only to the extent they can avoid the national spotlight. If their political front men (Clinton, Obama) go national, they themselves may escape the law, but they extend no cover: everyone else is in for some rough handling.

My other thought is this: is corruption really this universal? We're going two-for-two now for scandal-prone self-made politicians. (GWB doesn't count, obviously: he was already wealthy before he went into politics, and he didn't "come through the ranks".)