Watchdog Faces Three Investigations

Expenditures, Reassignments by Commerce Dept.'s Inspector General Challenged

By Joe Stephens and John Solomon
Washington Post Staff Writers
Wednesday, May 2, 2007; A04

The inspector general of the Department of Commerce, the watchdog charged with rooting out wrongdoing at the agency, is himself the subject of three separate government investigations into allegations that he misspent his budget and retaliated against employees who raised concerns about his actions.

Last week, House Energy and Commerce Committee Chairman John D. Dingell (D-Mich.); Rep. Joe L. Barton (Tex.), the ranking Republican on the panel; and two other members sent an eight-page letter to the inspector general, Johnnie E. Frazier, demanding scores of records. Investigators from two executive-branch agencies have also been looking into Frazier's conduct.

Among the allegations are that he engaged in questionable travel at taxpayer expense, at times over weekends and accompanied by his grandchildren, to cities where the inspector general does not have offices, according to documents and interviews with people close to the inquiries. The investigators are also interested in whether Frazier improperly arranged for a no-bid $150,000 contract to be awarded to a consulting company that the committee's letter alleges was "connected" to a retiring employee of Frazier's office.

A number of senior staff members, including Frazier's deputy, have been reassigned in recent months. At least two have sought whistle-blower protection by alleging that Frazier retaliated against them, and a third has contacted the U.S. Equal Employment Opportunity Commission alleging discrimination and retaliation, according to the people interviewed.

Frazier declined to comment. He referred reporters to a statement from his office's acting legal counsel, Carolyn Croak, which said that officials in the inspector general's office are "cooperating fully with these investigations and look forward to their speedy resolution."

Among the accusations mentioned in Dingell's letter was that Frazier cut short a government conference so he and senior managers could go gambling in Atlantic City.

"Numerous current and former employees have made serious allegations against you and the way that you have managed your office," Dingell and his colleagues wrote. "They have provided the Committee on Energy and Commerce with credible allegations of serious and widespread fraud, waste, and abuse within your office that involves not only you personally, but also many members of your current management team."

The letter directs Frazier to preserve all records related to the investigation, noting that some witnesses had told the committee that records have been "destroyed, altered and/or tampered with."

Documents obtained by The Washington Post show that inquiries are also underway at the Office of Special Counsel, an independent agency that enforces the Whistleblower Protection Act, and at the President's Council on Integrity and Efficiency, which reviews complaints against inspectors general. The statement from Croak noted that the President's Council closed one of its two inquiries into Frazier's activities, and suggested that the closure meant "the allegations were not substantiated."

Frazier's official biography says that he is a member of the President's Council and is chairman of the organization's committee on inspection and evaluation.

Frazier's office is responsible for monitoring the expenditure of $6 billion a year through the Commerce Department, which, among other functions, oversees the National Weather Service and the Patent and Trademark Office.

Frazier was appointed by President Bill Clinton in 1999 after his predecessor, Francis D. DeGeorge, resigned amid controversy. DeGeorge later pleaded guilty to a misdemeanor conflict-of-interest charge related to job discussions he had with a contractor.

The investigations into Frazier's conduct date to last fall, when he took a week-long trip to Boston and New York. When he returned, Frazier asked his deputy, Edward Blansitt, to sign off on his expenses, according to a complaint Blansitt filed with the President's Council.

Blansitt said in the complaint that he refused to approve the expenses because Frazier appeared to have had "one relatively short business meeting" over the week.

The council closed its inquiry after an explanation from Frazier, records show, but it opened another -- into whether he ended a large staff meeting in Philadelphia early "for the specific purpose of allowing yourself [Frazier] and another OIG [Office of the Inspector General] employee the time to drive to Atlantic City to gamble."

Shortly after Blansitt filed the original complaint, Frazier reassigned him to the post of assistant inspector general for investigations, said sources who spoke on the condition of anonymity. Frazier also removed his office's legal counsel, Allison Lerner, from her position and named her deputy assistant inspector general for audits, according to a complaint Lerner filed with the President's Council.

Blansitt and Lerner declined to comment for this article, but the sources said that each has filed a complaint with the Office of Special Counsel, alleging to be a victim of retaliation. They are seeking protections available to whistle-blowers under federal law.

A January letter from the Office of Special Counsel to the Commerce Department says that the counsel is investigating allegations that unnamed officials in the inspector general's office retaliated against employees who "divulged information" to the President's Council. The letter seeks documents, including personnel records and travel vouchers.

Besides Frazier's travel expenses and the no-bid contract, House investigators are interested in the large sums spent on remodeling a conference room and on an aborted plan to reconfigure work spaces. Workers said walls were demolished and traditional private offices reconfigured to accommodate new, open-plan modular furniture bought at taxpayer expense. But the months-long redesign was then reversed.

One internal e-mail obtained by The Post suggests that the project not only caused lengthy disruptions in the office but may also have cost taxpayers more than $100,000.

Dingell's letter says his committee interviewed people who said that Frazier traveled regularly without a clear governmental purpose, charged for first-class accommodations and took along an excessive number of subordinates. It also questions whether Frazier gave a government bonus as a wedding gift to a member of his management team.

The letter asks that Frazier bring in a third party, such as another agency's inspector general, to oversee the gathering of the documents requested by the committee.

Why They Fight

by Anne Williamson

Watching Paul Wolfowitz, exposed in a sex and corruption scandal involving fellow World Banker and private squeeze, Shaha Ali Riza, grappling for several weeks now to save his super-cushy job at the World Bank has brought to mind the infamous quote Ron Suskind teased from a neocon senior aid to George W. Bush, "We're an empire now, and when we act, we create our own reality...and you, all of you, will be left to just study what we do."

Regarding reality, Wolfowitz, it seems, has had to call in re-write (and not for the first time).

By requesting his resignation, the Bank's Board demonstrated to any clear-eyed neocon that they were not studying the correct material. Wolfowitz, instead of acting upon the Board's decision as he previously indicated he would, has hired lawyer-insider Robert Bennet to represent him before that same Board.

Wolfowitz knows the big script, history, clearly has him strategically placed at the World Bank, in control of $25 billion in lending per annum and holding a magic stick of "corruption charges" with which to prod borrowers and trim staff, thereby riding out the Bush administration's departure, especially with a second, possibly even a third, five-year appointment, thereby extending his own foreign policy impact well into the future.

Going forward, the job may prove only a fringe presence in the high-powered world of Washington policymaking, but for Wolfowitz, losing it would be a personal disaster. Bush's political clout is in decline, leaving little chance the president could deliver a comparable perch even if persuaded to expend some of his dwindling power trying. The man himself couldn't survive a hearing for congressional approval which the very best government jobs require, and he sure can't get himself elected. What to do? A sinecure at AEI? How very bleak.

Even were the deluded Wolfowitz to beat the unjustly-enriching-girlfriend-with-other-peoples'-money rap, his behavior in the breech insures he'll never salvage his job. (Today the ministers of the European Parliament have called for his ouster.) If the Bank were the corpse it deserves to be, it's president's current behavior would have it turning over in its grave.

Clumsily, Wolfowitz has attempted what he and his neocon pals managed to do to the Pentagon and the CIA, but unlike those weenies, World Bank staff fought back, proving the old saw, "The price of privilege is eternal vigilance." In an uncharacteristically noisy string of special meetings, memos, reports, internet message boards, chat rooms, public hissing displays and press leaks, they refused to be intimidated while their institution is made a shell and re-designed from within. No "Office of Special Plans Under Construction" sign on their premises!

What Wolfowitz wants – the re-politicization and militarization of the Bank on behalf of a neocon-inspired global imperium centered in Washington preferably no more than a short limo ride from his personal residence – is not what the 10,000 member World Bank staff want. Nor, it seems, is it what the majority of the184 other member nations of the World Bank want.

Just when the entire global gang was coming to town for the Spring Meetings, the damning details of Wolfowitz's years of living large spilled out in news reports along with his initial denials and, later, acceptance of the reported facts after a botched cover-up. Handing out territory and cash flows like a Mafia don, he saw to the girlfriend's interests, those of his favored defense department aides', along with his own, negotiating out-sized salaries, guarantees and privileges. In a nice Trotskyite touch, he further made the appointment of a Republican operative and White House pal as director of the Department of Institutional Integrity where, staff says, said agent is to function as Wolfowitz's personal spy on all of them.

A funny turn of events. Republican neocons pulled the congressional dogs off the international institutions just when the Republican Senate's Cox Committee was establishing the abject failure of both the Bank and the Fund in the Russian reform masquerade of the 1990s, which, in turn, threatened both institutions' future funding, possibly even their existence. Neocons, sensing the Republican 2000 victory for the White House, wanted both institutions along with the US bilateral foreign aid infrastructure available for their own use once they had control of the executive branch.

Lucky thing that – just when Iraq started to go south, James Wolfensohn's retirement from the Bank offered an ideal hiding place from an increasingly inquisitive congress and media. The candidate for the Bank's presidency did not require congressional approval, and traditionally the appointment has always been the American executive's. (How terrifying it must be for Wolfowitz to contemplate the current humiliation of Alberto Gonzales!)

Once installed, Wolfowitz decided to focus on Africa, a public relations success. Even now, it continues paying dividends as what support he has received to stay on at the Bank has mostly come from Africa. But as the Bank's very first priority Wolfowitz chose to expand on his predecessor's anti-corruption initiative.

The centerpiece of the policy worked out last September is a Voluntary Disclosure Program (VDP) under which firms, NGOs or individuals who work as contractors on Bank projects are to report their corrupt acts regarding Bank projects for the last five years. In return, the penitents receive confidentiality and the right to continue bidding on Bank projects, all of which actually immunizes wrong-doers while allowing the Bank to cover up its own negligence and/or political agenda.

Hmmm. Written confessions on file. Another nice touch that.

Practically speaking, the program is just dumb. Corruption is part of the organizing structure in the developing world. If you are opening a prenatal care center or a silver mine, doesn't matter which, and the local chief wants his palm greased to demonstrate to the tribe your desire to be part of the community, you are not going to waste the daily cost of labor, of maintaining site infrastructure, and of interest on business loans, to march back to the capital and file a complaint. You are going to darken that man's palm, viewing it not as a bribe but as a tax, and one with the advantage of being directly negotiated. Under Wolfowitz's plan, any rational expediency or opportunity cost could be labeled as criminal conduct.

Wolfowitz has cut off funds to Chad, delayed projects to Kenya, and ordered a stoppage of funds to the Congo and Ecuador (which expelled their in-country World Bank representative today) over various corruption issues and charges, which have mostly served to create confusion and resentment. Critics charge that his concerns regarding what are inarguably high levels of corruption in World Bank projects evaporated when considering lending for Iraq, Pakistan and Afghanistan. Money further flowed to the countries Wolfowitz once recruited to sign on to Washington's counter-terrorism agenda. In the same vein, he elevated nationals from Spain, from San Salvador, and from Jordan – all nations that strongly backed the US invasion of Iraq – to extremely sweet positions within the Bank hierarchy. In contrast, when Uzbekistan denied landing rights to American military aircraft he promptly suspended their Bank program.

By demonstrating that good things and huge streams of cash flow to those countries and individuals that sign on to U.S. aggressions, Wolfowitz is slowly laying the basis for a new exploitation, i.e. the option of contributing troops to US global adventures via an expanded Nato in return for grants. (Grants are flexible, they can be loaded with extraneous political conditions. Loans are precise, legal documents with troublesome consequences if defaulted.)

It might seem surprising but the bank has always had a problem with lending. It was never much of a force in the reconstruction of European industry. By the early '50s there was little demand for its lending, it should have been dismantled then.

Instead, to solve its problem, the Bank cooked up a new agency funded through the donations of wealthy nations that would subsidize credit at zero percent interest on 50-year loans! Thus was born the International Development Association (IDA) which is the funding that allowed the Bank to plunge into the developing world, where it has been disastrously wasting money and harming developing countries ever since, not to mention taxpayers, who are compelled to bail out the bankers cyclically.

The Bank is completely unnecessary. In a world in which central banks are pumping out money and global liquidity is at tsunami levels, there certainly is no need for preferential government-organized taxpayer-subsidized loans. The poor would have been much better served over the decades by arranging for loans on a commercial basis as the discipline required to fulfill standard obligations would represent an economic and political advance for a developing nation, the right of contract being essential to prosperity.

Currently the Bank is in an IDA donor drive, an every third year affair. Contributions are way, way down.

The U.S.'s 16% ownership of the Bank puts it in the institution's driver's seat. Wealthy countries are not eager to donate money for the as yet unknown specifics of what is now viewed as an alarming US foreign policy. Why should anyone sign on to possible future U.S. aggression indirectly through World Bank lending?

Wolfowitz's agenda puts at risk a very cozy world based on the post–World War II modus operandi in which dollar loans are extended to undeveloped and impoverished nations in order to grab control over their resources and governments. The main point is the loan, not the borrower's ability or commitment, but the lender's claim on national collateral. The corruption emerges from institutional action, action inherent in and according to the World Bank's design as a political lender masquerading as a humanitarian enterprise, and nothing effective can be done about it as long as the institution exists. Reform is not an option, only elimination.

For the well-positioned second-raters that people the Bank, there's no advantage in trading in a country club existence and perfumed reputation just to browbeat and bludgeon troops out of poor nations in return for dollar grants. It's so much more agreeable to posture as a helping-hand, hiding the nasty imperial bits in the loan covenants. True, the policies the loans require often lead to public riots, and to resource, land and territorial wars among their clients, but the mainstream media never connects the loans to their bloody consequences. At worst, details of the borrower's thievery leak out.

What's really at stake for staff is the richest, absolute best government plantation in the entire world. World Bankers, along with IMF, IFC and EBRD employees, enjoy a mem-Sahib lifestyle; tax-free six-figure salaries, foreign expeditions involving first-class travel, five-star hotels, generous per diems, lavish banquets, and – if one is obliged to "stay on" overseas for "mission" work – extensive local staff and personal aides, language tutors, tuition support for the children, numerous mandated vacations home per annum, residential rent subsidies, full insurance packages, diplomatic mail for those legally-dubious art acquisitions, the best address, and fancy invites.

If you are a foreign national lucky enough to escape your native backwater for an assignment in Washington, or London, or Paris, or Geneva – all the best places! – there is no treachery you wouldn't commit to stay in place. (The very best institutional reform scheme ever put forward was Christopher Fildes's suggestion to move the Bank's headquarters to Bangladesh.)

If you are a consultant, or an academic "adviser," you'll keep your honest opinions to yourself, and do the job, no matter how mad or useless. There's no way your university could, or your firm would, roll out a red carpet like the World Bank does.

If you are a Third World borrower and a government official and therefore advantageously-positioned to skim the loans and use the principal for purposes more useful to you and your continuing hold on power than to the nation, the World Bank is your literal lifeline. Without scads of dollars to hand out, an honest election or worse – open revolt – are always possibilities.

If you are a large, richly-endowed private corporation with an eye on the profit possibilities in some foreign hellhole, you'll play along, doing your bit to legitimize, publicize and generally support the Bank. After all, those giveaway loans may well be your critical leverage indirectly. Tit for tat. Loan for license.

Clearly, there's a lot of mouths to be fed. Luckily for the class of useless hors d'oeuvre eaters, there is China.

China is a rare creature in the World Bank firmament in that it is a large and paying customer, taking full advantage of the Bank's subsidized loans despite having an unprecedented $1.2 trillion in reserves. The income China represents to the World Bank is critical; already the Bank's sister institution, the IMF, an agency China does not patronize, is unable to make enough of a return on its international loans to pay its costs and is currently floating the idea of selling a portion of the Fund's contributed gold horde for cash to pay for their jobs and privileges.

The World Bank does not wish to be similarly indisposed.

There really wasn't much heat in the Shaha Riza story. After all, a couple of middle-aged parasites and public policy bores divvying up a big bag of other peoples' money while giving free reign to their shared delusions of bayonet democracy and the Middle East is somehow depressingly familiar.

But in the initial scandal data dump to the Washington Post on 12 April ("World Bank Chief's Leadership Role Called Into Question"), one sizzling fact leaked out apparently by mistake as it was never mentioned again in future reports. The maverick leak was an e-mail "noting that the bank had received a warning from China that it might halt future borrowings if Wolfowitz refused to curb anti-corruption investigations."

Wolfowitz is toast.

Alas, the Bank is not. Not yet, anyway.

If we must have a World Bank, and I am pained to write that it seems we must apparently right up until the very instant of our coming national insolvency, then let it be the redundant, inefficient, indulgent, corrupt waste currently on offer.

A militant, lean and mean neocon lending machine would be far worse.

April 28, 2007

Anne Williamson [send her mail] has been observing the international aid institutions since their arrival in Russia after the 1991 collapse of the Soviet Union. Currently she is expanding and revising her opus on the post-Cold War era, Contagion: The Betrayal of Liberty; the United States and Russia in the Post-Cold War World, to be published by Poor Richard's Press this coming autumn. She no longer lives in the United States. This article was originally published by Sanders Research Associates.

Copyright © 2007 LewRockwell.com

Justice Dept official resigns over investigation connected with Abramoff

Posted on Fri, Apr. 27, 2007
by Marisa Taylor and David Whitney McClatchy Newspapers WASHINGTON - A senior Justice Department official has resigned after coming under scrutiny in the Department’s expanding investigation of convicted super-lobbyist Jack Abramoff, according to a Justice Department official with knowledge of the case. Making the situation more awkward for the embattled Department, the official, Robert E. Coughlin II, was deputy chief of staff for the criminal division, which is overseeing the Department’s probe of Abramoff. He stepped down effective April 6 as investigators in Coughlin’s own division ratcheted up their investigation of lobbyist Kevin Ring, Coughlin’s long-time friend and a key associate of Abramoff. When contacted at his home in Washington, Coughlin said he resigned voluntarily because he was relocating to Texas. “I was not asked to resign,” he said in an interview with McClatchy Newspapers. “It’s important to me that it's made clear that I left voluntarily.” He said he couldn’t comment on the Abramoff investigation, nor on whether he has a job lined up in Texas. He referred all other questions to friend Michael Horowitz. Horowitz, a criminal defense attorney and former Justice Department official and public corruption prosecutor, did not respond to questions, including about whether he is representing Coughlin. Coughlin also would not say whether he had hired a lawyer. McClatchy’s source at the Justice Department asked not to be identified because of the sensitivity of the case. Coughlin appears to be the first Justice Department official to come under scrutiny in the wide-ranging probe that has implicated a veteran congressman, a deputy Cabinet secretary, a White House aide and eight others. Abramoff has pleaded guilty to three counts in the corruption probe and could face up to 11 years in prison. It was unclear whether Coughlin is a target in the investigation, which would mean he is under intense scrutiny, or whether he is a subject in the investigation, which would mean investigators have not yet determined whether he committed any wrongdoing. A Justice Department spokesman declined to respond to any questions about the Abramoff investigation because it is still ongoing. Spokesman Bryan Sierra, however, confirmed Coughlin had resigned. He also said Coughlin had recused himself from the Abramoff investigation. The disclosure, nevertheless, was another blow to a Justice Department already struggling to recover from the controversy over the firing of 8 U.S. Attorneys. Democrats and a number of Republicans have criticized Attorney General Alberto Gonzales for his handling of the ousters, which critics charge were politically motivated.

Top Bush official admits hooker link, resigns

Rice Deputy Quits After Query Over Escort Service

Randall Tobias Oversaw U.S. Foreign Aid Programs

By Glenn Kessler

Washington Post Staff Writer
Saturday, April 28, 2007; A01

Randall L. Tobias, the deputy secretary of state responsible for U.S. foreign aid, abruptly resigned yesterday after he was asked about an upscale escort service allegedly involved in prostitution, U.S. government sources said.

Tobias resigned after ABC News contacted him with questions about the escort service, the sources said. ABC News released a statement last night saying Tobias acknowledged Thursday that he had used the service to provide massages, not sex.

Tobias has been Secretary of State Condoleezza Rice's point man in an ambitious effort to overhaul how the U.S. government manages foreign aid, a key part of her "transformational diplomacy" agenda. Just two days ago, President Bush lauded Tobias for his work in the administration leading "America's monumental effort to confront and deal with the HIV/AIDS epidemic on the continent of Africa."

In an unusual statement issued at 5 p.m., State Department spokesman Sean McCormack said Tobias informed Rice "today that he must step down as Director of U.S. Foreign Assistance and U.S. Agency for International Development Administrator effective immediately. He is returning to private life for personal reasons."

Contacted last night at his home in the District, Tobias, a former chief executive of pharmaceutical giant Eli Lilly & Co., declined to discuss the circumstances of his resignation, saying he would "stick with the statement the State Department released today."

According to ABC News, Tobias said he contacted the escort service "to have gals come over to the condo to give me a massage" and that there had been "no sex" involved.

In a memo yesterday to the USAID staff, James R. Kunder, acting deputy USAID administrator, called the resignation "shocking news" and urged workers not to be "distracted from our developmental and emergency work."

Within minutes of McCormack's announcement, Tobias's biography was removed from the USAID Web site.

State Department officials declined to comment further on the reasons for Tobias's resignation.

"I'm sad today," said one person close to Tobias. "The president loves him and Condi absolutely loves him."

White House officials said Rice briefed Bush on the matter early yesterday before he met with Japanese Prime Minister Shinzo Abe. The president "was saddened and disappointed and wished Dr. Tobias and his family well," spokeswoman Dana Perino said.

Deborah Jeane Palfrey, who operated the escort service, was indicted on federal racketeering charges in February and has threatened to expose her high-profile client list.

Palfrey has contended that her escort service provided clients with college-educated women who engaged in legal, sexual game-playing for $275 per 90-minute session in their homes or hotel rooms. Prosecutors allege she ran a prostitution ring.

Palfrey's attorney, Montgomery Blair Sibley, said yesterday that he has been contacted in the past few days by five lawyers asking whether their client's phone numbers are on Palfrey's list of 10,000 to 15,000 customers from 2002 to 2006. Some have also asked about whether an accommodation can be made to avoid identifying their clients, which Sibley said he is not able to promise. ABC's "20/20" is mining that database of phone numbers, Sibley said, for a news report on the more notable of Palfrey's customers.

"I presume '20/20' crews running around with cameras has led to this flurry of activity," Sibley said. "That may cause some people to worry."

ABC reporters interviewed Palfrey last week, Sibley said, and asked her about specific customers by name. Sibley declined to identity them or speculate about Palfrey's clients whose identities may be revealed in coming days. He said that in many cases, he and Palfrey did not have the investigative resources to identify them from their phone numbers, but that ABC did.

ABC is grappling with the question of whether to air a report or identify some of those on the list. "We can't comment on ongoing reporting," ABC News spokesman Jeffrey Schneider said.

After a long career in the corporate world, including stints not only at Eli Lilly but also as AT&T vice chairman, Tobias joined the administration in 2003 to be the first global AIDS coordinator, with the rank of ambassador. He was responsible for a start-up program designed to spend $15 billion over five years, with the largest share going to 12 African and two Caribbean countries that account for roughly half the world population with HIV/AIDS.

Last year, Rice tapped Tobias to be the first director of U.S. foreign assistance, with the rank of deputy secretary, giving him the task of both running USAID and coordinating all foreign aid so that the delivery of aid would more closely follow the administration's policy goals. Under Tobias, for the first time, the State Department produced documents showing exactly how much aid was going to each country. He has proven so essential to Rice's plans that she had refused to let him leave even though officials said he had wanted to resign from the high-pressure job for at least six months.

The ambitious effort has been controversial on Capitol Hill, where Tobias's style and performance have come under attack. At a hearing last month, Rep. Tom Lantos (D-Calif.), chairman of the House Foreign Affairs Committee, accused Tobias of "tycoonitis," which he described as "people who come from the top of the corporate ladder who consider congressional suggestions, requests for information and participation in decision-making as intruding on their turf."

Staff writers Michael Abramowitz, John Solomon, Carol D. Leonnig, Howard Kurtz and Martin Weil and researcher Julie Tate contributed to this report.

Bad Apples Fall in Bunches

By Stephen Barr

Friday, April 27, 2007; D04

Ugly. That's how to sum up this week for federal employees.

On Tuesday, the Government Accountability Office reported that federal employees in the Washington area had abused the federal transit benefits program, defrauding the government of at least $17 million a year.

A day later, the Senate Finance Committee sounded an alarm about tax deadbeats who work or once worked for the government. About 450,000 government workers and retirees owe about $3 billion in back taxes, the committee said.

In both instances, the fault-finding was bipartisan. The GAO probe was requested by Sen. Norm Coleman (R-Minn.) last year, and Sen. Carl Levin (D-Mich.) chaired the hearing that aired the transit fraud. Sen. Max Baucus (D-Mont.), chairman of the Finance Committee, and Sen. Charles E. Grassley (R-Iowa), the ranking minority member, joined in a letter to President Bush urging him to remind government employees and retirees of their tax obligations.

Federal employees are embarrassed by these reports. Most government workers are straight arrows, and all large organizations have their share of bad apples. The Internal Revenue Service, for example, has noted in past years that the tax compliance rate for federal employees is somewhat better than the rate for all Americans.

Still, this week's numbers look bad, Paul C. Light, a New York University professor who once was a Senate Democratic staff member, said yesterday. "Federal employees should be appropriately ashamed of the bad behavior of some of their colleagues," he said.

The two cases jeopardize support for the federal service from Democrats and Republicans, Light said, adding that they also "undermine the case for pay increases equivalent to the military in the future for federal employees."

Some participants in Wednesday's Federal Diary Live on washingtonpost.com expressed concern that the abuse will undermine the transit subsidy program, which was started as a way to reduce smog by encouraging federal employees to use mass transit.

"I hope this report doesn't lead to the reduction or elimination of this important benefit," one participant wrote.

The transit subsidies go to 300,000 federal employees nationwide. In its probe, GAO found that transit vouchers, worth up to $105 a month during the period under review, had been sold on eBay or passed along to others. Agencies had handed out transit subsidies to employees who had free parking spaces, no longer worked for the government or never worked for the government.

The GAO's report, prepared by Gregory D. Kutz and John J. Ryan, included eight examples of illegal use of the subsidies. Half of the cases involved highly paid workers -- General Schedule 14 employees earning more than $93,800. One of the GS-14 employees, a technology specialist at the IRS, admitted selling Metrocheks, as the voucher is known here, on eBay, and also acknowledged stealing agency computers to sell on the Internet. He was indicted on charges of theft of government property in February, GAO said.

The transit fraud is especially troubling because federal employees received warnings about misuse of government-issued credit cards in 2000 and 2001. At that time, GAO found numerous federal employees buying clothing, jewelry, eyeglasses and pet supplies -- all for personal use.

With help from the Office of Management and Budget, federal agencies have tightened their controls over travel and purchase cards. Agency officials told Coleman and Levin that they would take steps to hold down abuse of transit subsidies.

Max Stier, president of the nonprofit Partnership for Public Service, said the government cannot tolerate fraud. But, he said, "the reality of 300,000 people receiving benefits is that someone is likely to do something wrong. That does not mean the benefit for the vast majority should be lost."

Talk Shows

Venetia Bell, lawyer and mediator; Angelia C. Richardson, director of the civil rights office at the National Endowment for the Arts; Dexter Brooks, federal training and outreach coordinator at the Equal Employment Opportunity Commission; and Michelle A. Gavalek, associate executive director of the Federal Dispute Resolution Conference, will be the guests on "FedTalk" at 11 a.m. today on federalnewsradio.com and WFED radio (1050 AM).

Jonathan Scharfen, deputy director of U.S. Citizenship and Immigration Services, will be the guest on "The IBM Business of Government Hour" at 9 a.m. Saturday on WJFK radio (106.7 FM).

Stephen Barr's e-mail address isbarrs@washpost.com.

NASA Chief Improperly Destroyed Tapes of Meeting, Lawmaker Says

By Marc Kaufman

Washington Post Staff Writer
Friday, April 27, 2007; A21

NASA Administrator Michael D. Griffin held an unusual meeting with the staff of the inspector general who oversees his agency and then ordered that video recordings of the meeting be destroyed, a House panel said yesterday.

In a letter to Griffin, the chairman of the Science and Technology subcommittee on investigations and oversight demanded an explanation from the NASA administrator and accused him of improperly trying to influence the watchdog office's decisions on what it should investigate.

In addition, the letter from Rep. Brad Miller (D-N.C.) said the order to destroy the meeting tapes, which was issued by NASA's chief of staff, "appears on its face to be nothing less than the destruction of evidence."

In a response yesterday, NASA spokesman David Mould said that the meeting was proper, and was a way for Griffin to discuss outstanding issues with the inspector general's staff and to express support for a strong watchdog office.

He also said NASA's chief of staff had ordered that the meeting not be recorded, but that it was anyway. As a result, he said, the agency's general counsel advised that any recordings be destroyed.

Griffin's meeting included NASA Inspector General Robert W. Cobb, who has been at the center of a controversy over his close relationship with Griffin's predecessor, Sean O'Keefe, and over his temperamental management style. A report early this month by the President's Council on Integrity and Efficiency, which oversees the government's corps of inspectors general, concluded that Cobb had abused his authority in his treatment of his staff and appeared to lack the requisite independence from top NASA officials.

After highlights of the report were made public early this month, Griffin defended Cobb, concluding that he needs training in management skills but should not be fired. In a letter to the integrity council in March, Griffin wrote that the investigation of Cobb had not found "any actual conflict of interest or actual lack of independence on his part."

Miller, chairman of the oversight subcommittee, wrote in his letter to Griffin: "Your role in disciplining and defending Mr. Cobb has eroded any vestige of independence for Mr. Cobb or, indeed, his own staff."

Miller wrote: "We have been told that your presentation to (the inspector general's) staff was no simple pep talk. Allegations have come to us that you told staff what you thought was worthwhile work and what was not."

If true, he wrote, Griffin's behavior would be "unprecedented and highly improper."

Under the Inspector General Act of 1978, the president appoints independent officials to monitor every Cabinet department and the larger federal agencies through audits and investigations.

Before he was appointed NASA's inspector general in 2002, Cobb spent 15 months as an adviser on ethics and conflicts of interest to then-White House counsel Alberto R. Gonzales. Cobb quickly became a target of criticism from NASA whistle-blowers and members of his staff. Some complained that he had dropped investigations of serious safety concerns and that his mercurial behavior drove experienced auditors and investigators from the office.

In his letter, Miller said his staff had been told that five compact discs containing video of the April 10 meeting were delivered for destruction to the office of Michael C. Wholley, NASA's general counsel. The letter said the existence of the discs suggested that the recording may still exist on a NASA server and asked that the contents be handed over to the subcommittee.

Miller also asked for all records regarding Griffin's "determination" that Cobb had not abused his authority, the April 10 meeting and the decision to destroy the video recording. In an April 23 letter to Miller's panel, NASA Assistant Administrator Brian E. Chase wrote that the agency had looked for remaining copies of the video but had not found any.

Replacements waiting in wings as Renzi ponders resignation

The Business Journal of Phoenix - 12:42 PM MST Thursday, April 26, 2007

The Business Journal

Embattled Arizona Republican Congressman Rick Renzi may resign from office in the wake of a federal investigation into his involvement in land-swap deal and an FBI raid on an Arizona insurance business owned by his wife.

Renzi told The Hill newspaper in Washington, D.C., this week that he was considering stepping down.

Democrats are looking to oust Renzi and some top Republicans in the state, who asked not be identified, are talking about the possibly of Renzi's resignation.

The Hill also reported that the federal inquiry is focused on possible nondisclosure of a $200,000 payment made to Renzi by a business partner involved in the land swap. The Wall Street Journal reports that a grand jury has been convened in Tucson to look into Renzi's actions.

Taxes and links with government contractor Mantech International also have come into question, according sources familiar with the Renzi controversy.

Renzi has hired Phoenix attorney Grant Woods as well as Washington, D.C., law firm Nixon Peabody LLP to help him in the matter.

Renzi's office has not commented on the matter since Tuesday, when the congressman issued a statement saying he was stepping down temporarily from congressional panels. Renzi has denied any wrongdoing and said press accounts and Democratic charges are inaccurate.

A number of names on both sides of the political aisle have been mentioned if Renzi's steps down and there is a special election or if he opts not to run again in 2008.

Possible Democratic contenders include former Casa Grande Mayor Bob Mitchell, real estate developer and former state Democratic Party Chairman Jim Pederson, Sedona attorney Ellen Simon, Pinal County Attorney Carter Olson and former Phoenix TV news reporter Mary Kim Titla. Simon ran against Renzi in 2006 and Bob Mitchell is the brother of Tempe/Scottsdale Congressman Harry Mitchell.

On the GOP side, former state Senate President Ken Bennett, state Sen. Tom O'Halleran and state Rep. Bill Konopnicki are possible contenders.

Renzi's district is a competitive one, including Flagstaff, Window Rock, Sedona, Casa Grande and Prescott.

The FBI raided Patriot Insurance Agency Inc. in southern Arizona earlier this month. The agency is owned by Roberta Renzi. The Renzi family also owns a vineyard and has had real estate holdings in the state. Renzi's father, Eugene Renzi, is an executive with Virginia-based Mantech.

by Mike Sunnucks

State comptroller's report: Olmert corrupt

Comptroller suggests probe against PM

State comptroller presents report on Olmert's time as industry, trade and labor minister, accuses PM of working to advance friend's interests. Prime Minister's Office says in response, 'Olmert has lost all faith in the comptroller'

Aviram Zino

Latest Update:

04.25.07, 21:55 / Israel News

"The conflict of interests which Olmert was caught up in should be viewed very severely," said State Comptroller Micha Lindenstrauss' harsh report on Prime Minister Ehud Olmert's conduct during his time as industry, trade and labor minister. Lindenstrauss presented the report on Olmert's actions to the Knesset and prime minister on Wednesday. Ongoing Investigation State Comptroller investigating Olmert involvement in grants to associates / Miri Chason In latest in series of investigations, Lindenstrauss investigating if PM gave grants to Likud party member during tenure as Minister of Industry, Trade and Labor Full Story The comptroller also presented the report to Attorney General Menachem Mazuz, as a criminal act is suspected. Mazuz will now determine whether there is cause to order a criminal investigation against Olmert. The case in question refers to a project that attorney Uri Messer wished to receive funds for from the ministry which Olmert headed. Messer is a former partner and close friend of Olmert. Olmert is suspected of interfering with the process to promote his friend's interests. The report details how Olmert acted to change conditions set by the professional bodies in the investment office in order to grant Messer benefits. Part of the report read, "This is a factory that received from the investment office the status of an authorized factory in 1992 and as a result, funds from the state. Five years later, in 1997, the authorization was retracted since the factory was not built and its plans, as were authorized, were not carried out… "Then, in 2001, the factory filed another request for authorization status, a request which was not even heard until 2003, when the project's manager hired attorney Uri Messer, who also represents Olmert on personal matters and headed the group backing Olmert's 1998 campaign for Jerusalem mayor. He was also his partner at a law firm." "Despite their past partnership, and despite their personal ties and present attorney-client relationship, Mr Olmert did not keep himself from participating, actively and intensively, in making decisions, after being told by his professional crew that there were many reservations regarding this factory," the report said. Lindenstrass stated that in the situation that was created, Olmert should have completely withdrawn himself from dealing with the request. The comptroller also accused the aides of acting inappropriately, saying that in reality, they were Olmert's "long arm." "They did not operate from an independent source of authority, but only acted in the name of the minister," he said. Olmert's response The Prime Minister's Office said in response to the report, "Olmert has lost all faith in the comptroller, therefore we had no expectations from him on this matter and were not surprised. "The conduct of the comptroller in this matter, as it has been in other critical reports, has once again unfortunately broken all records of unprofessional behavior and bias. "This conduct is leading to the downfall of the important and illustrious establishment he heads and this is the belief of many in the public service, his predecessors and high ranking officials in his own office, both former and current," said Olmert's office. "It would seem that the comptroller has turned himself into an object of the ratings committee, and it is ratings and media deadlines alone that guide his actions. Whenever he fears that the public agenda is not giving him the attention he believes he deserves, he tries to fabricate drama in an attempt to seize headlines. "This happened on the eve of the prime minister's testimony before the Winograd Committee when the comptroller urgently issued a draft of one of his reports, it happened when the comptroller believed that the Winograd report would be released in late March and hurried along to issue his own report on the conduct of the Home Front without seeking the responses of those he passed judgment on; failing to carry out the most basic of professional requirements. "And so today, on the eve of the release of the Winograd Committee's findings, he issues this current report without having taken into account any of the various responses submitted to him on the matter, as per his request, on Memorial Day, three days ago." Olmert's office also said that "with this sad knowledge" the prime minister's attorneys have already approached the attorney general prior to release of the comptroller's report and provided him with a detailed response to the accusations. The response, said Olmert's office, includes documented proof that counters the charges made by the comptroller as well as proof that certain facts were maliciously twisted to fit with the comptroller's thesis. 'A Shameful report' Later Wednesday, Olmert's attorneys sent a scathing letter to Mazuz, calling the report "shameful." "We are frustrated that the prime minister, as a politician, is always considered a member of the 'evil' group and often times its leader. We're frustrated that the state comptroller, as the former president of a district court, is always considered a member of the 'good' group, and in his own mind its leader," wrote Olmert's attorneys of Lindenstrauss. The attorneys, Eli Zohar and Roi Bleher, claimed that Lindenstrauss marked Olmert as a target and refused to consider any of the prime minister's explanations. Zahar and Bleher said that the manner in which Olmert promoted Messer's project was exactly the same as the way he treated any number of similar projects. "If this wasn't the prime minister of Israel, who every day fulfills one of the most complex roles in the world, and a state comptroller, who in his desire to go down in history as the man who cleaned Israel's stables is abusing much of the public resources available to him for his own personal gain – it might have been possible to laugh at Lindenstrauss' behavior. But given their status, it's only a sad affair. Very sad," they wrote. The attorneys asked Mazuz to review the matter and rule as quickly as possible. Amnon Meranda and Ronny Sofer contributed to this report First Published: 04.25.07, 17:41

Delays in Renzi Case Raise More Gonzales Questions

By JOHN R. WILKE and EVAN PEREZ

April 25, 2007; Page A2

WASHINGTON -- As midterm elections approached last November, federal investigators in Arizona faced unexpected obstacles in getting needed Justice Department approvals to advance a corruption investigation of Republican Rep. Rick Renzi, people close to the case said.

The delays, which postponed key approvals in the case until after the election, raise new questions about whether Attorney General Alberto Gonzales or other officials may have weighed political issues in some investigations. The Arizona U.S. attorney then overseeing the case, Paul Charlton, was told he was being fired in December, one of eight federal prosecutors dismissed in the past year. The dismissals have triggered a wave of criticism and calls from Congress for Mr. Gonzales to resign.

Investigators pursuing the Renzi case had been seeking clearance from senior Justice Department officials on search warrants, subpoenas and other legal tools for a year before the election, people close to the case said.

The Justice Department denied any foot-dragging in the Renzi case. "There was no such delay," said Bryan Sierra, a spokesman. Mr. Gonzales has said none of the firings of U.S. attorneys was related to corruption cases, and that the department is committed to pursuing such cases. Public-corruption staffing and prosecutions nationwide have increased during his tenure.

IN SUMMARY

• The Issue: Whether a congressional corruption case was delayed last year before the November election.

• The Background: Since 2005, Arizona Rep. Renzi has been under federal investigation for land deals linked to legislation.

• The Outlook: The case could raise new questions about whether Bush administration officials weighed political concerns in their pursuit of politically sensitive cases.

Sen. Charles Schumer (D., N.Y.), a Judiciary Committee member who has called for Mr. Gonzales's resignation, said his panel is planning to pursue whether the Renzi case was a factor in Mr. Charlton's firing. "I'm not saying there's evidence and I'm not making allegations," Mr. Schumer told reporters Monday. "But it's something we should look into."

Complex investigations commonly take a year or more, and it isn't known what issues figured in the Renzi case. Many details remain shrouded in the secrecy of a Tucson grand jury that has been at work since last year. Court filings remain under seal. The precise sequence of events likely won't become public unless formal charges are filed.

But the investigation clearly moved slowly: Federal agents opened the case no later than June 2005, yet key witnesses didn't get subpoenas until early this year, those close to the case said. The first publicly known search -- a raid of a Renzi family business by the Federal Bureau of Investigation -- was carried out just last week.

Mr. Renzi is the subject of a criminal inquiry into land deals, among other things. The Wall Street Journal reported last week that federal agents are focusing on a $200,000 cash payment Mr. Renzi received from a former business partner in 2005 following a land sale that was to be part of a proposed government land-exchange bill.

A lawyer for Mr. Renzi, Grant Woods, has denied any impropriety and said that the money was repayment of a debt, not a kickback. In a statement last night, Mr. Renzi denied wrongdoing, calling recent stories about the investigation "conjecture and false attacks" and saying that "none of them bear any resemblance to the truth." But he said he intends to "take a leave of absence" from all of his committee posts, including the natural-resources committee and House intelligence panel.

Normally, local U.S. attorneys may seek court approval for warrants and wiretaps without Washington's approval. But the Renzi case -- like many that involve members of Congress -- is being handled jointly by the local U.S. attorney and the department's public-integrity section. In such cases, a senior department official must approve requests for wiretaps and warrants and other formal legal steps.

People briefed on the case said investigators in Arizona asked Washington for clearance -- among other tools -- for a wiretap of Mr. Renzi's telephones, a highly unusual step against a sitting member of Congress, months before Election Day. The wiretap eventually was approved, and was in place by late October, these people said.

On Oct. 26, just days before the election, two political Web sites carried the first public word of the probe. In subsequent news accounts, an unidentified Washington law-enforcement official described the matter as "preliminary." Few details emerged, but the leak disrupted prosecutors' wiretap.

Meanwhile, Mr. Renzi, first elected to Congress in 2002, was fighting to hold on to his seat. In September, President Bush hosted a fund-raiser in Scottsdale on his behalf. About the same time Mr. Charlton was added to a list of prosecutors "we should now consider pushing out," wrote Mr. Gonzales's then-chief of staff, Kyle Sampson, in a Sept. 13, 2006, email to then-White House counsel Harriet Miers. The email is among thousands that the Justice Department has released in response to congressional inquiries into the dismissal of the U.S. attorneys.

In November, Mr. Renzi won re-election to a third term, beating his challenger by 51% to 44%. A month later, on Dec. 7, Mr. Charlton was told he was being dismissed. Two weeks later, he emailed William Mercer, a senior Justice Department official: "Media now asking if I was asked to resign over leak in Congressman Renzi investigation." He asked for advice, but never got a response, according to the emails released by the Justice Department.

Mr. Sierra, the department spokesman, said it would be inappropriate to comment on any ongoing case. Generally, though, cases move along on their own pace, he said. "We don't operate under artificial deadlines," he said. "To artificially put deadlines or to rush the time could damage the integrity of the investigation."

Brian Roehrkasse, another Justice Department official, said the department under Mr. Gonzales "has never retaliated against a United States attorney for conducting or failing to pursue a public corruption investigation."

Mr. Charlton, a Republican with 16 years as a federal prosecutor, was named by President Bush in 2001 to lead the Phoenix office. Now in private practice in Phoenix, he has refused to discuss any details of the Renzi investigation -- even when asked about it at a March 6 hearing of the House judiciary committee.

Write to Evan Perez at evan.perez@wsj.com

Obama's Ties To Chicago Slum Lord

Obama and his Rezko ties

April 23, 2007

For more than five weeks during the brutal winter of 1997, tenants shivered without heat in a government-subsidized apartment building on Chicago's South Side.

It was just four years after the landlords -- Antoin "Tony'' Rezko and his partner Daniel Mahru -- had rehabbed the 31-unit building in Englewood with a loan from Chicago taxpayers.

Rezko and Mahru couldn't find money to get the heat back on.

But their company, Rezmar Corp., did come up with $1,000 to give to the political campaign fund of Barack Obama, the newly elected state senator whose district included the unheated building.

Obama has been friends with Rezko for 17 years. Rezko has been a political patron to Obama and many others, helping to raise millions of dollars for them through his own contributions and by hosting fund-raisers in his home.

Obama, who has worked as a lawyer and a legislator to improve living conditions for the poor, took campaign donations from Rezko even as Rezko's low-income housing empire was collapsing, leaving many African-American families in buildings riddled with problems -- including squalid living conditions, vacant apartments, lack of heat, squatters and drug dealers.

The building in Englewood was one of 30 Rezmar rehabbed in a series of troubled deals largely financed by taxpayers. Every project ran into financial difficulty. More than half went into foreclosure, a Chicago Sun-Times investigation has found.

"Their buildings were falling apart,'' said a former city official. "They just didn't pay attention to the condition of these buildings.''

Eleven of Rezko's buildings were in Obama's state Senate district.

Obama, now a U.S. senator running for president, has come under fire over his friendship with Rezko, who was charged last fall with demanding kickbacks on state business deals under Gov. Blagojevich.

Much of the criticism has centered on two real estate deals involving Obama's South Side mansion. In the first, Obama paid $300,000 less than the asking price for a doctor's home, while Rezko's wife paid the doctor full price for the vacant lot next door. Then -- a few months before Rezko was indicted -- Obama bought part of that lot from Rezko's wife.

But Obama's ties with Rezko go beyond those two real estate sales and the political support, the Sun-Times found. Obama was an attorney with a small Chicago law firm -- Davis Miner Barnhill & Galland -- that helped Rezmar get more than $43 million in government funding to rehab 15 of their 30 apartment buildings for the poor.

Obama role unclear

Just what legal work -- and how much -- Obama did on those deals is unknown. His campaign staff acknowledges he worked on some of them. But the Rezmar-related work amounted to just five hours over the six years it said Obama was affiliated with the law firm, the staff said in an e-mail in February.

Obama, however, was associated with the firm for more than nine years, his staff acknowledged Sunday in an e-mail response to questions submitted March 14 by the Sun-Times. They didn't say what deals he worked on -- or how much work he did.

"The senator, relatively inexperienced in this kind of work, was assigned to tasks appropriate for a junior lawyer,'' according to an e-mail from Obama spokesman Robert Gibbs. "These tasks would have included reviewing documents, collecting corporate organizational documents, and drafting corporate resolutions.''

In fact, Gibbs wrote, "Senator Obama does not remember having conversations with Tony Rezko about properties that he owned or any specific issues related to those properties.''

Rezko and Mahru had no construction experience when they created Rezmar in 1989 to rehabilitate apartments for the poor under the Daley administration. Between 1989 and 1998, Rezmar made deals to rehab 30 buildings, a total of 1,025 apartments. The last 15 buildings involved Davis Miner Barnhill & Galland during Obama's time with the firm.

Rezko and Mahru also managed the buildings, which were supposed to provide homes for poor people for 30 years. Every one of the projects ran into trouble:

• Seventeen buildings -- many beset with code violations, including a lack of heat -- ended up in foreclosure.

• Six buildings are currently boarded up.

• Hundreds of the apartments are vacant, in need of major repairs.

• Taxpayers have been stuck with millions in unpaid loans.

• At least a dozen times, the city of Chicago sued Rezmar for failure to heat buildings.

For five weeks, the Sun-Times sought to interview Obama about Rezko and the housing deals. His staff wanted written questions. It responded Sunday but left many questions unanswered. Other answers didn't directly address the question.

Among these: When did Obama learn of Rezmar's financial problems? "The senator had no special knowledge of any financial problems,'' Gibbs wrote.

Did the senator ever complain to anyone -- government officials, Rezmar or Rezko -- about the conditions of Rezmar's buildings? "Senator Obama did follow up on constituency complaints about housing as [a] matter of routine,'' Gibbs wrote.

Did the senator ever discuss Rezmar's financial problems with anyone at his law firm? "The firm advises us that it [is] unaware of any such conversations,'' Gibbs wrote.

Turns down Rezmar job

Obama's friendship with Rezko began with a telephone call.

It was 17 years ago. Obama had just become the first black president of the Harvard Law Review. Newspapers wrote about him. One story caught the eye of David Brint, a vice president of Rezmar, a new company that had become the Daley administration's favored developer of low-income housing.

"I just cold-called him," Brint said in an interview.

Brint said he wanted to know if Obama would come work for Rezmar, developing housing for the poor -- something Obama had expressed interest in, according to the story Brint had read. Brint arranged for Obama to meet Rezko, but Obama didn't take the job.

Obama, who has a law degree from Harvard, subsequently returned to Chicago to lead a voter-registration drive in 1992.

The next year, Obama joined Davis Miner Barnhill & Galland, a 12-lawyer firm that specialized in helping develop low-income housing. The firm's top partner, Allison S. Davis, was, and is, a member of the Chicago Plan Commission, appointed by Mayor Daley. Davis was also a friend of Rezko. Davis and Rezko would eventually go into business together, developing homes.

Another firm partner, Judson Miner, ran the city Law Department under Mayor Harold Washington, one of Obama's political idols.

Asked what Rezko cases Obama worked on, Miner told the Sun-Times, "We'll put together a list of the cases he worked on involving Rezko/Rezmar in the next day or two.''

That was March 13. He never provided the information.

While at the law firm, Obama spent much of his time working on issues that would help improve conditions in poor neighborhoods, according to his first book, Dreams from My Father, published in 1996.

"In my legal practice, I work mostly with churches and community groups, men and women who quietly build grocery stores and health clinics in the inner city, and housing for the poor,'' Obama wrote in the book.

Three community groups represented by Davis Miner Barnhill & Galland were partners with Rezmar in the troubled housing deals.

Rezko offers Obama support

Obama had been at the firm for two years when he began his political career, running to replace state Sen. Alice Palmer.

Rezko became Obama's political patron. Obama got his first campaign contributions on July 31, 1995: $300 from a Loop lawyer, a $5,000 loan from a car dealer, and $2,000 from two food companies owned by Rezko.

Around that time, Rezmar began developing low-income apartments in partnerships with the Chicago Urban League and two other not-for-profit community groups, both founded and run by Bishop Arthur Brazier, pastor of the Apostolic Church of God and a powerful ally of the mayor -- the Woodlawn Preservation and Investment Corp., known as WPIC, and the Fund for Community Redevelopment and Revitalization.

All three community groups were clients of the Davis law firm. Davis himself was treasurer of WPIC when it went into business with Rezmar.

Why go into business with Rezmar? "We thought they were successful,'' Davis said, noting that little development was taking place in Woodlawn.

At the time, Rezmar had been in business for six years and had become one of City Hall's favored developers of low-income housing, managing 600 apartments in 15 buildings it rehabbed with government funding. Teaming now with community development groups, Rezmar rehabbed another 15 buildings, with 400 apartments, between 1995 and 1998. Each deal involved a mix of public and private financing -- loans from the city or state, federal low-income-housing tax credits and bank loans.

By the time Rezmar started working with those community groups, at least two of its earlier buildings were falling into disrepair -- including the Englewood apartment building at 7000 S. Sangamon where the tenants were without heat for five weeks.

The tenants there had no heat from Dec. 27, 1996, until at least Feb. 3, 1997, when the city of Chicago sued to turn the heat on. The case was settled later that month with a $100 fine.

It was during that time that the area's new state senator, Barack Obama, got a $1,000 campaign donation from Rezmar. The date: Jan. 14, 1997.

Obama works on Rezmar deals

Obama spent the next eight years serving in the Illinois Senate and continued to work for the Davis law firm.

Through its partnerships, Rezmar remained a client of the firm, according to ethics statements Obama filed while a state senator.

Davis said he didn't remember Obama working on the Rezmar projects.

"I don't recall Barack having any involvement in real estate transactions,'' Davis said. "Barack was a litigator. His area of focus was litigation, class-action suits.''

But Obama did legal work on real estate deals while at Davis' firm, according to biographical information he submitted to the Sun-Times in 1998. Obama specialized "in civil rights litigation, real estate financing, acquisition, construction and/or redevelopment of low-and moderate income housing,'' according to his "biographical sketch."

And he did legal work on Rezko's deals, according to an e-mail his presidential campaign staff sent the Sun-Times on Feb. 16, in response to earlier inquiries. The staff didn't specify which Rezmar projects Obama worked on, or his role. But it drew a distinction between working for Rezko and working on projects involving his company.

"Senator Obama did not directly represent Mr. Rezko or his firms. He did represent on a very limited basis ventures in which Mr. Rezko's entities participated along with others,'' according to the e-mail from Obama's staff.

Obama buys Rezko land

Over the years, Rezko, Mahru, their wives and businesses have given more than $50,000 to Obama's campaign funds, records show. And Rezko has helped raise millions more.

Rezko was among the people Obama appointed to serve on his U.S. Senate campaign finance committee, the Sun-Times reported in 2003. The committee raised more than $14 million, according to Federal Election Commission records, helping send Obama to Washington in 2004.

As a U.S. senator, Obama grew closer to Rezko.

Two years ago, Obama bought a mansion on the South Side, in the Kenwood neighborhood, from a doctor. On the same day, Rezko's wife, Rita Rezko, bought the vacant lot next door from the same seller. The doctor had listed the properties for sale together. He sold the house to Obama for $300,000 below the asking price. The doctor got his asking price on the lot from Rezko's wife.

Last year, Rita Rezko sold a strip of that vacant lot to Obama for $104,500 -- a deal Obama later apologized for, acknowledging that people might think he got a favor from Rezko. Obama called the episode "boneheaded'' and a "mistake.''

At the time Obama bought that strip of land, it had been reported that Rezko was under federal investigation for influence-peddling involving the administration of Blagojevich, whose campaign also received Rezko's financial support.

Rezko has since been indicted for allegedly demanding kickbacks from companies seeking state business under Blagojevich. Rezko's trial has been postponed while investigators sort through his finances.

'Disenchanted with Rezmar'

Rezmar's final low-income housing deals involving the Davis law firm went bad quickly.

Those deals were supposed to provide affordable housing for at least 25 years. But the first deal Rezmar struck with the Woodlawn Preservation and Investment Corp. collapsed in just six and a half years, when the state sued for foreclosure. WPIC and its sister agency, the Fund for Community Redevelopment and Revitalization, ultimately forced Rezmar to give up control of all 12 buildings they rehabbed together, citing financial troubles and deteriorating conditions of the buildings.

The state foreclosure suit came because Rezmar had stopped making monthly mortgage payments in March 2001 on a state loan to help turn an old nursing home into low-income apartments at 6140 S. Drexel, in Obama's state Senate district.

"WPIC became disenchanted with Rezmar and wanted to get rid of them,'' Brazier said. "They thought the buildings weren't being kept up properly. There were some financial problems.''

Rezmar and WPIC cut all ties last October, when the Chicago City Council agreed to let Rezmar out of a city loan. Rezmar transferred its interest to The Wolcott Group, a management company run by business partners of David Brint -- the man who had introduced Rezko to Obama.

Contributing: Chris Fusco and Art Golab

ABOUT THIS SERIES

Staff reporter Tim Novak examines previously unreported government-funded, low-income housing deals involving Antoin "Tony" Rezko, the indicted political fund-raiser.

COMING TUESDAY | Rezmar kept getting city and state funding, even as earlier projects fell into disrepair and financial troubles.

BY TIM NOVAK Staff Reporter/tnovak@suntimes.com

Key Initiative Of 'No Child' Under Federal Investigation

Officials Profited From Reading First Program

By Amit R. Paley
Washington Post Staff Writer
Saturday, April 21, 2007; A01

The Justice Department is conducting a probe of a $6 billion reading initiative at the center of President Bush's No Child Left Behind law, another blow to a program besieged by allegations of financial conflicts of interest and cronyism, people familiar with the matter said yesterday.

The disclosure came as a congressional hearing revealed how people implementing the $1 billion-a-year Reading First program made at least $1 million off textbooks and tests toward which the federal government steered states.

"That sounds like a criminal enterprise to me," said Rep. George Miller (D-Calif.), chairman of the House education committee, which held a five-hour investigative hearing. "You don't get to override the law," he angrily told a panel of Reading First officials. "But the fact of the matter is that you did."

The Education Department's inspector general, John P. Higgins Jr., said he has made several referrals to the Justice Department about the five-year-old program, which provides grants to improve reading for children in kindergarten through third grade.

Higgins declined to offer more specifics, but Christopher J. Doherty, former director of Reading First, said in an interview that he was questioned by Justice officials in November. The civil division of the U.S. attorney's office for the District, which can bring criminal charges, is reviewing the matter.

Doherty, one of the two Education Department employees who oversaw the initiative, acknowledged yesterday that his wife had worked for a decade as a paid consultant for a reading program, Direct Instruction, that investigators said he improperly tried to force schools to use. He repeatedly failed to disclose the conflict on financial disclosure forms.

"I'm very proud of this program and my role in this program," Doherty said in the interview. "I think it's been implemented in accordance with the law."

The management of Reading First has come under attacks from members of both parties. Federal investigators say program officials improperly forced states to use certain tests and textbooks created by those officials.

One official, Roland H. Good III, said his company made $1.3 million off a reading test, known as DIBELS, that was endorsed by a Reading First evaluation panel he sat on. Good, who owns half the company, Dynamic Measurement Group, told the committee that he donated royalties from the product to the University of Oregon, where he is an associate professor.

Two former University of Oregon researchers on the panel, Edward J. Kame'enui and Deborah C. Simmons, said they received about $150,000 in royalties last year for a program that is now packaged with DIBELS. They testified that they received smaller royalties in previous years for the program, Scott Foresman Early Reading Intervention, and did not know it was being sold with DIBELS.

Members of the panel said they recused themselves from voting on their own products but did assess their competitors. Of 24 tests approved by the committee, seven were tied to members of the panel.

"I regret the perception of conflicts of interest," said Kame'enui, former chairman of the committee, who now works at the department as commissioner of the National Center for Special Education Research. "But there was no real conflict of interest being engaged in."

The intricate financial connections between Reading First products and program officials extend beyond issues the committee explored yesterday.

Another researcher, Sharon Vaughn, worked with Kame'enui, Simmons and Good to design Voyager Universal Literacy, a program that Reading First officials urged states to use. Vaughn was director of a center at the University of Texas that was hired to provide states advice on selecting Reading First tests and books.

The publisher of that product, Voyager Expanded Learning, was founded and run by Randy Best, a major Bush campaign contributor, who sold the company in 2005 for more than $350 million. Now Best runs Higher Ed Holdings, a company that develops colleges of education, where former education secretary Roderick R. Paige is a senior adviser and G. Reid Lyon, Bush's former reading adviser, is an executive vice president.

"I'm very disappointed and saddened by the information that was provided at the hearing today," said Lyon, who had been a strong defender of Reading First, which he said had nothing to do with his new job. "The issues appear much more serious than I had been led to understand."

Despite the controversy surrounding Reading First's management, the percentage of students in the program who are proficient on fluency tests has risen about 15 percent, Education Department officials said. School districts across the country praise the program.

Members of both parties continue to support the goals of Reading First even as they attack its management. Miller and Senate education committee Chairman Edward M. Kennedy (D-Mass.) joined Republicans yesterday in pledging to tighten restrictions on conflicts of interest in No Child Left Behind.

Education Secretary Margaret Spellings, who declined to comment yesterday, has said management problems with Reading First "reflect individual mistakes." But Doherty said nearly every aspect of the program was carefully monitored by the department and the White House, where Spelling was Bush's top education adviser.

"This program was always firmly under the watch and control of the highest levels of the government," Doherty said.

Staff writer Carol D. Leonnig contributed to this report.

Wolfowitz's girlfriend problem

Not only did the World Bank president find his companion Shaha Ali Riza a cushy job in the State Department, but she received a security clearance -- unprecedented for a foreign national.

By Sidney Blumenthal

Apr. 19, 2007 | Paul Wolfowitz's tenure as president of the World Bank has turned into yet another case study of neoconservative government in action. It bears resemblance to the military planning for the invasion of Iraq, during which Wolfowitz, as deputy secretary of defense, arrogantly humiliated Army chief of staff Eric Shinseki for suggesting that the U.S. force level was inadequate. It has similarities to the twisting of intelligence used to justify the war, in which Wolfowitz oversaw the construction of a parallel operation within the Pentagon, the Office of Special Plans, to shunt disinformation directly to the White House, without its being vetted by CIA analysts, about Saddam Hussein's alleged ties to al-Qaida and his weapons of mass destruction, and sought to fire Mohamed ElBaradei, director of the United Nations' International Atomic Energy Agency, for factually reporting before the invasion that Saddam had not revived his nuclear weapons program. Wolfowitz's regime also uncannily looks like the occupation of Iraq run by the Coalition Provisional Authority, from which Wolfowitz blackballed State Department professionals -- instead staffing it with inexperienced ideologues -- and to whom Wolfowitz sent daily orders.

Wolfowitz's World Bank scandal over his girlfriend reveals many of the same qualities that created the wreckage he left in his wake in Iraq: grandiosity, cronyism, self-dealing and lying -- followed by an energetic campaign to deflect accountability. As with the war, he has retreated behind his fervent profession of good intentions to excuse himself. The ginning up of the conservative propaganda mill that once disseminated Wolfowitz's disinformation on WMD to defend him as the innocent victim of a political smear only underlines his tried-and-true methods of operation. The hollowness of his defense echoes in the thunderous absurdity of Monday's Wall Street Journal editorial: "Paul Wolfowitz, meet the Duke lacrosse team."

Superficially, Wolfowitz's arrangement for his girlfriend of a job with a hefty increase in pay in violation of the ethics clauses of his contract and without informing the World Bank board might seem like an all-too-familiar story of a man seeking special favors for a romantic partner. Wolfowitz has tried to cast the scandal as a "painful personal dilemma," as he described it in an April 12 e-mail to outraged employees of the World Bank, who have taken to calling the neoconservative's girlfriend his "neoconcubine." He was, he says, just attempting to "navigate in uncharted waters." But the fall of Wolfowitz is the final act of a long drama -- and love or even self-love may not be the whole subject.

Wolfowitz's girlfriend, Shaha Ali Riza, is a Libyan, raised in Saudi Arabia, educated at Oxford, who now has British citizenship. She is divorced; he is separated. Their discreet relationship became a problem only when he ascended to the World Bank presidency. Riza had floated through the neoconservative network -- working at the Free Iraq Foundation in the early 1990s and the National Endowment for Democracy -- until landing a position in the Middle East and African department of the World Bank. The ethics provisions of Wolfowitz's contract, however, stipulated that he could not maintain a sexual relationship with anyone over whom he had supervisory authority, even indirectly.

Back in 2003, Wolfowitz had taken care of Riza by directing his trusted Pentagon deputy, Undersecretary of Defense Douglas Feith -- who had been in charge of the Office of Special Plans and had been Wolfowitz's partner in managing the CPA -- to arrange for a military contract for her from Science Applications International Corp. When the contract was exposed this week, SAIC issued a statement that it "had no role in the selection of the personnel." In other words, the firm with hundreds of millions in contracts at stake had been ordered to hire Riza.

Riza was unhappy about leaving the sinecure at the World Bank. But in 2006 Wolfowitz made a series of calls to his friends that landed her a job at a new think tank called Foundation for the Future that is funded by the State Department. She was the sole employee, at least in the beginning. The World Bank continued to pay her salary, which was raised by $60,000 to $193,590 annually, more than the $183,500 paid to Secretary of State Condoleezza Rice, and all of it tax-free. Moreover, Wolfowitz got the State Department to agree that the ratings of her performance would automatically be "outstanding." Wolfowitz insisted on these terms himself and then misled the World Bank board about what he had done.

Exactly how this deal was made and with whom remains something of a mystery. The person who did work with Riza in her new position was Elizabeth Cheney, then the deputy assistant secretary of state for Near Eastern affairs. And Riza's assignment fell under the purview of Karen Hughes, undersecretary of state for public diplomacy. But these facts raise more questions than they answer.

The documents released by the World Bank do not include any of the communications with the State Department. How did Elizabeth Cheney come to be involved? Did Wolfowitz speak with Vice President Dick Cheney, for whom he had been a deputy when Cheney was secretary of defense in the elder Bush's administration?

Riza, who is not a U.S. citizen, had to receive a security clearance in order to work at the State Department. Who intervened? It is not unusual to have British or French midlevel officers at the department on exchange programs, but they receive security clearances based on the clearances they already have with their host governments. Granting a foreign national who is detailed from an international organization a security clearance, however, is extraordinary, even unprecedented. So how could this clearance have been granted?

State Department officials familiar with the details of this matter confirmed to me that Shaha Ali Riza was detailed to the State Department and had unescorted access while working for Elizabeth Cheney. Access to the building requires a national security clearance or permanent escort by a person with such a clearance. But the State Department has no record of having issued a national security clearance to Riza.

State Department officials believe that Riza was issued such a clearance by the Defense Department after SAIC was forced by Wolfowitz and Feith to hire her. Then her clearance would have been recognized by the State Department through a credentials transmittal letter and Riza would have accessed the State Department on Pentagon credentials, using her Pentagon clearance to get a State Department building pass with a letter issued under instructions from Liz Cheney.

But State Department officials tell me that no such letter can be confirmed as received. And the officials stress that the department would never issue a clearance to a non-U.S. citizen as part of a contractual requisition. Issuing a national security clearance to a foreign national under instructions from a Pentagon official would constitute a violation of the executive orders governing clearances, they say.

Given these circumstances, the inspector general of the Defense Department should be ordered to investigate how Shaha Ali Riza was issued a Pentagon security clearance. And the inspector general of the State Department should investigate who ordered Riza's building pass and whether there was a Pentagon credentials transmittal letter.

Wolfowitz's willful behavior, as though no rules bound him or facts constrained his ideas, should not have surprised anyone. At the Pentagon, Wolfowitz was an insistent force behind an invasion of Iraq, bringing it up at the first National Security Council meeting of the Bush administration, months before Sept. 11. For years he had been a firm believer in the crackpot theories of Laurie Mylroie, a neoconservative writer, who argued that Saddam was behind the 1993 World Trade Center bombing and even the 1995 Oklahoma City bombing. After Sept. 11, Wolfowitz pursued his obsession by sending former CIA Director James Woolsey on a secret mission to attempt to confirm the theory. Woolsey came back with nothing, but Wolfowitz continued to believe. His beliefs are stronger than any evidence.

Surrounded by his Praetorian Guard, Wolfowitz insulated himself at the World Bank from the career staff. There, as at the Pentagon, Wolfowitz pushed aside the professionals and replaced them with a small band of politically reliable assistants. Wolfowitz rewarded them, too, on his own authority, with enormous tax-free salaries. Consider Kevin Kellems, his public affairs officer at the Pentagon, who had guided conservative media from that perch and is known as "keeper of the comb," for having been the person to hand Wolfowitz the infamous comb he licked before slicking down his hair in the Michael Moore film "Fahrenheit 9/11." Kellems was given a salary of $240,000, at least equal to what World Bank vice presidents with years of service earn.

Wolfowitz had spent his career staging neoconservative insurgencies against what he considered to be liberal establishments. But at the World Bank he tried to model himself after Robert McNamara, who had turned his presidency at the bank into his vehicle for redemption for his part in the Vietnam War. Wolfowitz, the chief intellectual and policy advocate for the Iraq war, no longer mentioned it. Now he pleads to the World Bank board that his corrupt dealings be overlooked for the greater good of his crusade against corruption. His refusal to resign discredits and paralyzes the institution he had hoped would vindicate him.