Financial Exposure: Carl Levin's Senate Investigations into Finance and Tax Abuse

By Elise J. Bean

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.

• Language: English
• Publisher: Palgrave Macmillan
• Release date: Aug 7, 2018
• ISBN: 9783319943886

Book preview

© The Author(s) 2018

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

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)

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).

../images/460009_1_En_1_Chapter/460009_1_En_1_Fig1_HTML.jpg

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 reflect more closely the numerical difference between the parties. If the Senate had a 52–48 split between the parties, it led to a 52–48% split in committee funds. It took years, however, before that sensible approach took hold in the Senate. In the House, the two-to-one budget split between the parties still reins.

Learning from Linda

In the meantime, I was just happy to have a job on Capitol Hill, even in the minority. I was ready to learn the basics of congressional oversight—how to investigate, organize a hearing, and use investigative results to fight for change.

Linda took me under her wing and taught me what to do, step by step. She sent me on errands all over Capitol Hill, so I would learn the Capitol’s byzantine architecture. She had me get charts from the Service Department, bills from the bill clerk, and advice from the Senate Parliamentarian. She sent me to the office of the Official Reporters of Debates to review Senator Levin’s floor remarks, and to the Senate recording studio to watch him do radio shows. She had me prepare hearing exhibits, floor statements, and press releases. She took me to endless meetings with Senator Levin so I could see how he operated and what he wanted from staff.

Linda also gave me a frightening amount of responsibility to conduct investigations, essentially assigning me a topic, allowing me to develop an investigative plan, and then monitoring the actions I took to gather information and develop findings. Throughout the process, she provided investigative guidance and encouragement, seesawing between giving me room to develop and saving me from my missteps. Linda showed me how to write a memo to the boss, how to request documents and prepare for an interview, and how to stand up to agency intransigence. She explained the intricacies of drafting legislation, the etiquette involved with going on the Senate floor, and the unspoken rules for negotiating with the House. She steeped me in Senate procedure, practice, and tradition. And she did it with humor and patience.

Another stroke of fortune: I found myself on a committee with a strong bipartisan tradition. Republicans and Democrats on the Governmental Affairs Committee routinely worked together. Essentially, everyone was against government waste, fraud, and abuse, so it was relatively easy for senators to find common ground to combat problems and design reforms.

On the OGM Subcommittee, Senator Levin’s Republican counterpart was Senator Bill Cohen from Maine, a smart, elegant, and hard-working senator eager to tackle government mismanagement. They collaborated on a wide range of issues, including requiring more government contracts to undergo competitive bidding, combating unfair Social Security disability terminations, requiring lobbyists to disclose more information about their work, and improving federal regulations by increasing the use of negotiated rulemaking.⁵

The senators, who traded the chair and ranking minority posts twice, were unfailingly courteous with each other. They designed their hearings jointly and often co-sponsored each other’s legislation. If the senator chairing a hearing had to leave for a vote, he routinely gave the gavel to the ranking minority member until his return. The minority member was routinely allowed to initiate his own investigations and hold a hearing on the results. Once a year, he could also hold a field hearing in his home state.

On a staff level, Linda’s counterpart was Susan Collins , who was then Senator Cohen’s subcommittee staff director. Susan had the trust and respect of her boss and was hard-working, courteous, and fair to the Democrats. Later, Susan returned to Maine and, after Senator Cohen retired in 1997, won election as a senator in her own right. She ended up working with Senator Levin on the PSI and, a few years after that, chairing the full Governmental Affairs Committee. But that was unsuspected territory during our OGM years.

Learning Oversight

In the meantime, Linda threw me into oversight. My assignments included investigating subcontractor kickbacks in the U.S. defense industry; pollution and oil spills affecting the Great Lakes; unsafe laboratory practices in U.S. chemical and biological warfare research projects; mismanagement of federal programs designed to protect U.S. business from unfair foreign trading; and safety and environmental problems plaguing oil tankers carrying fuel worldwide for the Department of Defense. Each investigation took six months to a year to complete. Most resulted in a hearing and report.⁶

Due to limited funding and staff resources, I did much of the work on my own, under Linda’s watchful eye. I sometimes had help from a college intern or law clerk, but they typically returned to school after a semester. Sometimes we had on staff a federal agency employee—called a detailee—who was paid by their agency to work for Congress for a year to gain Hill experience. While they provided tremendous assistance, detailees typically had never worked for Congress or conducted an investigation. Which meant I had to supervise their work, a delicate task since most were older and more experienced than me. Linda helped me figure it out.

Each of the investigations I worked on uncovered complex legal and administrative issues, surprising fact patterns, and problems needing resolution. Each riveted my attention with stories of abuse, dysfunctional programs, incompetence, mismanagement, and sometimes a brave whistleblower fighting internally to improve government operations. While we found problems everywhere, we also identified ways to clamp down on abuses and improve government programs. And we found many hard-working, good-hearted government employees willing to make changes to their operations or programs, a lift that kept me going.

Learning the Law and the Rules

During my 11 years on the OGM Subcommittee, I became seeped in the law, rules, and practices governing congressional oversight investigations. I learned there were some clear rules about what was allowed and what wasn’t, and those rules had a real impact on the investigative work, though their contours and significance took years to really sink in.

I learned, first, that Congress’ authority to investigate was rooted in the Constitution. Article One created Congress. My Capitol Hill friends liked to point out that the Constitution set up Congress before the president and executive branch (Article Two) and the judiciary (Article Three), showing who was top dog in the minds of the Framers.

Article One bestowed a long list of powers on Congress, including the power to legislate, raise revenue, and provide for the country’s common defense and general welfare. At the end of that list, Section Eight of Article One stated that Congress had the power to make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States.

The Supreme Court invoked that Necessary and Proper clause when it held that the Constitution authorized Congress to conduct oversight investigations, even though the power to investigate was never spelled out explicitly in the text. The key Supreme Court case was McGrain v. Daugherty, which arose out of the Teapot Dome scandal of the 1920s.⁷ The scandal involved oil leases on federal land sold to businessmen who’d provided financial benefits to the Secretary of the Interior Albert Fall. The scandal acquired its name from a Wyoming oil reserve that featured a rock formation shaped like a teapot.

As part of an extended investigation into the scandal, the U.S. Senate formed a select committee to investigate the failure of the Justice Department, under Attorney General Harry Daugherty, to prosecute the wrongdoing. The select committee issued a subpoena to the attorney general’s brother, Ohio banker Mally Daugherty, for oral testimony. When the brother refused to comply, the Senate Sergeant at Arms took him into custody. He sued, challenging the Senate’s authority to investigate, issue subpoenas, and punish noncompliance with imprisonment.

His legal challenge went all the way to the Supreme Court which, in an 8–0 decision, upheld Congress’ right both to investigate and enforce its subpoenas. The Supreme Court found that the power of inquiry—with process to enforce it—is an essential and appropriate auxiliary to the legislative function. In upholding the Senate’s right to compel testimony, the Court wrote:

A legislative body cannot legislate wisely or effectively in the absence of information respecting the conditions which the legislation is intended to affect or change; and where the legislative body does not itself possess the requisite information—which not infrequently is true—recourse must be had to others who do possess it. Experience has taught that mere requests for such information often are unavailing, and also that information which is volunteered is not always accurate or complete; so some means of compulsion are essential to obtain what is needed.

The Supreme Court was careful to note that Congress’ authority to investigate was not limitless. It had to be in aid of the legislative function. The Court prohibited Congress, for example, from inquiring into the private affairs of individuals without a legislative purpose. Nor could Congress take on the judicial branch’s role of adjudicating specific disputes, or the executive branch’s role of prosecuting wrongdoers.⁸ Instead, Congress had to design its investigations to inform and guide its legislative duties.

The Supreme Court dismissed a claim that the Senate’s inquiry was invalid because it had essentially put the Attorney General on trial, which was a judicial function. The Court stated that the investigation provided no warrant for thinking the Senate was attempting … to try the Attorney General … for any crime or wrongdoing. Nor do we think it is a valid objection to the investigation that it might possibly disclose crimes or wrongdoing on his part. The Supreme Court ruled instead that a congressional inquiry could proceed even if it disclosed wrongdoing that might merit law enforcement or court proceedings, so long as it was founded upon a legislative function.

The 1927 Supreme Court case made it crystal clear that Congress possessed inherent authority under the Constitution to conduct investigations tied to a legislative purpose. While Congress had no authority to prosecute crimes or resolve specific disputes, the Supreme Court confirmed Congress’ broad authority to engage in fact-finding to support its legislative function. It also made clear that Congress could use the federal courts to enforce congressional subpoenas compelling testimony or documents. While later cases added nuance and detail, the broad principles laid out in McGrain v. Daugherty provided an unshakable foundation for congressional oversight over the ensuing decades.

Compelling Information

My congressional education also led me deep into the laws and rules controlling when Congress could compel information, a key issue in every investigation. I learned that Congress had enacted statutes that explicitly granted the Senate and House the right to conduct inquiries, issue subpoenas, and compel compliance with their information requests.⁹ Equally important, the courts had given Congress the ability to brand anyone who defied a congressional subpoena as a wrongdoer in contempt of Congress. The Supreme Court held that Congress possessed inherent authority to hold such persons in contempt reasoning that, otherwise, Congress would be exposed to every indignity and interruption that rudeness, caprice or even conspiracy may mediate against it.¹⁰ Not only that, the Supreme Court ruled that Congress could force an individual accused of contempt to appear before the House or Senate, undergo a trial, and upon conviction, to be imprisoned at a place of Congress’ choosing.¹¹ Strong stuff.

Over time, Congress moved away from conducting its own contempt trials and enacted criminal and civil contempt statutes, enabling it to use federal courts and prisons to compel compliance with its subpoenas.¹² The criminal contempt statute authorized Congress to send a convicted person to a common jail for up to one year. To invoke the statute, the offended committee and house of Congress each had to vote to hold the individual in contempt and then send the case to a federal judge to order the person’s imprisonment.¹³ The Senate also enacted civil contempt statutes authorizing the Senate to file civil suits to enforce its subpoenas. In such suits, the federal district court could order defiant individuals to be imprisoned or pay a civil fine, in order to compel their cooperation with the Senate or punish ongoing contempt.

I also learned that, to show respect and deference to a co-equal branch of government, the courts made it fairly easy for Congress to prevail in a contempt proceeding, setting standards that made it hard for targets to defy a congressional subpoena.

First, the courts held that a subpoena recipient could not ask a judge to prospectively overrule or invalidate a subpoena. Instead, the recipient had to refuse to comply, get cited for contempt by Congress, and then raise objections during the contempt proceedings.¹⁴ Not a comfortable legal posture for the person challenging Congress.

Second, when gauging the validity of a congressional subpoena, the courts typically used a three-part test, promulgated by the Supreme Court, whose minimal requirements seemed to favor Congress. The key case involved a hearing witness whom the House had voted to hold in contempt for refusing to answer a question about whether he was a member of the Communist Party. The Supreme Court sided with the House, holding that the witness had to answer the question, because the House Committee’s inquiry had met three basic criteria: (1) it involved matters that the committee was authorized by Congress to investigate; (2) the investigation had a valid legislative purpose; and (3) the requested information was pertinent to the subject matter of the investigation.¹⁵ The three-part test, which required a relatively minimal showing, made it easy for lower courts to enforce congressional subpoenas.

Jurisdiction

The first prong of the test focused on congressional authority to investigate a particular subject matter. To evaluate that issue, the court looked to the jurisdiction assigned to the committee or subcommittee making the information request.

Committee jurisdictions were routinely disclosed at the beginning of each new Congress. Since the U.S. Congress first convened in 1789, each subsequent Congress has had a duration of two years, with each component year referred to as a session. For example, the Congress first employing me was the 99th Congress. Its first session was in 1985; its second session was in 1986. The two-year period corresponded with the terms of the members of the House of Representatives, all of whom had to be re-elected every two years. Each time the House members were elected, they constituted an entirely new body and started a new Congress. In contrast, in the Senate, only one-third of its members faced election every two years. That meant, unlike the House, the Senate had a continuous existence. Nevertheless, the Senate used the same two-year timeframe as the House to identify each Congress.

At the beginning of each new Congress, the House adopted a set of rules and resolutions to govern its operation. The Senate, as a continuing body, didn’t have to adopt new rules, but could choose to amend its rules at the start of a new Congress or at some other time. The House and Senate rules, as well as resolutions passed by each body at the beginning of a new Congress, were used to assign subject matter jurisdiction to each of their standing, select, joint, and ad hoc committees. The jurisdictional assignments were typically broad and often overlapped.

The committee names were indicative of their jurisdictions such as the Committee on Agriculture or Select Committee on Intelligence. Over time, many of their names and jurisdictions changed to adapt to new issues and needs. For example, the committee where I worked would undergo four name changes over the span of 100 years. From 1921 to 1952, it was known as the Committee on Expenditures in the Executive Departments. In 1952, its name changed to the Committee on Government Operations. In 1977, the name changed again to the Committee on Governmental Affairs. In 2005, it would change once more to the Committee on Homeland Security and Governmental Affairs.¹⁶

When I was hired in 1985, the Committee on Governmental Affairs served as the Senate’s chief investigative body, and its assigned jurisdiction was one of the most sweeping in the Senate. It included the authority to investigate the efficiency, economy, and effectiveness of all federal agencies, including any instance of fraud, mismanagement, corruption, or unethical practice; all instances of waste, extravagance, or improper expenditure of Government funds; any corporate or individual noncompliance with a federal regulation or law; all organized criminal activity that crossed state lines; and all other aspects of crime and lawlessness, including investment fraud schemes, commodity and security fraud, computer fraud, and the use of offshore banking and corporate facilities to carry out criminal objectives.¹⁷ Whoa.

Despite that already mind-blowingly broad mandate, in 2005, when the committee name changed to the Committee on Homeland Security and Governmental Affairs, the Senate added a raft of new homeland security issues to the committee’s plate. The result was that jurisdiction wasn’t much of a limiting factor for subpoenas issued by our committee or its subcommittees.

Legislative Purpose and Pertinence

The final two prongs of the courts’ three-part test to evaluate congressional subpoenas were equally easy to meet. They required Congress to show that a subpoena was tied to a valid legislative purpose and was pertinent to the subject under inquiry. The courts interpreted both requirements broadly. For example, the courts ruled that the phrase, valid legislative purpose, justified subpoenas aimed at determining whether a law was working or a new law was needed, whether appropriated funds were being spent wisely or should be spent otherwise, whether federal agency actions or presidential orders were acceptable, whether nominations of federal office should be approved, and a host of other matters tied to Congress’ legislative functions. The courts gave Congress a lot of leeway.

The courts also made it easy for Congress to show that a subpoena was pertinent to an investigation. As one court explained in upholding a congressional subpoena:

A legislative inquiry may be as broad, as searching, and as exhaustive as is necessary to make effective the constitutional powers of Congress. … A judicial inquiry relates to a case, and the evidence to be admissible must be measured by the narrow limits of the pleadings. A legislative inquiry anticipates all possible cases which may arise thereunder and the evidence admissible must be responsive to the scope of the inquiry which generally is very broad.¹⁸

The courts further broadened the standard by holding that a congressional inquiry could evolve over time to encompass new subjects, and that a congressional subpoena was to be enforced ‘unless the district court determines that there is no reasonable possibility that the category of materials the Government seeks will produce information relevant to the general subject of the … investigation.’¹⁹ The Supreme Court instructed that a congressional subpoena should be upheld even if investigators end up searching some ‘blind alleys’ or non-productive enterprises. It stated: To be a valid legislative inquiry there need be no predicable end result."²⁰

With that type of direction from the high court, lower courts were generally unreceptive to claims that a congressional subpoena should be invalidated because it was overbroad. The courts followed Supreme Court precedent holding that, when it came to policy-oriented inquiries, Congress had discretion to explore the facts, related issues, and even remote connections.

There was one big exception to that broad approach—when Congress subpoenaed information from the president or executive branch. Several Supreme Court cases had held that, unlike a private individual or entity, the president had certain executive privileges that could limit the information obtainable by Congress. Figuring out the bounds of those executive privileges was an ongoing source of conflict between the executive and legislative branches.

Lying and Obstructing

One more critical set of legal issues in congressional oversight involved the federal statutes that prohibited lying to Congress or obstructing its investigations. I learned that the prohibition against lying to Congress was very broad. It wasn’t limited to hearings where a witness swore an oath to tell the truth and risked a perjury charge for material misstatements.²¹ It also applied to statements made during the course of any authorized investigation or review by Congress, which meant it applied to statements made to a member or congressional staffer during a deposition, interview, telephone call, letter, or email exchange. The key criminal statute, 18 U.S.C. § 1001, stated that anyone who knowingly and willfully … falsifies, conceals, or covers up … a material fact or makes any materially false, fictitious, or fraudulent statement, or makes or uses any false writing in a matter within the jurisdiction of Congress could be fined or imprisoned for up to five years.

The obstruction statute, 18 U.S.C. § 1505, was equally tough. The law made it a crime for anyone to corruptly or through the use of any threatening letter or communication to influence, obstruct, or impede a congressional inquiry. Persons who violated the statute could be fined or imprisoned for up to five years.

Pretty stern stuff. While it was relatively rare for someone to be prosecuted for lying to or obstructing Congress, it wasn’t an empty threat. In fact, several years later, in connection with a Levin investigation into the 2001 collapse of Enron Corporation, a corporate executive would be convicted of lying to the Senate and jailed for three years. I learned that a credible threat of criminal prosecution for false statements played a frequent and critical role in getting to the truth.

A final source of oversight restrictions and practices involved specific rules issued by Congress itself. In each Congress, the Senate and House issued rules governing the circumstances under which their respective committees could conduct an inquiry, issue a subpoena, or hold a hearing.²² In addition, most committees issued their own supplementary set of rules governing their operations. Some subcommittees did the same, including PSI. I was to learn that those rules also had a real impact on how investigations played out.

Learning What Not to Do

During my OGM tenure, while I participated in many compelling investigations, one stood out. It was the highest profile investigation undertaken by the Governmental Affairs Committee while I was there, and it swept up the whole committee for an entire year.

The investigation arose out of the 1996 campaign won by President Bill Clinton and Vice President Al Gore over Republican challengers Senator Bob Dole and his running mate Congressman Jack Kemp. It was a hard-fought election that led to angry recriminations and allegations of wrongdoing by both sides. Questions included whether foreign money had influenced the outcome, whether the White House had broken any laws by selling political access to big campaign contributors, and whether loopholes in federal campaign finance laws were allowing campaign contributions to corrupt American politics.

The Republicans were then the majority party in the Senate, and in December 1996, Senate Majority Leader Trent Lott announced the Governmental Affairs Committee would conduct a special investigation into the 1996 campaign. The committee chair was Senator Fred Thompson , a Tennessee Republican who’d been a staff lawyer during the Watergate inquiry.

In January 1997, under Senator Thompson ’s leadership, the committee approved a bipartisan description of the scope of the inquiry, authorizing an investigation into illegal or improper fundraising and spending practices in the 1996 Federal election campaigns.²³ After three months of bickering, the full Senate passed a supporting resolution in March 1997 and imposed a one-year deadline to complete the inquiry.²⁴

The investigation concluded on time in March 1998. Along the way, the committee hired more than 50 new staffers, set up a special room to secure about 1.5 million pages of documents, issued 427 subpoenas, conducted 200 depositions and another 200 interviews, held 32 days of hearings over three months, took testimony from 72 witnesses, and wrote a six-volume, 9575-page report with findings and recommendations.²⁵ The investigation was fast-paced, wide-ranging, and riven with partisan disagreements. It dominated my life for the entire year. And it taught me lesson after lesson about how not to conduct congressional oversight.

In Washington, the common wisdom is never to allow a crisis to go to waste, but to use it to analyze and fix real problems. Public outcry about the 1996 election campaign provided a rare opportunity to clean up the sewer system that the U.S. campaign finance system had become. But to do that, the parties needed to work together, admit the stink permeated both sides of the aisle, and develop bipartisan solutions. The problem with the Governmental Affairs investigation was that, while the committee Republicans were happy to point out all the problems on the Democratic side, they refused to admit that similar problems afflicted their party.

The refusal to acknowledge a bipartisan problem played out in every aspect of the investigation. Multiple witnesses with information about Democratic fundraising practices were brought in for questioning, but requests to interrogate their Republican counterparts were largely ignored. Not one witness from the Republican National Committee (RNC) or Dole campaign was called to testify at a committee hearing. The 32 days of hearings examined Democratic fundraising misconduct in detail, while the three days of hearings promised to examine similar problems on the Republican side never materialized.

The GOP’s see-no-evil approach, as Senator Levin labeled it at one point, didn’t actually protect the Republicans from criticism. Despite a lack of interviews and hearing opportunities, the committee Democrats repeatedly released evidence of Republican fundraising misconduct that paralleled Democratic misdeeds. When the Republicans denounced President Clinton for letting big contributors stay overnight in the White House’s Lincoln bedroom, the Democrats produced invitations from President George H.W. Bush enabling big contributors to meet Cabinet members in the White House’s Indian Treaty Room. When the Republicans ridiculed Al Gore for attending a fundraiser in a Buddhist temple, the Democrats castigated President Bush for taking $500,000 from a Japanese businessman, Michael Kojima, who’d been labeled a deadbeat dad for failing to pay child support. When the Republicans showed Chinese money being bundled by Democratic contributor John Huang, Democrats traced Hong Kong money flowing to the RNC through a conduit called the National Policy Forum.

The investigation’s tit-for-tat dynamic poisoned committee relationships. Instead of everyone agreeing on the facts underlying the campaign finance problems and pushing for a bipartisan solution, the two sides got increasingly angry at each other for criticizing their counterparts and not themselves. Republicans charged Democrats with trying to deflect attention from President Clinton’s misdeeds, while Democrats slammed Republicans for trying to hide their party’s own wrongdoing. The inquiry produced a dysfunctional stalemate instead of a joint effort to solve a mutual problem. The infighting also disgusted the media and the public.

Perhaps the lowest point in the investigation from an institutional perspective came when the committee abandoned efforts to enforce document subpoenas it’d sent to politically powerful organizations on both sides of the aisle. Neither side would support the other’s enforcement effort. When a committee throws up its hands on enforcing its own subpoenas, it weakens Congress as a whole by enabling investigative subjects to thumb their noses at congressional requests.

Another low point was the committee’s final report. The two sides didn’t even attempt to draft a joint product. Instead, each wrote its own report. The final result was over 9000 pages of divergent depictions of what happened during the 1996 presidential campaign. I wonder how many people—other than those of us involved in the drafting—ever read the whole thing.

Despite the disastrous Senate investigation, it had one positive outcome. The awful facts it compiled contributed to a growing public demand to reform the U.S. campaign finance system. It took another five years, but in 2002, Senator John McCain , a Republican from Arizona, and Senator Russ Feingold, a Democrat from Wisconsin, won enactment of the landmark Bipartisan Campaign Reform Act, also known as the McCain-Feingold Act. It tackled a wide range of campaign finance problems, many of which had been documented in the Senate investigation.

For a while, the McCain-Feingold Act halted a host of ugly practices in U.S. campaign finance. But few reforms endure where money in politics is concerned. As Supreme Court decisions weakened many of the McCain -Feingold restrictions, Congress failed to respond with new legislation, leading to another surge in campaign finance abuses. When allegations of foreign influence over the U.S. presidential election erupted in 2016, it demonstrated the ongoing need for congressional oversight in the electoral arena.

Mastering the Basics

In the Levin camp, the campaign finance investigation produced bitter regret that the 1996 campaign crisis had not led to a truly bipartisan inquiry. The crucible of that failed investigation was painful, but it also helped crystalize my views about congressional oversight.

By the investigation’s end in 1998, I felt I finally had a good grasp of the oversight process. It was no longer a mysterious, amorphous subject, but one composed of distinct phases:

Designing the investigation;

Getting the facts through research, document requests, and interviews;

Writing up the investigative results;

Holding a hearing; and

Pushing to fix the identified problems.

I was also convinced that bipartisan investigations led to more thorough, accurate, and credible fact-finding as well as to higher-quality, longer-lasting policy reforms.

But perhaps more important than the investigative techniques were the lessons I had soaked up about Congress itself. I had learned that, in many ways, Congress was a closed world, insular, with its own traditions, unwritten rules, and sensitivities. At the same time, Congress was exposed to and buffeted by multiple outside forces including constituents, lobbyists, and the public, expressing a cacophony of differing points of view. I had begun to understand that the 100 senators and 435 House members were, first and foremost, singular individuals with strengths, weaknesses, and interests, operating in an ever-shifting network of political pressures and alliances. Each member of Congress decided on how to devote their time and energy; the puzzle was figuring out how to enlist them into a common endeavor.

I found myself fascinated with the whole complicated process. While the rest of the country was becoming increasingly disillusioned with Congress, I found I’d become a full-fledged congressional junkie whose knees got weak when I gazed at the statue of Freedom on top of the Capitol dome. I found I’d become fiercely devoted to Congress as an institution. While most congressional staff left the Hill after a few years, I found I didn’t want to leave; working for Congress had become my chosen career.

I also realized that I’d been able to maintain my positive feelings about Congress, because I had landed a job in oversight working for an outstanding senator. The thing about oversight, when done well, is that it’s worthwhile and fun, even in an otherwise dysfunctional Congress. When everyone else is banging their heads against the wall trying to pass legislation that can’t get passed, oversight investigators can continue to do valuable work. They dig out the facts, interview victims and wrongdoers, analyze problems, and try to discover what might make things better. And isn’t that why many people go to Washington in the first place—to analyze and fix problems hurting the country?

Even in troubled times, when solutions require a political consensus that isn’t possible at the moment, an oversight investigation can prime the pump by educating policymakers and the public about a problem and what can be done about it. Then when a crisis hits, all that analysis and work on possible solutions will be ready—to make sure the crisis doesn’t go to waste.

What I didn’t realize in 1998 was that, while OGM had been a remarkable adventure in its own right and produced terrific oversight, it was only a warm-up for what was coming.

Footnotes

1

For more information on the Pujo Committee investigation, see Congress Investigates: A Critical and Documentary History, editors Roger A. Bruns, David L. Hostetter, and Raymond W. Smock (Facts on File 2011) (hereinafter "Congress Investigates), Volumes 1–2, at 417–459; Money Trust Investigation: Financial and Monetary Conditions in the United States," House Committee on Banking and Currency subcommittee (5/16/1912), HRG-1912-BCU-0017, Y4.B22/1:M74/2-1, http://​bit.​ly/​2ASceSc (first of multiple hearing days).

2

For more information on the Pecora investigation, see Congress Investigates, at 500–539; Stock Exchange Practices, Senate Committee on Banking and Currency, S. Hrg. 73-1455 (6/6/1934), http://​bit.​ly/​2hKZVDt (report and associated hearings from January 1933 to May 1934).

3

For more information on the Watergate investigation, see Congress Investigates, at 886–926.

4

For more information on the Church Committee investigation, see Congress Investigates, at 927–967; Final Report of the Select Committee to Study Governmental Operations with Respect to Intelligence Activities, United States Senate together with Additional, Supplemental, and Separate Views, S. Rpt. 94-755 (4/26/1976), https://​archive.​org/​details/​finalreportofsel​01unit.

5

See, for example, the Competition in Contracting Act of 1984, P.L. 98-369 (S. 2127); Social Security Disability Reform Act of 1984, P.L. 98-460 (S. 476); Anti-Kickback Enforcement Act of 1986, P.L. 99-634 (S. 2250); Computer Matching and Privacy Protection Act of 1988, P.L. 100-503 (S. 496); Negotiated Rulemaking Act of 1990, P.L. 101-648 (S. 303); Lobbying Disclosure Act of 1995, P.L. 104-65 (S. 349).

6

See, for example, the following hearings and reports from investigations conducted by the Subcommittee on Oversight of Government Management: Department of Defense Subcontractor Kickbacks, S. Hrg. 99-810 (2/27/1986), http://​bit.​ly/​2jEncHL; Wedtech: A Review of Federal Procurement Decisions, S. Prt. 100-108 (5/1988), http://​bit.​ly/​2Cwa9Q8; Department of Defense Safety Programs for Chemical and Biological Warfare Research, S. Hrg. 100-902 (7/27–28/1988), http://​bit.​ly/​2itP2mx; Oversight of Oil Spill Protections for the Great Lakes, S. Hrg. 101-354 (9/6/1989), http://​bit.​ly/​2yWWFbk; Lax Federal Enforcement of the Antidumping and Countervailing Duty Program, S. Prt. 102-52 (10/1991), http://​bit.​ly/​2zPXVAu; Navy’s Mismanagement of the Sealift Tanker Program, S. Hrg. 103-1044 (10/12/1994), http://​bit.​ly/​2zPYNVJ.

7

273 U.S. 135 (1927). For more information on the Teapot Dome scandal, see Congress Investigates, at 460–499.

8

See also Watkins v. United States, 354 U.S. 178 (1957).

9

See U.S. Code, Title 2, The Congress.

10

Anderson v. Dunn, 19 U.S. 204 (1821).

11

The Supreme Court has upheld Congress’ right to use imprisonment to induce a subpoena recipient to produce requested information or impose punishment for noncompliance. The Court has limited the term of imprisonment by stating it may not exceed the term of the Congress that authorized it. See, for example, Congress’s Contempt Power and the Enforcement of Congressional Subpoenas: Law, History, Practice, and Procedure, Report No. RL34097, Congressional Research Service (5/12/2017), at 8, 10–11 (hereinafter CRS Report on Congress’s Contempt Power).

12

See 2 U.S.C. § 192 (authorizing Congress to find a person who was summoned as a witness before a house of Congress, but refused to appear, answer questions, or produce requested papers, guilty of a criminal misdemeanor, and subject to a monetary fine or imprisonment for up to one year); 2 U.S.C. §§ 288b(b) and 288d, 28 U.S.C. § 1365 (authorizing the Senate to file civil contempt lawsuits in federal district court); CRS Report on Congress’s Contempt Power, at 20–25. In place of the Senate’s civil contempt statutes, the House requires adoption of a House resolution each time a House committee seeks to enforce a subpoena through civil contempt proceedings. Id. at 25–30. The last time Congress conducted its own trial on contempt charges, outside of a federal court, was in 1935. Id., at 12.

13

If voting is successful and a contempt citation is certified by the Senate President or House Speaker, the law states it becomes the duty of a federal prosecutor to bring the matter before the grand jury for its action.

14

Eastland v. U.S. Servicemen’s Fund, 421 U.S. 491, 503–507 (1975).

15

Wilkinson v. United States, 365 U.S. 399, 408–409 (1961).

16

The number, names, and jurisdictions of its subcommittees also underwent repeated alteration.

17

The Governmental Affairs Committee’s jurisdiction was set forth in the Senate’s standing committee rules and the committee’s funding resolution. See, for example, Senate Rule XXV-1(k) and S. Res. 85, both in force during the 99th Congress.

18

Townsend v. United States, 95 F.2d 352, 361 (D.C. Cir.), cert. denied, 303 U.S. 665 (1938).

19

Senate Select Committee on Ethics v. Packwood, 845 F. Supp. 17, 20–21 (D.D.C. 1994), stay pending appeal denied, 510 U.S. 1319 (1994).

20

Eastland v. U.S. Servicemen’s Fund, 421 U.S. 491, 503–507 (1975). See also Watkins v. United States, 354 U.S. 178, 187 (1957) (The investigative power of Congress encompasses inquiries concerning the administration of existing laws as well as proposed or possibly needed statutes. It includes surveys of defects in our social, economic or political system for the purpose of enabling Congress to remedy them. It comprehends probes into departments of the Federal Government to expose corruption, inefficiency or waste.).

21

18 U.S.C. § 1621.

22

In the 99th Congress, Senate Rule XXVI provided the standing procedural rules for how Senate committees operated, while the same function was performed for House committees by House Rule XI.2(m)(1).

23

Investigation of Illegal or Improper Activities in Connection with 1996 Federal Election Campaigns, Report, Volumes 1–6, U.S. Senate Committee on Governmental Affairs, Rept. 105-167 (3/10/1998) (hereinafter 1996 Campaign Report), Volume 1, at 11–12, http://​bit.​ly/​2hKgO0W et seq. (6 parts). See also related hearings at http://​bit.​ly/​2zQ0bHF et seq. (10 parts).

24

Senate Resolution 39 (3/11/1997).

25

1996 Campaign Report, Volume 1, at 14–15.

© The Author(s) 2018

Elise J. BeanFinancial Exposurehttps://doi.org/10.1007/978-3-319-94388-6_2

2. Landing at PSI

Elise J. Bean¹  

(1)

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

Elise J. Bean

While the conventional assumption is that the strength of legislative bodies lies in the power to legislate, a respectable tradition has long argued that it lies as much or more in the power to investigate.

Arthur M. Schlesinger Jr., Congress Investigates: A Critical and Documentary History, Volume 1, at xxi (Facts on File 2011)

What followed next was 15 years of big-league investigations by the U.S. Senate Permanent Subcommittee on Investigations, known to insiders as PSI. PSI has long been seen as the Senate’s premier investigative panel with decades of bipartisan, hard-hitting, high-quality oversight inquiries.

PSI originated as a temporary investigative committee, led by then Senator Harry Truman , to examine war profiteering during World War II. It later became a permanent subcommittee and built a formidable reputation taking on Nazi war criminals, political corruption, and organized crime. In 1954, it faltered when, for two years, Senator Joe McCarthy conducted a series of investigations so offensive they corroded the PSI brand. After his departure, PSI slowly rebuilt its credibility with high-profile investigations into labor racketeering, the mafia, drug trafficking, and white-collar crime. PSI also examined such matters as the U.S. race riots in the 1960s, gasoline shortages in the 1970s, and money laundering in the 1980s.

Senator Levin claimed his PSI leadership spot in 1999. For the rest of his Senate career, he used his position on PSI to conduct one high-stakes inquiry after another. He exposed tax cheats hiding money offshore, credit card companies abusing American families, money launderers misusing U.S. financial institutions, Wall Street banks generating the financial crisis that devastated middle America, multinational corporations gaming the tax system, and more. His investigations targeted some of the most powerful corporations in America, including Apple , Citibank , Enron, and Goldman Sachs, as well as tax-cheating billionaires, corrupt foreign dictators, and bankers behaving badly.

Through it all, Senator Levin burnished PSI’s reputation for fact-based, bipartisan inquiries that not only exposed wrongdoing, but also pushed for policy reforms. As one opponent quipped during the Levin era: PSI stands for pretty scary investigations.¹

Distilling the Levin Principles

I was lucky enough to have a front-row seat during the whole of the Levin years on PSI, first as a Levin investigator and later as his staff director and chief counsel. Over time, as one investigation rolled into the next, the Levin PSI team built up a set of principles that guided our oversight efforts. They functioned as informal supplements to our official committee and subcommittee rules. What follows is a distillation of a dozen of what I think of as the key Levin Principles for delivering high-quality congressional oversight.

The Levin Principles

1.

Apply the Two-Year Rule. Given limited resources, the Levin PSI team could conduct only a few investigations each year, so selecting our investigative topics was a crucial first step. While many factors were weighed, one important one was whether the subject was worth two years of intensive effort out of our lives, because that would be the minimum amount of time involved. We found that evaluating an investigative topic in terms of the time taken from our own lives helped focus the mind.

2.

Conduct Original Research. Our second principle was to use PSI resources to conduct research that hadn’t been done before. Too many congressional inquiries consist of little more than asking experts to describe prior research. Senator Levin didn’t want a regurgitation of what was already known. He wanted new information.

3.

Focus on the Facts. Third, Levin inquiries focused on compiling factual information. The world is a complicated place, and problems worth investigating typically have