Financial Exposure

Carl Levin's Senate Investigations into Finance and Tax Abuse

Elise J. Bean

• Publisher: Palgrave Macmillan
• Year: 2018
• ISBN:
  9783319943886
• Topic: Business
• Subtopic: Finance
• Index: Business

At a time when Congressional investigations have taken on added importance and urgency in American politics, this book offers readers a rare, insider's portrait of the world of US Congressional oversight. It examines specific oversight investigations into multiple financial and offshore tax scandals over fifteen years, from 1999 to 2014, when Senator Levin served in a leadership role on the US Senate Permanent Subcommittee on Investigations (PSI), the Senate's premier investigative body.
Despite mounting levels of partisanship, dysfunction, and cynicism swirling through Congress during those years, this book describes how Congressional oversight investigations can be a powerful tool for uncovering facts, building bipartisan consensus, and fostering change, offering detailed case histories as proof. Grounded in fact, and written as only an insider could tell it, this book will be of interest to financial and tax practitioners, policymakers, academics, students, and the general public.

© The Author(s) 2018

Elise J. BeanFinancial Exposurehttps://doi.org/10.1007/978-3-319-94388-6_1

Begin Abstract

1. Entering the Oversight World

Elise J. Bean¹

(1)

Levin Center at Wayne Law, Wayne State University Law School, Detroit, MI, USA

Elise J. Bean

“The scope of [Congress’] power of inquiry … is as penetrating and far-reaching as the potential power to enact and appropriate under the Constitution.”

Eastland v. U.S. Servicemen’s Fund, 421 U.S. 491, 504, n. 15 (1975)

End Abstract

The date was Friday, December 12, 2014, and it was time to celebrate. We gathered in the stately hearing room that witnessed so many of the hearings held by the U.S. Senate Permanent Subcommittee on Investigations, also known as PSI. Wood-paneled walls, blue carpeting, and massive doors with shiny brass fittings provided the setting. The lofty ceiling, soaring some 15 feet overhead, featured elegant art deco insets with the 12 signs of the zodiac hovering above the expanding crowd.

We’d decorated the perimeter of the room with a dozen poster boards showcasing past PSI investigations—photographs of witnesses, investigators, and Senators; newspaper articles; copies of key exhibits and colorful hearing charts. As folks trickled in, they surveyed the images, chuckled, and reminisced. Some grabbed our semi-official PSI cocktail—Manhattans made from whiskey and vermouth—sipping as they circulated the room.

The unfolding gala was a celebration of the Levin era on PSI. For 15 years stretching back to 1999, Senator Carl Levin had held the Democratic leadership post on the subcommittee. In January 2015, he was retiring.

During his tenure, he’d worked with four PSI Republican partners: Senator Susan Collins from Maine; Senator Norm Coleman from Minnesota; Senator Tom Coburn from Oklahoma; and Senator John McCain from Arizona. Invitations had been sent to staff at all four Senate offices, along with the Levin crew. The result was that rarest of Washington scenes: a truly bipartisan assembly of friends and colleagues.

Those joining the celebration were past and present denizens of PSI—folks who’d been on the payroll as legal counsel or investigators, and those who’d provided unpaid help including law students, college interns, and agency personnel who’d worked for PSI on a temporary basis. Invitations also went to a kaleidoscope of House and Senate offices on both sides of the aisle. The well-wishers included a few academics, lawyers, and investigative reporters who’d been invited or heard about the party and snuck in. All around the room, as the numbers swelled, din deepened, and air warmed, folks grinned, greeted old friends, and shook hands with PSI alumni.

When the crowd reached its peak, we clinked glasses for attention and let loose a flood of stories from the Democratic and Republican staff directors who’d served on PSI during the Levin years. Taking turns, we recalled investigative highlights from hard-hitting inquiries into money laundering, abusive tax shelters, the financial crisis, secret offshore bank accounts, credit card misconduct, and corporate misdeeds.

Together, over the years, PSI had faced down corrupt bankers, arrogant executives, and sleazy lawyers. We’d confronted tax dodgers of all stripes, from billionaires to multinationals. We’d interviewed crooks in prison, North Korean representatives, and tax haven operatives. We’d protected whistleblowers, championed victims, and defended honest government employees battling abuses. We’d stood up to dirty tricks, assaults on PSI’s bipartisanship, and attacks on our bosses.

Investigators are generally a cynical bunch, but as each story of PSI’s past exploits was recounted, the emotion in the room cranked up a notch. Everyone present knew that during the Levin years, unlike so much that disappointed in Congress and in Washington, PSI had functioned the way government should—it had conducted its inquiries on a bipartisan basis, pursued the facts honestly, and treated its targets fairly. At the same time, it had exposed monumental wrongdoing, named names, and won reforms. Pride in PSI’s legacy ricocheted around the room with centrifugal force.

At the crescendo of that good feeling, we turned the spotlight on a surprised colleague, Mary Robertson, who’d served as the PSI clerk for 39 years and was retiring along with Senator Levin. Mary had been a hurricane of work, our institutional memory, and a stern guardian of PSI’s bipartisan traditions. When we honored her as the “heart and soul” of PSI, the crowd roared its approval (Image 1.1).

Image 1.1

December 2014 PSI farewell party. Source: U.S. Senate

As the party slowly wound down, bidding farewell to the investigative community we’d built was bittersweet. Fifteen years of all-out effort had produced complex relationships tinged with affection, tough times, jokes, disagreements, successes, and respect. I savored every moment, reminiscing with participants from every period of PSI’s past. I couldn’t help but think back on how the journey to that point had begun.

I first joined the Levin team in 1985, leaving behind a job working for the U.S. Department of Justice as a trial attorney in the civil fraud division. I’d been looking for a post on Capitol Hill for months, and Senator Levin was exactly the type of lawmaker I wanted to work for, an up-and-coming legislator admired in Democratic circles as smart, active, and diligent.

* * *

Senator Levin was first elected to the Senate in 1978. Then head of the Detroit City Council, he’d entered the Senate race as a long-shot underdog, but unexpectedly defeated the incumbent, Senator Robert P. Griffin, a member of the Republican leadership. In 1984, Senator Levin won re-election to a second term, defeating another attractive Republican candidate, astronaut Jack Lousma, by a vote margin of 51.8%. It was close, but a win was a win, and it gave him six more years in office.

I was so nervous during my job interview with him that the only thing I remember is twice mentioning I’d attended the University of Michigan Law School, my lone tie to his home state. After the second time, Senator Levin gazed mildly at me over his half-rim glasses and said, “University of Michigan—I got it.” I turned bright red. But at the end of the interview, he offered me the job, and I heard a heavenly choir singing hallelujah in my head as I accepted.

Shaping American Politics

I was hired to be a Levin investigator on the Subcommittee on Oversight of Government Management. At the time, I wasn’t altogether sure what I’d signed up for. To get a better sense of what it meant, I did some research into past landmark congressional investigations. It was like reviewing a pageant of American history.

I learned that the Pujo Committee hearings of 1912 and 1913—named after Congressman Arsene Pujo of Louisiana who led them—exposed how a handful of major Wall Street banks had acquired control over vast commercial enterprises including railroads, oil companies, insurance firms, and shipping and mining ventures.¹ The hearings showed how the banks had acquired company shares in so-called money trusts and engaged in stock trades that contributed to chaotic stock prices and financial panics. The hearings set the stage for later enactment of stronger antitrust laws and new constraints on banks.

The Pecora hearings during the 1930s—named after Senate Banking chief counsel Ferdinand Pecora who led the questioning—exposed the role banks played in the 1929 stock crash. They showed how the banks had packaged and sold worthless securities, favored the wealthy and powerful with stock deals unavailable to the general public, and took control of major corporations, at the same time many wealthy bankers were paying no tax.² The hearings led to a slew of new laws that, among other measures, regulated U.S. stock sales and stock exchanges.

In the 1950s, hearings led by Senator Joe McCarthy fanned the flames of the “Red Scare,” the fear that Communists had secretly infiltrated the U.S. government. Together with other anti-Communist hearings, his efforts helped shape U.S. foreign policy, the U.S. military’s approach to the Cold War, Hollywood, and more. The McCarthy hearings were conducted in such an unfair manner, however, that they eventually triggered a backlash not only against the senator, but against congressional oversight in general. I would learn more about that later.

In the 1970s, the Watergate hearings burst onto the national scene, exposing White House dirty tricks, including break-ins into the offices of political opponents and secret campaign contributions.³ A few years later, the Church Committee—named after Senator Frank Church who led the inquiry—shook the nation again by exposing even dirtier tricks at the Central Intelligence Agency, including plans to assassinate world leaders and covert operations that subjected unsuspecting U.S. military personnel and other Americans to mind-altering drugs.⁴

Each of those congressional oversight investigations left marks on the American psyche, demonstrating the power Congress had to expose abuses, shake up the nation, and change how the United States operated. That was the world I was about to enter. I couldn’t wait.

Joining the Levin Oversight Team

I reported for my first day of work in November 1985, climbing the stairs to the fourth floor of the Hart Senate Office Building. My immediate supervisor was Linda Gustitus, Senator Levin’s subcommittee staff director and chief counsel. She welcomed me and provided a quick history of the subcommittee which had been designed especially for Senator Levin. She explained that when he was first elected in 1978, Democrats were the majority party in the Senate, and Senator Abe Ribicoff of Connecticut was chairman of the Governmental Affairs Committee. To attract Senator Levin to his committee, Senator Ribicoff offered to create a small subcommittee with a jurisdictional mandate to his liking. Senator Levin requested one that could investigate waste, fraud, abuse, and mismanagement affecting the federal government, and the Subcommittee on Oversight of Government Management—the OGM Subcommittee—was born.

Senator Levin hired the staff for the new subcommittee. In many Senate committees, the full committee chair controls hiring decisions on both the full committee and subcommittee levels. But the Governmental Affairs Committee was different. By tradition, the full committee chair hired the full committee staff, but gave each subcommittee chair the authority to hire and fire their own staff. I was to learn that hiring staff represented real power in the Senate, because it enabled the hiring senator to get things done.

I also learned what a big impact every election had on the composition, staffing, and funding of congressional committees. The Senate and House each supported about two dozen committees, most of which had multiple subcommittees. Each committee and subcommittee operated under dual leadership provided by the two major political parties, the Democrats and Republicans. The few members of Congress who were independent from both parties still caucused with one side or the other for purposes of committee assignments, thereby helping determine which qualified as the majority party.

The majority party—meaning the party whose elected members comprised at least 50% of the House or Senate—controlled selection of the committee chairs, while the minority party selected the “ranking minority members.” The chairs generally controlled the committee agenda, while the ranking members led the minority party’s activities on each body.

The partisan divide in Congress not only determined who set the agenda, but also committee membership numbers and budgets. In the Senate, the number of senators assigned to each committee and subcommittee reflected the numerical split between the two parties in the full Senate. In other words, if the Senate was made up of 60 Republicans and 40 Democrats, each committee and subcommittee had a 60–40 split in its membership, with Republican senators outnumbering their counterparts. In addition, during the 1970s and 1980s, the majority party in the Senate typically controlled two-thirds of the committee budget, while the minority party controlled only one-third, a funding difference of two-to-one.

When I was hired, the Democrats were the minority party, but Senator Levin still had the budget to hire a tiny staff. His OGM employees numbered three, of whom I was the third. Linda was our fearless leader, and my co-worker was Allie Giles, a young woman who’d worked on the senator’s personal staff. All three of us were tucked into a small suite of rooms across the hall from our Republican counterparts, who occupied a slightly larger space with slightly more staff.

The Republican offices also housed the OGM Subcommittee “clerk,” Frankie de Vergie, who handled administrative duties like the budget, office equipment, travel arrangements, and archiving as well as hearings and hearing records. I learned that virtually all Senate committees and subcommittees shared administrative staff between the two parties, each paying half their salaries to provide nonpartisan assistance. OGM’s star clerk was a cheerful workaholic who taught me critical lessons about how the Senate operated.

During my OGM years, the majority party in the Senate flipped twice, in 1987 and 1995, with dramatic consequences for our budget and operations. In 1987, when the Democrats regained majority status in the Senate, the Levin OGM budget doubled, and our staff swelled to ten employees. In 1995, when the Democrats lost majority status, the Levin OGM budget was cut in half and our staff shrank to just two—Linda and me. The erratic size of our budget and staff exacted a human and political toll that I’d been oblivious to when, before law school, I’d worked for a Democratic House member, Congressman Joe Moakley from Massachusetts.

In later years, when the split between Republican and Democratic senators began hovering around the 50% mark, the parties gradually abandoned the one-third/two-thirds budget division as an unfair reflection of political reality. Instead, the budget allocation began to ref...

Table of contents

• Cover
• Front Matter
• 1. Entering the Oversight World
• 2. Landing at PSI
• 3. Combating Money Laundering: Round One
• 4. Taking on Enron and Its Bankers
• 5. Stopping Abusive Tax Shelters
• 6. Battling Tax Haven Banks
• 7. Crossing Party Lines
• 8. Halting Unfair Credit Card Practices
• 9. Deconstructing the Financial Crisis
• 10. Combating Money Laundering: Round Two
• 11. Exposing Corporate Tax Dodgers
• 12. Beaching the London Whale
• 13. Targeting Commodity Speculation
• 14. Pursuing Oversight
• Back Matter