Posts filed under 'Government & Law'
Why do I keep pushing Hidden Treuhand, Shelley Stark’s new book, on all of you?
Someone wrote and asked me that today. First I want to assure you that I am not being paid one penny in fees, nor have I received any gifts or even any non-profit organization sponsored trips to Lichtenstein for talking about this book. (If you’ve been reading my blog for a while, you’ll get the humor intended.)
The author, Shelley Stark is not a relative, business associate or long time friend. In fact, I’ve never met her in person. When she wrote her first article for Truthout while completing her research and writing of Hidden Treuhand, I wrote about her article and upcoming book in my blogs. When I read what she had to say, a light went on for me, as suddenly I could see how the Hidden Treuhand could be used for the benefit of greedy individuals or corporations. As you know I’ve been keeping my radar on to alert for greedy and corrupt corporations.
Shortly before the book was published Ms. Stark saw my blog on the Internet and contacted me to ask f I would like to write about her book, with her permission. I suspected this was a very important book and am convinced of that now that it is published and I’ve had a chance to thoroughly read it. So I agreed to help her bring her book to the attention of my readers. We have become better acquainted though emails and the sharing of information and articles over the Internet spanning from the US to Europe, where Ms. Stark currently resides. She continues to be committed to trying to help right the terrible wrongs committed against individuals and groups of citizens with the use of these financial manipulation instruments, Hidden Treuhands.
If you are paying any attention to the news, you will be able to make connections between what is being reported, in some cases only surface coverage reporting, and what Ms. Stark is trying to raise an alarm about. We are all affected by this kind of fraud and greed. It is not going to be easy to get it addressed. Even those in our government in charge of oversight are lackluster in their motivation to learn about and go after this kind of crime, even though there are a couple of notable instances in the news now.
I would like to see this change. I would imagine many of you would also. That is why it is important that everyone read this book. What we don’t know will certainly have the ability to hurt us in this arena. Thank you for paying attention. GFS
Hidden Treuhand may be purchased at Amazon.Com and Barnes and Noble. You may also find it on the shelves of your public library.
Add comment January 2, 2010
World-Wide Letter Writing Campaign to Benefit Major Tax Fraud Whistleblower
National Whistleblowers Center
3238 P Street, NW
Washington, D.C. 20007
http://www.whistleblowers.org
FOR MORE INFORMATION, CONTACT:
Lindsey M. Williams
Office (202) 342-1903
Cell (570) 362-3179
lmw@whistleblowers.org
NWC Leads Worldwide Letter Writing Campaign for Independent Review of Major Tax Fraud Whistleblower Case
Washington, D.C. December 31, 2009. Today the National Whistleblowers Center (NWC) has begun another push for an independent review of the tax fraud whistleblower Bradley Birkenfeld’s case before he reports to jail on January 8, 2010.
Mr. Birkenfeld is an international banker who voluntarily came forward and blew the whistle exposing the biggest international tax fraud scheme in history. Despite the government’s acknowledgement that the UBS bank tax fraud scheme would have continued undetected without Mr. Birkenfeld’s voluntary disclosure, he was sentenced to 3 years and 4 months in prison for his actions.
The NWC is asking the public to send a letter to Attorney General Holder that calls for an immediate review of Mr. Birkenfeld’s case and warns that a jail term for Mr. Birkenfeld is “clearly not the way to encourage other whistleblowers to step forward.”
Please contact Lindsey Williams if you would like to arrange an interview with Mr. Birkenfeld and/or his attorneys.
Click here to read the Action Alert letter:
http://www.capwiz.com/whistleblowers/issues/alert/?alertid=14501711&type=ML
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For more information to understand the breadth and depth of banking and corporate financial crime and manipulation of money, their and ours, please read this book:
Hidden Treuhand is available through Amazon.Com and Barnes and Noble. This is a must read; you will be glad you did. Ignorance is not bliss in the financial world. GFS
Add comment January 2, 2010
Default Swaps and Other Issues of Our Financial Crisis
Add to all of this the movement of money and assets as well as the effective hiding of the real beneficiaries accomplished through Hidden Treuhand and multi-layered and multi-national accounts and this looks like only a side show. GFS
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Default Swap Reforms Roiled as Aiful Tests Settlement (Update1)
Link to original: http://www.bloomberg.com/apps/news?pid=20601109&sid=aANN.DJq5h1E#
By Abigail Moses and Shannon D. Harrington
Nov. 27 (Bloomberg) — Wall Street’s system for determining payments on derivatives linked to the debt of defaulted companies is showing cracks less than a year after securities firms changed practices to avoid “Draconian” regulation.
Credit-default swaps tied to Thomson SA, the Paris-based owner of film processor Technicolor Inc., paid some holders 30 percent less than those with contracts expiring a day later. In Japan, owners of swaps on Aiful Corp. haven’t been compensated, though one of its banks said the consumer lender skipped loan repayments. Dealers can’t agree whether to reimburse investors in Mexican cement maker Cemex SAB’s debt swaps.
Disparities are arising in spite of practices adopted in April and July to standardize settlements and curb risk in a market that exacerbated the worst financial crisis since the 1930s by contributing to the downfall of American International Group Inc. Analysts at Bank of America-Merrill Lynch, Barclays Capital and UniCredit SpA say changes are needed as dealers examine how to interpret existing rules to maintain investor confidence.
“The first cracks are being shown in the protocols,” said Edmund Parker, head of derivatives at Chicago-based law firm Mayer Brown LLP in London.
The rules are being tested as the global default rate rises. The rate for companies ranked below investment-grade reached the highest since the Great Depression in October and will peak at 12.5 percent next month, Moody’s Investors Service said Nov. 5.
Lawmaker Ammunition
Flaws in the system may provide ammunition to President Barack Obama and lawmakers who want to rein in derivatives, including credit-default swaps, which rise in price as investor confidence decreases and pay off when a borrower fails to adhere to its debt agreements.
Regulators demanded more transparency after the meltdowns 14 months ago of Lehman Brothers Holdings Inc. and AIG, two of the largest traders, froze credit markets and worsened the first global recession since World War II.
The swaps had been the world’s fastest-growing market, with contracts protecting against defaults on as much as $62 trillion at the end of 2007, almost 10 times the amount of the U.S. government’s debt outstanding, according to the International Swaps & Derivatives Association, a trade group based in New York. The swaps totaled less than $632 billion in 2001 and the figure is $26 trillion now.
Hedge fund manager George Soros has called the market “unsafe,” and billionaire investor Warren Buffett once likened the derivatives to “financial weapons of mass destruction.”
Revenue Stream
Banks are making changes to avoid stricter rules imposed by regulators, said Atish Kakodkar, a CreditSights analyst in New York.
“The risk of over-regulation is real,” Kakodkar said in a Nov. 15 research report. “Self-regulation in the credit derivatives market seems to be driven largely by the need to pre-empt any Draconian regulation.”
Five U.S. commercial banks, including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Bank of America Corp., were on track to earn more than $35 billion this year trading unregulated derivatives contracts of all types as of August, according to data compiled by Bloomberg.
Credit-default swaps are derivatives, contracts with values derived from assets or events, including stocks, bonds, commodities, currencies, interest rates or the weather. Banks, hedge funds and insurance companies use the swaps to insure bonds and loans against default or to speculate on the creditworthiness of countries and companies.
Failure to Pay
If a borrower fails to adhere to its debt commitments, bondholders who own swaps get paid the debt’s face value in exchange for the bonds. Those that don’t own the underlying bonds get the face value in cash minus the debt’s current market value as determined by industry-run auctions where holders of the securities sell them to the highest bidders.
Dealers and investors standardized the contracts this year to make them easier to trade through clearinghouses, which act as buyers to sellers and sellers to buyers, preventing a single default tripping a domino-like financial system catastrophe.
As part of that effort, ISDA formed regional committees of 15 dealers and investors in March to make binding decisions on when contracts are triggered. The committees base decisions on publicly available information such as regulatory filings, press releases and news articles. Swaps usually are triggered by one of three events in most countries: bankruptcy, failure to pay or debt restructuring, including a reduction or postponement in principal or interest. Under the new rules, traders eliminated restructuring as a credit event in the U.S.
Successful Auctions
Traders successfully auctioned debt to settle contracts linked to 41 companies and Ecuador’s government this year, with about half of those happening since ISDA created the committees.
“The determinations committee provides one place where we can resolve a lot of these issues centrally,” said Athanassios Diplas, global head of counterparty portfolio management in New York for Frankfurt-based Deutsche Bank AG and co-chair of the ISDA panel that wrote the protocols. “Imagine if we were to face all of this in the world where we had to arbitrate potential disputes bilaterally. That would be complete chaos.”
The new protocols helped eased the market’s stigma, with the net amount of protection bought and sold rising to $2.6 trillion as of Nov. 13, the highest since at least February, Depository Trust & Clearing Corp. data show.
Credit-default swaps on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings has fallen to 558 basis points, from as much as 1,100 basis points in March, according to JPMorgan Chase & Co. prices.
Thomson provided the first test of the procedures for settling contracts triggered by a restructuring in Europe when it said in August it was deferring payments on $72.5 million of 6.05 percent private notes due this year.
Multiple Auctions
The system for restructurings uses multiple auctions that set different payouts based on swap expiration dates. Dealers couldn’t settle the Thomson contracts with simpler failure-to- pay procedures that produce one recovery value because they were unable to prove the electronics company defaulted.
Asked in a July conference call with investors whether Thomson still owed the money, Chief Executive Officer Frederic Rose responded, “Since I am not a qualified lawyer, I prefer not to answer that question.” Marine Boulot, a Thomson spokeswoman in Paris, declined to comment.
To determine the size of the payouts on contracts covering $2 billion in debt, bonds and loans were split by maturity date ranges into three so-called buckets and sold at auction.
Contracts that expired on June 20, 2012 — the first bucket’s latest date — sold for 96.25 percent of the face amount, meaning swap holders received 3.75 percent of the amount covered. Swaps expiring a day later paid 34.875 percent because the debt in that bucket went for 65.125 percent.
Too Few Securities
Holders of June 20 swaps covering 10 million euros in debt got 375,000 euros, while those with June 21 contracts received almost 3.5 million euros. Swaps that terminated after Oct. 24, 2014, paid the most, 36.75 percent.
The disparity was a result of too few securities in the first bucket to settle swaps, according to Matthew Leeming, a London-based strategist at Barclays. “An imbalance of supply and demand for the deliverables can affect the recovery rate,” he said in a note.
Because they were part of industry indexes, swaps referencing the company “dwarfed the amount of Thomson debt,” said Teo Lasarte, an analyst at Bank of America-Merrill Lynch in London.
The more swaps there are, the more investors with stakes in the contracts need bonds to settle them. About 81 million euros- worth of debt was auctioned from the first bucket, compared with 221 million euros and 148 million euros from the second and third, according to data released by auction administrators Markit Group Ltd. and Creditex Group Inc.
Sufficient Debt
Lasarte favors changing rules governing indexes so companies in them have enough debt available to produce settlement auctions that don’t cause distortions.
“To strengthen the robustness of this product, there are some issues to be solved,” said Tim Brunne, a UniCredit strategist in Munich.
Leeming of Barclays said in a report to clients that the Thomson settlement “raises questions regarding the future of restructuring as a credit event.”
Banks that bought contracts on loans to Kyoto-based Aiful aren’t being paid because ISDA’s determinations committee ruled that there isn’t sufficient evidence to trigger swaps as the company and its lenders hold confidential restructuring talks.
Suspended Payments
Aozora Bank Ltd., one of Aiful’s creditors, said in a statement to the ISDA committee that the company “suspended scheduled payments of loan principal to all of its lenders” on Sept. 30. The committee rejected the request on Oct. 19 because the protocols only allow it to consider “publicly available information.” If the “sole source” of that evidence bought or sold swaps, it isn’t deemed publicly available. Aozora has said it owns some Aiful swaps.
Katsuyuki Komiya, a spokesman for Aiful, declined to comment.
Contracts protecting a net $1.36 billion of Aiful’s debt were outstanding as of Nov. 6, more than any other Japanese company, according to New York-based DTCC. As much as $238 million more of Aiful’s debt is protected through credit swaps based on indexes in which the company is a member. Aiful is meanwhile seeking to secure a credit line from Sumitomo Trust & Banking Co., its main bank, two people familiar with the matter said.
Aiful Swaps
The value of Aiful credit-default swaps that mature in December plunged on speculation they may expire without being triggered. Contracts protecting 100 million yen ($1.2 million) of Aiful debt from default through Dec. 20 dropped to 10 million yen upfront, from 55 million yen on Oct. 15, according to a trader who asked not to be identified because the prices are private.
The Japanese Association of Turnaround Professionals, which is mediating Aiful’s so-called alternative dispute resolution process, is forming a group of bankers, lawyers and government officials to study whether talks between companies and creditors on rescheduling debt payments should trigger swap payouts, said Miyako Hara, an executive secretary for the trade group.
The ISDA determination committee was asked on Oct. 9 to rule that swaps linked to Monterrey, Mexico-based Cemex should be paid out after the company agreed with lenders to extend the maturity on about $15 billion of debt for five years.
After four weeks of deliberations, the committee was deadlocked, and the issue will now be decided by an arbitration panel set up by ISDA. The panel will rule in December.
Struggling With Debt
The biggest cement maker in the Americas has struggled to repay debt since shipments started dropping in the second- quarter of 2006, before it paid $14.2 billion in July 2007 for Australian rival Rinker Group Ltd. Cemex has $19.67 billion of debt, according to data compiled by Bloomberg, and is rated B by Standard & Poor’s, five steps below investment grade.
Cemex spokesman Jorge Perez declined to comment.
The cost of credit-default swaps on Cemex surged as high as 1,500 basis points in March, or $1.5 million a year to protect $10 million of debt for five years, according to CMA DataVision, as the price of its 900 million euros of 4.75 percent bonds due 2014 dropped to 38 cents on the euro.
Credit-default swaps are “not a perfect product,” said J. Paul Forrester, a Mayer Brown partner and co-head of its derivatives and structured products practice. “These are difficult questions, and unfortunately as we continue to use this product and explore it we’re going to find that it has these sorts of issues,” he said.
To contact the reporter on this story: Abigail Moses in London at Amoses5@bloomberg.net; Shannon D. Harrington in New York at sharrington6@bloomberg.net;
Last Updated: November 27, 2009 07:26 ES
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For more information which will help you understand certain elements of of our Financial Crisis, please read this book:
You will be amazed and informed. Too many Americans are unaware of what is really going on in our banks and corporations financially. Hidden Treuhand is available at Amazon.com and Barnes and Noble. It is a must read. Some things that have seemed incomprehensible will suddenly begin to become clear.
Add comment January 2, 2010
More Corruption: Pentagons Mentoring Program Linked to Defense Contracting Firm
This is an interesting connection worth doing a bit more investigation into, as a lot of defense contracting corruption appears to be tied to the Pentagon and federal employees within the federal system who appear to have inappropriate relationships with defense contractors. GFS
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Pentagon’s Military “Mentoring” Program Closely Linked With Defense Contracting Firm
Wednesday 30 December 2009
by: Mary Susan Littlepage, t r u t h o u t | Report
The military’s senior mentor programs are part of a high-level review ordered by Defense Secretary Robert Gates and the subject of a report in USA TODAY. Earlier in December, Gates asked Deputy Secretary William Lynn to review whether mentors are overpaid and whether their work is a conflict of interest.
USA TODAY reported that the Colorado-based firm the Durango Group has an advantage over other consulting firms that try to win Pentagon contracts. That’s because the newspaper reported that the company has become a hub for retired officers who also are paid well by the military for their advice, and it produces more senior military mentors than any other company does. “Of the 59 former officers who work for Durango, 15 also serve as mentors,” the newspaper stated.
The retired officers are paid as Durango staffers to help private companies win and run Pentagon contracts, and the retirees are paid as military mentors by the military to help run war games, giving them access to classified strategies and weapons systems.
Durango’s mixing mentoring and consulting work shows that some mentors’ private interests overlap tightly with their military advisory jobs. “The firms’ mentors move seamlessly between roles as paid advisers to the services and paid consultants to defense companies in the same subject areas,” USA TODAY reported.
Therefore, Durango and the mentors it employs draw multiple income sources; they get paid by the military for advice and by defense contractors who want consulting help. Although the type of overlap isn’t illegal, some analysts say it should be.
A Senate subcommittee led by Sen. Claire McCaskill (D-Missouri) is investigating the military mentor programs, and Sen. John McCain (R-Arizona) said retired generals should be prohibited from participating in war games that have a bearing on the financial interests of their defense clients.
Last month, USA TODAY reported that “the military’s senior mentor programs have grown significantly in recent years, with little scrutiny from Pentagon leadership and none from Congress.”
For example, the newspaper reported that in addition to pensions of up to $220,000 a year, retired generals and admirals get paid up to $1,600 a day to be mentors, and many are earning more consulting for defense firms.
“About 80 percent of the 158 mentors identified through public records had financial ties with defense firms, but they’re not required to disclose those ties to the military or the public,” USA TODAY reported. “Because they are retained as contractors, mentors aren’t subject to the conflict-of-interest provisions that would apply if they were brought in as temporary federal employees.”
Defense consultants are not required to register as lobbyists if they don’t spend more than 20 percent of their time talking to Congress or the executive branch political appointees covered by lobbying disclosure rules. As a result, their fees, clients and activities typically are not disclosed to the public.
Durango’s connections were mentioned as its most valuable attribute when the company was bought in 2007 by Galen Capital Corp., a private equity firm.
According to USA TODAY, these days “Durango says it consists of about 70 ’senior associates,’ including 59 former senior defense officials.”
Add comment January 2, 2010
Add Depth to Your Understanding of Our Financial Crisis and Corruption
What is wrong with these people….AIG and our alleged government oversight? This is outrageous!
A reader sent the comment and article below.
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G. Florence,
It looks like the good citizens of this country are continuing to be taken for a ride on the public bailout money express train.
Article from the Miami Herald
AIG Approves Pay Package for CEO Benmosche
The Associated Press
NEW YORK — American International Group Inc. on Tuesday said it will go ahead with a previously announced pay package for its new CEO Robert Benmosche of $7 million in cash and stock.
Benmosche, who took over as CEO of the embattled insurer three months ago, will receive an annual salary of $3 million in cash and $4 million in AIG common stock under the pay agreement.
AIG is under close government scrutiny after receiving a bailout package worth up to $182.5 billion from the government in exchange for an 80 percent stake in the company. That bailout package also includes restrictions on compensation for the insurer’s 100 highest-paid employees.
Earlier this month, a Wall Street Journal report said Benmosche had threatened to leave his post as he struggled to deal with the heavy government oversight and restrictions on what the bailed-out company could pay employees.
Earlier this month Benmosche acknowledged frustrations with the oversight in a letter to employees but said he plans to stay on the job.
The Wall Street Journal reported online Tuesday that Benmosche signed a noncompete agreement, and reiterated at a board meeting his commitment to stay CEO. AIG didn’t immediately return calls for comment.
Benmosche, former CEO of MetLife Inc., took over as CEO in August, replacing Edward Liddy, who was appointed CEO after the government bailed out the insurer in September 2008. The CEO’s compensation deal was approved by Treasury Department pay czar Kenneth Feinberg.
In August, AIG said it was aware of potential conflicts of interest related to the hiring of Benmosche as its new CEO, and would deal with any conflicts as necessary.
AIG, which is selling off its business units to help repay the massive government loan, had been reportedly in talks with MetLife about a possible deal for all or part of one of AIG’s largest foreign life-insurance units. MetLife is the nation’s biggest life insurer by assets.
Benmosche, because of his former executive roles at MetLife from 1998 until 2006, remains a MetLife shareholder.
Under the pay agreement with AIG, Benmosche will also be eligible for a yearly performance-based bonus of up to $3.5 million in stock.
http://www.miamiherald.com/business/nation/story/1350379.html
Please read this book:
Hidden Treuhand is available at Amazon.com and Barnes and Noble. It is a must read. There is too much most of us don’t understand about what is going on beneath the financial crisis and the widespread corruption we are experiencing.
Add comment January 2, 2010
New Federal Task Force to Combat Financial Fraud
Task force to take up financial fraud cases
Group is created in response to wrongdoing that fed economic crisis
By Zachary A. Goldfarb
Washington Post Staff Writer
Wednesday, November 18, 2009
Top Obama administration officials on Tuesday announced a new federal task force to combat financial fraud after deciding that the number and complexity of investigations linked to the economic crisis require a more coordinated response from government agencies.
Created by executive order, the Financial Fraud Enforcement Task Force targets fraud related to mortgage lending and modification, securities law, stimulus spending and the government’s bailout of the financial sector.
“This task force’s mission is not just to hold accountable those who helped bring about the last financial meltdown, but to prevent another meltdown from happening,” Attorney General Eric H. Holder Jr. said at a news conference at the Justice Department.
The establishment of the new team comes as federal and state authorities investigate a wide array of potential wrongdoing linked to the financial crisis. But there have been few major cases so far. The government was dealt a blow last week when a jury acquitted two Bear Stearns hedge-fund managers of violating securities laws in one of the most prominent federal cases linked to the crisis.
The government has been trying to rebuild its investigative abilities in the financial area after many years of atrophy. The Securities and Exchange Commission has struggled to keep pace with the growth of the financial markets, and only in recent years have the Justice Department and FBI been assigning more investigators back to financial crime after years when resources were focused on counterterrorism initiatives.
“When you have information sharing among federal agencies, the government will be better able to bring enforcement actions,” said Alice Fisher, a former top Justice Department official now at Latham Watkins.
The Justice Department will lead the new task force, and officials from the Treasury Department, Securities and Exchange Commission and the Department of Housing and Urban Development will help oversee it. The group is planning to meet in the next 30 days.
“It’s not enough to prosecute fraud only after it’s become widespread,” Treasury Secretary Timothy F. Geithner said at the news conference. “We can’t wait for problems to peak before we respond. We’re seeking comprehensive financial reform to create a more stable, safer financial system and stepping up our enforcement strategy.”
Government officials noted that they had been able to bring a number of cases already this year. The SEC said it had doubled the total value of sanctions last year. Orders to return ill-gotten gains jumped to $2.4 billion as of Sept. 30 from $1.3 billion a year ago.
The fraud task force grew out of efforts dating to earlier this decade when President George W. Bush ordered the creation of a Justice Department task force to investigate wrongdoing at Enron after the energy company failed.
That task force eventually evolved into a Corporate Fraud Task Force, which is being replaced by the task force announced Tuesday.
Officials said the new task force will be more active with a permanent executive director. They said authorities from state and federal agencies will be in frequent contact and will discuss ongoing investigations in the hopes that they will be able to coordinate earlier in investigations.
“We would expect that this will enhance the chances that you will be seeing a significant number of investigations and cases emerging,” said David M. Zornow, a former federal prosecutor who now is a partner at Washington law firm Skadden Arps.
Add comment January 2, 2010
Foreign Worker Program Is A Mess!
My observations regarding this are Microsoft’s operations. The work-visa program advocated and worked out with the federal government by Bill Gates for his company included the following provisions as I understand it:
1. Since Mr. Gates claimed he could not find enough qualified and competent workers here in the states, he needed to hire foreign nationals to work in Seattle/Redmond and other company locations.
2. Foreign nationals would be recruited by Microsoft in India, Asia and other locales, and brought to the USA to work.
3. Said foreign nationals would be allowed to work for Microsoft only at a salary and under working conditions unilaterally decided by Microsoft for a period of 7 years. Seven years only. At the end of said indentured period, foreign national workers would be put on a plane and deported back to their country of origin. They would have to get on the list and seek legal entry into the USA like any other foreign national.
4. Foreign national workers would have no right to quit or gain employment in the USA with another company offering better pay or working conditions. Employees would be forced to continue employment for Microsoft for that seven year period of indenture. If an employee tried to seek other employment or quit, they would be rounded up, put on a plane and deported back to their country of origin. I don’t know if they are punished by not being allowed to legally gain entry into our country again at a later date or not.
5. I don’t know what happens if the foreign nationals marry and have children born in the USA. Based on how illegal immigrants are being handled who are here from countries south of our border, it seems likely there may be some loopholes. Or perhaps certain foreign workers (legal ones) are being discriminated against by comparison to how some other foreign workers (illegal) are being treated.
This is a perversion of an indentured servant program. Our own countrymen employed the use of this technique to gain needed employees early in US history. At least at that time, at the end of the seven years of indenture, a person was free to do and go wherever they wished, under the laws of immigration as they pertained in some form back then.
Anyone else have more detailed information and experiences? Corrections? Observations?
GFS
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Work Visa Program Is Rife With Problems
Monday 14 December 2009
by: Mark Morris | The Kansas City Star
Editors Note: This story is the third in a five-part series by the Kansas City Star. Part one in this special investigation provided an overview of a broken US system to stop human trafficking and part two covered the plight of women sold into the sex industry in the US. – sg/to
The largest suspected human trafficking ring ever uncovered by U.S. law enforcement brought its victims into the country on commercial airliners, using completely legal documents, records show.
For almost a decade, three companies and 12 accused human traffickers charged in a landmark Kansas City human trafficking case allegedly took advantage of a guest worker visa program that is easy to defraud.
An investigation by The Kansas City Star found it’s a loophole-ridden system that permits traffickers to file transparently bogus paperwork that goes virtually unchecked by at least three federal agencies.
With approved visas in hand, traffickers around the country have brought thousands of workers to the United States, where they are often exposed to hazardous living and working conditions and paid just pennies an hour.
And the U.S. Labor Department — the agency charged with protecting workers — does little to root out the problems, even returning almost $200 million earmarked for visa fraud detection to the federal Treasury.
As part of its investigation, The Star obtained hundreds of pages of previously undisclosed investigative records from the alleged Kansas City conspiracy and examined thousands of pages of wiretap transcripts and other documents from labor trafficking cases around the country.
The stories of abuse include workers in Missouri being injured on the job and going without adequate medical treatment because their employers didn’t buy workers’ compensation insurance; employers requiring workers in Alabama to rent crowded apartments so shabby that they resembled “pig sties” while the trafficking schemes’ leaders lived in a $700,000 home with an air-conditioned doghouse; and women illegally working in a Tennessee motel paid so little that they were “dying of hunger.”
Federal prosecutors exposed weaknesses in the guest worker visa program as recently as May, when they announced human trafficking charges in Kansas City against the leaders of the Giant Labor Solutions conspiracy.
Prosecutors alleged that GLS and others brought more than 1,000 foreign workers to Missouri, stole their wages and exposed some to terrible living and working conditions. It’s the first human trafficking case in the nation filed under federal racketeering laws.
Some defendants in the GLS case allegedly heaped debt onto workers and threatened to have them deported if they didn’t illegally perform work that was not permitted under their visas.
Those victims came to the United States carrying visas issued by the government’s H-2B program, which funnels temporary guest workers into non-agricultural, seasonal jobs, such as those in the hospitality and landscaping industries.
At a recent court hearing on the GLS case, Assistant U.S. Attorney Cynthia Cordes said that flaws in the program make it attractive to criminals.
“The structure of the H-2B visa program makes it a prime vehicle for gross and widespread abuse,” Cordes said. “As evident by the indictment itself, the H-2B visa program offers a means to take advantage of international workers and empowers criminals to have the upper hand once the workers have arrived in the United States.”
To be sure, thousands of legitimate businesses use the H-2B program to find temporary, full-time help for peak periods when Americans are not available or do not want the jobs. For honest employers, the paperwork process can be arduous and painstaking.
But for a criminal labor broker with no scruples about falsifying applications, obtaining visas is simple. What’s more, federal labor officials admit they have no authority to enforce the terms of the contracts between foreign workers and the employers who bring them over.
During a recent debriefing with federal prosecutors in Virginia, Gabor Teglasi — a Hungarian illegally in the United States — bragged about how he and others exploited American guest worker visas to traffic thousands of foreigners to St. Louis and other cities.
“The United States deserved what happened in this case,” Teglasi said.
But instead of tightening the program, federal bureaucrats recently “streamlined” it so that guest worker visas could be approved more quickly and with even less oversight, The Star’s investigation found.
The ease with which the system can be defrauded allows criminals to use U.S. law to turn foreign workers into something very close to slaves, said Mary Bauer, legal director of the Southern Poverty Law Center.
“For too long, our country has benefited from the labor provided by guest workers but has failed to provide a fair system that respects their human rights and upholds the most basic values of our democracy,” Bauer said.
Red Flags Ignored
H-2B is a small visa program used by businesses that can’t find American workers to take temporary, full-time seasonal jobs. Workers with such visas clean hotels, shuck shellfish and teach youngsters to ski at Colorado ski resorts.
Given the size of the U.S. work force, the program is relatively tiny. Only 66,000 new visas are approved every year.
Until some recent rules went into effect, applications were submitted first to state labor agencies, which verified that employers had made good-faith efforts to hire Americans by advertising the jobs and interviewing applicants.
Criminals quickly found ways around that.
One East Coast visa fraud conspiracy simply scheduled interviews with U.S. applicants for inconvenient times, such as 6 p.m. on Christmas Eve. The few Americans who actually appeared reported later that the interviewers were “intimidating” and made the jobs sound “as bad as possible.”
Even false financial information sometimes doesn’t raise red flags.
In application after application, The Star’s investigation found that the U.S. departments of Labor, Homeland Security and State routinely certified and approved the applications and issued the visas.
Last year, Ilkham Fazilov, a Kansas City defendant in the GLS case, signed paperwork on behalf of Five Star Cleaning, asking for 87 H-2B visas.
In the application, Five Star contended that it had a gross annual income of almost $1.6 million and employed more than 90 employees since January 2007. The spreadsheets also gave a detailed accounting of its payroll and hours worked for the entire year of 2007.
A check by authorities with state incorporation records — available online without cost — would have shown that none of that was true. Fazilov didn’t incorporate Five Star Cleaning until Dec. 18, 2007.
While Five Star also claimed to have the money to pay workers once they arrived in the United States, a review of records by The Star showed that the company conducted no bank activity in 2007.
Government watchdogs also might have noticed that GLS and Crystal Management, two other companies charged in Kansas City, each submitted identical financial information on their visa requests.
Indeed, both companies reported the exact same gross annual income — $1,434,347 — and the same annual profit down to the penny — $125,414.11.
Examples outside of Missouri aren’t hard to find, either. In 2007, the government issued 25 H-2B visas for a Virginia contractor that provided workers to load trucks from a nearby manufacturing plant onto rail cars. But the plant had stopped producing trucks almost a year before.
Immigration lawyer Kent Felty, who represented trafficking victims in civil suits against an Oklahoma company, said he isn’t surprised that such red flags go unnoticed.
“None of the people involved in the H-2B process talk to each other,” Felty explained.
Searching for fraud can be time-consuming and expensive. But sometimes even having Congress appropriate millions to combat it isn’t enough.
Congress ordered the Department of Homeland Security in 2005 to collect a new $150 fee for H-2B visa applications and give a portion to the Department of Labor for fraud prevention and detection.
But that money never was spent, The Star’s investigation found.
The Labor Department allowed almost $200 million collected for visa fraud enforcement to lie dormant over the last two years, apparently because it questioned whether it could legally spend the money.
A Department of Labor spokesman said that much of that $200 million was earmarked to investigate fraud in another guest worker visa program. That money was returned to the Treasury, he said, because without complaints, the department has no authority to look for fraud.
The $200 million lapse was “unconscionable,” said the chairman of the U.S. House Committee on Education and Labor, Rep. George Miller of California. He added that rooting out fraud and abuse in guest worker programs must be a higher priority.
“Congress is working with the new administration to ensure that they will be able to use these funds to prevent fraud committed by unscrupulous labor recruiters, and businesses that exploit guest workers and deny jobs to U.S. workers,” Miller said.
In a statement to The Star, Secretary of Labor Hilda Solis pledged to improve her department’s fraud-prevention record.
“Ensuring compliance with our laws is a priority for this administration,” Solis said. “Any deficiencies in past strategies to achieve that end will be addressed, and we will continue to strengthen our efforts to ensure we are not only detecting foreign labor fraud and assisting in prosecuting offenders, but preventing criminals from taking advantage of the programs in the first place.”
Busting GLS
Investigative records recently obtained by The Star reveal that procedural safeguards in the H-2B visa program had little to do with uncovering the alleged GLS conspiracy.
Rather, the case broke open after federal agents followed up on tips from business associates of the accused conspirators.
On Oct. 11, 2007, two disgruntled business associates of alleged conspiracy kingpin Abror Askarkhodjaev opened the door to investigators. And while those associates looked on, agents tore through the Westport Road offices of GLS.
Poring through filing cabinets, investigators found labor contracts with more than a dozen hotels and golf courses between Overland Park and South Carolina, including the Westin Crown Center and two Kansas City area Hilton properties, the Doubletree and the Embassy Suites on the Plaza. Other than denying any wrongdoing, spokesmen for the hotels declined to comment on the case, citing the pending investigation.
Agents also scrutinized payroll records, visa applications and personnel files on foreign workers employed by GLS.
One of the associates pointed agents to computers that held digital copies of more payroll and employment data. A computer expert swooped in and copied the hard drives, which took investigators and prosecutors months to digest.
The agents’ next reported foray into the GLS offices came on April 15, 2009, the day after they interviewed an unhappy worker.
Alexis Julio Tejeda Encarnacion had been recruited in the Dominican Republic to work for Crystal Management, a company affiliated with GLS, according to authorities.
Encarnacion’s family had gone $3,000 in debt to send him to work in the United States. Arriving in February with 25 other Dominicans, he was told that he would instead be working for GLS, a violation of his visa.
Two days later, a GLS manager gathered the workers in a motel parking lot in Johnson County and sorted them by English-speaking ability. The five best English speakers, including Encarnacion, were to stay and work in Kansas City.
GLS loaded the rest onto vans and shipped them to a DVD manufacturing plant in Alabama. In a recent interview, Ronny Marty, a Dominican who worked for GLS at the Alabama plant, confirmed Encarnacion’s story.
“When we arrived in Kansas City they changed everything,” Marty recalled. “They said, ‘We don’t have any hotel jobs, but we have jobs with DVDs. If you don’t like it, you can go back to your ” country.’
GLS housed the five workers remaining in Kansas City in a two-bedroom apartment. Together, the workers paid GLS $1,500 a month for an apartment that the company rented for just $600.
Encarnacion lost a full 65 hours of wages over his first seven weeks of work because of deductions for his visa, uniforms and transportation.
Marty said he faced a similar situation in Alabama. “This guy was charging us for everything,” Marty said.
On Tax Day 2009, federal agents wired Encarnacion with electronic audio and video equipment and sent him to GLS offices to complain that he wasn’t making enough to help his family pay off the $3,000 debt.
According to a summary of the meeting, Viorel Simon, now a defendant in the human trafficking case, warned Encarnacion that if he quit his hotel job, GLS would cancel his visa and he would become an illegal immigrant.
Simon also refused Encarnacion’s plea for cheaper rent, transportation and visa fees.
“Simon told him that it was his problem,” according to the summary.
“Dying of Hunger”
If things go wrong for H-2B workers after they arrive in the United States, they quickly learn they have even fewer protections than migrant farm workers.
Already deeply in debt to a recruiter, the workers have no option of changing jobs and can’t use federally funded legal services available to guest workers in other visa programs.
Complaining often is futile.
As one of the top managers of a Virginia-based labor contracting firm, Dzmitry Krasautsau heard those complaints. Until last December, his job was to make certain that hundreds of foreign employees that his conspiracy had hired under the H-2B program kept going to work each day.
Krasautsau also had to take the calls when workers asked why deductions for rent and transportation made their paychecks so small.
But unlike most labor traffickers, Krasautsau and his co-conspirators had drifted into the crosshairs of a federal task force, which recorded his telephone calls.
Transcripts of those calls obtained by The Star show that, on Nov. 4, 2008, a Jamaican labor recruiter called Krasautsau to complain about how he was treating five women who worked for him as housekeepers. After two weeks of long hours at a motel in Gatlinburg, Tenn., the women had received paychecks totaling less than $50 each.
“This is very desperate,” said the Jamaican recruiter. “Those girls in Tennessee, they are dying of hunger. Nobody has any money.”
Krasautsau later was convicted of conspiracy to transport and harbor illegal aliens, money laundering and visa fraud and is now serving a 78-month prison sentence.
The Star found that not all labor trafficking schemes involve hundreds of workers spread over big cities in dozens of states.
For seven months between 2005 and 2006, four Filipino workers lived in fear of two motel owners in Oacoma, S.D. — population 406.
After Robert and Angelita Farrell arranged for the workers to come to the United States, they immediately took their passports, cut their already minimum-wage pay in half, required them to work long hours with no overtime, and loaded them with debt in the form of visa fees, transportation costs and exorbitant rent.
At first, workers accepted the hardships, believing that their employers had their best interests at heart.
“They knew better,” Gina Agulto, one of the workers, told jurors at the Farrells’ criminal trial.
The Farrells insisted that the workers take second jobs at fast food restaurants to generate fatter paychecks, which the workers then signed over to the motel owners to pay off their escalating debts. The couple also insisted that the workers not talk to other people in town, speak with their American co-workers or go anywhere without their permission.
According to allegations in a civil suit filed in March in South Dakota, the scheme unraveled after Robert Farrell appeared in the workers’ apartment one evening and dumped the bloody carcasses of two deer on the floor, intending the workers to use the meat for food.
Finally, the workers alerted authorities.
Indeed, criminals sometimes can scam thousands of dollars from the unwary by dangling the mere promise of an H-2B visa in front of a prospective worker.
Marvin Danilo Perez-Gomez, of Chimaltenango, Guatemala, quit his job making fireworks and paid $2,000 to an unsavory recruiter, who promised an H-2B visa and a legal job planting pine trees in Mississippi.
But he was disappointed when he arrived at the U.S. Embassy to process the paperwork and get his visa.
“There were more than 50 peasants, and the American officers were laughing at us,” Perez-Gomez told The Star. “They denied my visa just like they did with all who were there.”
Perez-Gomez eventually entered the United States illegally and began work at a Postville, Iowa, meatpacking plant. Immigration agents raided the plant in 2008, and he eventually was deported.
Don Mooers, a lawyer representing Save Small Business, which lobbies on behalf of legitimate businesses using the H-2B program, said his group supports reasonable regulations to better protect workers.
“These workers need to be treated fairly,” Mooers said, “and the employers need to respect the program.”
“Virtually No Oversight”
Uncovering fraud in the Department of Labor’s visa certification program now is the “fastest-growing area” of criminal investigations, according to the department’s Office of Inspector General.
The investigators said the department’s senior management should put “maintaining the integrity” of its guest worker programs at or near the top of its priority list.
But Alese Wooditch, who spent four years as an intelligence analyst with the Labor Department’s Office of Labor Racketeering and Fraud Investigations, said the department should try to limit fraud before it happens.
“We don’t have any systematic prevention measures in place,” Wooditch said. “The fact that we don’t have a fraud prevention unit is of concern.”
Faced with complaints from small business owners about backlogs in granting guest-worker visas, the Labor Department has opted to streamline the program to allow the department to issue the visas quickly.
Now it’s taking the word of employers that proper documentation could be produced if the application were audited.
Assistant U.S. Attorney Joseph E. DePadilla in Virginia recently told a judge that the new procedures will make catching criminals even more difficult.
“The H-2B program is very simple to defraud on a systemic level and the rule changes will make it even easier for the criminals,” DePadilla said.
Under the new procedures, the Labor Department has given its Wage and Hour Division the authority to investigate problems in the H-2B program. But experts question whether Wage and Hour has the capacity or competence to protect low-wage workers, such as H-2B visa holders.
In March, the Government Accountability Office released a report of its undercover investigation of Wage and Hour, concluding that the division’s procedures actually made workers more vulnerable to the kind of wage theft common in labor trafficking cases.
As part of its investigation, the GAO filed fictitious complaints with the division, including one that touched on one of the Labor Department’s top enforcement priorities — protecting children from hazardous working conditions.
Undercover investigators told the division that children were operating heavy machinery, such as grinders and circular saws, at a California meatpacking plant during school hours.
Wage and Hour investigators never even recorded that they had received the tip, much less investigated it.
In their 2010 budget request to Congress, Wage and Hour administrators asked for an additional 288 staff members to, in part, improve enforcement for the H-2B program.
Any move toward stricter enforcement of the program would be an improvement, experts said.
Catherine K. Ruckelshaus, legal co-director of the National Employment Law Project, said it could hardly get worse.
“H-2B is being abused left and right and there’s virtually no oversight over the program,” Ruckelshaus said. “It’s a perfect storm of no enforcement and that just perpetuates the practices.”
Link: http://www.truthout.org/topstories/121609sg02
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Not All Weasels Are Found in the Woods
This is an interesting piece. Our problems are quite complex as there are threaded connections between people with power, money and in some cases unfortunately, authority. Think about it. GFS
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Jim Hightower | Congress Ethics Rules Undermined by Weasels
Wednesday 16 December 2009
by: Jim Hightower, t r u t h o u t | Op-Ed
Scientifically speaking, the weasel is in the mustelidae family, but it is not the only burrowing rodent of its genus. There’s also the mustela congressa lobbyista, which is that mischievous grouping of Washington lobbyists who habitually team up with certain congress-critters to burrow loopholes in our country’s ethics laws.
You might recall the big ethics reform push of 2007. In January of that year, in response to public outrage over breathtakingly flagrant scandals involving Uber-lobbyist Jack Abramoff and several Republican members of Congress, the new Democratic majority in the U.S. House pushed through a widely ballyhooed set of reforms. Incoming Speaker Nancy Pelosi promised that the changes would deliver “the most honest, ethical and open Congress in history.
How’d that work out?
Well, the new rules certainly have been an improvement over the anything-goes, corporate lobbyfest of the George W. Bush years. But even as the reforms were being written, mustela congressa lobbyista was busily burrowing its way into the new majority, inserting weaselly language that lets lobbyists continue slipping corporate money to lawmakers. Both ingenious and insidious, the loopholes allow business-as-usual collusion between influence-peddlers and those members of Congress who seem to be incurably allergic to ethics.
One of the major reforms, for example, was an outright ban on lobbyist-financed congressional junkets. Flying influential lawmakers to luxury resorts had been an Abramoff speciality, so reformers declared that these corrupt schmooze flights were to be an absolute no-no.
In Washington, however, even the clearest rules can go bonkers, perverting “no” into “yes.” Take the glaring case of the appropriately named Don Bonker.
He’s a powerhouse lobbyist with the firm of APCO Worldwide, whose clients include foreign corporations and governments that seek favors from our Congress. One veteran lawmaker who can be very helpful to Bonker’s clients is Rep. Jim Sensenbrenner, the right-wing Republican who is a key member of several committees and an eager servant of corporate interests.
In February of this year, Bonker picked up the $14,708 tab for Sensenbrenner and his wife to enjoy a lovely weeklong jaunt to Liechtenstein. The stated purpose of the trip was to hold meetings with European bankers and business honchos, but it was hardly all business — the Sensenbrenners were treated to luxurious accommodations, time at a ski resort in the Alps and a neat tour of the prince of Liechtenstein’s castle and vineyard.
But, wait — Bonker-the-lobbyist is banned from financing such junkets, isn’t he? Yes. But. A loophole in the 2007 reform rules allows nonprofit groups to pay for congressional trips. So, the Sensenbrenner’s outing was covered by a nonprofit outfit called the International Management and Development Institute.
And who is president of the Institute? Why, none other than our man Bonker! And who funds the Institute? Such European firms as Deutsche Bank and Lufthansa Airlines, which have lobbying interests in Washington. In return for ponying up the bucks for the institute’s junkets, top corporate executives get private tete-a-tetes with our lawmakers.
Through the nonprofit loophole, Bonker and foreign corporations can do indirectly what they are prohibited from doing directly. Clever, huh? So clever that “Air Bonker” has paid for five of Sensenbrenner’s trips to France, Germany, Liechtenstein and Norway.
The high-flying congressman sees nothing amiss in this obvious circumvention of Congress’ ethics rules. His office spokeswoman told The New York Times that the nonprofit dodge is merely a way for “a variety of sources” to “educate congressional leaders on a range of topics.”
Hmmm. His “variety” of sources seems to be decidedly corporate. But, hey, Sensenbrenner would say that he’s open to meeting with workaday folks like you, too. All you have to do to educate him on your “range of topics” is to create a nonprofit front group and fly him to a ski resort in Liechtenstein.
As he and Bonker show, not all weasels are in the woods.
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Add comment January 2, 2010
