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  • 04/06/12--15:30: Articles we find interesting
  • Stephen M. Walt, an international affairs professor at Harvard’s Kennedy School, has a short, tough-minded list of 10 useful lessons to be drawn at the end of America’s war in Iraq, appearing on Foreign Policy’s website. “It's very hard to improvise an occupation,” is our favorite. His conclusion about large-scale military incursions — “that  we're never going to do it well and it will rarely be vital to our overall security” — will be debated, but is now mainstream thinking at the upper ranks of the Pentagon.

    A complementary, clear-eyed account of the misery in Iraq today appears in the current issue of Foreign Affairs, written by Los Angeles Times correspondent Ned Parker. There’s blame to go around in his portrait of the country’s toxic political culture — notably in the Dawa Party and its leader Nouri a-Maliki. But Parker usefully highlights the undermining effects of endemic corruption, a problem Washington spent little effort trying to fix over the past decade. "Committing murder in Iraq is casual," a worried Iraqi anticorruption official told Parker, "like drinking a morning cup of coffee."


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    A judge in New York sentenced arms dealer Victor Bout Thursday to 25 years in prison, permanently ending his run as perhaps the world’s most notorious weapons-dealing kingpin.
     
    Bout was convicted on charges of conspiracy to kill U.S. citizens, conspiracy to kill U.S. employees, conspiracy to acquire and use anti-aircraft missiles, and conspiracy to provide material support to a terrorist group.
     
    U.S. agents posing as members of the FARC terrorist group captured him in Thailand during a 2008 sting operation. It took over two years for Bout, a Russian, to be extradited to stand trial in New York.
     
    In 2002, the Center for Public Integrity and the International Consortium of Investigative Journalists published “The merchant of death,” a massive exposé on Bout’s activities throughout the world. For more, read the full series, Making a Killing, here.

    Russian Arms dealer Victor Bout looks up from a jail cell as he is processed in Bangkok, Thailand, after being arrested in a joint US-Thai sting operation in 2008. Aaron Mehta http://www.iwatchnews.org/authors/aaron-mehta

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    Ahead of Tuesday’s GOP presidential primary in Wisconsin, wealthy investor Foster Friess is giving his preferred candidate, Rick Santorum, a boost. This time though, rather than contributing to a pro-Santorum super PAC, he’s taking matters into his own hands.

    Friess has personally spent $8,675 to help his friend win, including roughly $1,000 each for a radio ad touting the former Pennsylvania senator and a newspaper ad, both in Friess’s hometown of Rice Lake, Wis.

    Citizens have long been free to spend their personal funds directly on independent expenditures, which cannot be coordinated with candidates’ campaigns, but such spending is exceedingly rare. In fact, Friess is just the third individual to make personal independent expenditures this election cycle, according to an iWatch News analysis of filings with the Federal Election Commission.

    Typically, people tend to give money to existing organizations like super PACs, which can pool resources, produce more efficient ad buys and “capitalize on the expertise” of the people running the group, said attorney Paul Ryan, of the nonpartisan Campaign Legal Center.

    Ryan commended Friess for being willing to attach his name to these advertisements.

    If you are willing to spend money on a political advertisement, Ryan said, “you should stand by its content.”

    FEC records indicate that Friess, who now resides in Wyoming, spent more than $4,000 at The Floridian Gardens, which bills itself as Eau Claire's “premiere reception hall,” on a luncheon where he said that Santorum is “the authentic leader America needs,” according to a tweet he posted about the event.

    Friess spent $1,620 for a breakfast gathering at Lehman's Supper Club in Rice Lake, which advertises itself as “Northwest Wisconsin's finest restaurant,” and several hundred dollars on “printed cards.” Friess could not immediately be reached for comment by iWatch News.

    Sheila Krumholz, the executive director of the nonpartisan Center for Responsive Politics, said that individual donors are often “reticent” to have their names so closely associated with political ads.

    “I doubt that we’ll suddenly have a glut of individuals (making independent expenditures) this election cycle,” she said.

    With the Federal Election Campaign Act of 1974, Congress set a $1,000-per-candidate limit on how much individuals could spend on independent expenditures. But the U.S. Supreme Court declared that limit unconstitutional in its landmark Buckley v. Valeo decision in 1976.

    In 2010, the U.S. Supreme Court relied on Buckley in its controversial Citizens United v. Federal Election Commission ruling to declare that the government could “not suppress political speech based on the speaker’s corporate identity.”

    In the aftermath of Citizens United, super PACs, which are legally allowed to receive unlimited contributions from individuals, corporations and unions, have emerged as the preferred vehicles for buying independent political advertisements.

    Friess himself has long been a major political player, but his public profile has increased this election cycle, thanks to his role as a major super PAC donor.

    Between November and February, he donated $1.6 million to the main pro-Santorum super PAC, the Red, White and Blue Fund. That makes him the group’s top donor, with his money accounting for more than a quarter of the nearly $5.8 million it raised through the end of February.

    Friess also gave $50,000 to the Leaders for Families super PAC, which spent more than $130,000 advocating for Santorum ahead of his upset victory in the Iowa caucuses.

    And he has given $100,000 to the super PAC of the Tea Party-aligned group FreedomWorks. That super PAC has raised $3.5 million while remaining neutral in the GOP presidential primary and has already spent more than $173,000 opposing the re-election of President Barack Obama.

    Including these super PAC donations, Friess, along with his wife, Lynette, has donated nearly $4 million to all federal candidates, PACs and party committees, according to the Center for Responsive Politics.

    No other candidate has benefited more from this money than Santorum, according to the Center, who, between his leadership PAC and campaign committee, has collected $57,000 from Friess over the years.

    Friess in the past has kept a relatively low profile, but that ended when he said on MSNBC that an inexpensive form of contraception for women would be for them to put an aspirin “between their knees.”

    Afterward, Santorum publicly chided Friess, who later apologized for the comment.

    Foster Friess speaking at the Tea Party Patriots American Policy Summit in Phoenix, Arizona. Michael Beckel http://www.iwatchnews.org/authors/michael-beckel

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    Last summer, hedge fund pioneer Julian Robertson made the maximum $2,500 contribution to Mitt Romney’s campaign for the Republican presidential nomination. With a net worth somewhere north of $2 billion, it seemed as though he could do a lot more.

    Thanks to the Supreme Court’s Citizens United decision, he did.

    Robertson gave $1.25 million to Restore Our Future, a super PAC that has underwritten a relentless advertising campaign ripping Romney’s opponents. That’s 500 times the contribution he made in June.

    Robertson is not alone. Of the $43.2 million raised by the attack PAC, $20.5 million, or 48 percent, came from finance industry donors, according to an analysis of Federal Election Commission data by the Center for Public Integrity.

    At least $13.5 million came from private equity firms ($7 million) and hedge funds ($6.5 million) while most of the rest came from investment banks and other asset managers. So-called “non-bank lenders” that run storefront cash-for-title and payday lending operations gave the super PAC $437,500, according to the analysis.

    Restore Our Future is by far the best-funded of the super PACs backing presidential candidates in the 2012 election. The super PAC closed out the month of February with $10.5 million cash on hand, more than Romney’s campaign, according to FEC records.

    Romney, a former private equity executive, wants to repeal the Dodd-Frank Wall Street Reform and Consumer Protection Act and has said he is opposed to doing away with a tax loophole that has helped make private equity and hedge fund managers enormously wealthy over the years.

    The finance industry’s total percentage of contributions would be greater were it not for homebuilder and long-time Republican donor Bob Perry, who gave $3 million to the super PAC in February, bringing his total contributions to $4 million.

    Romney has battled the perception that he is out of touch with working-class Americans. The list of donors to his super PAC isn’t going to help much; the average contribution was a little more than $83,000.

    High court changes the game

    The 2010 Citizens United Supreme Court decision led to the creation of super PACs, which can accept unlimited donations from corporations, labor unions and wealthy individuals and use the funds to pay for advertising and other campaign expenses, as long as they do not coordinate with candidates.

    Hedge funds are private, largely unregulated investment pools that are typically overseen by a single manager and usually available only to high-value investors, like wealthy individuals, private banks, pensions, corporate treasuries and endowments. Private equity companies are more hands-on but are also mostly unregulated and attract the same type of investor.

    The firms and their trade associations share Romney’s view that Dodd-Frank should be repealed. Investment managers also want to make sure “carried interest,” which accounts for much of their income, as well as Romney’s, continues to be taxed at the modest capital-gains rate of 15 percent.

    Romney opposed changes in taxation of carried interest when he ran in 2007, although his current position is less clear.

    Romney is the top choice of the securities and investment industry. His campaign has received $6.8 million with President Barack Obama a distant second at $2.3 million, according to the Center for Responsive Politics. The pro-Obama super PAC, Priorities USA Action, has collected $175,000 from the industry.

    Wall Street investment bank Goldman Sachs’ employees have given $670,000 to the super PAC. According to the Center for Responsive Politics, Goldman employees have given more than $535,000 to the Romney campaign itself — the largest amount contributed by employees from any one company.

    Neither the Romney campaign nor Restore Our Future responded to requests for comment for this story.

    Top donors

    Robertson is the founder of the now-defunct Tiger Management Corp. Now retired, he invests directly in other hedge funds, and has a network of “Tiger cubs” — hedge fund managers he mentored while they cut their teeth at Tiger Management.

    He is a generous philanthropist, pledging more than half his wealth in line with Bill Gates’ and Warren Buffett’s Giving Pledge, a charitable effort focused on earning the support of billionaires. He also funds more than 30 full scholarships for students at Duke University and the University of North Carolina at Chapel Hill, his alma mater.

    Of more than $3 million in federal contributions Robertson has given since 1996, $2.9 million have gone to Republicans and Republican committees. Robertson could not be reached for comment for this article.

    Among other seven-figure donors is Edward Conard, who originally made his $1 million donation under the name “W Spann LLC.” Conard is a former managing director of Bain Capital — the private equity company co-founded by Romney.

    Current and former executives at Bain Capital and their families gave at least $3.1 million to Restore Our Future, including two households that contributed $1 million or more.

    Conard came forward after numerous media outlets raised questions about the legitimacy of W Spann LLC. Conard could not be reached for comment.

    Paul Singer, another $1 million donor, is the founder of Elliott Management, a hedge fund with $19 billion under management. Singer, whose net worth is estimated at $1 billion, made some of his fortune by purchasing debts owed by countries including Peru and the Republic of the Congo and suing them for payment.

    Singer is a fiscal conservative and an outspoken critic of the Federal Reserve. But he’s not afraid to disagree with the Republican Party’s social conservatives. He also supports gay rights and was a key backer of the campaign to legalize gay marriage in New York.

    A spokesman for Elliott Management who was familiar with Singer’s giving would not comment on the donation.

    John Paulson was an early million-dollar donor. He is founder of Paulson & Co., a hedge fund with $22 billion under management. He made $15 billion during the recession by short-selling subprime mortgages, according to multiple news reports. He also could not be reached for comment.

    Robert Mercer, another $1 million donor, is president and CEO of Renaissance Technologies, a Manhattan-based hedge fund. Mercer, an NRA member and Long Island resident, earned $125 million in 2011, ranking him 16th among hedge fund managers, according to Forbes. He is a frequent contributor to Republican candidates and causes, notably donating more than $640,000 to Concerned Taxpayers of America.

    Though he primarily donates to Republican candidates, including Rep. John Boehner, R-Ohio, and Sen. Pat Toomey, R-Pa., he has also given to Sen. Chuck Schumer, D-N.Y., and former Sen. Chris Dodd, D-Conn., among others. Mercer could not be reached for comment.

    Legislative priorities

    The Dodd-Frank financial reform act requires investment advisers who manage assets worth more than $150 million to register with the SEC. The firms must provide basic information about their organizational structure, individuals who fill key roles, the types of clients they advise and any conflicts of interest. With registration also comes the possibility of surprise inspections by the SEC.

    Investment managers oppose portions of Dodd-Frank because it endangers their business model, said Lynn Stout, a corporate law professor at Cornell University. “Many people have doubts as to whether this sector of the economy is really socially beneficial,” she said.

    But the issue nearest to the heart and wallets of Romney’s former colleagues is undoubtedly carried interest.

    Hedge fund and private equity managers don’t make money like most working people. They live off the profits generated from investments they manage. Those are considered “capital gains” and are taxed at a maximum rate of 15 percent. If that income were taxed the same as earnings, the rate could be as high as 35 percent.

    The relatively obscure issue became big news when Mitt Romney, a beneficiary of the carried interest rule, released his tax returns, which showed he paid about a 14 percent tax rate for 2010 and 2011.

    President Barack Obama’s new corporate tax plan, unveiled Feb. 23, would treat carried interest as earned income. There are also proposals in both houses of Congress from brothers Sen. Carl Levin, D-Mich., and Rep. Sander Levin, D-Mich., to do the same.

    Private equity groups, including Bain, and hedge funds, have lobbied to keep this change from happening. In 2011, the Managed Funds Association spent $4 million on lobbying, the Private Equity Growth Capital Council spent $2.2 million and the National Venture Capital Association spent $2.5 million.

    Private Equity Growth Capital Council president Douglas Lowenstein described the proposed change in status as a “punitive 157 percent tax hike [that] will hurt those companies that are most desperately in need of capital to sustain or create jobs and drive growth.”

    Payday lenders for Romney?

    Restore Our Future has also benefited from non-bank lenders that make payday loans, title loans and operate check cashing services. Dodd-Frank imposes federal regulatory oversight of these lenders.

    “The payday lenders are under the full power of the CFPB (Consumer Financial Protection Bureau), just as are the big banks," said Ed Mierzwinski, consumer program director at U.S. PIRG. "And it’s a very important power, so the payday lenders do not like the CFPB.”

    Rod Aycox, of Loan Max, and his title loan company Select Management Resources gave $200,000 to the super PAC. His company makes title loans, in which the borrower turns over his car title as collateral and receives a loan at a very high interest rate, usually based on the value of the car.

    Las Vegas-based REBS Inc. donated $25,000 to Restore Our Future, listing an address in a shopping center in Las Vegas. State documents show REBS’ president is James Marchesi, the founder and president of Check City, a chain of payday lenders, one of which has the same address as REBS in the Las Vegas shopping center.

    Marchesi is also on the board of the Financial Service Centers of America (FiSCA), the national trade association for non-bank entities that provide financial services like payday loans, money transfers and check cashing. He could not be reached for comment.

    Jones Management Services, run by Allan Jones, gave $35,000. He is also CEO of one of the country’s largest payday lenders, Check into Cash Inc.

    Payday loans, also known as payday advances, are short-term loans secured against the borrower’s next paycheck. These loans often trap borrowers in a cycle of borrowing and high interest, which averages around 400 percent, according to the Center for Responsible Lending.

    Other payday lenders that gave money to Restore Our Future are Community Choice Financial, ($30,000), QC Holdings ($25,000), Amscot Corp. ($10,000) and Express Financial Services ($2,500).

    Another donor, RTTTA LLC, gave $75,000 and is linked to J. Todd Rawle. Rawle’s company Softwise makes software for these lenders. Katsam LLC (spelled “Katsum” in filings), is linked to payday lender Moneytree founders Dennis and David Bassford and gave $35,000. The Bassfords could not be reached for comment.

    FiSCA opposes further regulation of financial service centers on the grounds that it “could significantly reduce, if not eliminate altogether, Americans’ access to small dollar credit and other financial products,” according to its guide to the Dodd-Frank financial reform act.

    Donors to Restore Our Future may be hoping for special treatment from a Romney presidency. But given that the candidate is largely with them on the issues already, that might not be the case — they may just want him to win.

    “They view him as far and away the candidate that’s most likely to be sympathetic to be preserving business as usual in the financial sector,” Stout, the Cornell professor, said. “They’ve been making a ton of profit and they don’t want anyone to stop the party.”

    John Dunbar contributed to this report.

    Alexandra Duszak http://www.iwatchnews.org/authors/alexandra-duszak Rachael Marcus http://www.iwatchnews.org/authors/rachael-marcus

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    When a U.S. Coast Guard inspector boarded the M/T Chem Faros, a 21,145-gross-ton cargo ship that pulled into port in Morehead City, N.C., an oiler with the engine crew quietly handed him a note.

    "GOOD MORNING SIR, I WOULD LIKE TO LET YOU KNOW THIS SHIP DISCHARGING BILGE ILEGALLY USING BY MAGIC PIPE,” the note said. “IF YOU WANT TO KNOW ILLEGAL PIPE THERE IN WORKSHOP FIVE METERS LONG WITH RUBBER.”

    The crewman’s hand-scrawled note, passed that March day two years ago, triggered an inquiry that unmasked a wave of high-seas pollution and phony recordkeeping as the ship ferried cargo in Asia and the U.S. The crew had used the so-called magic pipe to divert oily waste overboard at least 10 times in six months. Eleven days before the inspection, the chief engineer ordered 13,200 gallons of oil-contaminated waste dumped into the ocean.

    The ship’s owner, Cooperative Success Maritime S.A., was fined $850,000 and sentenced to five years’ probation after its guilty plea. And the chief engineer — after cooperating with authorities — was sentenced to one year of probation. “The oceans must be protected from being used as dump sites for waste oil or other hazardous substances,” said Maureen O’Mara, special agent-in-charge of the Environmental Protection Agency’s criminal enforcement program in Atlanta, in June 2010. A company attorney declined comment.

    That Department of Justice prosecution is one piece of a larger federal crackdown targeting dumping on the high seas, a form of pollution that taints global waterways and is drawing increased scrutiny.

    The weapons in the government’s arsenal: whistleblowers who can reap six-figure rewards for reporting dumping and sometimes providing secret cell phone photos to inspectors; investigators who hunt for “magic pipe” diversion devices hidden aboard massive ships; and ship operators pressed to change their ways or risk a ban from U.S. waters.

    Over the past 10 years, a Justice Department Environment and Natural Resources Division report shows, the Vessel Pollution Program has triggered more than $200 million in fines and 17 years in prison for ship officers and executives. Four corporations that own and operate a Panamanian cargo vessel were fined $1 million last July — and banned from doing business in the U.S. for five years for deliberately dumping waste overboard and trying to hide their crimes.

    “Imagine this, you are the owner of a ship and you can’t come to the most lucrative market in the world. That’s a big hammer,” Capt. David Fish, chief of the Coast Guard’s Office of Investigations and Analysis, said in an interview with the Center for Public Integrity. “They can sail away, but they’re never coming back.”

    Yet even with the number of high profile cases brought, more cases come. That leads some experts to conclude the government has snared only part of the problem.

    “It’s still occurring at a fairly regular basis, which as a prosecutor is frustrating,” said John Cruden, president of the Environmental Law Institute in Washington and former deputy assistant attorney general for DOJ’s Environment and Natural Resources Division. “That leads me to think there’s a lot more of this out there than the Coast Guard is finding. We are probably just seeing part of the iceberg of the criminal behavior.”

    The law, magic pipes — and whistleblowers

    Under federal and international law, ships must properly dispose of oily wastewater and sludge by passing the waste through an oil-water separator on board, or burning sludge in an incinerator. The ship’s crew must record each transfer or disposal in an “Oil Record Book.”

    When dumping occurs in international waters, U.S. authorities cannot prosecute the actual pollution because it lies outside their jurisdiction. But they can bring charges when crews file false paperwork, use illegal diversion devices, or lie to investigators.

    Many scofflaws use so-called “magic pipes” — detachable pipes that can route waste overboard and then be hidden when inspectors arrive — to bypass the required pollution prevention equipment. Some dump in the dark of night in international waters far from port.

    Whistleblowers help bring these cases to light, handing to inspectors the scrawled notes or cell phone photos capturing illegal dumping and homemade diversion pipes hidden on board.

    Yet some defense lawyers for shipping companies have questioned the government’s use of whistleblowers, contending that a quest for cash could distort a company’s true environmental record. Ultimately, though, the evidence from crews has factored in several cases.

    This January, two companies that owned and operated the M/V Aquarosa, a 33,005-gross-ton cargo ship registered in Malta, were fined $1.2 million and sentenced to three years of probation in a case sprung from 300 cell-phone pictures. The ship’s chief engineer got a three-month prison sentence for obstruction of justice.

    On the ship’s first voyage in 2010, court papers say, senior engineers started dumping oil bilge waste. They sometimes used a magic pipe constructed from a long rubber hose and metal flanges welded together onboard.

    The investigation began after the shipped pulled into Baltimore port in February 2011, and an engineer handed Coast Guard investigators his cell phone with 300 pictures revealing a magic pipe spewing sludge and oily waste overboard. The crew also dumped oil-soaked rags in plastic garbage bags. Prosecutors are seeking a reward for the whistleblower.

    In another case, in 2007, a dozen crew members each pocketed $437,500 for blowing the whistle on Overseas Shipholding Group Inc. in what became the largest-ever fine for deliberate vessel pollution: $37 million.

    One crewman, upset by dumping close to the New England shore, created a secret journal hidden inside another book. An engineer, being sent back to the Philippines after alleging company wrongdoing, contacted the Coast Guard with help from a hotel night clerk in Wilmington, N.C., and provided evidence, prosecutors said. Yet another engineer contacted the Coast Guard through an Internet café.

    The whistleblower awards were granted under the Act to Prevent Pollution from Ships, which allow those providing information leading to conviction to reap up to half of the criminal fines collected. The company, OSG, pleaded guilty for violations in Boston; Portland, Maine; Los Angeles; San Francisco; Wilmington, N.C.; and Beaumont, Texas, and was also sentenced to three years of probation.

    In some instances, the company “tricked” pollution prevention equipment by flushing an oil sensor with fresh water, DOJ said.

    “The violations at issue in this case were so systemic, repetitive and longstanding that the criminal conduct amounted to a serious failure of corporate and shore-side management,” prosecutors told the court. “Criminal violations continued on some ships during the three years in which OSG was under investigation, including six vessels on which OSG self-reported violations.”

    An OSG spokeswoman, contacted this week, said the company had no immediate comment.

    Banned from U.S. seas — but some critics of whistleblowers

    Last April, in the Panamanian cargo vessel case, four companies were banned from U.S. waters for five years.

    Stanships Inc. of the Marshall Islands, Stanships Inc. of New York, Standard Shipping Inc. and Calmore Maritime Ltd. — owners and operator of the M/V Americanapleaded guilty in New Orleans to 32 felony counts of violating the Act to Prevent Pollution from Ships, the Ports and Waterways Safety Act, and obstruction of justice. The owner of the companies was banned from owning or managing ships trading in the United States.

    The inquiry began when a crew member told the U.S. Coast Guard the crew used a magic pipe to illegally dump sludge and oily waste overboard — and provided cell phone pictures taken at sea. Ultimately, the companies admitted transferring sludge and oily waste from the vessel’s engines to a fuel tank, and then pumping it overboard. The metal bypass pipe was hidden when the ship was in port.

    The government’s exhibit list included the cell phone pictures showing the magic pipes in action.

    Michael G. Chalos, the attorney for Stanships, said the company “is not operating anymore.”

    Chalos has raised questions about the government’s investigations of ships. Earlier this year, he helped bring a lawsuit, filed by eight shipping companies, challenging the conditions that the Coast Guard and Homeland Security imposed before releasing vessels that allegedly kept false Oil Record Books. The U.S., in a court filing this week, maintained that its procedures are proper.

    Chalos also challenges the government’s use of whistleblowers.

    “I would say the majority of ship owners want to be compliant and they pay a lot of money to set up these compliance programs and procedures,” Chalos said. “But they can’t outbid the government. Some whistleblower who decides he wants to make some money can thwart all those efforts. … They don’t report it to the owner, because they know if they wait until they come to the U.S. and they have pictures of some alleged illegal act, they are going to get a reward.”

    Cruden, the former DOJ official, said the cases are difficult by their nature. The dumping comes, often, in the dark of night on seas far from port. Ships, many flying under foreign flags, sometimes dock at port a day or two.

    “I’m well aware that corporations do not like these laws, because their own employees are finding things and basically turning them in,” he said. “But the problem is, how else would you know?”

    Federal case files show how those whistleblowers turn up crucial evidence. In 2010, four crew members who flagged authorities about illegal discharges of oil and plastic from the M/V Iorana, a Greek flagged cargo ship, were awarded $125,000 each. In that case, Irika Shipping S.A. paid a $4 million penalty — $3 million for a criminal fine and $1 million to fund marine environmental projects.

    The investigation began in January 2010, court records say, when a crew member, after the ship’s arrival in Baltimore, passed a note telling a Customs and Border Protection inspector that the ship’s chief engineer had ordered the dumping of waste oil overboard through a bypass hose.

    “We are asking help to any authorities concerned about this,” the note said, “because we must protect our environment and our marine lives.”

    The government’s exhibits at sentencing included pictures of the hoses that flushed waste overseas — and a photo of the vessel with a large painted sign: “Safety First Clean Seas.” An attorney for the company, Dimitri Georgantas, said Friday he doesn't comment on specific cases. But speaking broadly, he believes the government has "over-reached" in the length of time it holds crews during investigations.

    One month earlier, in December 2009, nine crew members of the M/V Theotokos shared $540,000 for helping secure the guilty plea of Polembros Shipping Ltd. The ship management company, headquartered in Greece, paid a $2.7 million criminal fine for violating anti-pollution laws and ship safety laws, and making false statements during a U.S. Coast Guard investigation, the DOJ said.

    Polembros was ordered to pay a separate $100,000 to the Smithsonian Environmental Research Center, and was given three years of probation — and its 20 vessels were barred from entering U.S. ports and waters for three years. Ship officers also received punishment, including 10 months’ confinement for the ship master. Georgantas, who also represented Polembros, declined comment.

    Sometimes, the whistleblowers turn to higher authorities.

    Last May, the chief engineer of the M/V Capitola pleaded guilty to obstructing a Coast Guard inspection a year earlier.

    The investigation, launched at the Port of Baltimore, began after a crew member told a clergy member, on board as part of a pastoral visit, that there had been “monkey business in the engine room” involving a magic pipe. At the crew member’s request, the minister alerted the Coast Guard, and its inspectors found the magic pipe: A bypass hose that dumped waste oil overboard.

    Fish, the Coast Guard captain, said the cases are emerging amid a confluence of factors: Information from whistleblowers, detailed inspections on board — and an increased appetite by prosecutors to bring cases.

    Yet one constant, he said, is money. “In any environmental contamination, it’s in reverse correlation to the economy. The economy is down, companies cut corners, and they generally cut corners in maintenance.”

    A Coast Guard inspector boards a cargo ship to conduct an inspection. Ronnie Greene http://www.iwatchnews.org/authors/ronnie-greene

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    In a rule that could discourage reliance on coal for energy, the Environmental Protection Agency on Tuesday proposed the first limits on greenhouse gas emissions from new power plants.

    The proposal would “move our nation into an era of American energy that is cleaner and cheaper,” EPA administrator Lisa Jackson said in a conference call with reporters.

    Opponents say the rule would make it almost impossible to build new coal-fired power plants and could cause some plants to close. “Unfortunately, the EPA continues to ignore the real impact their rules will have on American families and businesses by driving up energy prices and destroying jobs,” the American Coalition for Clean Coal Electricity said in a statement.

    The rule is the result of a long process that wound through the U.S. Supreme Court. Five years ago, the court decreed that the EPA had authority to regulate greenhouse gases. Two years later, the agency formally found that emissions of such gases contributed to climate change and threatened public health.

    Currently there are no national limits on greenhouse gas emissions, and the proposal would affect only new power plants, exempting those already in existence.

    This January, the EPA for the first time released data on emissions of greenhouse gases at specific facilities. Power plants were by far the largest source.

    Jackson said the proposal is in line with what the industry is already doing — shifting toward cheap natural gas being produced domestically. A boom has driven down natural gas prices, but Jackson said the agency had taken into account what might happen if those prices eventually rise.  “The price of natural gas has to rise dramatically … for the economics of this rule — which are very, very good — to change,” she said.

    The rule still must go through a public comment period and additional reviews. Jackson said she didn’t know when it would be finalized or whether it would be finished before the 2012 presidential election.

      A truck is blurred during a time exposure as it passes by the La Cygne Generating Station coal-fired powerplant in Kansas. Chris Hamby http://www.iwatchnews.org/authors/chris-hamby

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    Want to know how much of your tax money is going to the military? Thanks to a new website from the federal government, now you can!

    The White House “Federal Taxpayer Receipt” calculator, released Wednesday, asks you to put in how much you paid in taxes this year before spitting out a calculation of how much went to fund what programs. The largest chunk of your taxes goes to the military — 24.9% of tax income, in fact.

    The calculator goes farther and breaks down how much of the tax money goes to specific programs within DOD. The (somewhat general) categories:

    • Military personnel salaries and benefits — 5.8%
    • Ongoing operations, equipment, and supplies — 10.3%
    • Research, development, weapons, and construction — 7.9%
    • Atomic energy defense activities — 0.7%
    • Defense-related FBI activities and additional national defense — 0.2%

    After defense, the largest cost is healthcare at 23.7%, followed by “Job and Family Security” (unemployment, housing insurance, etc) at 19.1%. The other categories are all in the low single digits, which only serves as a reminder just how much money the average taxpayer puts in to the defense apparatus of the country each year.

    Let’s do some math. The average taxpayer brings in $49,000 a year, according to tax firm HRBlock. A reasonable income tax for that amount is $5,000. Here’s how your money would be spent:

    • Military personnel salaries and benefits — $290.00
    • Ongoing operations, equipment, and supplies — $515.00
    • Research, development, weapons, and construction — $395.00
    • Atomic energy defense activities — $35.00
    • Defense-related FBI activities and additional national defense — $10.00

    That’s a total of $1,245.00 spent of your taxes on defense. So tell us in the comments — do you feel like you’re getting your money’s worth?

    (Thanks to our friends at DoD Buzz for the heads up.)

    Canceled mail to IRS. Aaron Mehta http://www.iwatchnews.org/authors/aaron-mehta

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    For years, people living in the Mississippi River town of Muscatine, Iowa, have complained about the ash and smoke blowing into their neighborhood from a corn processing plant. State regulators have brought enforcement cases against the company, but the town’s South End neighborhood remains under a haze.

    On Tuesday, the U.S. Environmental Protection Agency stepped in, alleging years of violations of air pollution rules at the plant owned by Grain Processing Corp. The letter issued to the company, known as GPC, doesn’t impose penalties, but puts it on notice that the EPA is considering an enforcement case.

    GPC spokesman Janet Sichterman said company officials are reviewing the notice and “aren’t in a position to make a comment on it now.”

    The action comes as the company is battling the Iowa attorney general, who has alleged separate violations of air and water pollution rules in a lawsuit. A group of citizens, calling themselves Clean Air Muscatine, has filed a petition to intervene in that case, saying the state’s previous actions against GPC have failed to protect people living near the facility.

    The plant, which processes corn into ethanol, beverage alcohol and corn syrups and starches, was highlighted last year in the Center for Public Integrity series “Poisoned Places.” In 2010, the facility released more lead — a toxic metal that can damage the nervous system — than any plant in the state and more acetaldehyde — a probable carcinogen — than almost any plant in the country, state and federal data show.

    The EPA’s notice of violation contains few details, but it alleges that, between 2007 and 2011, GPC repeatedly violated air pollution limits and failed to report many excess pollution episodes as its permit required.

    EPA regional officials refused to discuss specifics of the alleged violations, but the Center reported last year on GPC’s handling of “excess emissions.” When companies release more pollution than their permit allows, they are supposed to call state regulators, then file a written report. Companies can avoid this reporting requirement, however, under certain circumstances.

    As far back as 2008, a state inspector began raising concerns about the company’s use of reporting requirement exemptions. Over time, he uncovered evidence indicating that GPC was misusing exemptions to avoid reporting constant violations, state reports and correspondence show. He brought the information to his bosses at the Iowa Department of Natural Resources, but they haven’t pursued an enforcement case.

    The EPA would not confirm that this issue is the subject of the violation notice, but a spokesman said the violations did involve excess pollution episodes that the company never reported. GPC’s Sichterman previously told the Center the company had stopped using some exemptions and had better trained its workers to avoid exceeding pollution limits.

    GPC now must respond to the EPA’s notice, which also included written questions related to water pollution. Then, the agency will decide from among its options, which include settling with the company, filing an administrative enforcement case or referring the issue to the Justice Department. “Part of that can hinge on whether the company acknowledges that they are violations or whether they would want to challenge them,” EPA spokesman Chris Whitley said.

    The notice says the EPA could seek penalties of up to $37,500 for each day the company was in violation.

    GPC also faces potential penalties from a lawsuit filed by the Iowa attorney general that accuses the company of releasing more pollution than allowed from one of its dryers, which is used to cook corn.

    The EPA’s allegations relate to different equipment: the company’s six coal-fired boilers, which release ash and gases through one tall smokestack. Residents have long complained about the ash; they point to it covering their cars and homes and worry about its effects on their health.

    GPC has announced a $100 million project that will upgrade portions of the plant and improve pollution control, but state regulators have said the improvements may not go far enough to prevent the area from being classified by the EPA as in violation of air quality standards designed to protect public health.

    The Grain Processing Corp. plant in Muscatine, Iowa, sits on the edge of the town's South End neighborhood. Chris Hamby http://www.iwatchnews.org/authors/chris-hamby

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    Like generations of college students, Caprice Taylor needed a job to help pay her school and living expenses. For the 24-year-old student of fashion merchandise management at the Fashion Institute of Technology in New York City, sales work at a retail clothing shop seemed like a good option.

    Taylor was hired last year at Club Monaco, a high-end clothing and apparel retailer owned by Polo Ralph Lauren. But her scheduled shifts at the Manhattan store were not guaranteed. Instead, she was given call-in shifts, which required her to call the store two hours before she was scheduled to arrive to see if she was needed.

    Most often, she was not.

    For months, Taylor said, she arranged her personal life around work days, waiting in her apartment, only to call in and learn the store wasn’t busy enough. On some weeks, Taylor logged as few as six hours, not earning enough to keep up with her living expenses.

    “It puts your day on complete hold,” Taylor said. “It pressures you.”

    After four months of unpredictable paychecks, Taylor quit. She later found work at a Polo Ralph Lauren store that does not have on-call shifts. She was lucky to find it. Retail watchers say big-box stores and shopping-mall stalwarts are increasingly hiring workers for on-call shifts, a trend that cuts labor costs for employers, but leaves workers like Taylor struggling to get by.

    The clothing and accessory retail industry is a relative bright spot in the moribund jobs market. Yet like Taylor, many workers are finding the jobs unpredictable at best, providing smaller paychecks and less stability than in the past.

    From 2002 to 2011, the number of nonsupervisory jobs in the retail clothing industry rose 7 percent to 1.13 million, according to the Bureau of Labor Statistics. The industry declined during the recession, but the decline was not as dramatic as for the jobs market as a whole.

    Despite the steady numbers, the quality of the retail sales positions is falling by at least one key figure — the average number of hours they provide. In 2011, nonsupervisory workers in the clothing retail industry worked an average of 22 hours a week, three hours less than in 2005. That drop in hours hit them in the paycheck.

    Although average hourly wages rose by 40 cents to $11.47 during that time, workers earned an average of $248 a week, $22 dollars less than the pre-recession peak. For call-in shift employees, the situation is often far worse, said Carrie Gleason, director of Retail Action Project, a New York City retail worker advocacy group. The biggest problem with call-in shifts, Gleason said, is unpredictability. Employees can’t make reliable budget decisions because they don’t know how much money they will make each week, she said. And for parents, it’s difficult to find flexible daycare providers to work around call-in shifts.

    While many have lamented the decline of traditional employment benefits, including paid time off and employer-sponsored health insurance, Gleason said call-in workers are struggling simply to make enough money to get by. They rarely are offered benefits, Gleason said, because they work too few hours and turnover is high. “It leaves workers scrambling and creates a situation where people are struggling along,” Gleason said.

    Susan Lambert, a University of Chicago professor who studies hourly and low-income labor, said employers have an incentive to hire a large pool of workers and schedule call-in shifts based on demand. “It gives managers a lot of flexibility when you have a workforce that is hungry for hours,” Lambert said.

    Pressure to contain labor costs is not new, but Lambert said it has increased since the recession. In addition to retail, on-call jobs are now common at hotels, airlines, in the package delivery industry, and even in some financial services jobs, she said. “This is so much bigger than it was 10 years ago,” Lambert said. “It’s becoming common practice for companies to have a large portion of their sales force on-call.”

    For retailers, scheduling on-call shifts helps drive down labor costs, which Fred Hurvitz, a professor at Penn State’s Smeal College of Business, said can account for 40 percent or more of their total expenses. As brick-and-mortar retailers face stiff cost competition from online retailers and pressure to drive down prices, Hurvitz said, they are increasingly searching for ways to save. The cost of labor is one place they are looking to cut.

    Workers and labor watchers say on-call shifts are on the rise, but the exact number is uncertain. The Bureau of Labor statistics has not looked at the issue since 2005, when 2.5 million workers held on-call jobs.

    Ellen Davis, vice president of the National Retail Federation, is reluctant to call it a trend. Davis said the federation has no policy papers on the issue and that it hasn’t come up in meetings. “It’s not common enough that it has risen onto the radar,” she said.

    At the Club Monaco store in New York where Caprice Taylor worked, a manager who declined to give her name said the store uses call-in shifts “depending on the needs of the store.” She declined to comment further. Calls to Club Monaco’s corporate office were not returned.

    Hard on workers, call-in shifts a boon for business

    Call-in shifts may cause instability for workers, but experts say they allow businesses to staff up when they are busy and staff down when business is slow.

    Lisa Disselkamp, a private workforce management consultant in Richmond, Va., said modern scheduling systems can be linked to sales data, which gives managers the ability to fine-tune an optimum balance between customers and staffing. In the past, Disselkamp said, scheduling was done on paper, and managers allocated employee hours based on intuition and projected sales trends. “Payroll for a long time was just processing time sheets,” Disselkamp said. “Today these systems are very intelligent.”

    Increasingly, managers begin their shifts by logging on to scheduling systems, or looking at messages the systems send to their smartphones, Disselkamp said. The most basic systems help managers determine if the current workload calls for additional or fewer workers. More advanced systems look at individual employee skills, cost, and availability, and determine the best choice to fill slots, sometimes only an hour or two before the workers are expected to arrive.

    Disselkamp compared the rise of smart scheduling to the lean inventory trend in manufacturing, in which factories rely on regular delivery of materials from suppliers rather than filling large warehouses with supplies. Lean inventory allows manufacturers to cut costs by transferring financial risk onto suppliers. In lean scheduling, Disselkamp said, risk is transferred to the worker. “The employee takes the job without a committed schedule of hours. That’s where the risk is,” she said.

    There are no laws that require employers to provide a minimum number of hours. However, Disselkamp said lean scheduling can backfire on employers if taken to extremes, because turnover will rise, adding to training costs.

    Call-in shifts not just for high school students

    In 2011, the department store Macy’s phased out call-in shifts. Instead, it began advertising for “flex team” jobs, which allow employees to log on to the scheduling system and choose available shifts, after full-time and part-time employees are scheduled. Beth Charlton, a Macy’s spokeswoman, said the move “works to the advantage of most associates. They are students, moms, and people who want to work part time. It accommodates their schedules.” If a student has exams, for example, Charlton said, a job on the team allows the flexibility to take a week off to study by simply not signing up to work shifts. However Charlton said flex team workers are not guaranteed a minimum number of hours.

    In 2011, the Retail, Wholesale and Department Store Union negotiated a five-year contract with Macy’s on behalf of 4,000 workers at four stores in the New York City area. Union spokesman Dan Morris said Macy’s new scheduling system was an area of contention during the negotiations. As part of the contract, full- and part-time workers retained their status and their hours. The contract does not cover the flex team.

    On-call schedules can benefit some students and other flexible workers, but experts say it’s outdated to think the majority of part time workers are people looking for extra spending money. H. Luke Shaefer, a professor of social work at the University of Michigan, said the long stretch of high unemployment led employees to take jobs they might not have considered in the past. Shaefer said in 2009, the last year the data is available, 45 percent of part-time workers were primary wage earners in their families.

    But even for workers who provide only part of family’s income, on-call shifts can be a struggle. In 2011, 25-year-old Sheena Dixon found a job working a call-in shift at Levi’s in Manhattan. Dixon, who lives in the Bronx with her mother, a nursing assistant, contributed rent and grocery money and bought clothes for her sister, a high school student. At Levi’s, Dixon said she made $9.25 an hour, but often worked between four and 12 hours a week. She didn’t stay long.

    “For me to do all of that just to get paid what I used to get paid when I was 14, that didn’t work for me at all,” she said. Asked what she plans to do next, Dixon said she is looking for a new retail job.

    A deparment store employee wheels out a rack of clothing.  Joe Eaton http://www.iwatchnews.org/authors/joe-eaton

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    It’s not clear who is in charge of Flint, Mich., these days.

    Earlier this month, a state circuit court judge unseated the city’s emergency manager, Michael Brown, and voided all decisions he’s made since being appointed by Republican Gov. Rick Snyder four months ago.

    The ruling found the state violated the Open Meetings Act when appointing Brown in December and is just the latest in a series of legal challenges that could freeze Michigan’s controversial emergency manager law.

    As reported by iWatch News, the law inspired by free market think tanks is the GOP-led legislature’s attempt to solve decades of municipal budget woes in Michigan, spurred by the flight of manufacturers and compounded by the housing crash.

    Under the law, the governor can appoint one person to run city affairs with expansive powers to fire elected city officials, privatize services, break union contracts, sell public assets and violate city charters.

    While court challenges proceed, state elections officials are reviewing 227,000 signatures that opponents to the law delivered to Lansing on Feb. 29. If the state approves 162,000 of them in early May, the law would be frozen until voters decide its fate in a referendum next year.

    Flint, Benton Harbor, Pontiac, Ecorse, and school districts in Detroit and Highland Park have emergency managers.

    Detroit is in the late stages of a financial review that is also under court scrutiny. The state has moved away from appointing an emergency manager and instead is advocating the creation of a financial team with similar powers, which has drawn the ire of city officials and residents alike.

    In Flint, Judge Rosemarie Aquilina on March 20 sided with a city public employee union president who brought the open meetings challenge. Mayor Dayne Walling and the city council were returned to office to face Flint’s $25 million deficit.

    The state challenged the opinion, and a week later, an appeals court panel reversed Aquilina and put Brown back in office until the case is heard.

    “It’s a yo-yo game,” said Brenda Purifoy, one of several former city employees wondering whether she’ll get her job back. The day after Brown took the job, he fired Purifoy from her post as city ombudsman and closed the department, a violation of the city’s charter.

    Since her appointment in 2006, Purifoy had fielded thousands of complaints and investigated misconduct in the police, water, and elections departments. After the Aquilina ruling, she received a call from the city attorney telling her where to pick up the keys to access her old office. But until the court case is resolved, Purifoy’s job will remain up in the air.

    Meetings regarding Brown’s appointment were not public because the team reviewing the appointment was not a public body, according to Caleb Buhs, a spokesman for state Treasurer’s office.

    Walling, Flint’s mayor, disagreed in an email saying “residents deserve the same open financial review process that is being afforded to other Michigan cities.”

    An open meetings challenge has also disrupted the work of the state’s 10-member team reviewing Detroit’s finances. Judge William Collette handed down two rulings in the last month halting the review process until the state conducted public meetings — a decision that the state’s attorneys have appealed to the Michigan Supreme Court.

    The Detroit review team decided not to recommend an emergency manager after months of closed-door deliberations over the city’s future, proposing instead a consent agreement that would allow state and city officials to appoint a nine-member board with powers similar to that of an emergency manager to address Detroit’s $200 million deficit and deteriorating credit.

    Mayor Dave Bing called the state’s proposal a de facto takeover that “waives the ability of elected officials to contest any aspect of the agreement.”

    Following Collette’s ruling, state appointees restarted their review process of Detroit — this time in public. Proceedings have been marked by protest and angry comments from residents.

    “They’ve literally declared war on us, and we are assembling our troops to fight back,” said resident Sandra Hines during public comment.

    The first of several public meetings ended with the review team declaring a severe financial emergency in the city, but made no recommendation on how to move forward.

    Governor Snyder hosted a town hall meeting in Detroit March 28 to push for a consent agreement by the end of the month. A major sticking point in ongoing talks between Snyder and the city is the degree of power that local officials will retain in budget decisions.

    Meanwhile, a challenge to the constitutionality of the law itself is working its way through the courts.

    Legal challenges have cast uncertainty on the fate of Michigan's Emergency Manager law, signed last year by Republican Gov. Rick Snyder. A March 20 ruling by Ingham County Judge Rosemarie Aquilina, pictured here, restored Flint's elected officials to office, but only briefly. The state's attorney's appeal reversed the decision, causing confusion amongst Flint residents and leaving the city's $25 million budget gap untended. Paul Abowd http://www.iwatchnews.org/authors/paul-abowd

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  • 04/06/12--15:30: Watchdog 4/2/12
  • Clear Impact

    We’re seeing more impact from our massive State Integrity Investigation every day. When you put compelling information into people’s hands in an easy-to-access format, big things happen.

    State legislators in Delaware, Michigan, Ohio and South Carolina are proposing new ethics reforms based on our new survey of state transparency and accountability. We hope that many more will follow. More than 1,000 other media organizations and dozens of editorials have cited our work.

    The phone has also been ringing off the hook here at the Center from citizens who knew something was wrong in their state capitals but now have some definitive data on why. Not all feedback is positive: An RV camp operator in Virginia chastised us for “ruining tourism” by giving that state a failing grade.

    Of course, that’s the nature of our work. I remain gratified by the attention the State Integrity Investigation has earned and the awareness and dialog generated by it.

    Until Next Week,

     

    Bill Buzeberg
    Executive Director

    Half of Pro-Romney PAC money from Wall Street
    Of the $43.2 million raised by the pro-Romney PAC Restore Our Future, $20.5 million, or 48 percent, came from finance industry donors, according to a Center analysis of Federal Election Commission data. At least $13.5 million came from private equity firms ($7 million) and hedge funds ($6.5 million) while most of the rest came from investment banks and other asset managers. So-called “non-bank lenders” that run storefront cash-for-title and payday lending operations gave the super PAC $437,500. Restore Our Future is by far the best-funded of the super PACs backing presidential candidates in the 2012 election.

    Delaware lawmakers address state ethics
    Delaware lawmakers have launched a new legislative effort designed in part to improve the C- grade the state received on lobbying disclosure from the State Integrity Investigation. The First State’s grade ranked it 22nd among the 50 states in that category.

    Casino billionaire expected to back GOP groups
    Multibillionaire Sheldon Adelson and his family, who have kept the flagging presidential candidacy of Newt Gingrich alive, seem poised to send millions to Republican-allied groups and possibly a super PAC backing frontrunner Mitt Romney, according to fundraisers with ties to the casino owner.

    Center wins accolades
    Center for Public Integrity has won a James Aronson Award for Social Justice in Journalism for its investigation of weak inspection systems that endanger workers and surrounding communities. As well, two stories are Investigative Reporters and Editors award finalists: Looting the Seas II and Poisoned Places.


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    A new report is adding fuel to a growing debate over the impact of deportations of illegal immigrants who have roots in communities and U.S.-born children.  Between January and June of 2011, immigration officials deported more than 46,400 people who said they were parents of children who were born in the U.S. and therefore U.S. citizens, according to a new study for Congress prepared by U.S. Immigration and Customs Enforcement, or ICE.

    No solid information exists to measure what happens to deported parents’ children. Some leave with their parents, others remain here with family members or on their own and some may go into foster care.

    In 2009, the Department of Homeland Security issued a report with an estimate that about 100,000 parents of U.S. children were deported over the course of a decade between 1998 and 2007.

    Congress directed ICE to begin tracking numbers to better gauge the extent of this phenomenon. The agency is complying, but officials say they do not verify each claim that a deportee has citizen children.

    The new report, obtained by iWatch News from the Congressional Hispanic Caucus, prompted some Democratic Latino lawmakers to attack the Obama Administration over continuing deportations of people with children who are U.S. citizens.  

    Congressional Hispanic Caucus Chairman Charles Gonzalez, a Texas congressman, said in a statement that many deportees are members of “mixed status” families, where a spouse, not just a child, may be a legal resident or a U.S. citizen.

    Undocumented parents also “comprise a labor pool that is vital to many American businesses,” Gonzalez said.  He said ICE should focus on deporting people with serious criminal records. “I urge ICE to use its policy of prosecutorial discretion to prioritize deportation proceedings," Gonzalez said, "and then deport individuals that pose a danger to our communities.”

    In response, ICE officials told iWatch News that they have already made it a priority to deport illegal immigrants they consider a threat, and they acknowledge that some may have U.S. citizen children. An ICE official said that most of the deported parents referred to in the March report — 74 percent — actually had criminal records. That information was not included in the report to Congress, and the Congressional Hispanic Caucus was not given that figure separately, caucus press secretary Lesley Lopez said.

    While the U.S. Southwest is thought to have the greatest concentration of illegal immigrants, the Atlanta ICE office reported the greatest number — 2,249 — out of a group of 21,860 people nationwide who were given final court orders for deportation between January and June 2011.  San Antonio was next with 1,836 who were ordered to leave, followed by Phoenix with 1,616 final orders for deportation.

    Barbara Gonzalez, ICE press secretary in Washington, D.C., said that ICE uses “prosecutorial discretion” to release some parents from detention — pending their removal from the country — if they are the sole caregivers of minors who could be left alone. 

    “For parents who are ordered removed,” Gonzalez said, “it is their decision whether or not to relocate their children with them. If parents choose to take their U.S. citizen children with them, ICE assists in every way possible, including helping to obtain passports or when possible, allow for voluntary departure.”


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    Environmental groups sued the Environmental Protection Agency in federal court Thursday over the EPA’s failure to regulate disposal of toxic coal ash.

    “Politics and pressure from corporate lobbyists are delaying much needed health protections from coal ash,” Lisa Evans, a lawyer with Earthjustice, a nonprofit environmental law firm, said in a statement. “As we clean up the smokestacks of power plants, we can’t just shift the pollution from air to water and think the problem is solved. The EPA must set strong, federally enforceable safeguards against this toxic menace.”

    Coal ash is the collective term for the solid remnants left over from the burning of coal at more than 500 power plants nationwide. It contains compounds such as arsenic, chromium, lead and mercury, which have been linked to cancer, birth defects, gastrointestinal illnesses and reproductive problems.

    2009 investigation by the Center for Public Integrity revealed the havoc that coal ash has wreaked near ponds, landfills, and pits where it is dumped. Even the EPA has identified 63 “proven or potential damage cases” in 23 states where coal ash has tainted groundwater or otherwise harmed the environment. But critics say no meaningful federal regulations have been put in place.

    The issue gained renewed attention after a dam holding billions of gallons of coal ash collapsed in eastern Tennessee in December 2008, destroying houses and water supplies and dirtying a river. Following the spill, EPA Administrator Lisa Jackson pledged to set federal standards.

    The EPA unveiled a proposal in May 2010 with two options. Under the tougher of the two, the agency would classify coal ash as “hazardous,” triggering a series of strict controls for its dumping. Under the second option, the EPA would deem coal ash “non-hazardous” and merely set guidelines for the states.

    Hundreds of people showed up at public hearings and sent in hundreds of thousands of comments on the proposal. But the EPA has yet to announce a final rule.

    Thursday’s lawsuit seeks to speed up the process by forcing the EPA to take action under the Resource Conservation and Recovery Act, which requires that hazardous waste disposal regulations be routinely updated.

    An EPA spokesperson said in a statement that the agency is still reviewing the lawsuit but "is aware of the concerns around coal ash" and "is committed to protecting people’s health and the environment in a responsible manner." 

    The EPA has already proposed a "historic" regulation of coal ash and "will finalize the rule pending a full evaluation of all the information and comments the Agency received on the proposal,” the statement said.

    A view of the Little Blue Run pond in Pennsylvania, where millions of tons of coal ash waste has been dumped over its 35-year existence. Emma Schwartz http://www.iwatchnews.org/authors/emma-schwartz

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    Keeping track of personal finances and worrying about a paycheck is particularly vexing in the middle of a war zone, as Lt. Col. Kirk Zecchini of Indianapolis, Indiana, explained to members of Congress last week.

    After Zecchini finished his mandatory six-month deployment with the Ohio National Guard, he agreed to stay for another six months. For more than a month of that time, however, his pay stopped, leaving his family concerned about paying their mortgage back in Ohio. “Dealing with pay problems while in a combat zone is not something that anyone should have to worry about,” he said.

    Congress agrees, which is why Zecchini testified before members of the House Committee on Oversight and Government Reform. The hearing coincided with the release of a new Government Accountability Office report on the challenges facing the Army as it prepares for a major audit in 2014. And according to the report, those challenges — including many involving payroll — are serious.

    It took three months for the Army to be able to tell the GAO how many people received active duty Army pay in fiscal year 2010 — and took another two months to be able to match pay records to personnel records. In another test, the GAO could not confirm whether the payroll records put forth by the Army were accurate.

    The accounting issues aren’t a new challenge for the Army. The GAO reported on over- and underpayments in 2003; in 2006, the GAO said the “cumbersome” process used to pay soldiers was causing wounded veterans to accrue debt. A 2009 GAO report warned that there were not “effective procedures” for dealing with payroll taxes, and yet another report in 2011 warned that millions of dollars were spent in “potentially invalid” payments.

    Nor are these issues limited to the Army. In October, the Center reported that the Pentagon’s books are in such disarray that it could cost additional billions of dollars to get them ready for the 2017 audit. Then in December the Center reported that even after trying for 23 years to meet federal accounting standards, the Navy may not be ready for their 2017 audit.

    “For years, we and others have reported continuing deficiencies with the Army’s military payroll processes and controls,” warns the new GAO report. “These reported, continuing deficiencies in Army payroll processes and controls have called into question the extent to which the Army’s military payroll transactions are valid and accurate, and whether the Army’s military payroll is auditable.”

    While Zecchini, now living in Indianpolis, was the star witness, there were others with similar stories present — the congressmen themselves. Rep. Todd Platts (R-Pa.), Rep. Edolphus Towns (D-N.Y.) and Sen. Tom Carper (D-Del.) all told of having trouble with their pay during their own military service.

    Will anything change? GAO says the army is working on improving these issues, a statement backed by James J. Watkins, the Army’s Director of Accountability and Audit Readiness. “Leadership support of these efforts is visible and contributing to a culture of change and accountability within the Army,” he testified during the hearing. “The message is clear — we are accountable for managing the Army’s resources and supporting audit readiness efforts.”


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    The Department of Energy was fully aware of the risks in backing Solyndra Inc., a start-up company that pocketed a half-billion dollar DOE loan but never turned a penny in profit before shutting its doors, concludes a former FBI agent hired to examine the company’s books.

    The expert’s report, filed this week in Solyndra’s voluminous bankruptcy case in California, could embolden critics who say the government ignored financial red flags in supporting the solar panel maker with President Obama’s maiden green energy loan in 2009.

    The $535 million loan, which bankrolled a vast new manufacturing plant in Fremont, Calif., was part of a broad government mission to kick-start the clean energy movement: Solyndra’s unique solar panels would cover commercial rooftops across the country, aiding the environment and boosting the economy.

    Yet the company collapsed under a sea of debt and a business plan that, amid dramatic shifts in the global solar market, caused it to sell far fewer panels at far higher costs than envisioned. From 2009-11, it cost Solyndra $3.92 more per watt to make its panels than to sell them, the bankruptcy report shows.

    Solyndra filed for bankruptcy Sept.6, 2011. Two days later, it faced a raid by agents from the FBI and the Energy Department inspector general. With those clouds looming, the company’s board hired R. Todd Neilson — the former federal agent and veteran trustee in bankruptcy cases — as chief restructuring officer.

    Solyndra’s board wanted a CRO to not only manage its bankruptcy case, but to explore whether the company committed misdeeds on its road to collapse. “In light of the Federal criminal investigation and ongoing Congressional investigation … the Subcommittee agreed that the CRO would act in an independent capacity in determining if any improprieties had occurred with respect to the Debtors’ finances,” Neilson’s report said.

    After examining tens of thousands of pages of records, Neilson concluded that Solyndra did not improperly divert funds. “The construction costs were correctly recorded in the accounting records and no material funds were diverted from their original intended use,” he wrote.

    All funds drawn from the DOE loan, he found, “were spent in accordance with the relevant loan documents.”

    And, Neilson made clear, the DOE was fully informed of Solyndra’s finances when it initially backed the company in 2009 — and restructured its loan in 2011, seven months before the bankruptcy and raid.

    “The CRO has reviewed the vast level of communications and the underlying records between the DOE and Solyndra,” he wrote. “It is the opinion of the CRO that the DOE had sufficient information to understand the risks and challenges associated with the guarantee obtained from DOE and make an informed decision as to the ongoing financial condition of Solyndra throughout the loan guarantee time frame.”

    In fact, records show, the Energy Department supported the Solyndra financing in the early days of the Obama administration in the face of criticism from officials within several wings of government — the Office of Management and Budget, the U.S. Treasury and DOE. “This deal is NOT ready for prime time,” one OMB employee wrote March 10, 2009, government emails show. Ten days later, energy officials announced Solyndra was in line to be the first company to secure a green energy loan guarantee.

    And, the Center for Public Integrity and ABC News reported last year, Energy Secretary Steven Chu announced that conditional commitment to back Solyndra before completed marketing and legal reviews were in hand.

    An Energy Department spokesman did not respond Thursday to requests for comment about the new bankruptcy report.

    In the past, DOE officials have said they support risky — but potentially game-changing — technologies. Sometimes, they say, innovative projects fail. They have also defended the Solyndra loan, saying all due diligence was in hand when the financing closed and that veteran private investors also heavily backed the company.

    The Energy Department, Neilson found, was equipped with all the information it needed to “make an informed decision as to the ongoing financial condition of Solyndra.”

    A weekly report filed with the Energy Department last year, for instance, detailed the company’s falling fortunes. “By August 20, 2011, the reported cash balance was just $5.0 million and sales for the same seven week period were only $5.3 million, $13.8 million below the February 2011 forecast for the same seven week period,” Neilson wrote. “By July 2, 2011, a little more than a month prior to the bankruptcy filing, Solyndra had reported losses totaling almost $1.1 billion.”

    Neilson’s report was built from a review of records and informal interviews with Solyndra employees. He sought interviews with former company CEOs Dr. Chris Gronet and Brian Harrison. “Both Gronet and Harrison declined, through their legal counsel, to speak directly to the CRO.”

    While his report found no wrongdoing by Solyndra, the criminal investigation continues.

    Julie Sohn, a spokeswoman with the FBI in San Francisco, said Thursday that “since it’s an ongoing investigation,” she could not comment.

    Outside Solyndra's Fremont, Calif. headquarters. Ronnie Greene http://www.iwatchnews.org/authors/ronnie-greene

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    In the aftermath of receiving an F grade on the State Integrity Investigation for corruption risk, Maine’s governor and state leaders plan to take legislative action. Maine ranks 46th among the 50 states.

    Gov. Paul LePage said in a statement that his office has been reviewing data from the State Integrity Investigation and already introduced a bill earlier this year to improve the state’s lax financial disclosure requirements. The proposed legislation calls for legislators and executive branch officials to report whether their outside private organizations received state contracts.  

    “This is the direction we need to move in to improve Maine’s grade,” LePage said. “It’s clear that many states struggle with this issue. However, it is an issue that I will continue to work on improving on behalf of the Maine taxpayer.” The bill has been approved in committee, but has not yet reached the Legislature for a vote.

    As reported in the State Integrity Investigation, the state doled out millions — nearly $253 million between 2003 and 2010 — to organizations affiliated with lawmakers and public officials. None of that information was disclosed, nor was it required to be.  

    Maine failed nine categories on its corruption risk scorecard: public access to information, executive accountability, legislative accountability, civil service management, lobbying disclosure, pension fund management, ethics enforcement agencies, insurance commissions, and redistricting. The state received a D+ in political financing and judicial accountability, a C- for budget process and procurement, and a lone A for internal auditing.

    Meanwhile, the House Democratic Leader, Rep. Emily Cain (D-Orono), also reacted to the report card, and told the Maine Center for Public Interest Reporting that it “may make sense to have some kind of bipartisan task force” to look at the report and receive feedback from the public and experts.

    Jodi Quintero, a spokeswoman for House Democrats, said Cain is working with legislative leaders now to put together a bipartisan committee, but lawmakers have yet to propose their own ethics reform bill. 

    Maine Republicans control both the House and Senate, as well as the governor’s office.

    Maine state capitol building Caitlin Ginley http://www.iwatchnews.org/authors/caitlin-ginley

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    At first glance, Rick Santorum’s decision to give a speech at the Jelly Belly Company's factory in Fairfield, Calif., seems a little odd.

    But Jelly Belly isn’t just any candy maker. The company — best known for making jelly beans that taste like buttered popcorn and other interesting flavors — is a major supporter of conservative causes and one of the few corporations to make direct contributions to a super PAC.

    And this isn’t just a speech — the former Republican senator from Pennsylvania and GOP presidential contender is hosting a $1,000-a-head fundraiser to help his cash-strapped campaign, inside the factory, at the conclusion of the speech.

    "Jelly Belly Candy Company looks forward to discussing sugar reform with presidential candidate Rick Santorum when he visits our Fairfield factory on Thursday, March 29," reads a company statement.

    Jelly Belly has long been tied to Republicans, with President Ronald Reagan ranking as its most famous fan. (A portrait of the Gipper, who served the brand at his inauguration and in the Oval Office, made from 10,000 of the company’s candies hangs in his presidential library.)

    In September 2010, Jelly Belly became one of the few companies to take advantage of the post-Citizens United campaign finance laws, making a $10,000 corporate donation to Citizens for Economic & National Security, which was created to support California Republicans.

    That amount made up nearly 20 percent of the super PAC’s receipts.

    Citizens was active in the battle between Democratic challenger Ami Bera and incumbent Republican Rep. Dan Lungren. The super PAC spent $35,000 in negative ads against Bera, who ended up losing to Lungren by seven percentage points.

    When the Citizens United decision was handed down by the Supreme Court, the immediate concern was that corporations would flood the system with cash. Instead, super PACs are more likely to receive contributions from a handful of wealthy individuals than a corporate treasury.

    A spokeswoman for Jelly Belly did not return a request for comment on its political donations.

    Jelly Belly’s chairman of the board and owner of the privately held corporation, Herman Rowland, is a frequent donor to conservative candidates and groups.

    Since 2009, Rowland has donated more than $100,000 to federal political causes, according to the nonpartisan Center for Responsive Politics. That includes a $10,000 donation to Club for Growth Action, a pro-free market super PAC known for targeting incumbent Republicans seen as too liberal.

    Rowland has also been personally active in the presidential race, giving to a number of candidates. He gave $2,500 both to Texas Gov. Rick Perry, who dropped out of the race, and former Massachusetts Gov. Mitt Romney, the frontrunner, as well as $1,000 to former House Speaker Newt Gingrich.

    Now, it seems, it’s Santorum’s turn. 

    Entrance to the Jelly Belly Factory in Fairfield, Calif. Aaron Mehta http://www.iwatchnews.org/authors/aaron-mehta Michael Beckel http://www.iwatchnews.org/authors/michael-beckel

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    A costly and lengthy effort by the Pentagon to bring its financial ledgers up to modern standards continues to encounter serious problems, according to a new General Accountability Office report that spotlights shortcomings in accounting software now being tested by the Army and the Air Force.

    The software, developed at a pricetag of $2.665 billion since 2003, was meant to streamline archaic, hand-written ledger accounting practices and enable the services to meet a 2017 legal deadline for producing their first, auditable financial statements. But the GAO's report, released on March 29, cites a series of weaknesses that have produced inaccurate data, “an inability to generate auditable financial reports, and the need for manual workarounds.”

    The GAO based its assessment on its own research as well as internal Army and Air Force reviews that it said had confirmed problems existed in “data quality, data conversion, system interfaces, and training.” The troubles were evident in trials that so far involve only a fraction of the estimated 529,000 Army and Air Force employees that are slated to use the software while monitoring $471 billion worth of spending or inventory every year.

    The aim of upgrading to modern software was partly to save money, since the Pentagon’s legacy accounting systems are  numerous — there are 2,258 of them — and frequently incompatible. By all accounts, they cannot produce a clear picture of where and how all that money is being spent.

    But the dream of increased efficiencies is looking like just that, as two-thirds of the Army’s financial data still needs to be entered manually into the software, according to the GAO, and specialists have been forced to cut and paste data into spreadsheets and other software so they can create needed reports.

    In the Air Force, where just one-thirtieth of the intended employees are working with the software now, “substantial manual intervention is required on a daily basis” to keep it humming and “required reports were not being produced or were inaccurate or incomplete.” As a result, the Air Force told the GAO, it is “now engaged in a strategic reassessment” of one of its two main software programs, developed at a cost so far of $876 million.

    The Air Force has company in its misery. In October, the Center reported that the Pentagon’s books are in such disarray that getting them ready for an audit in 2017 will cost additional billions of dollars. In December, the Center reported that even after trying for 23 years to meet federal accounting standards, the Navy may not be ready for their own 2017 audit.

    The Defense Department’s overall response was that it had actions planned or already under way to fix the problems. But for the most part it set no fixed timetable, prompting the GAO to warn that the problem needs to be given a higher priority.

    "Ensuring that the Department of Defense has the resources and tools to properly manage its finances is a top priority, particularly as we grapple with a record federal debt and deficit,” said Sen. Tom Carper (D-Del.), chairman of the federal financial management subcommittee of the Homeland Security and Governmental Affairs Committee. “The Pentagon must be able to  keep track of the millions of transactions made each year, and ensure that hundreds of billions of dollars in expenditures are properly accounted for. Unfortunately, as this report shows, the Department of Defense’s financial management systems are nowhere near where they need to be."

    Brickbats flew from other Democrats, as well as Sen. Tom Coburn (R-Okla.). Sen. Claire McCaskill (D-Mo.), in a statement released May 29, said that "as a former auditor, when I hear reports like this, it's like fingernails on a chalkboard." Sen. Scott Brown (R-Mass.) commented that "it is simply unacceptable that Department leadership cannot get these programs on track and I will continue to hold them responsible for further setbacks."


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    Gary Terrio used to work for himself driving lost luggage from the airport in Manchester, N.H., out to the owners’ homes. “Working with my own business I could deliver whatever I wanted,” he says. “If it was something that was ridiculous, I could say no.”

    When he and his wife started a family, he started looking for something more lucrative and stable. He heard that FedEx Ground drivers in the shipping giant’s home delivery division bought their delivery routes and worked them as their own business, which sounded pretty good. He could earn more and still be his own boss.

    “And is that how it panned out?” Terrio laughs. “It was nothing, nothing, nothing of what they said.”

    Rather than making his own schedule, he had to be at the package terminal for pick-up at 6:00am FedEx Ground paid by the delivery, not the hour, and assigned the roster of packages each day. If Terrio delivered the package outside the window of time that FedEx assigned or if a customer complained, his paycheck got docked. He had to buy his own FedEx specified truck and financed and insured it by refinancing the mortgage on his house. After all the expenses and deductions, he says he’d be lucky to bring home $500 a week. “I would have loved to have been just an independent contractor,” he says. Instead, “I felt like an employee.”

    You might think it’s easy to know the difference between an employee and an independent contractor. It’s not. The distinction sits in a stubbornly murky corner of the law, and workers, employers and governments have a lot riding on the outcome. Meanwhile the number of people who are working but not considered employees continues to grow.

    Employees are eligible for a host of legal benefit and protection programs that governments run and regulate. Employers must pay into those programs on behalf of “employees,” but not “independent contractors.” The murkiness comes in when someone calls a worker’s status into question, often when a worker and employer disagree over what benefits are due. There is not one single, legal definition for “employee” or one central government agency that decides a worker’s status. Different federal agencies regulate different aspects of employment, and often apply distinct tests to make the decision. State agencies may use other measures still.

    Supreme Court Justice Hugo Black wrote in a 1968 opinion that “there is no shorthand formula or magic phrase that can be applied to find the answer,” and, for at least as long, lower courts have bemoaned the difficulty of deciding these cases.

    The confusion is so entrenched that in the case of the IRS — which calculates the federal tax employers owe based in part on how many employees they have — there is a federal law prohibiting the service from issuing clearer guidelines for distinguishing between employees and independent contractors. Legislation introduced in Congress as recently as March 1 aims to address these issues, but historically, similar bills have not made it very far in the legislative process.

    Terrio felt like he was taking all the risks of being a contractor without being able to exert control over the work. Some of his fellow drivers agreed and in 2005 sued, arguing that in reality they were employees and that FedEx’s treatment of them violated federal overtime and state labor laws. The case is still ongoing.

    Increasingly, businesses have been shifting to contractor workforces to save money and reduce regulatory exposure. Critics say the model is so alluring that some businesses find ways to intentionally “misclassify” employees as independent contractors. When that happens people lose legal rights, governments lose tax revenue, and businesses gain an unfair advantage over competitors who pay the extra costs to treat their workers as employees. Federal and state governments have started coming down harder on businesses for misclassification, but without a clear definition for employee, how much of the problem can they really solve?

    The right to a Ron Paul bumper sticker?

    If Terrio had been working as an employee, the Department of Labor would ensure that he earned overtime pay and could collect workers’ compensation if he had gotten hurt on the job. Anti-discrimination protections would have prevented any of his fellow drivers from being terminated just because they were Latino, a woman, or 52-years-old. As an independent contractor, over 10 percent of his pay went to Social Security and Medicare taxes. As an employee, FedEx would have split that bill and contributed to a state unemployment insurance fund that Terrio could draw on if he lost his job. Independent contractors don’t get any of it.

    Once, Terrio’s infant son was too sick for daycare. His wife couldn’t get time off so Terrio had to strap him in the front seat of the truck. An employee whose child has a “serious health condition” would generally be entitled to time off under the Family and Medical Leave Act.

    Rich Farrell, a New Jersey FedEx Ground driver and medic in the Army National Guard, was deployed overseas for six months. FedEx terminated his contract and refused to let him come back; a move that would have been illegal if he had been classified as an employee.

    Tony Marcellino, a FedEx Ground driver in California, died on the job in a traffic accident. His family couldn’t collect death benefits under California's Workers' Compensation Act that families of employees receive.

    While foregoing benefits, Terrio wasn’t getting the freedoms he expected as a contractor, either. He got frustrated when he wasn’t allowed to put a Ron Paul sticker on the truck he’d refinanced his house for, or run personal errands in it without masking all the FedEx logos. “What does it matter if I stop at the store and pick up groceries?” he says. “It’s my truck.”

    The government doesn’t regularly count independent contractors. The last time they did, in 2005, contractors represented up to 7.4 percent of the workforce, or 10.3 million people, up from 6.7 percent, or 8.3 million, in 1995. Observers agree that the number has likely grown since.

    Denise Drake, a management-side attorney in Kansas City, Mo., says “We absolutely see employers using as many different staffing arrangements as possible to get their jobs done in the best and most cost-effective manner possible,” Drake says. “This means there has been, and likely will continue to be, a big increase in the use of temporary employees … and independent contractor arrangements.”

    Catherine Ruckelshaus, legal co-director for the National Employment Law Project, says businesses can save 30 percent substituting independent contractors for employees. She sees the growth of independent contractors in the workforce running hand-in-hand with increased misclassification. “The independent contractor abuses have been rising for a while. Even before the recession it was really kind of a surge,” Ruckelshaus says.

    A Labor Department study from 2000 audited companies in nine states and found that up to 30 percent had misclassified employees. Between 2007 and 2010, New York state alone identified over 50,000 cases of misclassification, assessing over $21.5 million in taxes and over $4 million in fines. The Labor Department study estimated that every 1 percent of the workforce misclassified as an independent contractor cost federal unemployment insurance funds $200 million.

    A FedEx spokeswoman says the company stands by its independent contractor model because it “gives us a flexibility to be competitive in the market.” It’s a flexibility FedEx has gone to great lengths to keep. A 2010 audit from the Montana Department of Labor Insurance of FedEx Ground’s operations there shows one way the company keeps workers as contractors.

    The audit found that FedEx Ground would advertise on its website for temporary drivers. FedEx conducted an interview and if they decided to hire, the driver would complete paperwork at the FedEx terminal or online for an outside temporary employment agency. The agency, not FedEx, would issue paychecks. “A few of these drivers were already employees of FedEx in other capacities,” the audit said. Montana ruled those drivers ought to have been classified as FedEx employees.

    Rather than comply with the audit determinations, FedEx settled with the state for $2.3 million, admitting no wrongdoing, and adjusted its business operations there. Meanwhile, a spokesperson for the company says that FedEx has continuing relationships with three different temporary agencies nationwide, and uses them “at any point that there is an operational need.”

    Montana is not the only state that has looked into FedEx Ground’s employment practices. FedEx’s 2011 annual report says the company is involved in “numerous” lawsuits and audits. Losing those disputes could entitle drivers “to the benefit of wage-and-hour laws,” the report says, and could force FedEx to change their independent contractor status. If that happens, the report warns, “labor organizations could more easily organize these individuals, our operating costs could increase materially and we could incur significant capital outlays.” Drivers at FedEx’s main competitor, UPS, belong to a union.

    Definition derby

    Terrio’s lawsuit illustrates how complex the wrangling over “employee” status can get.

    His suit was not the only one active against FedEx. In fact it was one of 42 separate drivers’ suits coming out of 27 different states. To streamline the litigation they were all rolled together into one federal courtroom in Indiana. In December 2010, the judge announced that drivers in lawsuits covering 23 states were properly classified as independent contractors, but drivers from three other states should have been employees. The case is now on appeal.

    So the Indiana court found employment status distinctions among the drivers even though they were doing identical work in different states. To make matters trickier, some drivers were getting different answers from the Indiana court than they had previously gotten in their home state. While Terrio was fighting FedEx in federal court, the state of New Hampshire audited their operations in 2008 and found hundreds of state labor violations. As in Montana, FedEx settled admitting no wrongdoing. They wrote the state a check, but did not reclassify the drivers as employees. Instead, they now require drivers in New Hampshire to incorporate as businesses before they can buy delivery routes.

    The Indiana decision also ruled that drivers in a California suit were independent contractors even though a landmark decision in a California court granted drivers employee benefits from FedEx in 2006.

    Stickier still, while the litigation focuses on FedEx’s labor practices, the IRS has already blessed the drivers’ contractor status for tax purposes. After auditing FedEx’s 2002 filings, the service calculated a tentative assessment of $319 million in back tax, penalties and interest for misclassifying the drivers, but withdrew the case in 2009, letting the contractor designation stand.

    The criss-crossing categories reflect the haziness in state and federal law over how “employee” gets defined.

    “There is nothing definitive,” says Ann Hodges, a labor law professor at the University of Richmond’s law school.

    The IRS, for instance, uses a 20-part common-law test that focuses on how much control the employer has over the work. Scoring 11 out of 20 doesn’t guarantee a victory, and no single point clinches. The Department of Labor uses a 7-point test focused on the “economic reality” of the worker’s dependence on the employer. The National Labor Relations Board uses something in between. Many other government employment tests are variations on one of those themes.

    At the IRS the confusion is not an accident, it’s the law. The 1935 Social Security Act set up a trust fund for retirees financed by employers contributing an amount equal to a set percentage of each employee’s pay and withholding a sum from each employee’s check. The IRS hadn’t had to distinguish among workers before, but the statute did not define “employee.” The IRS had to glean its 20-point test from court decisions. That worked until the 1970s when the IRS kicked up its misclassification enforcement. When a major tax reform bill came up in the late ’70s, a coalition of lobbyists representing industries built around a contractor workforce — trucking, real estate, construction and direct sales like Mary Kay — saw an opportunity to get the IRS off their backs.

    With help from then-Rep. Dick Gephardt and then-Sen. Bob Dole, they condensed the 20-part IRS test into a single law, but couldn’t get it approved. Instead, Congress passed a temporary measure while, theoretically, better language would be crafted. It specifically prohibited the IRS from publishing regulations “clarifying the employment status of individuals for purposes of the employment taxes.” Rather than replacing the temporary law, Congress made it permanent in 1982.

    The 1982 law goes further than just banning a clearer definition. It includes a provision that says that if the IRS ever audits a company and doesn’t find any problems with employee misclassification, it can never demand that the same business change its employment practices in a later audit even if it finds misclassification the second time around. FedEx was able to avoid $319 million in back taxes under this provision.

    After 1982, the issue mostly hibernated. “There’s been very lax enforcement by federal and state government agencies that has contributed to a comfort zone for employers to increase their use of independent contractors,” says Richard Reibstein, an attorney in New York City who helps businesses write independent contractor policies that will withstand regulatory scrutiny.

    In 2006, the Government Accountability Office released a report on misclassification and renewed government interest. The next year then-Sen. Barack Obama sponsored a bill that would repeal the 1982 ban on the IRS defining employment, but it died. On March 1 this year, both the House and Senate introduced another round of bills to free the IRS from the 1982 law, but similar bills have been killed in every Congress since 2006.

    More attention or more confusion

    The recession has focused the attention of cash-starved governments on the issue. “The governments need money and they look at this as revenue,” says William Weissman, a tax attorney in California. “I also think there’s a push in the current administration to create a safety net for everyone. So if you want people in the system, you’ve got to collect the taxes.”

    What Obama could not do legislatively, he’s attempted to do through his agencies. His Department of Labor budget for fiscal 2013 proposes $10 million for state grants to combat misclassification and $4 million for new federal investigators. The Labor Department is hoping to add 35 more full-time employees to investigate misclassification. The department has also announced information-sharing arrangements with 12 states.

    The IRS has begun allowing companies that voluntarily reclassify independent contractors as employees and pay 10 percent of what would have been owed the previous tax year to avoid other penalties. The IRS refused repeated requests for information on how many businesses had signed up for the program.

    States have begun ramping up regulation, too. A new California law, for instance, includes civil penalties up to $15,000 per misclassified employee and up to $25,000 per willful violation.

    “There’s a lot of intentional misclassification going on and we would all agree, whatever your party, that that is wrong,” Reibstein says. He worries, though, that this new run of regulation will hurt businesses that make changes out of fear or have to fight off costly enforcement actions and lawsuits.

    Weissman says “a simple brightline test would likely be more useful,” than tougher penalties, but that administration-side enforcement is easier than waging a political battle in Congress for a uniform definition.

    “Whether that uniformity would wind up tougher or weaker is a political choice,” says Harold Datz, former chief counsel at the NLRB. Interest groups on both sides — from the unions to the U.S. Chamber of Commerce — are wary of a definition that would go against them.

    Russ Hollrah, executive director for the Coalition to Preserve Independent Contractor Status, says “I think current law is fine.” The exemption for businesses with a clean prior tax audit “works very effectively.” As for a change that might provide greater clarity, he says, “It depends on the clarity you get.”

    Matt Capece, who works for the president’s office of the United Brotherhood of Carpenters and Joiners of America, says “For us in the construction industry, Jesus Christ could write the definition of ‘employment’ and we’d have a problem because the unlawful practices are so ingrained,” he says.

    Construction firms that treat their builders as employees, he says, often “face the double indignity of losing jobs to the cheaters,” whose savings on labor allow them to underbid the competition. “Then they see their tax rates going up to cover the people who don’t pay” for unemployment insurance and workman’s compensation, he says.

    Capece doesn’t like the term misclassification. “I refer to it as the ‘M’ word,” he says. “What we see is payroll fraud.” He’s heartened by the state escalations and sees the IRS ban on guidance as a “straitjacket,” but for him, enforcement is the game.

    The construction industry is a frequent target for state enforcement. In January, Massachusetts’ attorney general extracted $400,000 in unpaid wages and penalties, and more than $141,000 for Massachusetts’ unemployment system from contractors under Pulte Homes, one of the nation’s largest builders.

    “Frankly every time we talk about this issue, the other side paints a picture of a husband and wife sitting at a kitchen table with statutes spread all around them, and they can’t figure out how to classify their workers, and they make a mistake, and the government comes in and severely punishes them,” Capece says.

    In fact, sitting at Marie Washington’s kitchen table in a rented townhouse in Owings Mill, Md., she is still trying to sort out what she and her husband could have done differently to avoid the employee misclassification lawsuit they’re stuck in. Her husband, Darian, runs Washington Home Installation, which subcontracts out jobs from the company that manages home deliveries for BestBuy.

    He pays his installers by the job, but says they pick how many deliveries they want to do, which order in which they want to make them and if they want to come in the next day. In March 2011, a former installer sued the business saying he was denied overtime pay even though he regularly worked 70-hour weeks. In an affidavit, the installer describes having far less control over the work, meaning the lawsuit will involve heavy fact-finding.

    Marie maintains that the independent contractor relationship was clear. When they found out about the lawsuit, the Washingtons discovered that because of the uncertainty of employment lawsuits, many lawyers require a hefty down payment — often as much as $10,000 — before they’ll take a case. It was then that Marie says she realized, “We’re really going to have to exhaust all our financial resources.” When they got married, the plan was for Marie, 25, to finish college and build her own career, but that’s been put on hold.

    “Even now there’s not clarity,” she says. “I’ve looked at the IRS website, at the state website — there are no answers.”

    Meanwhile, the Washingtons worry that if they lose, other former employees will come after them for overtime pay, and they may be vulnerable to other liabilities, too.

    “If we’re wrong in all this,” she says, “then what about the government?”

    Correction (Apr. 2, 12:35pm): An earlier version of this story identified Pulte Homes as the target of penalties from the Massachusetts attorney general, but it was contractors of the company that were fined.

    Amy Biegelsen http://www.iwatchnews.org/authors/amy-biegelsen

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  • 04/06/12--15:30: Articles we find interesting
  • Some stories are so grim that they depress the spirit, make one angry, and stick in the mind for days afterward. Such is the powerful and important tale of Shin In Geun, one of the few successful escapees from a North Korean gulag. He was unfortunate enough to be born inside one of that country’s prisons, called Camp 14, as the child of an arranged liason between two inmates. His father was imprisoned solely because the father’s brothers had fled to South Korea.

    Life in the camp, according to my former Washington Post colleague Blaine Harden’s detailed and harrowing account, featured persistent hunger, regular torture, and forced attendance at brutal executions — some involving children. After his mother and brother spoke of escape, he followed camp rules and turned them in, then was taken to watch them be killed. His partner in the successful escape was electrocuted on the prison fence.

    Somehow, Shin made his way to the United States and now works for an American human rights group based in California. Harden wrote a book about Shin’s astonishingly hard life that has just been released, called “Escape from Camp 14: One Man’s Remarkable Odyssey from North Korea to Freedom in the West.” An excerpt from the book appeared recently in the Guardian

    Another article highlighting the insular characteristics and distorted priorities of the North Korean regime was published on April 1 by Yonhap, the publicly-funded South Korean news agency. It reported that a North Korean rocket launch now in the final stages of preparation will cost the strapped government there as much as $400 million, a sum large enough to feed a sizable chunk of its starving population for a year. The North’s ambition is evidently to prove it can match or best its neighbor to the South, which has been trying to launch a satellite into space for the past three years (so far without success). Of course, any rocket that can loft a satellite can also lift a nuclear warhead, if the warhead is small enough and designed to withstand the stress.

    South Korea’s satellite-launching efforts — which have been supported by Russia over quiet U.S. objections — have attracted only slight public criticism from a few Western experts in ballistic missile proliferation, while the North’s have collected almost universal condemnation.

    On another subject entirely, we cannot forgo the chance to recommend a look at the fine article David Axe wrote for us about the Obama administration’s plan to build a new strategic bomber. He took a much closer look at the origins, design, cost, and roles of the bomber than anyone else has, so far.


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