Genesis of a Federal Criminal Investigation

A growing number of people in Coeur d'Alene, Idaho, are expressing an opinion that the city government's urban renewal agency, the Lake City Development Corporation or LCDC, ought to be investigated by the federal government. One public perception is that local and state prosecutors and law enforcement officers lack the resources and may be politically compromised so they are unable to conduct such an investigation.

Unless the reader has been directly involved with a major federal white collar crime or public corruption investigation, it may be difficult to understand how such an investigation is launched, how much time it will take, and what resources will be required.

Many people rely on the news media and particularly newspapers to research and report stories based on allegations of public corruption or fraud, waste, and abuse of public money. But these types of investigations are costly for the newspaper just as they are costly for investigative agencies. It can be expensive for a newspaper to commit resources to the kind of coverage that would explain the genesis and execution of a major, long-term federal investigation.

The Seattle Post-Intelligencer from Seattle, Washington, has made the commitment in its series about the Port of Seattle. Most of the P-I's stories in the series were written by P-I Reporter Kristen Millares Bolt. The well-written stories and supporting documentation help us understand what it takes to get a federal criminal investigation started when the allegations and evidence are complex.

The P-I's reporting starts in late 2006 with an article titled Audit finds overbilling, bid dispute at port.

Another P-I article in late December 2006, this one by Investigative Reporter Ruth Teichrob, is titled Lax oversight at Port of Seattle. This article may be of particular interest to Coeur d'Alene residents who pay close attention to the LCDC and its personalities as well as to the elected officials who are expected to oversee the LCDC. The Port of Seattle is a municipal corporation in Washington in the same sense that the LCDC is a municipal corporation in Idaho.

Now fast forward one calendar year to December 20, 2007. Washington State Auditor Brian Sonntag released a 334-page performance audit report titled Port of Seattle Construction Management - Report No. 100008. The second paragraph of Sonntag's cover letter presenting the report reads as follows:

We are pleased to present the reports of that audit, which brings to light serious and pervasive issues in the Port's management of these [port construction] projects. According to the audit, the Port Commission provided insufficient oversight over contracting practices and the Port did not have adequate systems in place to protect taxpayer dollars from misuse, abuse, and misappropriation. To the degree the Port had these in place, they were not always followed.

The report's six major findings contain the kind of language that would most likely trigger an investigation. Those findings, in brief, are:

• Port construction management lacks cost controls and accountability.
• The Port circumvents competition requirements in violation of its own policies and sometimes in violation of state law.
• Port policies and Port management's interpretation of its policies result in a lack of transparency and thwart Commission oversight of construction management activities.
• Port construction management records are incomplete and disorganized.
• The Port fails to enforce basic contract requirements, resulting in delays, extra costs, and an inability to defend against claims.
• Port construction management is vulnerable to fraud, waste, and abuse.

With the blunt language in Auditor Sonntag's report, it is no surprise the P-I continued to follow up with more stories. It is also no surprise that on January 4, 2008, the US Department of Justice, Office of the United States Attorney for the Western District of Washington, sent a letter to Washington State Auditor Sonntag stating, in part, "Our office, in conjunction with federal law enforcement agencies, is conducting a criminal investigation of the Port of Seattle. This investigation is a product of your office's December 20, 2007, Performance Audit Report of the Port of Seattle."

The cited letter formed the basis for P-I Reporter Kristen Millares Young's January 8, 2008, story headlined Feds open criminal inquiry into port. The subhed read, "Audit alleging waste, fraud catches U.S. attorney's eye." The articles lead paragraph explains why. It reads:

The U.S. Attorney for Western Washington is conducting a criminal investigation of the Port of Seattle based on a state performance audit of the port's construction management, which found the port wasted $97.2 million during contracts active from 2004 to 2007.

The reader can reasonably ask, "Since the Port of Seattle is a municipal corporation, what gives the federal government investigative jurisdiction?" The overly simple answer is that the Port of Seattle receives federal money, so the federal government has an obligation to ensure that money is spent lawfully and according to the rules under which the money was disbursed. As noted in the cover letter from the contract auditor to state Auditor Sonntag: "POS [Port of Seattle] derives its revenues from airline rates and charges, ad-valorem tax levies, passenger facility charges, and federal grants."

What does this tell us about the genesis of a federal criminal investigation?

First, it tells us that the events ultimately alleged to be criminal often evolved from legal to illegal. The transformation from legal to allegedly illegal may take years.

Second, it tells us that private citizens may have an inkling, an intuition, that something illegal is going on, but they may not have the authority or resources to completely reveal the questionable behavior. It may take a government agency with authority of law, in this case the Washington State Auditor acting under his authority of Washington State Initiative 900, to fully analyze the facts and reveal the behaviors.

Third, it tells us that federal law enforcement agencies take the facts and conclusions in these types of reports seriously, particularly when it seems likely that federally supplied money was involved.

Finally, it tells us that once the investigation has started, it may again take a long time to conclude.

It's a long road from genesis to revelation.

Addendum 01-08-2008: The Seattle Times has also picked up on the story about alleged corruption in the Port of Seattle. It has run a story headlined Possible fraud at Port focus of criminal probe by Times Staff Reporters Jim Brunner and Bob Young. The Times story also reports "...cozy relationships between Port employees and contractors..." and "[current Port CEO] Yoshitani said the problems identified by auditors were not due to corruption, but to a hard-charging, get-things-built culture that sometimes flouted the Port's own policies." Only a thorough investigation will affirm or refute Yoshitani's assertion.

Addendum 01-09-2008: The Seattle Times story today is headlined Port tells panel it's making changes; auditors disagree. The lesson to be learned is that once the purported overseers lose the trust and confidence of the people, it is difficult to get it back. That's particularly true when the overseers say one thing yet fail to carry out their promises.

Addendum 02-13-2008: According to a Seattle Post-Intelligencer article today, "The Port of Seattle Commission will hire former U.S. Attorney Mike McKay to lead its internal investigation of the port in the wake of the state auditor's blistering critique of the port's construction management. "