Commentary and information about public safety and security, intelligence and counterintelligence, open government and secrecy, and other issues in northern Idaho and eastern Washington.

Location: Coeur d'Alene, Idaho, United States

Raised in Palouse, WA. Graduated from Washington State University. US Army (Counterintelligence). US Secret Service (Technical Security Division) in Fantasyland-on-the-Potomac and Los Angeles. Now living in north Idaho.

Monday, July 30, 2007

Public Corruption Update

Though things seem to slow down in the summer, the corruption of public officials goes on.

As a reminder, here's a link to some current examples of public corruption crime investigations.

Readers will notice these are federal investigations. Local law enforcement and prosecutors often do not have the political courage, the professional integrity, the skill, or the resources to effectively conduct public corruption investigations.

Addendum: Well, well, well. If US Senators aren't immune from the law, maybe there is hope that some of our state and local officials in Idaho will find themselves on the receiving end of a federal visit.

Tuesday, July 24, 2007

Does This Sound Familiar?

The Tuesday, July 24, 2007, online edition of The New York Times leads with an article headlined Spitzer Aides Cited for Use of Police to Tarnish Bruno. The Times article reports how aides to New York Governor Eliot Spitzer "...improperly used the State Police to gather information about the governor’s chief rival, Joseph L. Bruno, the State Senate majority leader, in an effort to plant a negative story about Mr. Bruno and damage him politically, according to a report on Monday by the attorney general’s office."

Does that sound just a little familiar?

To refresh your memory, re-read Whitecaps February 7, 2007, post titled Trust and Confidence Violated. It recounts how an Idaho State Police Detective Captain reportedly just couldn't wait to report the juicy details of a citizen activist's complaint and the complainant's identity to (get this!) the Coeur d'Alene City Administrator Wendy Gabriel. Now why would he want to do that, you might reasonably ask. Could it be because her father is a recently-retired state legislator, and his current wife is a state appointee with gubernatorial aspirations? A little nest-feathering, perhaps?

The misuse of law enforcement agencies, information, and surveys for political purposes is at least unethical if not illegal. In New York, it may bring down the Governor and get the acting superintendent of the New York State Police and some of the Governor's aides fired. In Idaho, it may get cops and political hacks promoted.

Friday, July 20, 2007

Antitrust Crimes Hurt Taxpayers and Consumers

Mention antitrust crimes to a group of people in the Inland Northwest and their eyes are likely to glaze over. Once the glaze has cleared, someone will ask what antitrust law has to do with the way business is conducted here. It's a reasonable question. Rarely would too many people living in the Inland Northwest think that the city and county officials or local businesses could violate federal criminal antitrust laws.

They could.

People who do recognize the term "antitrust" usually associate it with huge national or international cases such as the breakup of AT&T (monopoly), Samsung's $300 million criminal fine (price fixing), or F. Hoffman-La Roche's $500 million criminal fine (price fixing and market allocation). But antitrust crimes are committed in communities throughout the United States.

A brief and grossly oversimplified explanation of "trust" is helpful to understand the how its abuse created the need for antitrust law.

A "trust" in law is created when money or property is owned and managed by one person, several persons, or an organization for the benefit of another. One of the principal advantages of a "trust" is that its terms are private and not subject to public disclosure. It is that advantage, privacy, that was exploited early on by American corporations who sought to hide their illegal activities behind the veil of the trust. So abusive did this become that the US Congress found it necessary to pass several antitrust laws, the two best known being the Sherman Antitrust Act of 1890 and the Clayton Antitrust Act of 1914.

The term "antitrust" is somewhat misleading as used in the laws' titles, because its use implies that trusts are inherently illegal. A trust, if not abused, is lawful and beneficial. It was the abuse of the trust, hiding illegal restraints on trade and interstate commerce behind the veil of the trust, that spawned the laws.

To get a much clearer understanding of the types of antitrust crimes and, more importantly, how they affect us, the consumers, see Price Fixing and Bid Rigging - They Happen: What They Are and What To Look For. Though subtitled as "An Antitrust Primer for Procurement Professionals," it could just as easily have been called a "Consumer Protection Handbook." What may interest readers most is the section that describes several common forms of criminal collusion, including:

  • Price fixing (an agreement between "competitors" to raise, fix, or otherwise maintain the price at which their goods or services are sold)
  • Bid rigging (conspiring "competitors" agree in advance among themselves who will submit the winning bid, then each structures his bid accordingly). Bid rigging can take several forms which include bid suppression, complementary bidding, and bid rotation.

To learn how antitrust crimes directly affect taxpayers and consumer and lhow we can participate in stopping them, read the US Department of Justice's publication Antitrust Enforcement and the Consumer.

A detailed and readable article but directed more at attorneys who are trying to help clients recognize and resist price fixing, market allocation, and bid rigging can be found in the American Bar Association's article titled Collusion Central Helping your clients deal with price fixers written by Daniel R. Karon. The article appeared in the January/February 2002 issue of "ABA Section of Business Law."

Price fixing, market allocation, and bid rigging are per se violations of federal law. That means once the scheme has been established, it cannot be justified by imaginative interpretations of the law. Or as Karon noted in his article cited in the preceding paragraph:

This means that where such collusive schemes have been established, the violators cannot justify their conduct by arguments or evidence that their agreed-on prices were reasonable or that their agreements were necessary to avoid destructive competition or price cutting or were intended to achieve some pro-competitive purpose.

And speaking of the law, the one that is frequently used in federal antitrust investigations and prosecutions is the Sherman Antitrust Act (15 USC §§ 1-7). The most common violations of the Sherman Act -- and the violations most likely to be prosecuted criminally -- are price fixing, bid rigging, and territorial or customer allocation among competitors (commonly described as "horizontal agreements"). As noted earlier, the essence of antitrust crimes is they illegally restrain business competition in interstate commerce. This hurts us consumers by driving up the costs of goods and services.

For a brief introduction to each Section of the Sherman Antitrust Act, see the US Department of Justice's Antitrust Division Manual. For now, pay particular attention to Section A (Statutes Enforced by the Antitrust Division, Chapter 1 (Sherman Antitrust Act). Remember that, "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal."

Almost every community has major construction projects underway. Some are multimillion dollar projects, and for small- to medium-sized metropolitan areas, that's a lot of money. Where there's that kind of money available with little effective government oversight, there will be predators who will try to bend or even break the laws to get more than their share. They care little that the honest businesspeople and the consumers will be harmed by their greed and predation.

The construction industry is ripe for both bid-rigging and customer allocation antitrust violations. The article Construction: Conspiracy Conviction in International Bid-Rigging Scheme Upheld gives a readable and easily understood example of bid-rigging. As you read the article, don't be misled into thinking that this only happens in "big" international contracts. It can happen locally as easily.

Here's a purely hypothetical example of how an apparently local construction project in Ourtown, Anystate, USA, could violate the Sherman Act.

Suppose the Ourtown mayor and city government desperately wanted an important "improve our city's image" construction project funded in large part by money from out-of-state but also with some local public money in a public-private partnership. When finished, the building and land will be owned by the project manager's employer. That project would be worth several million dollars to the general contractor and subcontractors.

The Ourtown mayor and other public officials would like the out-of-state money to remain in Ourtown as much as possible, so the Mayor approaches the project manager and the general contractor and suggests that a particular local company be selected as one of the subcontractors. In fact, the Mayor and other officials strongly suggest that the work to be done by the local company not be competitively bid, that the contract to the local company be sole-sourced.

Now, it makes little sense for the project manager and the general contractor to accede to the Mayor's request to sole-source rather than competitively bid the subcontract. After all, sole-sourcing it could and probably would increase their costs, thereby reducing their profit. But the Mayor has an imaginative, albeit very illegal, solution. In return for receiving the sole-source contract, that local company will kick back a substantial amount of money to the project administrator's employer. The sole-source contract is worth considerably more to the local company than it will have to kick back to "win" the subcontract.

What would really make the local company happy, though, is if the Ourtown Mayor and city government agreed to quietly reimburse the local company for its kickback. So here's how they might do that.

Ourtown can't legally put any more public money directly to the project, so it uses some ruse or deception to route it to the preferred subcontractor. The preferred subcontractor banks the money, lets it cool off and clean up, then at a politically opportune time, the subcontractor magnanimously and very publicly donates the money to the project. Problem solved. Public money which could not be legally spent on the project has been laundered to look like a private donation.

In our purely hypothetical example, there are elements of bribery, money laundering, and possibly income tax evasion (if the subcontractor who laundered the kickback claims it as a federal or state tax deduction) , but where's the antitrust violation?

When the Mayor of Ourtown exerted pressure on the project manager and the general contractor to award a sole-source contract to the local subcontractor, the Mayor and his co-conspirators effectively made it impossible for other subcontractors to be considered for the work. That restrained the commerce and trade opportunity for other qualified contractors.

But wait. What if the project manager, the general contractor, and the Mayor of Ourtown claimed that the local subcontractor was the only company qualified to do the work? That may very well have been a reasonable and defensible argument. There are rare occasions like that. The questions then must be asked: How did they determine only that subcontractor was uniquely qualified? Was the statement of work tailored so it could be fulfilled only by the selected subcontractor? What was Ourtown's and the general contractor's work histories with the subcontractor? Had the subcontractor done extensive work with both and consistently produced satisfactory results on similar projects? Or conversely, had the subcontractor effectively defaulted on previous contracts with the City and never worked with the general contractor? If it is the latter, it begins to look more like a collusive agreement to restrain trade.

So what can the construction industry do to avoid committing antitrust violations, specifically bid-rigging? As it turns out, the US Department of Transportation, Federal Highway Administration, addressed that very issue in its 1983 publication (updated in May 2007) entitled Suggestions for the Detection and Prevention of Construction Contract Bid Rigging. This is a rather technical article written primarily for the highway construction industry, however the principles apply reasonably well throughout the various construction industries.

What if prevention doesn't work? What if the crimes get committed? What can be done?

Criminal violations of the Sherman Antitrust Act are investigated and prosecuted by the US Department of Justice (DoJ). Its procedures are explained in detail in the DoJ's Antitrust Division Manual, Chapter III, Investigation and Case Development. Usually the criminal investigation will be handled by the Federal Bureau of Investigation after receiving a referal from DoJ.

But what if, as in the hypothetical Ourtown example above, the antitrust violation is not a huge nationwide or international conspiracy? What if it's just a relatively local issue? Is the US Department of Justice really likely to invest its resources in a local economic crime? And what if Ourtown's prosecuting attorney and law enforcement agency have not the political will, legal or investigative skill, or resources to investigate and prosecute? Aren't local consumers who are being victimized by antitrust crime predators left hanging to twist slowly, slowly in the wind?

Not necessarily.

In March 1996 the National Association of Attorneys General and the US Department of Justice announced their joint Protocol for Increased State Prosecution of Criminal Antitrust Offenses. The Protocol allows "... for increased prosecution by State Attorneys General of some criminal antitrust matters that have been previously prosecuted by the United States. This protocol defines the circumstances where the Antitrust Division of the United States Department of Justice ... may transfer prosecutorial responsibility, including the relevant evidence, for certain antitrust offenses to State Attorneys General ... In general, this procedure will be implemented for offenses including, but not limited to, bid rigging and/or price fixing in localized markets." The activation of the Protocol depends primarily on the state Attorney General having the willingness as well as the invesatigative and legal resources to undertake the criminal prosecution. Note that this solution does not involve the local prosecuting attorney.

Antitrust crimes directly affect consumers. Consumers (that's all of us) must be directly involved in the solutions. We do not need to roll over and play dead simply because large companies and public officials are involved in committing them. Shine the light on abusive trust relationships and watch the cockroaches scatter.

Tuesday, July 10, 2007

Fusion Centers Revisited

Whitecaps July 5, 2006, post titled Fusion Centers linked the reader to two US Department of Justice guideline documents concerning fusion centers. Fusion centers were defined as a, "...collaborative effort of two or more agencies that provide resources, expertise, and/or information to the center with the goal of maximizing the ability to detect, prevent, apprehend, and respond to criminal and terrorist activity."

Now just a year later, the Congressional Research Service has prepared its own report for Congress. That 100-page report dated July 6, 2007, and titled Fusion Centers: Issues and Options for Congress, elaborates on the economic, social, legal, and political issues surrounding fusion centers.

Tuesday, July 03, 2007

Ethical Law Enforcement Behavior

We, the People, have authorized law enforcement officers to exercise certain functions so they can properly enforce ordinances and laws. Because these functions can involve limited and brief suspension of constitutionally guaranteed civil rights, we expect law enforcement officers will perform them lawfully and with reasonable restraint. We also expect that the authority to exercise these special authorities will be used thoughtfully and judiciously. Because we entrust the functions to law enforcement officers, we expect they will not violate our trust by using them unethically.

In its June 2007 issue of The Police Chief magazine, the International Association of Chiefs of Police once again emphasizes the importance of ethical behavior by law enforcement officers. It addresses the potential for abuse in four areas: