Washington Post Staff Writer
Wednesday, February 20, 2008; Page 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
stealing larger and larger 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 any 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.
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.
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.
