Final Report of the Independent Counsel
In Re:  Alphonso Michael (Mike) Espy

UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Division for the Purpose of
Appointing Independent Counsels
Ethics in Government Act of 1978, As Amended

Division No. 94-2

FINAL REPORT OF THE INDEPENDENT COUNSEL

In Re:

ALPHONSO MICHAEL (MIKE) ESPY

DONALD C. SMALTZ
Independent Counsel

www.oic.gov

Filed January 30, 2001
Published October 25, 2001
Washington, DC

ACKNOWLEDGMENTS

Every criminal investigation or prosecution is a team effort and, given its scope and scale, this investigation and its resulting prosecutions against almost two dozen defendants in four venues demanded a particularly talented, dedicated, and hard-working team. While it is impossible to identify everyone whose contributions aided the effort, I would like to take this opportunity to express my gratitude to the many dedicated people who worked with me, often for very long hours and with modest compensation, to bring our efforts to successful fruition. Many of these people were required to relocate from their homes for extended periods of time, and so their families, including mine, also deserve acknowledgment of, and appreciation for, their many sacrifices.

An Independent Counsel office is by statute ad hoc. Its size and duration are determined by the scope of its jurisdictional mandate and the extent of the criminal conduct uncovered. It offers its employees no expectation of a "career path" or even a defined term of employment. The investigative agents, attorneys, and staff who volunteer to work for the Office of the Independent Counsel interrupt their career paths and forego future opportunities otherwise available - a significant sacrifice. Moreover, both the OIC and they personally may become the object of political polemics, a tactic frequently employed by opponents of the investigation.

Notwithstanding these drawbacks, this investigation attracted an outstanding array of legal talent from around the country, from both the public and private sectors. I was particularly fortunate in being able to enlist a large number of highly experienced former and current federal prosecutors, both as staff and as advisors. All of my senior trial counsel had substantial trial experience as federal prosecutors. Overall, about two-thirds of the Office's attorneys were current or former prosecutors.

At the apex of the attorney staff were my successive Deputy Independent Counsels, Charles G. Bakaly, III, Theodore S. Greenberg (team leader for United States v. Sun-Diamond Growers of California, United States v. Tyson Foods, Inc., and United States v. James Lake), and Robert W. Ray (team leader for United States v. Archibald R. Schaffer, III and United States v. Jack L. Williams). My immediate right-hand assistants were the Counsellors to the Independent Counsel, first Theodore S. Greenberg and then William F. Fahey (team leader for United States v. Ronald H. Blackley), followed by Robert W. Ray, and thereafter Jacob S. Frenkel (co-team leader for United States v. Alvarez T. Ferrouillet, Jr./John J. Hemmingson).

My Chief Appellate Counsel throughout the investigation was Charles M. Kagay, whose service included significant trial court briefing in addition to appellate matters and who also undertook primary responsibility for drafting this final report, a daunting task given the breadth of the investigations.

The trial attorneys for our numerous cases included Adrienne R. Baron, Barry Coburn (team leader for United States v. Five M Farming Enterprises, Inc., et al.), Michael R. Davis, Jacob S. Frenkel, Wil Frentzen, Joseph P. Guichet, Trent B. Harkrader, Joe M. Hollomon (team leader for United States v. Norris J. Faust, Jr.), Roscoe C. Howard, Jr., Benjamin B. Klubes, Mark J. Krum (team leader for United States v. Henry William Espy, Jr.), Kathleen M. Nicolaides, William S. Noakes, Jr., Robert O'Neill (team leader for United States v. Richard Douglas), Eduardo G. Roy, Joseph F. Savage (team leader for United States v. Crop Growers Corporation), and David Schertler. Other attorneys who worked on the investigative, trial support, and appellate tasks of the Office included Bruce A. Abbott, Walter F. Becker, Jr., James L. Brochin, Mark S. Brodin, George D. Brown, Blanche L. Bruce, Kimberly S. Davis, Roberto Iraola, Stephen R. McAllister, Charles P. Murdter, Nathan J. Muyskens, Allen L. Neelley, Jan Patterson, Henry H. Rossbacher, David Smith, Elizabeth Taylor, George Van Cleve, Thomson von Stein, L.C. Wright, and Tracy W. Young. Paul S. Rosenzweig provided valuable input in the creation and review of this Report. I was also extremely fortunate to be advised on an as-needed basis by a group of very experienced attorneys serving without compensation under the title of Advisory Independent Counsel - Leighton M. Anderson, Joseph F. Barletta, Anthony R. Corso, Don DeGabrielle, Stephen H. Jigger, Steve Mansfield, George B. Newhouse, Jr., Daniel J. O'Brien, Melvyn H. Rappaport, and Michael I. Spiegel.

The backbone of this office's investigative efforts was a staff of extremely capable investigative agents. The largest group of these agents came from the Federal Bureau of Investigation and worked under the guidance of Mark B. Codd, Supervisory Special Agent, who provided skilled leadership and sage counsel throughout his tenure. The agents included J. T. Burns (who worked on the investigation from beginning to end), Peggy Campane, John R. Cantalupo, Margaret Carmichael, Brian K. Cosgriff, Cynthia A. Falls, Francis X. Gaughen, Mark A. Grisham, Alexis Hatten, E. Leo Martinez, Carolyn Murphy, and Lawrence J. Welk. The United States Department of Agriculture Office of Inspector General also contributed a major contingent of special agents, headed by Supervisory Special Agent Kim Widup, whose indefatigable determination was contagious and whose highly skilled services spanned the entirety of the investigation through the conclusion of all prosecutions. The United States Department of Agriculture (USDA) agents included Neal H. Hasheider, Derrick N. Hurst, Don Meeks, Stacy Rubey-deGuerrero, and Pam Taylor. Investigators from other agencies, who contributed a multiplicity of talents, included Arthur L. Wicks, Ronald DiStefano, and Stephen C. Dodge of the U.S. Customs Service; Leonard Thill of the Securities and Exchange Commission (SEC); David P. Cyr of the U.S. Postal Service; Ray Gregson and John D. Fort of the U.S. Treasury Department/Internal Revenue Service; and retired F.B.I. agents James T. Burns, Jerry Marsh, Richard O'Connell, Lewis L. Small, and Robert E. Smith.

The efforts of the attorneys and investigators could not have been as efficient and effective as they were without the continual support of an excellent staff of legal assistants. The corps of paralegals was ably and tirelessly headed by Barbara P. Schultz, and included David L. Dunleavy, Rosemary A. Ficalora, William L. Hurlock, Jacob D. Kortz, John A. Kruger III, James Lagomarsino, James D. Manclark, William S. McNish, Brett L. Shelton, Kerry A. Stehn, Josephine J. Tao, Carly B. Tolchin, Ruth M. Vogelsang, and Denise E. Washington. The law clerks and legal interns serving our effort included David S. Hochman, Michael C. Petronio, Lisa A. Rich, Lisa Stern, and Diane E. Wolf.

The work of this office also depended vitally on a talented troop of accountants, auditors, and financial analysts supporting our efforts. Neill W. Freeman, Laurence A. Mills, Ellen Faun, Fred Smolen, and James F. Chadbourne III, provided expert forensic accounting services. Alvin A. Brown of the USDA and Michelle Biess also provided accounting support. Leonard Thill of the SEC provided accounting expertise in securities matters. Philip J. Rooney from beginning to end supplied the accounting support and related advice necessary to the administration of the office.

A small number of exceptionally skilled professionals provided essential trial preparation, evidence presentation, and information dissemination services. Providing jury consulting services were Dr. Donald E. Vinson, Steve Paterson, and Norma Silverstein; Lorrie Messinger and Gayle Mumm assisted in the preparation of demonstrative trial exhibits of complex evidentiary materials. Public response advisors included Eric Dezenhall and Andy Shea; and William P. Kucewicz provided editing vital to the completion of this Report.

No law office can function without its executive support staff, and we were particularly fortunate in attracting dedicated and capable workers to fill these crucial positions. I particularly want to acknowledge the indispensable assistance of my most talented, tireless, and absolutely dedicated confidential assistant Janice M. Drake, who also functioned as my secretary, confidant, press officer, and shepherd for the Final Report. The role of confidential assistant was also briefly and ably filled by Mae Chauvin, who also contributed as a trial assistant. Elizabeth Ray and Peggy Thume exhibited total dedication and commitment as they assisted in a variety of roles throughout the investigations and trials, and in the preparation of the Final Report. The other helpful and highly effective members of the secretarial staff included Eileen B. Aarons, Delores "Tiesha" Banks, Christine L. Brown, Judy Buechner, Danielle L. Cannata, Lauren C. Davis, Angie R. Drehsler, Ann Fisher-Durrah, Frank E. Gillen, Ann T. McLean, Gwendolyn Shuler, Ruth Marion Tichenor, and Avis C. Wilson. Ably supporting their efforts was a clerical staff, including Clifton Z. Dameron, Carol Ann Daniel, Eric J. Dominitz, Frances D. Johnson, Ramona R. Kerley, Thomas A. Kertscher, Joshua E. Miller, David Tillotson, and Christopher von Stein.

The efforts of the above personnel would not have been possible without a well-run home office in Alexandria, Virginia (with occasional satellites when necessary). Fortunately, we were served by experienced administrative personnel who kept this support structure running at high level of efficiency at all times. The head of this effort was the office administrator, a role filled successively and always capably by Carol McCreary-Maddox, Kerry A. Stehn and, since April 1998, Margaret B. Jackson, assisted for a time by Lauren Daniel Thomas. The satellite offices were administered in New Orleans, Louisiana, and Jackson, Mississippi, by Luis Jeffrey Martorell, and in San Francisco by Ruth Vogelsang. The office's computer network was ably managed at different times by Emmanuel S. Vouvakis, William L. Hurlock, James D. Manclark, Josephine J. Tao, and, for the past three years, James A. Reid, Sr., who also bore the responsibility for maintaining the Office's website. Finally, no office of this scale can function without the jack-of-all-trades who can make everything work whenever and wherever as needed. The absolutely indispensable Calvin S. Holt, Jr., whose duties and responsibilities far exceeded his Property Manager title, most ably fulfilled that role in each of our various offices.

Finally, I wish to acknowledge and publicly thank those citizens who served as jurors. The grand juries in San Francisco, New Orleans, and Jackson, Mississippi worked patiently and thoughtfully in consideration of the evidence behind the indictments we obtained in those cities. In particular, the grand jury in the District of Columbia labored tirelessly in anonymity to perform its vital investigatory functions from October 1994 through April 1998. This body, so essential to any meaningful investigation, met on a weekly basis, sometimes as frequently as four days a week, to hear testimony and review documentary evidence. Its patience, insightful countenance, and instructive comments contributed significantly to our efforts. Similarly, the citizens who served as petit jurors for our numerous trials deserve recognition for the time and thoughtful effort they gave as essential participants in our system of justice.

I am immensely grateful to all of these people for their dedication and their hard work. I am both pleased and proud to have worked in association with the people in my office for an extended period of time. To each and every one, I extend sincere thanks and congratulations for a job well done.

Don Smaltz
Independent Counsel

TABLE OF CONTENTS

ORDER

I. INTRODUCTION

A. Summary of Investigation

B. Background Information

1. The United States Department of Agriculture

2. Alphonso Michael Espy

a. Biographical Information

b. Secretary Espy's Knowledge of Ethical Constraints

C. Initial Allegations and Investigations

1. Investigation by the Office of Inspector General, USDA

2. Investigation by the Department of Justice

3. The Attorney General's Application for Appointment of an Independent Counsel

4. White House Inquiry

5. Allegations of Additional Improprieties

6. Appointment of the Independent Counsel

II. THE OFFICE OF INDEPENDENT COUNSEL'S INVESTIGATION

A. Gifts Solicited or Received by Secretary Espy

1. Gifts from Tyson Foods, Inc.

a. The Donors

b. Donors' Interest in Secretary Espy's Official Acts

(1) USDA Food Safety Initiatives

(a) Zero Tolerance for Pathogens

(b) Safe-Handling Labeling

(2) Fresh-Frozen Labeling

(3) Detainment of Chicken in Puerto Rico

c. Gifts Given

(1) Four Seats at a Presidential Inaugural Dinner

(2) The Russellville Weekend Musical Celebration

(3) Scholarship to Secretary Espy's Girlfriend

(4) The Dallas Football Game

(5) Basketball Tickets and Travel Benefits to Assistant Secretary

d. Allegations of Cash Payments from Tyson Foods to Public Officials

e. Summary Timeline

f. False Statements to Federal Investigators

g. Prosecution Decisions

2. Gifts from Sun-Diamond Growers of California and Richard Douglas

a. The Donors

b. Donors' Interest in Espy's Official Acts

(1) Methyl Bromide

(2) Market Promotion Program

(3) USDA Commodity Purchases

(4) Delaney Clause

(5) Teamsters Strike at Diamond Walnut

(6) Forest Service Land Swap (Relating to a Douglas Consulting Client)

c. Gifts Given

(1) Gifts Given by Sun-Diamond

(2) Gifts Facilitated by Douglas

d. Summary Timeline

e. False Statements to Federal Investigators

f. Prosecution Decisions

3. Gifts from Oglethorpe Power, Smith Barney, and EOP Group

a. The Donors

b. Donors' Interest in Espy's Official Acts

c. Gifts Given

d. Summary Timeline

e. Prosecution Decisions

4. Gifts From Quaker Oats

a. The Donor

b. Donor's Interest in Espy's Official Acts

c. Gifts Given

d. Prosecution Decisions

5. Gifts From Fernbank Museum

a. The Donor

b. Donor's Interest in Espy's Official Acts

c. Gifts Given

d. Prosecution Decisions

6. Gifts From Robert Mondavi Winery

a. The Donor

b. Donor's Interest in Espy's Official Acts

c. Gifts Given

d. Prosecution Decisions

7. Gifts From Morgan Stanley

a. The Donor

b. Donor's Interest in Espy's Official Acts

c. Gifts Given

d. Prosecution Decisions

8. Espy's Acceptance of Gifts Unrelated to Agriculture

a. Inaugural Party in Espy's Honor and Event Tickets

b. March 1994 Beverly Hills, California Trip

c. $2,800 Monotype

B. Espy's Concealment of Gifts Received

1. False Statements to Federal Officials

a. False Statements to the USDA Inspector General

b. False Statements to the FBI

c. False Statements to the White House Chief of Staff

2. False Statements in Disclosure Reports

3. After-the-Fact Reimbursements

4. Prosecution Decisions

C. Espy's Other Abuses of Office for Personal Benefit

1. Abuses Related to Government Vehicles

a. USDA Lease of Jeep Cherokee

b. Use of USDA Ford Explorer

c. Jeep Payments by Government Contractor

d. Prosecution Decisions

2. Abuses Related to Official Travel

a. Travel Expenses Paid by Subordinates and Others

b. The $71,000 Plane Charter to Facilitate Attendance at a Birthday Party

c. Frequent Travel to Mississippi at Government Expense

d. Prosecution Decisions

D. The Role of Espy's Staff in Avoiding Abuses

1. Instruction and Counseling on Ethical Matters

2. Espy's Reliance on Staff to Prevent Ethical Lapses

E. Henry Espy Campaign Offenses

1. Unlawful Campaign Contributions to Obtain Access to Secretary Espy

a. Henry Espy's Campaign Attracts the Interest of Agribusiness

b. Crop Growers Insurance Becomes Involved in the Henry Espy Campaign

(1) The USDA Role in Crop Insurance Reform Becomes Important to Crop Growers Insurance

(2) Crop Growers Insurance Makes Illegal Campaign Contributions to Henry Espy

(3) Crop Growers Insurance Obtains Access to Secretary Espy

c. Henry Espy Borrows Money to Cover His Campaign Debts

(1) Ferrouillet Arranges a Fraudulent Loan

(2) Secretary Espy Involves Himself in Retiring the Fraudulently Obtained Loan

d. The First Installment of the Loan Is Paid with Illegal Campaign Contributions

(1) Douglas Solicits Illegal Campaign Contributions

(2) Douglas Organizes the 116 Club Fundraiser

(3) Ferrouillet Makes the First Repayment on the Delinquent Loan

e. The Second Installment of the Loan Is Paid with an Illegal Campaign Contribution

(1) Hemmingson Provides a $20,000 Contribution From Crop Growers Corporation

(2) The $20,000 Check Is Laundered

f. Ferrouillet and Henry Espy Make the Final Payments on the Loan

2. Concealment of Campaign Offenses

a. Crop Growers Conceals Its Illegal Campaign Contributions in Its SEC Filings

b. Ferrouillet Makes False Statements to Federal Investigators

3. AFLAC's Illegal Contributions to the Henry Espy Campaign

4. Prosecution Decisions

F. Other Conflicts of Interest Within the Department of Agriculture

1. Ronald Blackley's Earlier Employment with USDA and Congressman Espy

2. Blackley Becomes Espy's Chief of Staff

3. Blackley's Receipt of Funds from Charles Fuller

4. Blackley's Receipt of Funds from David Cochran

5. Blackley's Involvement in USDA Program Fraud by Supporters of Espy

a. Rodalton Hart and Hart Farms

b. Brook Keith Mitchell, Sr. and Five M Farming Enterprises

6. Blackley and Secretary Espy's Efforts on Behalf of Mitchell

7. Blackley's Failure to Disclose Receipts from Agricultural Interests

8. Petition to the Special Division

9. Prosecution Decisions

G. Other Matters Investigated by the Office of Independent Counsel

1. Richard Douglas Mortgage Offenses

a. OIC's Investigation

b. Attorney General Referral

c. Prosecution Decisions

2. Irregularities in Secretary Espy's Congressional Campaign Account

a. OIC's Investigation

(1) The Campaign Committee's Initial Infrastructure and the Misuse of Funds

(2) Congressman Espy's Knowledge of the Misuse of Funds

(3) The House Bank Investigation

(4) The Transition Process

(5) White House Interest

(6) Fraudulent Means Used to Replace Campaign Funds

b. Petition to the Special Division

3. Richard Blackmore's Loan Application to USDA

a. OIC's Investigation

b. Prosecution Decisions

4. Thomas Espy's $3. 5 Million USDA Loan Request

a. OIC's Investigation

b. Prosecution Decisions

5. Sun-Land Products' Illegal Campaign Contributions

H. Litigation Regarding Privilege Claims Before the Grand Jury

1. AFLAC's Attorney-Client Privilege Claim

2. The CBS Journalists' Privilege Claim

3. The White House's Executive Privilege Claim

III. PROSECUTIONS, CIVIL ACTIONS, AND REFERRALS

A. The Indictment Process

B. Prosecutions Regarding Gifts to Secretary Espy

1. The Tyson Foods Cases

a. United States v. Tyson Foods, Inc.

(1) The Charges

(2) The Plea Agreement

(3) The Sentence

b. United States v. Jack L. Williams and Archibald R. Schaffer, III

(1) The Charges - The First Indictment

(2) The First Trial

(3) The Order Granting a New Trial

(4) The Charges - The Superseding Indictments

(5) The Second Trial

(6) Post-trial Motions

(7) The Williams Sentence

(8) The Schaffer Appeals

(9) Schaffer's New-Trial Motions Following the Espy Trial

(10) The Schaffer Sentence

2. The Sun-Diamond Cases

a. United States v. Sun-Diamond Growers of California

(1) The Charges

(2) The Trial

(3) Sentencing

(4) The Appeal

(5) Postappeal Prosecution Decisions

b. United States v. Richard Douglas

(1) The Charges

(2) Dismissal of False-Statement Counts

(3) The Trial

(4) Post-trial Dismissal

(5) The Plea Agreement and Sentence

c. United States v. James H. Lake

(1) The Charges

(2) The Plea Agreement

(3) Sentencing

(4) Federal Election Commission Conciliation Agreements

3. The Case Against Former Secretary Espy - United States v. Alphonso Michael Espy

a. The Charges

b. Pre-trial Dismissals and Appeal

c. The Trial

C. The Henry Espy Campaign Contribution Cases

1. The Crop Growers Case - United States v. Crop Growers Corp. , John J. Hemmingson, and Gary A. Black

a. The Charges

b. Pre-trial Dismissals

c. Crop Growers' Plea

d. The Trial

2. The Henry Espy Case - United States v. Henry William Espy, Jr. , Alvarez T. Ferrouillet, Ferrouillet & Ferrouillet, Municipal Healthcare Cooperative Incorporated, and John J. Hemmingson

a. The Charges - Eastern District of Louisiana

b. The Trial - Eastern District of Louisiana

c. Sentencing - Eastern District of Louisiana

d. The Appeal

e. The Charges - Northern District of Mississippi

f. Plea Agreements - Northern District of Mississippi

g. The Trial - Northern District of Mississippi

h. Sentencing - Northern District of Mississippi

D. Prosecutions Regarding Conflicts of Interest within the Department

1. The Case Against Secretary Espy's Chief of Staff - United States v. Ronald H. Blackley

a. The Charges

b. The Trial

c. Sentencing

d. The Appeal

2. The "Mississippi Christmas Tree" Cases

a. United States v. Five M Farming Enterprises, Inc. , Brook Keith Mitchell, Sr. , and Brook Keith Mitchell, Jr.

(1) The Charges

(2) Plea Agreement

(3) Sentencing

(4) The Appeal

(5) Administrative Action

b. United States v. Norris J. Faust, Jr.

(1) The Charges

(2) The Trial

E. Civil Actions

1. United States v. Smith Barney, Inc. 316

a. The Complaint

b. The Settlement Agreement

2. United States v. Robert Mondavi Corp.

a. The Complaint

b. The Settlement Agreement

F. Referred Cases

1. United States v. Sun-Land Products

2. AFLAC (Federal Election Commission)

3. United States v. Richard E. Blackmore

4. United States v. Rodalton Hart

IV. THE EVOLVING LAW OF GRATUITIES

A. Varying Interpretations of the Gratuity Statute Before Supreme Court Review

B. OIC's Prosecution of Sun-Diamond

C. The Sun-Diamond Supreme Court Decision

D. Sun-Diamond Revisited - United States v. Schaffer

E. The Continuing Importance of the Gratuities Laws

F. Conflict-of-Interest Regulations

G. The Public Servant as Trustee

V. FINANCIAL ANALYSIS

A. Financial Statement

B. Analysis

1. Startup Costs

2. Duration of Activities

a. Investigative Phase

b. Indictment and Trial Phase

c. Post-trial Phase

d. Final Report and Office Closing

C. Conclusion

VI. CONCLUSION

VII. CHRONOLOGY

-- APPENDICES

-- COMMENT LETTERS

I.   INTRODUCTION

In 1961, with regard to proposed legislation governing the receipt of gratuities by government officials, President John F. Kennedy stated:

No responsibility of government is more fundamental than the responsibility of maintaining the highest standards of ethical behavior by those who conduct the public business. There can be no dissent from the principle that all officials must act with unwavering integrity, absolute impartiality and complete devotion to the public interest. This principle must be followed not only in reality but in appearance. For the basis of effective government is public confidence, and that confidence is endangered when ethical standards falter or appear to falter.

It is axiomatic that the Federal laws and regulations controlling the receipt of gifts by federal employees and officials implement a fundamental principle of public service - that federal officials should not use their public office for their own personal gain or give the appearance that they are not carrying out their official duties with complete impartiality. The public's trust in the fairness and justice of federal decision-making is irretrievably compromised when federal officials take gifts from those whose conduct they regulate and oversee.

If a public official accepts a gratuity - a gift given for or because of an official act - it calls into question the impartiality of his judgment on matters that affect the giver. A public official's breach of legal and ethical standards - standards that prohibit the receipt of gifts from those whom his decisions may affect - undermines the confidence American citizens must have in the integrity of their political leaders.

Gift-giving to a public official by those whose conduct he regulates is pernicious behavior in any context. In matters of public health and safety it is especially troubling. The United States Department of Agriculture is primarily responsible for the quality and safety of the Nation's food supply, particularly meat and poultry. In 1906, Upton Sinclair's famous book The Jungle illuminated the corruption of public meat inspectors and unsanitary conditions in the meat packing industry. In response, Congress established a federal meat inspection system and enacted one of the most stringent anti-gratuity provisions on the books. For nearly a century, every federal meat and poultry inspector has known that the Federal Meat Inspection Act, 21 U.S.C. § 622, signed into law by President Theodore Roosevelt, prohibits the receipt of all gifts, even such seemingly token items as a Christmas turkey. The safety of the American food supply, and the integrity of those who ensure its safety, is that important.

But if a poultry inspector on his daily rounds is so constrained, how much more important is the integrity of the Secretary of Agriculture whose decisions have nationwide impact? As a high public official, the Secretary of Agriculture is obliged to perform his job in a manner that is free from self-enrichment, free from corruption, and free from even the appearance of self-enrichment and corruption. Public officials are trustees for the American citizenry - they owe America their honesty, their loyalty and their impartial service.

Perhaps the gravest concern arising from the receipt of gratuities by high public officials is the uncertainty it creates in the public mind. Typically, nobody really knows why a public official decides a matter one way or another. In a 1957 review of conflicts of interest, the House Judiciary Committee observed:

More troublesome than outright bribery, however, because of the obscurity of its motivation and the subtlety of its effect, is the practice of modern lobbies indiscriminately to befriend influential officeholders. In its sophisticated form, this activity never includes a request for a favor, but limits itself to the extension of amenities and courtesies in the form of free transportation, hospitality, and adjuncts to "gracious living." The sole visible object appears to be the establishment of the amiability of the lobbyist and his client. ⁽¹⁾

This observation rings especially true when a public official is charged with balancing conflicting goals and duties - for example, both ensuring the safety of the American food supply and promoting agricultural business development. When a public official receives gifts from a regulated business and later makes a decision affecting that business, the American public can only speculate, from the outside, whether the gifts received played any role in the decision made. The gratuities laws are designed to eliminate that uncertainty - the Nation should not be left to wonder whether its chief food safety official made decisions based upon principle or upon self-interest.

When public allegations that Secretary Espy solicited and received gifts from agricultural interests he regulated first arose, the allegations raised a justifiable concern that Espy's decisions were subject to improper influence. Did Espy's receipt of more than $12,000 in gifts from Tyson Foods, Inc., the world's largest meat and poultry processor, affect his decision on safe poultry handling label regulations that would have cost Tyson more than $30 million? Was the more than $14,000 that Sun-Diamond Growers of California, one of America's largest agricultural cooperatives, spent to Espy's benefit a factor in his decision to support Sun-Diamond's continued use of methyl bromide on its crops, notwithstanding the contrary recommendation of the Environmental Protection Agency? The American public should not have to entertain these questions, but Espy's actions brought them front and center.

The anti-gratuities statutes also protect those regulated entities that truly desire to conduct their business in an above-board, lawful manner. When a high public official solicits gifts from those he regulates, even when there is no particular decision regarding that business pending before him, he places the donors in an untenable position. Declining to provide the requested gift risks alienating the federal official, but giving the gift flies in the face of the public interest, if not the criminal law. Such was the dilemma faced by the president of Quaker Oats, a company with $180 million of business before the Department of Agriculture, when Espy (whom he had met only once) called him to ask for the gift of two valuable basketball tickets. An executive of Mondavi Winery, who was seeking to enlist Espy's support on a variety of issues, found himself in the same bind when Espy's advisor called him to ask that Espy be given some wine.

The Office of Independent Counsel (OIC) investigated all these allegations relating to Espy's conduct, and all other matters related to its jurisdiction that arose from the investigation. In the end, it brought numerous indictments for unlawful gratuities, lying and concealment before federal agencies, fraud, and related offenses. These efforts resulted in 15 convictions (of which nine were concluded by pleas) and two successful civil prosecutions, although Espy himself was acquitted of all charges.

There was, in the end, never any doubt that Espy and his family and friends had taken gifts of substantial value from those whom Espy regulated. Espy's principal defense, and the defense of those who had given gifts to Espy, was that the OIC could not prove that the gifts had been given with the intent to influence any particular, specific decision. Even though the evidence was ample to establish that the gifts were given to Espy for and because of his official position, in the case of Espy the jury was not convinced beyond a reasonable doubt that they were given for or because of a specific official act.

At bottom, the Office's investigation illustrates the destruction of the public trust arising from the actions of a high public official who places private gain before public interest. As this Report details, Espy directly and indirectly received from various agriculture businesses gifts valued at more than $30,000; his chief of staff concealed payments he received under the table from his former agricultural clients; his girlfriend solicited and received a valuable scholarship, employment, and travel and entertainment; his brother received approximately $50,000 in illegal campaign contributions because he could facilitate access to the Secretary; and Espy and many of the donors and recipients concealed these gifts from the American public.

In short, this investigation showed how our leaders can be compromised in their decision-making obligations and how others used unlawful means to influence public policy. Espy gained substantial personal benefit, receiving a multitude of gifts from persons and entities whose conduct he was supposed to impartially regulate. The donors, in return, gained access to Espy; the influence this gave them over his decisions can never be measured. The integrity of the federal decision-making process, the potential safety of the American food supply, and the American public's trust in the impartiality of government all suffered.

A.   Summary of Investigation

The Office of Independent Counsel's (OIC) investigation into the receipt of gifts and gratuities by former Agriculture Secretary Alphonso Michael Espy revealed a pervasive pattern of improper behavior by Secretary Espy and his top aide, and by persons and companies regulated by or with business before the United States Department of Agriculture (USDA). The investigation disclosed that, among other offenses, companies with financially important matters pending before USDA gave Secretary Espy - either directly or via members of his family or his girlfriend - numerous gifts in an effort to garner his favor. (A complete list of gifts OIC found Espy to have received from agricultural interests appears at Section II.A.)

OIC's investigation culminated in the return of a 39-count indictment against Espy, charging multiple violations arising out of his acceptance of things of value from persons and entities regulated by USDA, his concealment of these gifts from the public, and other abuses of his office. The indictment charged that he had received more than $30,000 in gifts and benefits from agricultural interests. At trial, Espy did not dispute receipt of the gifts, but he argued that these gifts did not affect the decisions he made and that he did not have the criminal intent required for a conviction. After a two-month trial, the jury found former Secretary Espy not guilty on all counts.

All told, OIC charged thirteen individuals (including Espy) and six business entities ⁽²⁾ with criminal violations regarding the provision of gifts and gratuities to the former Secretary of Agriculture, the concealment of gratuities from federal investigators, and/or related offenses. Of these, 14 were convicted of or pleaded guilty to one or more offenses ⁽³⁾, and four were acquitted of all charges ⁽⁴⁾; one person was placed into a pre-trial diversion program ⁽⁵⁾. OIC also instituted civil prosecutions against two corporations ⁽⁶⁾ and referred several matters to other federal enforcement agencies. ⁽⁷⁾

In addition to the gratuities given directly to Espy and his girlfriend, the investigation focused on election campaign contributions given to the account of Espy's brother, Henry Espy. The donors were persons and companies regulated by the Department of Agriculture who saw Henry Espy's campaign debt, and Secretary Espy's personal concern over that debt, as an avenue to gain the Secretary's favor. Beyond the impropriety of seeking to gain an advantage before a governmental agency in this manner, many of these contributions and related activities were substantively illegal under the election laws and other federal statutes. The illegal contributions exceeded $50,000. Consequently, this area of the investigation resulted in several prosecutions and convictions.

The investigation further disclosed that Secretary Espy's chief of staff, Ronald Blackley, accepted money from persons with business before USDA and concealed this fact from the public, and that Mississippi farmers with ties to Secretary Espy defrauded USDA of federal subsidies. This part of the investigation resulted in criminal convictions of Blackley and several persons and one corporation he had represented.

OIC's investigation led to a number of significant prosecutions. The investigation of Crop Growers Corporation, then the second-largest private seller of federal multi-peril crop insurance, led to the first indictment and conviction in an Independent Counsel proceeding of a publicly-held company and resulted in the largest fine, $2 million, secured by any Independent Counsel up to the time. OIC's prosecution of John J. Hemmingson, Crop Growers' chief executive officer, and Alvarez T. Ferrouillet, a Louisiana lawyer who chaired an effort to retire the congressional-campaign debt of Secretary Espy's brother Henry, was the first to charge and convict individuals for money laundering in connection with illegal federal-election campaign contributions. OIC's investigation later led to the first conviction in approximately 100 years for giving a gratuity to a sitting Cabinet member, with the guilty plea of Tyson Foods, Inc., the nation's leading poultry producer. The plea resulted in a $4 million criminal fine and a $2 million payment toward OIC's investigative costs. The prosecution of Sun-Diamond Growers of California, a large, multi-crop agricultural cooperative, resulted in a Supreme Court decision clarifying the scope of the federal gratuities statute. The civil actions OIC brought against Smith Barney, Inc. and Robert Mondavi Corporation, Inc. were apparently the first instances in which an Independent Counsel resolved charges through civil litigation.

In total, OIC collected more than $10 million in criminal fines, civil recoveries, and restitutionary orders for the United States Treasury. OIC also referred three matters to the Department of Justice for prosecution and one matter to the Federal Election Commission for civil disposition, resulting in the recovery of an additional $560,000 for the United States.

B.   Background Information

The focus of the investigation was Secretary Espy, and the setting in which he was scrutinized was the Department of Agriculture. The following briefly sets forth pertinent background information regarding both.

1.   The United States Department of Agriculture

The United States Department of Agriculture (USDA), founded in 1862, became a Cabinet-level department in 1889. The duties of USDA include the regulation and inspection of the United States food supply, the improvement and promotion of agricultural development and production in the United States, and the promotion of United States agricultural products in foreign countries. In 1993, USDA consisted of more than 43 different agencies and subagencies, ⁽⁸⁾ and had an annual operating budget in excess of $65 billion, representing 4.3 percent of the total federal budget. Its payroll of more than 112,000 staff employees was exceeded only by four other federal agencies (the Departments of Defense, Health and Human Services, Treasury, and the Veterans Administration). USDA has offices or committees in nearly every county in the United States and personnel stationed around the world.

The USDA departments of particular relevance to the Independent Counsel's investigation were the following:

The Food Safety and Inspection Service (FSIS): FSIS, the public-health agency within USDA, is responsible for ensuring that the nation's commercial supply of meat, poultry, and egg products is safe and correctly labeled and packaged. It inspects all raw beef, pork, lamb, chicken, and turkey sold in interstate and foreign commerce, and it regulates production and distribution to ensure compliance with applicable laws and regulations. It also provides laboratory-analysis services to inspect samples of meat and poultry products for disease, contamination, or other forms of adulteration.

The Agricultural Marketing Service (AMS): AMS directs and monitors a range of activities in the areas of commodity promotion, market news, agricultural transportation, and product inspection and grading; it also procures food for domestic food-distribution programs. AMS further acts to divert commodities or food products from normal channels of commercial trade to relieve market surpluses, primarily through government purchases, whenever the Secretary of Agriculture determines such a diversion is necessary.

The Federal Crop Insurance Corporation (FCIC): FCIC, in cooperation with various private insurance agencies, provides farmers and ranchers federally subsidized crop insurance to protect against crop loss resulting from floods, drought and other natural disasters.

The Agricultural Stabilization and Conservation Service (ASCS): ASCS administers farm price support programs and conservation cost-sharing programs.

The Secretary of Agriculture, appointed by the President and confirmed by the Senate, administers USDA. The Secretary is ninth in line of succession to the Presidency.

2.   Alphonso Michael Espy

In late 1992, President-elect Clinton chose Alphonso Michael Espy, a Mississippi Congressman, to serve as the Secretary of Agriculture in his administration.

a.   Biographical Information

Espy was born November 30, 1953 in Yazoo City, Mississippi, a town located in the Mississippi Delta. His grandfather had founded a chain of more than two dozen funeral homes; his father had worked as a USDA county extension agent in Arkansas during the 1930s and 1940s and had later joined the family funeral-home business in Mississippi. Espy graduated from Yazoo City High School and earned a B.A. degree in political science from Howard University in Washington, D.C. in 1975. In 1978, he received a law degree from University of Santa Clara Law School, near San Jose, California.

Upon graduating from law school, Espy returned to Mississippi, where he obtained an appointment as the managing attorney at Central Mississippi Legal Services. In 1980, Espy became an Assistant Secretary of State and Director of the Mississippi Public Lands Division, a position he held for the next four years. From 1984 to 1985, Espy served in the Mississippi Attorney General's office as an Assistant Attorney General in the Consumer Protection Division.

In 1983, Espy first entered the political arena as coordinator in Mississippi's Second Congressional District for a candidate for Attorney General. The following year, Espy served on the Democratic National Committee's Rules Committee. In 1986, Espy ran for Congress in Mississippi's Second Congressional District.

The Second Congressional District of Mississippi, geographically one of the larger districts in the United States, is primarily rural, and agriculture is its main industry. The district borders the Mississippi River and is approximately 275 miles long and up to 180 miles wide. It has an estimated population of just under 500,000.

Running on a campaign of reform, Espy defeated two-term incumbent Republican Congressman Webb Franklin by a margin of 52 percent to 48 percent and became Mississippi's first black congressman since Reconstruction. Espy was reelected three times, soundly defeating his opponents in the 1988, 1990 and 1992 elections. In the House of Representatives, Espy served as a member of the House Agriculture Committee, the House Select Committee on Hunger, and the Budget Committee. He also served with then-Governor William Jefferson Clinton of Arkansas on the Lower Mississippi Economic Delta Commission and on the Democratic Leadership Council.

Espy was an early supporter of Arkansas Governor Clinton in his successful 1992 presidential bid. Following the November elections, Espy actively sought the Cabinet position of Secretary of Agriculture, and he eventually obtained the approval of President-elect Clinton. After his confirmation by the Senate, Espy resigned from Congress and was sworn in as Agriculture Secretary on January 22, 1993.

A divorced father of two, Espy dated Patricia S. Dempsey, an administrative assistant for an accounting firm in Georgetown and subsequently for the D.C. Aids Education and Training Center in Washington, D.C., throughout his term as Secretary of Agriculture. Dempsey met Congressman Espy through a mutual friend, and the two began dating in February 1992. Dempsey and Espy lived together for most of the period from October 1992 through June of 1993 and shared some expenses, as well as an American Express Card account. Dempsey and Espy continued to date until November of 1995, at which time their relationship apparently ended. Dempsey became a focal point for several matters investigated by OIC, as she was the recipient of gifts and a scholarship from entities regulated by USDA. For a time she worked for a consulting firm lobbying Espy on a variety of issues, and in that position she intervened with Espy's staff on several occasions.

Analysis of Espy's financial documents revealed that his annual expenses increased more than his income after he left Congress to become Secretary of Agriculture. Although his total income rose from $96,068 in 1992 to $100,172 in 1993, certain of his expenses, particularly credit card and consumer-loan payments, increased by nearly $30,000 in 1993. In addition, Espy's total debt rose from nearly $300,000 at the end of 1992 to almost $400,000 at the end of 1993 as the result of increased mortgage loans, unsecured loans, and credit card debts. Thus, the things of value he received from agricultural interests could well have been beyond his means had he been personally obligated to pay for them with his own resources.

b.   Secretary Espy's Knowledge of Ethical Constraints

As a Congressman, Espy had been subject to federal rules and laws prohibiting the receipt of gifts in certain circumstances. Although these rules became more restrictive during his tenure in Congress, they were always more lenient than those imposed on the Executive Branch. When Espy entered Congress, the applicable ethics rules allowed members to receive gifts valued up to $100 per year from each person having a direct interest in legislation before Congress. The rules allowed outside sources to pay for travel, food, and lodging for a member, spouse, his dependants if the congressman "substantially participated" in an event. Members also were permitted to receive honoraria up to $2,000 per event for speaking engagements. However, many of the congressional rules changed effective January 1, 1991, when bans on honoraria, the solicitation of things of value from "prohibited sources," and the acceptance of things of value from prohibited sources, with certain specified exceptions, took effect.

Almost immediately upon his selection as Secretary of Agriculture, Espy received a variety of memoranda designed to make him aware of the ethical regulations that applied to his new position in the executive branch. Specifically, he received materials regarding the prohibitions against gifts to public officials and the requirements regarding financial disclosure.

For example, on December 29, 1992, within one week of his nomination to the post of Secretary of Agriculture, Espy received a memorandum from Vice President-elect Albert Gore's chief of staff summarizing the federal ethics rules. The memorandum informed incoming administration officials that the ethics rules required financial disclosure through annual financial disclosure reports (government form SF-278) and that the rules forbade acceptance of gifts from prohibited sources, with a few exceptions (such as gifts under $20). On the same date, Espy also received a memorandum from the transition counsel specifically regarding inaugural events and gifts. The memorandum warned:

As the Inaugural approaches, it is important that presidential designees be aware of the federal rules governing the receipt of gifts by executive branch employees - including attendance at receptions, parties and other events.

Additionally, on January 22, 1993, the day Espy was sworn in as Secretary of Agriculture, a personnel assistant at USDA gave him a copy of the Standards of Ethical Conduct for Employees of the Executive Branch and told him that "it was a book he should read." The document stated the ethical regulations regarding the receipt of gifts by executive-branch officials. These rules generally forbade the acceptance of things of value from prohibited sources, except for gifts of less than $20 value, gifts given solely out of friendship, and other minor exceptions. The rules defined a "prohibited source" as any person or organization that seeks official action by, does business with, or is regulated by a federal employee's agency, or that has interests that may be substantially affected by the performance or nonperformance of the employee's official duties.

Espy does not appear to have considered the executive branch's ethical restraints significant. On an April 2, 1993 plane flight, for example, Espy discussed the executive branch's ethical restraints with Environmental Protection Agency Administrator Carol Browner. Secretary Espy stated (in Administrator Browner's words) that he thought the tougher ethical standards put in place by the Clinton administration were "a bunch of junk" and that, in ethics matters, he was going to conduct himself as he had in Congress.

C.   Initial Allegations and Investigations

Allegations of Espy's official improprieties first appeared in a March 17, 1994 Wall Street Journal article entitled "Tyson Foods, With a Friend in the White House, Gets Gentle Treatment From Agricultural Agency." ⁽⁹⁾ Tyson Foods, Inc., the nation's largest poultry producer and also a pork and beef processor, is based in Arkansas, the home state of President Clinton. Exploring the apparent close ties between Tyson Foods and President Clinton, the article reported that the company was a major Clinton supporter, having flown him on its aircraft and contributed to his gubernatorial campaigns. Further, according to the article, President Clinton had received $22,000 for his presidential campaign from Tyson Foods executives and board members. The article also alleged that Tyson Foods had received very favorable treatment from Clinton during his tenure as Governor of Arkansas.

With regard to USDA, the article first noted that Don Tyson, chairman of Tyson Foods, had recently entertained Patricia Jensen, an Assistant Secretary of USDA, in his skybox at the University of Arkansas in Fayetteville during a college basketball game. The article quoted Jensen, who was under consideration to become the USDA official in charge of meat and poultry inspection, as saying that she felt she was being "looked over" by Tyson.

The article then disclosed that Espy "acknowledged meeting with Tyson Foods lobbyists 'all the time,'" that Tyson Foods earlier in 1994 had feted Espy at a Dallas Cowboys football game, and that company executives had contributed $4,000 to Espy's brother's unsuccessful campaign for Congress. At the same time, the article alleged, Tyson Foods was enjoying very favorable treatment from USDA in several aspects of USDA's regulation of poultry and meat: "Few corporations in America have stronger personal ties to Bill Clinton than Arkansas-based Tyson Foods, Inc., and few have fared better in their dealings with his Agriculture Department."

The Wall Street Journal article specifically mentioned that a USDA "blitz" of surprise sanitation inspections of meat-packing facilities over the previous year had bypassed chicken processors, including Tyson Foods' 66 plants. It also reported that USDA had favored Tyson Foods' position in a dispute over a California regulation regarding whether to permit poultry frozen at or above zero degrees Fahrenheit to be labeled "fresh." The article added that Espy had ordered USDA employees working on a "zero tolerance" fecal-matter policy for chicken processing (similar to one he had partially imposed for red meat), to drop the initiative and turn over their work, including information on computers, to an Espy aide.

1.   Investigation by the Office of Inspector General, USDA

The Wall Street Journal article caught the attention of USDA's Office of Inspector General (OIG). OIG is a separate agency within USDA charged with preventing and detecting fraud and abuse in USDA programs and operations and providing security protection for the Secretary and Deputy Secretary. OIG investigates alleged or suspected violations of federal criminal law relating to the employees, programs and operations of USDA and may refer matters to the Department of Justice (DOJ). OIG is headed by the Inspector General, who reports directly to the Secretary of Agriculture.

The article prompted OIG to interview Assistant Secretary Jensen on March 21, 1994. Jensen was responsible for USDA's Marketing and Inspection Services, which included the Food Safety and Inspection Service (FSIS). She was prohibited by federal law (21 U.S.C. § 622) from receiving gifts from a firm regulated under the Federal Meat Inspection Act, such as Tyson Foods.

Jensen informed OIG agents that she met Jack Williams, a consultant for Tyson Foods and the Mid-American Dairymen Association (MADA), in late 1993. At Williams's invitation, she traveled on January 31, 1994 to Kansas City, Missouri to address MADA and, the next day, to Fayetteville to visit Tyson Foods. Jensen said that, while in Fayetteville, she attended a basketball game between the University of Arkansas and Vanderbilt University, using a ticket that Archibald Schaffer, Tyson Foods' director of Media, Public and Governmental Affairs provided to her through Williams. At the game, she met Don Tyson and, after a brief conversation, sat at the front of Tyson Foods' skybox to watch the game. Jensen said she insisted on paying for the ticket, and ultimately mailed a personal check to Williams for $13, the value of the ticket according to Williams.

Jensen said that, on the morning after the game, she gave a speech to representatives of the Arkansas Poultry Federation and toured Tyson Foods' facilities. She then flew to Nashville, Tennessee, where she met up with Williams, who obtained their boarding passes for the flight to Washington, D.C. She received an upgrade to first class on the flight and sat next to Williams. She assumed Williams arranged her upgrade through a frequent-flyer program but was unclear about the details.

On March 22, 1994, the day after their interview with Jensen, OIG agents interviewed Williams. Williams said he represented issues before governmental agencies and Congress as a lobbyist for various industrial clients, including Tyson Foods. He then confirmed that he gave Jensen a ticket to the basketball game in Fayetteville and provided her upgrade to first class on the flight from Nashville to Washington, D.C., using his frequent-flyer upgrade stickers. Williams said that Jensen sent a check to him as reimbursement for the basketball game and that he endorsed the check to Tyson Foods. Williams stated that he offered to upgrade Jensen as a token of his goodwill, not as a bribe, and that in his view the "stickers" had no real value to him. He said he did not submit an invoice to Tyson Foods for the cost of the upgrade.

OIG Agents asked Williams if he knew anything about Espy attending a Dallas Cowboys football game with Don Tyson (an incident that had been reported in the Wall Street Journal article). Williams replied that he did not know whether Espy had gone to Dallas and attended a football game, except for what he had heard through rumor and news reports. ⁽¹⁰⁾

On March 22, 1994, on the basis of the information provided by Jensen and Williams, OIG formally opened an investigation regarding "Gratuities to USDA officials by Tyson Foods, Inc., Springdale, AR." As to the allegations regarding Tyson Foods providing football tickets to Espy, OIG concluded that any substantial investigation of Espy should be handled by DOJ and therefore did not open a formal investigation into this matter. OIG agents decided, however, to meet with Espy to question him generally about the items raised in the Wall Street Journal article, to determine if there was a basis to refer the matter to DOJ.

On March 22, 1994, OIG informed USDA Counsel and Deputy Secretary Richard Rominger of its need to meet with Espy to discuss the Wall Street Journal allegations at a mutually convenient time. Two days later, OIG informed DOJ's Public Integrity Section of the status of its investigation of Jensen and of its intention to interview Espy. DOJ suggested some questions to ask Espy.

On April 1, 1994, OIG agents interviewed Espy in his office. The agents first informed Espy of the status of the Jensen investigation and then asked him about the Dallas football game that the Wall Street Journal article had reported. Espy said that a week of official travel concluded on Friday, January 14, 1994, in Lubbock, Texas. The USDA personnel traveling with him returned to Washington, but Espy remained in Texas for the weekend. Espy stated that he paid for his own hotel and meals and that on Sunday, January 16, 1994, he attended the Dallas Cowboys-Green Bay Packers playoff game at Texas Stadium. Espy acknowledged that Tyson Foods provided him with a skybox ticket and that he watched the game from its skybox, but he said nothing about his girlfriend meeting him in Dallas and accompanying him to the game as a guest of Tyson Foods. ⁽¹¹⁾

Espy further stated that after his office received an inquiry from a reporter for The Wall Street Journal regarding the game, he asked one of his assistants to determine the value of his ticket. The day after The Wall Street Journal printed the article reporting his attendance at the game, Espy reimbursed Tyson Foods $68 for the cost of his ticket.

After the discussion of the Dallas trip, the agents asked Espy if he had received any other tickets or things of value from outside sources. Espy stated he was limiting his response to his acceptance of things from Tyson Foods. He said that in late spring 1993, after speaking at two graduation ceremonies in Mississippi, he traveled to Arkansas, where he spoke to the Arkansas Poultry Federation, and then traveled to a Tyson Foods management training center in Russellville, Arkansas, where he had dinner and stayed the night. Espy explained that he received a call the next day from the White House requesting his presence at a dinner being held for the Cabinet, and that because there were no available airline facilities Tyson Foods flew him back to Washington National Airport in its corporate jet. Espy stated that he had USDA reimburse Tyson Foods for the lodging and the equivalent of a first-class fare for the jet. Espy did not identify anyone else as accompanying him to Russellville.

During the April 1, 1994 interview, Espy consulted certain documents which he did not show the OIG agents and which the agents presumed were official USDA trip itineraries. Espy was asked to provide copies of all itineraries in support of the two trips discussed, and Espy agreed. The agents informed Espy that they would prepare a memorandum following the interview and forward it to DOJ and that the information he provided would be enclosed with the memorandum. A week later, OIG agents received the itineraries from Espy's office. As the agents had not seen the original itineraries, they were unaware that Espy had directed his staff to redact the copies provided to exclude all references to Tyson Foods and Espy's girlfriend. ⁽¹²⁾

On April 19, 1994, OIG's Assistant Inspector General for investigations formally referred to DOJ both the Jensen investigation and the Espy inquiry. The referral relayed the relevant facts and the information provided by Espy and stated in pertinent part:

We are asking that you determine whether the Federal Meat Inspection Act is applicable to the actions of these two officials. We also understand that even if you find that the act is not applicable, the conduct may fall under the Standards of Ethical Conduct for Employees of the Executive Branch (5 C.F.R. 2635). Thus, we believe that these public integrity questions involving two of the highest officials of this Department can only be resolved with your prompt guidance and advice.

2.   Investigation by the Department of Justice

On April 25, 1994, the Federal Bureau of Investigation (FBI), under the direction of DOJ's Public Integrity Section, initiated an investigation into the matters OIG had referred. The investigation differed from a typical Department of Justice investigation. It was narrowly focused, compulsory process was not used to obtain documents and testimony, and agents were specifically instructed to limit their inquiries. The Public Integrity lawyers instructed the agents to be concerned only about the "receipt of tickets." There was no apparent reason for so limiting the investigation and for not invoking normal investigative techniques and procedures. The Independent Counsel Statute, which limits the scope of preliminary DOJ inquiries, in particular prohibiting the use of compulsory process, was not then in effect, but DOJ nevertheless adhered to the statute's restrictions. ⁽¹³⁾

The FBI interviewed approximately 50 persons, including Espy, Williams, Espy's girlfriend, Patricia Dempsey, and numerous witnesses from USDA, Tyson Foods, and other agricultural interests. Information gathered during these interviews confirmed that Tyson Foods had provided Espy and Dempsey with tickets and limousine service to attend the 1994 Dallas Cowboys-Green Bay Packers playoff game. Witnesses further confirmed that Espy, with Dempsey, had attended a party at the Tyson Foods management training center in Russellville, Arkansas and had flown back to Washington, D.C. on a Tyson Foods aircraft in late Spring 1993.

The DOJ investigation also uncovered new information. Credible evidence suggested that Espy had accepted other, previously undisclosed gifts. These included tickets to the 1993 National Football League Super Bowl championship game in Atlanta, Georgia; tickets to a 1993 National Basketball Association finals game in Chicago, Illinois; tickets to the 1994 Academy Awards ceremony in Los Angeles, California; and a $500 contribution to a 1993 birthday party for Espy.

FBI agents also heard assertions by senior USDA officials at FSIS, the agency responsible for food safety and inspection, that they had been ordered in March 1993 to stop working on the "zero tolerance" inspection system for poultry they had been developing and to destroy all work produced to date on the matter. The two members of Espy's immediate staff who purportedly delivered the halt order, Counselor to the Secretary Kimberly Schnoor and Chief of Staff Ronald Blackley, told agents that they did not issue such an order.

The FBI and DOJ disagreed sharply on the handling of the additional matters disclosed in the course of the investigation. Some FBI agents complained about restraints placed upon them by DOJ Public Integrity attorneys; they wanted authority to conduct a broader investigation into whether Espy received gifts from entities other than Tyson Foods and to pursue the "zero tolerance" issue. Internal DOJ memoranda state that, at a June 7, 1994 meeting between DOJ and FBI, Public Integrity lawyers wanted to complete the investigation as to "all known gifts" and decline further inquiry. FBI agents wanted to keep the case open while they continued to investigate what they believed to be evidence of additional gifts from other sources.

The outcome was that DOJ authorized the FBI to conduct limited inquiries for three more days. These limitations on breadth and time limited the FBI's ability to examine and evaluate the facts fully and increased the likelihood that false statements Espy and others made to investigators would paint a distorted view of the facts. ⁽¹⁴⁾

The Public Integrity Section subsequently closed the investigation, despite the FBI's confirmation that Secretary Espy had received several things of value, and despite open questions surrounding other gifts and the order to FSIS to halt work on its "zero tolerance" plan. In a memorandum to the Assistant Attorney General, Criminal Division, dated June 24, 1994, the DOJ Public Integrity Chief declined prosecution of Espy for his receipt of gifts from Tyson Foods, stating in part:

I hereby decline prosecution and close the investigation of Secretary of Agriculture Mike Espy for violating the bribe/gift provision of the Meat Inspection Act, 21 U.S.C. § 622. . . . Secretary Espy did violate the statute. However, in light of the de minimis nature of the violation; the disproportionality of the mandatory minimum sentence required by the statute as applied to this activity; and my firm belief that no amount of further investigation will make this case more likely than not to result in a conviction, I have decided to decline. . . .

Public Integrity's decision to close the investigation was reversed by the then Assistant Attorney General, Criminal Division, on June 30, 1994. In a memorandum to the file, she expressed concern that DOJ would decline at a time when the reauthorization of the Independent Counsel Act had been passed by Congress and was awaiting the President's review. However, neither Public Integrity nor any other arm of DOJ conducted any further investigation. Instead, the Attorney General chose to seek the appointment of an Independent Counsel when the Independent Counsel Statute was reenacted effective June 30, 1994. ⁽¹⁵⁾

3.   The Attorney General's Application for Appointment of an Independent Counsel

The Independent Counsel Statute, 28 U.S.C. § 591 et seq., provided special procedures for the investigation of certain top executive officials (including Cabinet members such as the Secretary of Agriculture), presidential campaign committee officers, and, in certain circumstances, members of Congress. It specified the circumstances under which the Attorney General would conduct preliminary investigations of these persons and, when appropriate, seek the appointment of an Independent Counsel to investigate their actions.

The Statute's first enactment in 1978, and its subsequent reenactments, contained a "sunset" provision that provided for its expiration after five years. After the statute expired in December 1992, Congress did not reenact it until June 1994. The Clinton administration supported renewal of the statute; Congress held hearings in 1993 but was unable to reach agreement. In May 1994, the Senate passed an Independent Counsel Statute that paralleled previous Independent Counsel Statutes, with certain modifications (e.g., extending the statute to cover Congress and imposing various fiscal controls on an Independent Counsel). The House passed the bill on June 21, 1994. President Clinton signed the legislation into law on June 30, 1994 and stated:

Regrettably, the statute was permitted to lapse when its reauthorization became mired in a partisan dispute in the Congress. In fact, the IC [independent counsel] statute has been in the past and is today a force for governmental integrity and public confidence.

On August 8, 1994, Attorney General Janet Reno filed an application for the appointment of an Independent Counsel to investigate Secretary Espy with the division of the Court of Appeals for the District of Columbia Circuit for the purpose of appointing Independent Counsels (Special Division). ⁽¹⁶⁾ The application requested appointment of an Independent Counsel with authority to investigate whether "any violations of federal criminal laws were committed by Secretary of Agriculture Alphonso Michael (Mike) Espy, and to determine whether prosecution is warranted." After noting that the source of the allegations against Espy was the press report of March 17, 1994, the application stated:

Investigation developed evidence that Secretary Espy accepted gifts from Tyson Foods in the course of two separate trips, one to Arkansas in May 1993 and one to Texas in January 1994. The gifts fall into the categories of entertainment, transportation, lodging and meals. In total, the gifts amount to at least several hundred dollars in value.

In addition to the alleged gifts from Tyson Foods, the Department's investigation also included preliminary reviews of other instances in which Secretary Espy allegedly received gifts from organizations and individuals with business pending before the Department of Agriculture.

In the application, the Attorney General specifically identified two applicable criminal statutes: the Meat Inspection Act, 21 U.S.C. § 622, ⁽¹⁷⁾ and the gratuities statute, 18 U.S.C. § 201(c). ⁽¹⁸⁾ With regard to the former, she wrote:

Section 622 is a strict anti-gratuity statute which prohibits any Department of Agriculture employee or officer with responsibilities under the Meat Inspection Act from accepting any gift from any person engaged in commerce, without regard to the intent of the donor or the donee. . . . [T]he acceptance of non-trivial gifts of entertainment, transportation, lodging and meals by a Department of Agriculture official who has responsibilities under the Meat Inspection Act, from an entity that is subject to regulation by the Department of Agriculture, falls within the purview of the statute.

As to the gratuities statute, 18 U.S.C. § 201(c), she wrote that it:

requires proof that a gift was given for or because of official acts. No evidence has been developed during the investigation suggesting that Secretary Espy accepted the gifts as a reward for, or in expectation of, his performance of official acts.

The Attorney General recommended that the Division grant the Independent Counsel broad jurisdiction that extended not only to Espy's acts but also to violations of any federal law by any organization or individual developed during the Independent Counsel's investigation and connected with or arising out of that investigation. ⁽¹⁹⁾

4.   White House Inquiry

On August 10, 1994, two days after the Attorney General made her application to the Special Division, the White House publicly announced that it would ask the Office of Government Ethics to conduct an inquiry into the allegations of Espy's misconduct. Instead of requesting an Office of Government Ethics investigation, White House Chief of Staff Leon Panetta asked White House Counsel Lloyd Cutler to conduct an inquiry.

Panetta later testified that the purpose of the White House Counsel's inquiry was not to establish whether Espy had committed criminal or ethical violations but to provide information to the White House about whether Espy had engaged in conduct that might create an appearance of impropriety and violate the standards for the Cabinet established by the White House. Panetta stated that he gave periodic reports of the White House Counsel's inquiry directly to President Clinton.

The White House Counsel conducted little, if any, independent investigation of the facts. He relied primarily on press reports to define the scope of inquiry and on Espy's lawyers to establish the facts. Espy's counsel asserted to White House Counsel that the allegations of wrongdoing were baseless, principally on the theory that Espy had reimbursed many of the gifts after public disclosure and had not performed any favors for the gift-givers.

The White House soon became aware of allegations concerning Espy's personal use of a USDA-leased Jeep in Mississippi and his girlfriend's receipt of a scholarship from Tyson Foods. As the White House had not previously been aware of these two matters, Panetta informed Espy he wanted to discuss them.

On Friday, September 30, 1994, Panetta asked Espy to meet him in the Chief of Staff's office at the White House. Those present included Panetta, Espy, Espy's personal counsel, and the new White House Counsel Abner Mikva. Panetta confronted Espy with the allegations regarding Dempsey's scholarship from Tyson Foods. Espy told Panetta that he was aware Dempsey had received the scholarship, that she had mentioned it to him at the time, and that, although he had expressed some concern about it, no steps had been taken either to decline the scholarship or to pay it back to Tyson Foods. Espy further told Panetta that Dempsey did not compete in any way for the scholarship and that he understood a Washington, D.C. lobbyist for Tyson Foods had arranged it.

Panetta asked Espy about the Jeep that Espy had leased while in Congress and for which USDA had since assumed the lease payments. Panetta was concerned that there was no apparent connection between the use of the vehicle in Mississippi and USDA business. Espy answered that, although it was located in his old congressional district, he was using the vehicle for purposes related to his duties as Secretary of Agriculture. Espy also stated that he had approval of USDA counsel for that use. Espy did not disclose to Panetta that he had represented to USDA counsel that the Jeep was to be used only in the Washington, D.C. area, and that counsel had approved its use in Washington, D.C. solely in lieu of a chauffeured limousine.

Panetta asked Espy whether there were any other matters about which the White House should be concerned. Espy responded that there were not.

Panetta considered Espy's responses with respect to the scholarship and the Jeep inadequate and told Espy that he would expect Espy to resign on the following Monday morning. Panetta and White House Counsel Mikva then went immediately to President Clinton, informed him of what they had learned in the meeting, and told him they recommended that Espy resign. The President concurred in the recommendation. On October 3, 1994, Espy submitted his resignation to the President, effective December 31, 1994.

On October 11, 1994, Mikva submitted a report on the Espy inquiry to the President. The report indicated that the President had asked Mikva to examine two questions in light of the Standards of Conduct for Employees of the Executive Branch, 5 C.F.R. Part 2635: "(1) whether the President should direct that any further action be taken with respect to Secretary Espy's conduct; and (2) what actions should be taken to ensure that similar incidents are avoided by other Members of the Cabinet." The report reviewed the applicable ethical regulations and recounted White House Counsel's understanding of the background facts related to Espy's conduct. Although the report purported to be a "review of these matters under the Standards of Conduct," it did not reach any conclusions regarding whether Espy had violated any of those standards. It stated that in light of Espy's resignation (effective December 31, 1994), his recusal from meat and poultry issues for the two months remaining in his tenure, his reimbursement for the things of value he had received, and the institution of further methods to review his travel, the White House Counsel felt that no further actions should be taken at that time.

5.   Allegations of Additional Improprieties

At about the same time that the Special Division was considering the Attorney General's request for the appointment of an Independent Counsel and that White House Counsel was investigating Espy, the press began to report a series of new allegations against the Secretary, many of which would ultimately be examined by the Independent Counsel. The following table summarizes the major publicly-reported events that OIC investigated:

6.   Appointment of the Independent Counsel

On September 9, 1994, thirty days after the Attorney General filed her application for appointment of an Independent Counsel, the Special Division appointed Donald C. Smaltz to the position. Smaltz was a 57-year-old California trial lawyer who had begun his career as a federal prosecutor, first in the United States Army, where he served as Captain in the Judge Advocate General's Corps, and later as an Assistant United States Attorney and Special United States Attorney in Los Angeles, California. He had been in private practice for 30 years, specializing in white-collar criminal defense and complex civil litigation. ⁽²⁰⁾

One week after the Independent Counsel was appointed, Espy issued a press release explaining that he had been an extremely busy Secretary with an "impressive record of accomplishments." He said he was releasing his travel schedules, news stories, speeches and a variety of other materials to provide a detailed account of his "official activities" while Secretary of Agriculture. Acknowledging that he may have been "inattentive" to the appearance of impropriety, he flatly asserted that he had "not violated any laws or ethics regulations" and had "cooperated fully with the USDA's Inspector General, [and] with the FBI." ⁽²¹⁾

Part of the Special Division's function is to specify an Independent Counsel's jurisdiction, and the jurisdictional grant in this instance tracked the Attorney General's request. It gave to the Independent Counsel the full power, independent authority, and jurisdiction to the maximum extent authorized by the Independent Counsel Reauthorization Act of 1994 ⁽²²⁾

[to investigate] whether Alphonso Michael (Mike) Espy, Secretary of Agriculture, committed a violation of any federal criminal law, other than a Class B or C misdemeanor or infraction, relating in any way to the acceptance of gifts by him from organizations or individuals with business pending before the Department of Agriculture;

[to investigate] allegations or evidence of violation of any federal criminal law, other than a Class B or C misdemeanor or infraction, by any organization or individual developed during the Independent Counsel's investigation referred to above and connected with or arising out of that investigation;

to seek indictments and to prosecute any organizations or individuals involved in any of the matters described above;

to fully investigate and prosecute the subject matter with respect to which the Attorney General requested the appointment of independent counsel . . . and all matters and individuals whose acts may be related to that subject matter, inclusive of authority to investigate and prosecute federal crimes . . . that may arise out of the above described matter, including perjury, obstruction of justice, destruction of evidence, and intimidation of witnesses.

The Attorney General's application for the appointment of an Independent Counsel referred specifically to Espy's receipt of gifts in possible violation of 18 U.S.C. § 201(c), the general gratuities statute, and of 21 U.S.C. § 622, the gratuities provision of the Meat Inspection Act. It also recommended that the Independent Counsel's jurisdiction extend not only to Espy's acts, but also to organizations and persons involved in those acts and, further, to violations of federal criminal law connected with or arising out of the investigation.

The Special Division's definition of the Independent Counsel's jurisdiction did not limit the range of possible offenses into which the Independent Counsel could inquire. The Special Division adopted the grant that the Attorney General proposed, and the Independent Counsel's jurisdiction extended to Espy's receipt of gifts, to the giving of the gifts, and to other criminal violations arising out of and in connection with the investigation. This broad authority gave the Independent Counsel both the power and the responsibility to look at a wide range of possible offenses touching on the receipt of gratuities, including mail and wire fraud under 18 U.S.C. §§ 1341, 1343, and 1346; salary supplementation under 18 U.S.C. §§ 209 and 216(b); false statements to government officials under 18 U.S.C. § 1001; false recording of the gratuities under 15 U.S.C. § 78m(b)(2); failure to report receipts as required by ethical regulations; and other violations of ethical regulations to the extent such violations offend other criminal statutes. Later referrals of related matters compelled the Independent Counsel to address a variety of violations of other possible criminal statutes, such as the federal election laws. During the OIC's investigation, the Attorney General and the Special Division referred a total of five related matters to the Independent Counsel for investigation.

On September 14, 1994, shortly after the Independent Counsel's appointment, the Attorney General referred as related matters the two allegations that

(a) Secretary Espy hosted a fundraising dinner, attended by agricultural lobbyists, the purpose of which was to retire the campaign debt of his brother; and

(b) Debts of Secretary Espy, including an automobile loan, were paid by a government contractor.

The investigation of these two matters is discussed in Sections II.E.1.f and II.C.1.c, respectively.

On October 20, 1994, the Attorney General referred to the Independent Counsel a third related matter - the allegation that

Secretary Espy was improperly influenced by Tyson Foods to intervene, in February 1993, on behalf of U.S. poultry producers in a dispute involving the labeling of chicken shipped from the United States to Puerto Rico.

The investigation of this matter is discussed in Section II.A.1.b.(3).

On April 1, 1996, upon the Independent Counsel's request and over DOJ's objection, the Special Division referred to OIC, as a fourth related matter, the investigation of

any application, appeal, or request for subsidy made to or considered by the United States Department of Agriculture, for which Secretary of Agriculture Alphonso Michael (Mike) Espy and/or his Chief of Staff Ronald Blackley intervened in the application, approval, or review process.

The investigation of this matter is discussed in Section II.F.

On October 15, 1996, the Attorney General referred to OIC, as a fifth related matter, the allegation that

Richard Douglas [the executive of Sun-Diamond Growers of California who had given gifts to Espy] may have obtained a mortgage loan in 1993 by making false representations and submitting false writings and documents to a broker and a lender.

The investigation of this matter is discussed in Section II.G.1.

Early on in the investigation - in January 1995 - OIC requested the Attorney General to refer either as a related matter or as an expansion of its jurisdiction the authority to investigate Tyson Foods' gifts to other public officials. The Attorney General refused this request. The matter is discussed in Section II.A.1.d. The Independent Counsel sought one additional referral from the Special Division concerning irregularities in Espy's congressional campaign account, which the panel denied on June 12, 1998. The circumstances of this request are discussed in Section II.G.2.

An Independent Counsel's statutory powers include conducting grand-jury proceedings and other investigations, participating in civil and criminal court proceedings and litigation, and appealing any decision in any case in which the counsel participates in an official capacity. 28 U.S.C. § 594(a)(1)-(3). An Independent Counsel has authority to obtain immunity for witnesses and to consult with the United States Attorney in the district where crimes were allegedly committed. His powers include "initiating and conducting prosecutions in any court of competent jurisdiction, framing and signing indictments, filing informations, and handling all aspects of any case, in the name of the United States." He appoints employees, requests and obtains assistance from DOJ, and may accept referral of matters from the Attorney General, if the matter falls within the Independent Counsel's jurisdiction as defined by the Special Division. He is required, except to the extent inconsistent with the statute, to "comply with the written or other established policies of the DOJ respecting enforcement of the criminal laws." 28 U.S.C. § 594(f). He has "full authority to dismiss matters within [his] prosecutorial jurisdiction without conducting an investigation or at any subsequent time before prosecution, if to do so would be consistent" with DOJ policy. 28 U.S.C. § 594(g). ⁽²³⁾

II.   THE OFFICE OF INDEPENDENT COUNSEL'S INVESTIGATION

A.   Gifts Solicited or Received by Secretary Espy

The Independent Counsel's original mandate centered on allegations that Secretary of Agriculture Alphonso Michael Espy received gratuities from agricultural interests, in particular from Tyson Foods, Inc. The Office of Independent Counsel (OIC) undertook a thorough inquiry into all things of value Espy received from persons and entities that had an interest in Espy's official actions and, more generally, in actions of the United States Department of Agriculture (USDA). In the course of its investigation, OIC uncovered a wide variety of benefits conferred on Espy, and indirectly on him through his girlfriend Patricia Dempsey or members of his family, by representatives of companies subject to USDA regulation who had significant issues awaiting resolution.

The things of value that Espy received from agricultural interests while in office, and the companies whose agents gave or facilitated the giving of things of value while they had matters before him, are set forth chronologically in the following table:

Espy's counsel maintained at trial that some donors of these gifts were personal friends of Espy. Similarly, Espy appeared, in his own mind at least, to have justified the receipt of many of these things of value on two grounds: that they were given to his girlfriend Patricia Dempsey, not directly to him or a blood relation, and that some of the immediate donors were his friends - in particular Richard Douglas of Sun-Diamond Growers and Michael O'Bannon of the EOP Group. In his diary, he explored possible "book themes" to explain his legal difficulties, including the following: "My errors - reliance on non-blood relationships (Pat) reliance on friendship exception Richard Douglas, O'Bannon."

The "friendship exception" is a reference to regulations promulgated by the Office of Government Ethics that specifically recognize "gifts based on a personal relationship" as an exception to the general regulatory prohibition on receipt of any gifts over $20 in value from prohibited sources. 5 C.F.R. § 2635.204(b). The regulations provide that such exceptions apply to enforcement of the gratuities statute, 18 U.S.C. § 201(c)(1)(B). 5 C.F.R. § 2635.202(b). However, the regulations make clear that this friendship exception is limited:

Gifts based on a personal relationship. An employee may accept a gift given under circumstances which make it clear that the gift is motivated by a family relationship or personal friendship rather than the position of the employee. Relevant factors in making such a determination include the history of the relationship and whether the family member or friend personally pays for the gift.

5 C.F.R. § 2635.204(b).

Espy's acceptance of these gifts was not protected by the friendship exception because the gifts were given for business purposes and paid for by businesses either regulated by or having matters before USDA. It is immaterial that the person who presented the gifts on behalf of the companies happened to be Espy's personal friends. Espy either knew or willfully ignored the source of the expensive gifts he received.

1.   Gifts from Tyson Foods, Inc.

Of all the entities investigated by OIC, Tyson Foods, Inc. was the largest and best connected to President Clinton. It had direct entree to the White House through its chairman, Don Tyson, a longtime supporter of President Clinton, and its chief counsel, James Blair, was described in a White House memo as the President's "close personal friend." Blair had an office at the corporate headquarters of Tyson Foods in Springdale, Arkansas.

In December 1992, while still a congressman, Espy sought Don Tyson's help in being appointed to the new Clinton administration cabinet. After Espy's appointment, Don Tyson and other Tyson Foods officials subsequently sought to maintain direct access to and influence with Espy through a pattern of gift-giving, which began immediately before Espy was sworn in as the Secretary of Agriculture and continued until shortly before publication of the March 17, 1994 Wall Street Journal article that reported on these activities. During Espy's first year in office, Tyson Foods gave Espy, Espy's girlfriend, and Espy's relatives things of value worth a total of more than $12,000 for or because of official acts performed or to be performed by the Secretary.

a.   The Donors

In 1993 and 1994, Tyson Foods was the world's largest fully integrated producer, processor and marketer of poultry-based food products. Its market share of chicken products sold in the United States was approximately 23%. It also had a smaller beef and pork division. The company's integrated operations included breeding and rearing chickens and hogs, harvesting seafood, and processing and marketing poultry, beef, pork and seafood. The company processed approximately 3.9 billion pounds of consumer poultry and 518 million pounds of consumer beef and pork during fiscal 1994. Tyson Foods' annual sales in 1993 and 1994 were approximately $5 billion, with beef and pork operations accounting for approximately 10% of its business.

Tyson Foods in 1993 and 1994 owned and operated approximately 60 poultry processing plants, 18 of which also processed beef and pork products, in 17 states and three foreign countries. USDA inspected all of Tyson Foods' slaughtering and processing facilities and pervasively regulated their operations. The company noted in its annual 10-K report for 1994:

The Company's poultry, beef, pork and Mexican food-based processing facilities are . . . subject to extensive inspection and regulation by the United States Department of Agriculture.

As Tyson Foods' main lines of business were food processing and distribution, it had an obvious reason to maintain Espy's receptive ear. The company was subject to extensive USDA regulation in its everyday operations. Tyson Foods routinely had numerous matters pending before USDA  - matters that could and did substantially affect the company's operations. During Espy's tenure as Secretary of Agriculture, pending USDA policy issues had the potential to affect more than $100 million of Tyson Foods' business.

Don Tyson, chairman of the Board of Directors, owned or controlled approximately 90% of the voting shares of the company. Don Tyson was a friend of and political contributor to Bill Clinton when he was Governor of Arkansas and when he ran for the presidency of the United States. Don Tyson's son, John H. Tyson, was president of the Beef and Pork Division and a director of Tyson Foods in 1993.

Archibald R. Schaffer III was Tyson Foods' director of Media, Public and Governmental Affairs. In this capacity, Schaffer acted as the company's principal spokesperson and was responsible for overseeing all of Tyson Foods' dealings with and lobbying of government officials, supervising all contacts with the press and administering all public-relations efforts. His duties included reviewing official comments that Tyson Foods' technical department submitted to government agencies regarding proposed legislation and regulations. He was also the primary contact between Tyson Foods and two trade associations to which it belonged, the National Broiler Council and the Arkansas Poultry Federation. Schaffer reported directly to John Tyson and supervised Tyson Foods' Washington, D.C. lobbyist, Jack Williams. Don Tyson testified that he expected Schaffer and his predecessor to advise him on the legalities of his dealings with government officials, and in this respect Schaffer had let him down.

Jack L. Williams, a registered lobbyist, represented Tyson Foods' interests before various governmental agencies, including USDA. Williams reported to Don Tyson, John Tyson and Schaffer. He submitted monthly invoices for "Legislative Liaison Services" to Tyson Foods, including a flat fee for services rendered and a non-itemized amount for "additional Washington expenses" that varied from month to month and that Schaffer reviewed and approved. Williams also represented other clients before USDA.

The National Broiler Council (NBC), a trade association for the poultry industry, described itself as "representing the producers/processors of 95% of the broiler chickens consumed in the United States." Its purpose was to promote poultry products and maintain a legislative liaison presence with regulatory authorities and Congress. The $165,000 in annual dues paid by Tyson Foods, nearly twice those of the next-largest member, comprised 8% of the NBC's annual budget, making Tyson Foods the trade association's largest and dominant member.

The Arkansas Poultry Federation (APF) was a trade association that represented the interests of the poultry industry in Arkansas before federal, state and local government entities. Its membership consisted of poultry processors, feed manufacturers, commercial egg producers and others. Each member company paid up to a maximum $15,000 in annual dues; in each of 1993 and 1994, Tyson Foods, the largest dues-paying member, paid $45,000 reflecting the three companies it controlled.

The Tyson Foundation, Inc., an entity separate from Tyson Foods, was formed in 1969 as a not-for-profit Arkansas charitable corporation funded with Tyson Foods stock. It was organized, in part, to provide college scholarships to needy students who resided in the vicinity of Tyson Foods' operating facilities. As the Tyson Foundation stock increased in value, the foundation developed into a significant charitable education enterprise, with assets in 1995 valued in excess of $15 million.

After the 1992 presidential election, Mississippi Congressman Espy approached John Rogers, president of C.B. Rogers, Inc., a large Mississippi poultry company, seeking an introduction to Don Tyson. Espy was interested in being nominated as Secretary of Agriculture or Commerce in the Clinton administration. Because of his position as chairman of one of the world's largest poultry companies and his reputed relationship with the President-elect, Don Tyson appeared to be in an advantageous position to influence the new administration's selection of the Agriculture Secretary. Rogers agreed to arrange the meeting. Shortly thereafter, Espy, Ronald Blackley (Espy's Congressional district agricultural representative and future Chief of Staff), Rogers, and Rogers's wife flew in Rogers's private plane from Mississippi to Little Rock, Arkansas to meet with Don Tyson.

John Tyson met the group at the airport in Arkansas. Espy, Blackley, Rogers and John Tyson then traveled to Little Rock for lunch, where Don Tyson joined them. During lunch, Rogers told Don Tyson that Espy wanted to be a Cabinet member and urged him to use his influence with the President-elect to assure that Espy be considered. Espy then informed Don Tyson of his qualifications for the post and solicited his assistance.

After he became Secretary of Agriculture, Espy occasionally met Don and John Tyson, primarily at social gatherings and events, and the Tysons made use of such occasions to lobby Espy on matters of interest. Espy's most frequent contact with Tyson Foods, however, came through lobbyist Williams, with whom he frequently met to discuss policy matters affecting Tyson Foods. Espy's calendar reflects that he met with Williams on at least the five following scheduled dates: February 3, 1993; March 11, 1993; January 25, 1994; February 16, 1994; and March 9, 1994. Williams also was known to show up unannounced on other occasions to meet with the Secretary. Espy's notepads reveal either a meeting or a telephone conversation with Williams on September 14, 1993, at which time the topic of attending a Dallas football game came up. Espy also met with Tyson Foods' governmental affairs director Schaffer from time to time.

b.   Donors' Interest in Secretary Espy's Official Acts

The Secretary of Agriculture has a significant role in overseeing the nation's meat and poultry industries. The Federal Meat Inspection Act (FMIA) (21 U.S.C. § 601 et seq.) and the Poultry Products Inspection Act (PPIA) (21 U.S.C. § 451 et seq.) direct the Secretary of Agriculture to maintain meat- and poultry-inspection programs designed to assure consumers that the meat and poultry products they purchase are wholesome and unadulterated. Such inspections were required for Tyson Foods to market its products. Tyson Foods was subject to numerous USDA regulations that applied to many aspects of its integrated business, from the slaughter of meat and poultry through their processing, distribution and sale to the consumer.

USDA's Food Safety and Inspection Service (FSIS) has the responsibility under these laws for inspecting both meat and poultry products and the facilities at which they are produced. As part of its inspections, FSIS routinely monitors for the presence of microbial contamination in commercial cooked or processed ready-to-eat meat and poultry products to assure they are safe.

FMIA and PPIA further direct the Secretary of Agriculture to assure that meat and poultry products distributed to consumers are properly marked, labeled, and packaged. The regulations grant the Secretary broad authority to determine what must be disclosed on labels bearing the USDA inspection legend. One important consequence of the Secretary's authority to mandate labeling is that such mandates preempt inconsistent state and local requirements that might otherwise restrict the flow of interstate commerce in meat and poultry products. The Secretary therefore has significant power to limit state and local regulation.

(1)   USDA Food Safety Initiatives

Before he was sworn in as Secretary of Agriculture on January 22, 1993, Espy faced a major public-health crisis. On January 18, 1993, USDA learned that a virulent strain of E.coli bacteria (E.coli 0157:H7) had caused an outbreak of food poisoning from hamburgers sold at a fast-food restaurant in Washington state. The incident captured the nation's attention as more than 500 people became ill and four died. The E.coli outbreak caused a flurry of activity at USDA and had the potential to affect severely the meat and poultry industries. FSIS, with the Secretary, was responsible for coordinating USDA's response to the crisis.

One of Espy's first official acts as Secretary was a February 2, 1993 trip to Olympia, Washington to meet with state officials and coordinate state and federal efforts to control the outbreak. Dr. Russell Cross, administrator of FSIS, accompanied Espy and briefed him on the details of a "two-track" system for inspection reform that FSIS had had under development since the fall of 1992. Dr. Cross had publicly disclosed these proposals to industry groups in mid-January 1993, before Espy took office. Soon after his trip, Espy announced his intention to implement Dr. Cross's two-track program. On February 4, 1993, in a Washington, D.C. conference with representatives of meat and poultry producers and processors - including Tyson Foods representative Schaffer - Espy discussed USDA's response to the E.coli outbreak and stated his intention to proceed with substantial changes in the inspection systems for both meat and poultry.

The following day, February 5, 1993, before the Senate Agriculture, Nutrition and Forestry Subcommittee, Espy testified that the then-current meat inspection practices, which depended on visual examination of carcasses, could not detect bacterial contamination. Espy said that he was directing USDA "to reinvent every aspect of meat inspection" and testified that Dr. Cross had prepared a two-track model for reforming meat and poultry safety procedures, designed to maximize the effectiveness of the existing program while developing new meat and poultry inspection regimens for the future. Track I, Espy explained, was to be "evolutionary," in that it would take advantage of existing scientific technology and techniques to improve meat and poultry inspection. Track II, he said, was to be "revolutionary," with a wholly-revamped meat and poultry program capable of dealing with the dangers posed by various harmful bacteria. Espy outlined a number of proposed measures he planned to implement promptly, including filling 500 meat-inspector vacancies, using organic sprays more widely to reduce bacteria on the surface of beef carcasses, and mandating safe-handling instructions on raw meat and poultry products to heighten consumer awareness.

Dr. Cross, whose testimony followed Espy's, further detailed the two-track approach. Track I involved the implementation of six initiatives, including proposals to enhance detection and control measures to develop quantitative risk analysis to encourage the use of technologies that reduce pathogens, and to increase consumer awareness of safe food practices by disseminating information on how best to handle meat and poultry products. Track II called for FSIS to redesign all USDA safety programs for the future in cooperation with "outside stakeholders such as Congress, professionals from the public health sector, consumer groups [and] industry."

Throughout 1993 and 1994, USDA developed and implemented new measures designed to increase food safety. FSIS increased its inspection of slaughterhouses. The agency also conducted 90 unannounced inspections of cattle slaughterhouses and temporarily closed 30 of them. In the fall of 1993, Espy announced that USDA intended to conduct 1,000 unannounced inspections of meat and poultry processing plants.

USDA also continued work throughout 1993 on two Track I policies of great interest to Tyson Foods. First, FSIS refined and implemented a plan for pathogen reduction on meat and poultry, an effort that acquired the name "zero tolerance." Second, FSIS worked on developing a consumer education program that would apply to all meat and poultry products. This effort culminated in an emergency regulation mandating the use of so-called "safe handling labels" on all not-ready-to-eat products.

(a)   Zero Tolerance for Pathogens

The January 1993 E.coli incident focused public attention squarely on FSIS policies regarding the removal of pathogens from meats during processing. Dr. Cross's February 5 Congressional testimony announced to the public that FSIS's response would include maximizing performance of the then-existing system, which consisted solely of inspection of animal products by sight, smell, and touch.

At the time of the E.coli outbreak, USDA policy required inspectors to take certain measures with meat or poultry products on which any foreign material was found. But this policy was not strictly enforced; small amounts of fecal, ingesta, and milk contamination were allowed to remain on the product. As its first step to further combat food-borne pathogens, USDA issued a memorandum in early March 1993 instructing inspectors to enforce strictly USDA's policy precluding such material from beef carcasses. "A zero tolerance for feces and ingesta is to be enforced," the memo commanded.

Beginning in February and continuing through mid-March 1993, FSIS officials met with Espy and his Chief of Staff, Ronald Blackley, regarding additional pathogen reduction efforts for meat and poultry. When USDA issued the March 1993 memo in direct response to the E.coli outbreak, it mandated a zero tolerance policy only as to beef. (The USDA had historically treated poultry different from beef because foreign material could be trimmed from beef, but not poultry, without significantly reducing the product's value.) Thus, existing policy still permitted a certain amount of visible fecal contamination on poultry, sometimes referred to as "specks."

FSIS had never discovered E.coli on poultry. However, food poisoning from bacterial pathogens in poultry was a significant problem. Dr. Cross estimated that on average about 25% of poultry carcasses were contaminated with salmonella, compared to 1% of beef carcasses. According to Dr. Cross, the fecal material responsible for E.coli contamination, if present on either beef or poultry, greatly increased the risk for all pathogens that FSIS intended to eliminate through zero tolerance, including both E.coli (on beef) and salmonella (on beef and poultry). Consequently, FSIS worked to develop a comprehensive program to reduce pathogens and eliminate foreign material from poultry as well as meat.

On March 9, 1993, FSIS officials met with representatives of the poultry industry to advise them of the zero-tolerance initiative and to seek their input. Although poultry industry representatives argued that changes in the poultry-inspection process were unnecessary and would cost the industry millions of dollars, they appeared to view changes as inevitable. Another meeting between FSIS officials and poultry-industry representatives to discuss zero tolerance was scheduled for March 11, at which time the industry was to present its thoughts and recommendations.

On March 10, 1993, interviews with two FSIS officials were reported by the news media - interviews that apparently had not been pre-cleared by Espy or his staff. The FSIS officials told the Des Moines Register and CNN that USDA would soon be issuing a zero-tolerance policy for poultry similar to the one instituted for beef. The Des Moines Register article said:

The Agriculture Department's decision last week to set a "zero tolerance" standard for fecal contamination covers only beef products, and not pork and poultry, officials have confirmed.

But the USDA plans to issue a similar policy change to inspectors in pork and poultry plants in the next few weeks, spokesman Jim Greene said. ⁽²⁴⁾

The news reports received widespread attention from the poultry industry.

A day later, March 11, 1993, the meeting between the poultry industry and FSIS resumed as planned. Industry representatives presented their proposal for tightening the poultry-inspection process. FSIS staff called it unacceptable. The industry representatives grew angry, voices were raised, and the meeting became contentious. The industry representatives claimed that the FSIS-proposed poultry-inspection reforms were unreasonable, and the meeting ended in discord.

Later that afternoon, Tyson Foods lobbyist Williams sought and obtained an audience with Espy in Espy's office. OIC has no direct evidence of what took place at the meeting. However, Espy later acknowledged that he conferred with Williams on poultry issues, including zero tolerance, and confirmed that he met with Tyson Foods' lobbyists frequently. The March 11 meeting with Williams appears on Chief of Staff Blackley's schedule too, although Blackley has stated that he does not recall attending the meeting.

The next day, March 12, 1993, Blackley called a meeting with FSIS personnel. Also in attendance were the acting assistant secretary, who oversaw FSIS, and Espy's new counselor, Kimberly Schnoor, who joined his staff approximately two weeks prior to the meeting. The purpose of the meeting was to discuss the March 10 Des Moines Register article.

Accounts of the meeting vary. According to Schnoor, Blackley led the meeting. Others claimed that Schnoor led the meeting. In either event, Blackley and Schnoor, as Espy's most senior advisors, spoke for him. They told the FSIS personnel that Espy was very upset at being caught off guard about zero tolerance and that neither they nor he had been aware of the policy of zero tolerance for poultry. Blackley and Schnoor also said that Espy resented learning about the initiative from industry. Blackley was especially angry at not having been kept apprised of this important policy matter. According to several participants in the meeting, Blackley made his feelings known by yelling at FSIS staff members and pounding the table.

The four attendees at the meeting other than Blackley and Schnoor stated that Blackley directed them to stop work on the zero-tolerance program. Also, according to one FSIS official present at the meeting, Schnoor told the FSIS personnel that they needed to stop work immediately on the zero-tolerance initiative and to get rid of all their files on the matter. Blackley reiterated this instruction. When informed that much of the relevant material was on computer, he told the FSIS staff members to delete the computerized material. Blackley and Schnoor then told the staffers that they had acted improperly in meeting with industry about zero tolerance and talking to the press without approval from Espy's office, and that until they heard from the Secretary, they were to drop the zero-tolerance initiative as it related to poultry. According to several participants in the March 12 meeting, approval to proceed was not forthcoming for many months, with the result that USDA did not announce a zero-tolerance policy for poultry until a year later, in the spring of 1994.

Schnoor's account of the March 12, 1993 meeting with FSIS differed from those of other attendees. Schnoor recalled that Blackley called the meeting to discuss how zero tolerance for meat was being implemented and also to find out why the news media had reported Espy was implementing a zero-tolerance program for poultry when Espy was not aware of such a program. Schnoor stated that she and Blackley did not tell FSIS to hold off on further action to develop zero tolerance for poultry but did tell FSIS that it should keep the program "highly confidential" and should not discuss it with anyone outside of FSIS or Espy's office. Schnoor denied that there was any discussion of destroying any work done by FSIS on computers or otherwise.

Despite the discrepancies among the various accounts of the March 12 meeting, most of the participants claimed to have a fairly strong recollection of what had transpired. Blackley's recollection of the meeting, though, was vague at best. He did not remember when it took place or what it was about, other than that it had to do with "policy changes in FSIS." He also had no recollection of saying or hearing that Espy was upset about having been caught off guard regarding zero tolerance.

On March 15, 1993, George Watts, president of and lobbyist for the NBC, who dealt with Schaffer, reported that lobbying efforts on zero tolerance occurred at the "highest levels" of USDA. In a fax to Jim Darazsdi, the chairman of the NBC, Watts stated:

You are no doubt aware that USDA's Food Safety and Inspection Service (FSIS) recently published a memorandum to inspectors-in-charge and plant operators of beef slaughter and boning plants stating that 'all fecal, ingesta and milk contamination from any source, must be trimmed prior to any washing of the carcass.' This has resulted in great turmoil in beef plants.

The National Broiler Council has been concerned that FSIS might issue a similar memo on poultry. There have been several meetings and contacts with FSIS and Department officials at the highest levels on this matter. In addition to expressing opposition to such a memo being issued for poultry, we are trying to make sure that if a memo should be issued, it would be based on scientific principles as well as practically achievable goals. (Emphasis added.)

When interviewed by OIC agents, Watts claimed he was unable to recall to whom he was referring when he wrote, "Departmental officials at the highest levels," but it was obvious that this matter was of considerable concern to the NBC and its leading member, Tyson Foods. In a previous memorandum to Tyson Foods, dated March 4, referencing a meeting with Espy or his chief of staff concerning "our . . . point that poultry should be left alone," the NBC lobbyists reported to Schaffer on the council's efforts and looked to Tyson for strategies and guidance in dealing with USDA.

As a result of Blackley and Schnoor's March 12 confrontation with senior FSIS representatives, development work on the zero-tolerance program temporarily ceased and no further discussions with industry were permitted, absent approval by Espy's office. Schnoor instructed FSIS to prepare a package discussing pathogen reduction on beef and poultry to brief Espy. On March 25, 1993, Dr. Cross sent an explanatory memorandum and supporting information to the Secretary and requested authorization to proceed. When authorization was not immediately forthcoming, Dr. Cross authorized FSIS to continue developing in-house procedures but not to discuss the matter with industry or consensus groups.

In early October 1993, Dr. Cross sent Espy a zero-tolerance proposal entitled "Clean Poultry Examination." In a meeting in November 1993, Espy authorized FSIS to proceed, but Espy cautioned "to keep work internal and not discuss with anyone."

In January 1994, as Dr. Cross was retiring from USDA, he recommended several proposals for action, the top priority being the development of "Zero Tolerance for Poultry & Meat Species Other Than Cattle." Next in line for immediate attention Dr. Cross listed "Microbiological Sampling in Inspection" as part of the "Pathogen Reduction Program" for meat and poultry, a component of the second track of his two-track plan for inspection reform.

On March 9, 1994, Espy finally announced a new poultry-inspection system that included a zero-tolerance policy for poultry contamination. In June 1994, Espy told the Capitol Hill newspaper Roll Call that USDA's zero-tolerance policy would now be strictly enforced against meat and poultry producers, characterizing his March announcement as "an outline of zero tolerance policy for poultry." ⁽²⁵⁾ Espy acknowledged the gravity of the public-health concerns, noting that "[d]eaths from all food-borne pathogens are estimated at more than 9,100 each year." ⁽²⁶⁾ In July 1994, USDA formally proposed a zero-tolerance policy for fecal contamination of poultry. 59 Federal Register 35639 (July 13, 1994). ⁽²⁷⁾

Tyson Foods was vitally concerned about the effects of USDA's proposed zero-tolerance-for-poultry plan and objected to the standards. In a comment letter, Tyson Foods estimated the cost of converting and operating for one year under the Department's Poultry Enhancement Program at $57.1 million and said recurring costs after that would run to $39 million a year.

(b)   Safe-Handling Labeling

The federal meat- and poultry-inspection regulations in place when Espy took office in 1993 required only very short and general consumer-protection labeling statements, such as "Keep Refrigerated," "Keep Frozen," or "Perishable - Keep Under Refrigeration." The regulations mandated such labels only on packaged products that required special handling to maintain their wholesome condition - i.e., products that were uncooked or had not been otherwise processed to make them ready to eat. From the time Espy assumed office on January 22, 1993 through August 11, 1993, more extensive and detailed safe-handling labeling was a matter pending his decision.

In early January 1993, USDA officials began publicly to advocate detailed mandatory safe-handling instructions on the labeling of meat and poultry products. The issue of requiring labels on meat and poultry products to inform the consumer how to handle them safely came to Espy's attention shortly after the E.coli outbreak of January 1993, in a briefing by Dr. Cross on their trip to Washington state.

Following the E.coli outbreak, at a February 4, 1993 conference with industry representatives, including representatives from Tyson Foods, Espy expressed his intention to require detailed safe-handling labels on meat and poultry products. In his testimony the next day before the Senate Agriculture, Nutrition, and Forestry Subcommittee, Espy explained that he was going to mandate these labels on all red meat and poultry to advise consumers how to avoid food-borne illnesses through proper handling procedures. Dr. Cross, whose subcommittee testimony followed Espy's, cited the need to "mandate safe-handling instructions for labels on all raw meat and poultry products"and "[i]ssue instructions to the field on approval of safe-handling statements for voluntary industry use, pending mandatory rules."

The following week, a public-interest coalition filed suit to enjoin the Secretary of Agriculture from affixing USDA's inspection legend to meat and poultry products, unless it was accompanied by a label warning that the product might contain harmful bacteria and prescribing appropriate handling and cooking instructions. On May 5, 1993, USDA and the plaintiffs reached a court-sanctioned agreement under which the suit was dismissed. USDA agreed to publish, by August 30, 1993, new labeling requirements, mandating that raw meat and poultry products bear safe-handling instructions and a statement explaining the importance of following the handling instructions.

From February through August 1993, FSIS worked to determine what the safe handling labels should say, a process that included receiving and considering input from both consumer groups and industry. Aside from questions over precise language and illustrations, there were two competing schools of thought about the general content of the labels. Some consumer groups advocated that the labels should take the form of a "WARNING" notice and advise consumers that eating improperly handled or undercooked meat could cause sickness or death. The industry adamantly opposed labels that might scare consumers and argued that the labels should instruct consumers on how properly to handle and cook meat and poultry. FSIS ultimately rejected the call for a "WARNING" notice and focused on how the labels could educate consumers about appropriate handling and cooking of animal products.

At that time, USDA continued to receive reports of deaths and illness around the United States from E.coli bacteria. Espy decided to implement safe-handling labeling in an "interim final rule" instead of following normal notice and comment procedures, which would have taken longer to implement. By issuing an interim final rule, USDA caused this new rule to be published directly into the "Rules and Regulations" section of the Federal Register instead of the "Proposed Rules" section. 9 C.F.R. §§ 317 and 381. This manner of circumventing the normal, more lengthy notice and comment process is permitted under the Administrative Procedure Act when an agency finds that the normal notice procedure is "impracticable, unnecessary, or contrary to the public interest."

USDA issued the safe-handling interim final rule on August 15, 1993. The rule required all meat and poultry that was not "ready to eat" to bear labels with instructions on proper handling, cleaning, cooking, and storing. The rule provided the following as a sample compliance label:

The rule was to take effect automatically in 60 days (on October 15, 1993) for raw, partially cooked, or ground meat and poultry. All other poultry and meat products would be required to have safe-handling labels by January 15, 1994. FSIS estimated that the cost to the food industry of implementing the regulation would be between $37.5 and $75 million. The public was given 30 days (until September 15, 1993) to comment on this interim final rule.

The meat and poultry industries vigorously objected to the proposed labeling requirements, arguing that the time allowed for compliance was too short and that compliance would be too costly. In a letter to FSIS on September 7, 1993, Tyson Foods emphasized that the changes would cost the company $9 million. The industries asserted that they were not objecting to labeling requirements per se but rather to the short implementation period. One of the grounds for their objections was that USDA was requiring three label changes to be implemented at different times. In addition to safe-handling labels, USDA was requiring meat producers to add metric measurements to their labels in February 1994, and then to add nutritional information in July 1994.

In August 1993, Watts of the NBC and Schaffer of Tyson Foods obtained a meeting with Espy to discuss the labeling issue, even though a pre-meeting memorandum that Watts drafted pointed out that the Secretary is generally precluded from discussing regulations in the rule-making stage with the regulated industry. The following month, on September 8, 1993, Tyson Foods sent a letter to Espy opposing what it viewed as "the unreasonable short time allowed to implement the [safe-handling] rule." On September 18, 1993, at a Congressional Black Caucus dinner in Washington, D.C., John Tyson lobbied Espy to persuade him of the need to alter the rule.

The American Meat Institute, the National Broiler Council, and Tyson Foods pressured USDA over the proposed regulation and sought (and later obtained) the intervention of the Clinton administration. (The American Meat Institute, a national trade association based in Washington, D.C., represents packers and processors of beef, pork, lamb, veal and turkey products and their suppliers.) Vice President Albert Gore received a letter on September 15, 1993 from Senator Dale Bumpers of Arkansas ⁽²⁸⁾ that Schaffer had initiated and that Tyson Foods had drafted. It requested the Vice President's review of the labeling matter, explaining the difficulties Tyson Foods and the industry as a whole would have in implementing all the proposed changes by the scheduled deadline. Senator Bumpers's letter noted that

Tyson Foods tells me that the October 15^th deadline on all products would have cost them about $30 million. Changing the packaging again in February, and then again in July will end up costing the industry several hundred million dollars.

The letter found its way to President Clinton, who recognized it as a Tyson Foods-sponsored request, as he penned a note on the back to his Chief of Staff, Thomas F. (Mack) McLarty, stating:

Mack - Tyson really encouraged this - looks like a good idea. Please follow up. See if we can. BC.

Contemporaneously, James Blair, Tyson Foods' chief lawyer, contacted the White House about the safe-handling labels controversy. On September 20, 1993, White House Policy and Staff Director Bill Burton wrote to Vice President Gore's chief of staff, Espy, and White House Domestic Policy Counsel Carol Rasco. Burton's memorandum, in pertinent part, stated:

Subject: Johnny Tyson's labeling suggestion

Johnny Tyson, through the President's good friend, Jim Blair, made the following suggestion regarding labeling, which Johnny believes ties in with our "reinventing government" effort. He says the USDA is in the process of making three major food business labeling changes regarding various items. One of the labeling changes is due in two months, Tyson says, another in the spring, and another in July.

Tyson suggests that all three labeling changes be announced concurrently, so as to avoid making food processors go through three labeling changes in the space of a year.

On October 1, 1993, Mark Middleton, an assistant to the White House chief of staff, wrote a memorandum to Espy's chief of staff, Blackley, suggesting that a compromise should be adopted to address the concerns of USDA and of the beef and poultry industries. Three days later, Espy responded to Middleton, agreeing to adopt Middleton's suggested changes. The letter stated:

Dear Mark:

I received your 10/1/93 memo to Ron [Blackley] on the safe handling labels - and will move to adopt your suggested changes on compliance dates, etc.

However, you should understand that when we go public - there will be shouts of protest from food safety and consumer groups - and from the families of the E-coli victims. They all believe that we're in the 'pocket' of industry and will use this to validate their position. There will be a new assault on USDA meat inspection jurisdiction.

When this happens, I'm going to need someone to talk with the V.P. I don't mind making the changes - as long as you are aware of the repercussions. - We are team players - but you are asking me to catch a short pass "across the middle."

Respectfully, Mike.

The meat and poultry industry took their objections to the interim final rule to court, as well. In September 1993, a group of food-industry trade associations filed a lawsuit and a motion for preliminary injunction in the Western District of Texas to block the rule's implementation. On October 14, 1993, the court enjoined USDA from proceeding with the labeling plan. ⁽²⁹⁾ USDA's motion to stay the injunction was denied, and USDA thereafter withdrew the proposal and submitted a new proposal under the normal procedures of the Administrative Procedures Act.

As a result of the injunction, USDA filed a new proposed rule on November 4, 1993, with a 45-day comment period. The comment period ended on December 19, 1993. The rule took effect on January 15, 1994 and the labeling rules finally went into effect on May 27, 1994 - i.e., the deadline initially requested by the meat and poultry industries.

(2)   Fresh-Frozen Labeling

Both the Federal Meat Inspection Act and the Poultry Products Inspection Act (FMIA and PPIA or, collectively, Inspection Acts) preempt states and local jurisdictions from imposing any marking, labeling, packaging or ingredient requirements on federally inspected meat and poultry products that are in addition to, or different from, those imposed under the Inspection Acts. States and local jurisdictions may, however, exercise concurrent jurisdiction over meat and poultry products to prevent the distribution of meat and poultry products that are misbranded or adulterated under the Inspection Acts. The requirements imposed by states that maintain meat- and poultry-inspection programs must be at least as stringent as those under the Inspection Acts.

For years, big processors in the Southeast, such as Tyson Foods, hard-froze their birds for shipping. Regional processors, whose products were not hard-frozen because they did not have to travel far and therefore could be shipped at higher temperatures, contended that they were at a competitive disadvantage, because large poultry firms could undersell them and legally call their frozen products "fresh." (Poultry that has not been hard-frozen generally commands a higher retail price than frozen poultry.) The debate over "fresh versus frozen" thus pitted national against regional poultry marketers.

In 1993, California passed legislation that defined "fresh" poultry as poultry that had never been chilled below 26 degrees Fahrenheit. This meant that producers that froze poultry below this temperature for long-distance shipment could not sell it as "fresh." California's new definition was at odds with USDA regulations that allowed processors to label poultry "fresh" so long as it had never been chilled below zero degrees Fahrenheit. The National Broiler Council (NBC), in which Tyson Foods was a major force, was particularly concerned about the issue, because it affected the ability of its member processors to sell their products in California as "fresh."

California maintained that its labeling law was vital to consumer protection. The NBC, the Arkansas Poultry Federation, and the American Meat Institute, among others, sued to block enforcement of the California law. By December 27, 1993, Espy was well aware of the litigation.

The NBC approached USDA, urging participation in the court case to support its claim that the California law was preempted by federal statute. On February 14, 1994, at the court's request, USDA filed an amicus brief that supported the NBC argument that federal law preempted California's labeling requirements. The district court struck down the California law on April 8, 1994, and the Ninth Circuit Court of Appeals affirmed the decision in December 1994.

Although USDA supported the NBC in the court case, Espy gave conflicting signals about his own position. In February 1994, Espy told Watts, the NBC's lobbyist, that he would do nothing to interfere with the lawsuit. On February 10, 1994, Espy directed FSIS to reexamine its policy on use of the term "fresh" on the labels of raw poultry products. Subsequently, Espy told Senator Dianne Feinstein of California, who was a member of the Senate Agriculture Appropriations Subcommittee, that USDA was studying its definition of "fresh."

Concerned about Espy's statement to Feinstein, Watts sent a fax to Schaffer, Tyson Foods' director of Media, Public and Governmental Affairs, on March 4, 1994, stating:

Here is a report on today's Senate Ag Appropriations Subcommittee hearing of FY 95 budget. In addition to what is reported regarding exchange between Bumpers, Feinstein, and Espy, the Secretary responded to a question from Feinstein as follows re 'fresh' issue:

FEINSTEIN: I trust you are continuing to look at it (USDA's definition of fresh).

ESPY: We are studying the definition of fresh and frozen and will be coming out with a definition soon.

As you know, the Secretary as well as others on his staff told NBC chairman, Ken May and me recently that they will be in no hurry to review the issue and will do nothing to interfere with the court case as we attempt to get a strong opinion on preemption. I don't know why he said what he did today. . . . It appears the Secretary needs to get another message about holding off while court case is pending. (Emphasis added.)

The controversy over fresh versus frozen persisted throughout 1994. On March 9, 1994, Espy met with Watts, Tyson Foods lobbyist Williams, and Stewart Proctor of the National Turkey Federation. On May 20, 1994, two congressional subcommittees requested Espy to appear and testify on the fresh-frozen labeling debate, but Espy sent Deputy Secretary Rominger in his place.

In August 1995, six months after Espy left office, USDA issued its final rule in the fresh versus frozen dispute - effective August 1996, poultry was not to be labeled "fresh" unless it had never been chilled below 26 degrees; poultry refrigerated between zero and 26 degrees was to be labeled "hard chilled," and poultry frozen below zero degrees was to be labeled "frozen." However, a provision of USDA's fiscal year (FY) 1996 appropriations act, enacted October 21, 1995, prevented the final rule from taking effect and prohibited use of any funds for implementation and enforcement of the rule. Another provision contained in USDA's FY 1997 appropriations act, enacted August 8, 1996, instructed USDA within 90 days to issue a revised final rule replacing certain provisions contained in the final rule originally promulgated in August 1995. Complying with that provision, USDA published the revised final rule on December 17, 1996, with an effective date 12 months later. Under the revised final rule, now in effect, raw poultry that has been chilled below 26 degrees but above 0 degrees may contain optional, descriptive labeling but is not required to be labeled with any specific, descriptive labeling terms such as "hard chilled."

(3)   Detainment of Chicken in Puerto Rico

The July 25, 1994 issue of Time magazine reported that, as a favor to Tyson Foods, Espy used his influence with Puerto Rico's governor to get 900,000 pounds of Tyson Foods chicken released into the island's commerce after it had been detained because of a failure to comply with a Puerto Rico Department of Agriculture (PRDA) labeling requirement. The article reported that Guillermo Garcia, president of Packer's Provision Company, a Puerto Rican importer of Tyson Foods chicken, had called Tyson Foods about the detention and "Tyson Foods officials promised swift action." Time quoted Garcia as stating:

We expected a good result because of Tyson's support of Clinton . . . but we were told that it wouldn't look good for Tyson to seek Espy's help directly. For that, we were told, the National Broiler Council would be used as a kind of shield.

Garcia denied the statements attributed to him in the Time article and asserted that the quotes attributed to him were either fabricated or taken completely out of context. He also wrote to Time, denying that he had sought and obtained Tyson Foods' intervention with the federal government regarding the detained chicken.

On August 18, 1994, a member of the Puerto Rico House of Representatives wrote Attorney General Janet Reno, transmitting a resolution calling for an investigation of the allegations in the article. Deputy Assistant Attorney General John C. Keeney sent a copy of the letter and the accompanying resolution to the Independent Counsel on October 20, 1994 "for whatever action . . . deem[ed] appropriate." Upon receiving the referral, OIC commenced an investigation into its allegations.

OIC's investigation disclosed that on January 20, 1993, one day before Espy was sworn in, PRDA inspectors began detaining loads of frozen chicken entering the commonwealth if they were not properly labeled in accordance with PRDA's newly revised Market Regulation No. 8 (MR8)  - i.e., if they did not bear the name of the importer. By early February 1993, PRDA had officially detained a substantial amount of frozen chicken, including about a million pounds produced by Tyson Foods. A large quantity of chicken produced by the Boston Sausage and Provision Company had also been detained. While there was little chance that the product would thaw or spoil, the companies needed the matter resolved, because the seizure affected their purchasing, pricing and shipping options. Boston Sausage offices called the Secretary of Agriculture's office numerous times. The NBC also became involved.

NBC President Watts learned of the detention around January 20, 1993. Watts said that he "probably" discussed the matter with Schaffer and with Charles Clark, Tyson Foods' vice president for International Marketing, but that he had no specific recollection of doing so. Watts also contacted USDA officials, including possibly Espy's chief of staff, Ronald Blackley, about the detention. On February 1, 1993, NBC's Executive Committee authorized the filing of a lawsuit challenging MR8. At the time, Watts stated that Espy had spoken with Puerto Rico's governor about the issue but that nothing had been resolved.

At a convention of poultry producers in Atlanta, Georgia, Garcia informed Roy Brown, Tyson Foods' vice president for Sales & Marketing, and Clark about the detention of the chicken. According to Garcia, neither Brown nor Clark expressed any real concern.

Before a grand jury, Brown acknowledged meeting Garcia at the conference but had no recollection of discussing the Puerto Rico chicken detention with him. In grand-jury testimony, Clark recalled Garcia mentioning the issue to him in Brown's presence but maintained that it was not a "big part" of their discussion. Clark's impression was that the matter was "another slight interruption in business that would be cleared up," and he was not overly concerned, because Tyson Foods' distributor bore the risk of loss of the detained chicken. Brown and Clark further testified before the grand jury that they had no contact with USDA about the Puerto Rico chicken detention and that they were not aware of any contact between Tyson Foods and USDA on the issue. No USDA official has contradicted their testimony.

Documentary evidence, however, is inconsistent with Brown's and Clark's testimony regarding the significance of the issue to Tyson Foods. On February 2, 1993, Clark wrote a memorandum to NBC's counsel, explaining that the new MR8 labeling requirement "create[d] a major problem in feasibly supplying Puerto Rico with chicken . . . [because it] [wa]s a non-tariff barrier to trade." Brown was sent a copy of the memorandum. Brown and Clark both testified that James Darazsdi, chairman of the NBC, said he did not have any conversations about MR8 with Leland Tollett, Tyson Foods' chief executive officer and a representative to NBC's Board of Directors, outside the discussions at NBC Board meetings. Tollett, however, testified that NBC assisted Tyson Foods with the chicken detention "problem." Tollett did not recall any direct contact with USDA by Tyson Foods.

USDA Chief of Staff Blackley advised Espy, probably on February 1, 1993, that a Philadelphia sausage company had called about its chicken being detained in Puerto Rico and had requested that Espy discuss the issue with Puerto Rico Governor Pedro Rossello at the National Governors' Association dinner they both would be attending that evening. At the dinner, Espy met Rossello and mentioned to him that there was an issue concerning the detention of poultry in Puerto Rican ports. The governor responded that he would look into the matter. Because Rossello was unaware of the problem, he asked that an explanatory letter be faxed to him at his hotel.

On February 2, 1993, Espy sent a letter to Rossello at his hotel, noting that MR8's requirement that the name and address of the importer must be on all poultry products imported into Puerto Rico was preempted by the federal PPIA. A telephone message slip, dated February 2, from Rossello's chief of staff, Alvaro Cifuentes, to Blackley at USDA states: "[W]ill comply w/secy's letter to the Governor on the poultry situation - not aware of what was going on - have been in Wash."

Cifuentes told investigators that after Rossello asked him at the dinner if he knew anything about the chicken detention, he called PRDA Secretary Neftali Soto-Santiago (Soto) to inquire about the status of the chicken. Cifuentes said he believes he did not advise Soto of Espy's interest but instead simply called him to obtain information.

Soto stated that he received a copy of Espy's letter to Rossello on February 26, 1993. Approximately three weeks before, however, on February 3, 1993, after meeting with local chicken producers and importers, Soto had issued a 30-day waiver, allowing poultry products detained on the docks or in transit by sea to enter without the necessity of a label bearing the name and address of the importer.

The poultry industry continued to complain about MR8, and in mid-February the NBC informed Soto that there were four provisions in MR8, including the labeling requirement, that created trade barriers in violation of federal law, and that the NBC would commence legal action if its concerns were not addressed. As a result of this discussion, Soto issued another 30-day waiver, followed by a 90-day waiver, of the labeling requirement. After further discussions, PRDA agreed to extend indefinitely the waiver of the labeling requirement and to review MR8 with respect to the concerns raised by the NBC.

By letter dated April 8, Soto advised Espy that he had waived implementation of the requirement until at least June 3, 1993 and that negotiations were underway with NBC and others to avoid further litigation and preemption problems. On June 10, 1993, Soto issued a permanent waiver of the MR8 labeling requirements. He did so to avoid suit with the NBC and a possible unfavorable court ruling, and because he believed the labeling requirement disadvantaged small Puerto Rican importers. Soto asserted that Espy's letter to Rosello had no impact on his decisions in this matter.

On July 1, 1993, Espy wrote Soto to advise that USDA had formed a committee to review new amendments to MR8 and to consult with PRDA about the regulation. After reviewing MR8 and proposed revisions to the regulation, USDA general counsel's office advised Puerto Rico in November 1993 that the regulation still contained provisions that were preempted by the PPIA.

With respect to the Puerto Rican chicken detainment, Tyson Foods and other members of the poultry industry clearly had an interest in Secretary Espy's role in the dispute. While Secretary Espy's actions were responsive to the industry's concerns, the extent to which Tyson Foods attempted to influence his actions proved to be inconclusive.

c.   Gifts Given

During the period January 18, 1993 through January 16, 1994, Tyson Foods, through its officers and agents, gave illegal gratuities to Espy totaling approximately $12,000. Tyson Foods' gifts to Espy, his girlfriend, and his family included the following: (1) four tickets to the January 18, 1993 Presidential Inaugural Dinner at the Sheraton Washington Hotel in Washington, D.C., valued at $6,000; (2) transportation to and hospitality at a weekend-long musical celebration at the Tyson Management Development Center in Russellville, Arkansas, on May 14-16, 1993, valued at approximately $2,556; (3) a $1,200 Tyson Foundation scholarship check to Patricia Dempsey, Espy's girlfriend, dated January 4, 1994, for the first semester of an eight-semester academic program: and (4) airline tickets for Dempsey and skybox tickets, food and limousines for Espy and Dempsey for the Dallas Cowboys-Green Bay Packers National Football League playoff game in Dallas, Texas on January 16, 1994, valued at approximately $2,271. Tyson Foods also provided USDA Acting Assistant Secretary for Marketing and Inspection Services Patricia Jensen with an airline ticket upgrade and a ticket to a University of Arkansas college basketball game, which she attended as a guest in Tyson Foods' skybox.

While OIC's investigation did not reveal evidence that Espy agreed to change any specific decisions because of these gifts, Tyson Foods subsequently admitted in pleading guilty to gratuities offenses that it gave these gifts for or because of Espy's official acts.

(1)   Four Seats at a Presidential Inaugural Dinner

On December 7, 1992, Schaffer submitted a Tyson Foods check request for $30,000 for the purchase of two tables (with 10 seats each) at the January 18, 1993 Presidential Inaugural Dinner at the Washington Sheraton Hotel in Washington, D.C. On December 23, 1993, he submitted a second Tyson Foods check request in the amount of $15,000 for the purchase of a third table at the dinner. Four of these 30 seats were provided to Secretary-designate Espy. On January 15, 1993, Schaffer circulated a memorandum to the "Tyson Inaugural Team," confirming that Espy, Dempsey, and two of Espy's siblings (Jean Espy Geralds and Henry Espy) were invited as Tyson Foods' guests at the inaugural dinner and noting that the seats cost $1,500 each. On a separate memorandum, Schaffer by hand wrote: "Archie Schaffer will pick up and distribute" the tickets for each guest. Schaffer's memorandum also stated that Tyson Foods would host a private party at the Bayou, a club in Georgetown, on the same night, following the inaugural dinner.

On December 29, 1992, Secretary-designate Espy received an admonition from the transition counsel that warned:

As the Inaugural approaches, it is important that presidential designees be aware of the federal rules governing the receipt of gifts by executive branch employees - including attendance at receptions, parties and other events.

Richard Douglas, senior vice president of Sun-Diamond Growers of California, claimed he invited Espy and Dempsey to sit at a Sun-Diamond-purchased table at one of the presidential inaugural galas. However, according to Douglas, Espy declined because he understood that "the White House did not want administration officials to be guests of any private interest groups."

As a Cabinet appointee, Espy was invited to attend one of the inaugural dinners as the guest of the President and Vice President. Espy was invited to the Vice President's dinner at the National Building Museum.  Espy and Dempsey nonetheless attended the inaugural dinner at the Washington Sheraton as guests of Tyson Foods and sat at one of the Tyson Foods' tables, with Don and John Tyson and Schaffer, among others. Two of Espy's sisters (Laverne Espy and Jean Espy Geralds) also attended the event and sat at another of Tyson Foods' tables, with Tyson Foods lobbyist Williams. Although their attendance was beyond question (they appeared in photographs taken at the time), both claimed to have no significant memory of the event. ⁽³⁰⁾

After the inaugural dinner, Espy and Dempsey attended a Tyson Foods private party at the Bayou.

(2)   The Russellville Weekend Musical Celebration

On March 29, 1993, the Arkansas Poultry Federation (APF) invited Espy to its June 4 and 5 Poultry Festival in Hot Springs, Arkansas. The festival customarily drew more than 4,000 attendees. Espy declined on April 20, 1993. However, the next day, on April 21, 1993, Don Tyson sent Espy an invitation to a weekend-long musical celebration to be held at Tyson Foods' management training complex in Russellville, Arkansas from May 14 through May 16. The invitation listed events spanning three days.

With this invitation, Don Tyson sent Espy a handwritten note, stating:

Mike - Next week you will get an invitation from Arkansas Poultry Federation for May 15 Meeting. - David P[ryor] and Jim Sasser and maybe one more couple will be on the airplane with you and we will take you back on Sunday.

The text of the note clearly suggests that it followed an earlier communication between Don Tyson and Espy and that arrangements had been or would be made for Espy's travel to and from the party via a Tyson aircraft.

A blind carbon copy went to "A. Schaffer," with a note from Don Tyson's secretary that read:

Archie: This letter was sent with the party invitation to Mike Espy.

At the time Don Tyson invited Espy to Arkansas, APF had no event planned in Russellville. However, on April 26, 1993, five days after Don Tyson sent Espy the invitation to the birthday party, Don Allen, APF's executive vice president, wrote to invite Espy to speak at a "short meeting," sponsored by APF, to be held in Russellville on May 15, 1993. According to Allen, someone at Tyson Foods had telephoned him and told him that he should have a meeting in Russellville and invite Espy. On the same day, Allen also circulated a memo to APF board members, informing them that Secretary Espy would be in Arkansas on May 15 and inviting them to meet with the Secretary. Allen sent the original invitation via United Parcel Service overnight delivery, not to Espy but to Schaffer, who then mailed it to Espy from Tyson Foods' headquarters in Springdale, Arkansas. On April 27, 1993, Schaffer also faxed a copy of the letter to Espy at USDA.

When questioned by OIC, Allen recalled that someone from Tyson Foods told him that Espy was available, and that Allen should set up a meeting in Russellville and invite Espy. Don Tyson thus had informed Espy that he would be invited to attend an official APF event even before APF itself had scheduled such an event, and APF then extended an invitation to Espy at the request of Tyson Foods. The circumstances clearly implied that Tyson Foods officials initiated the APF event to create an official reason for Espy to be in Russellville the weekend of the Tyson birthday party.

After Schaffer faxed the APF invitation to USDA, Espy's travel coordinator, Betty Stern, made arrangements with Schaffer for Espy's attendance at the APF meeting. Schaffer provided Stern a stream of false information about the event, which made it appear that Espy would be attending a meeting and weekend-long conference, without any mention of the birthday celebration. On May 5, 1993, either Schaffer or his secretary told Stern that the APF meeting would have about 150 attendees, that it would last from 9:00 a.m. until 5:00 p.m. on May 15, 1993, and that it would be followed by a dinner with Senator James Sasser (of Tennessee) and Senator David Pryor (of Arkansas). The timing and description of events reported to Stern were completely inconsistent with what actually occurred - a "short meeting," held for only 15 to 20 attendees, that lasted about 45 minutes. As a result, the Secretary's itinerary reflected an all-day business meeting, permitting Espy to remain on official business status in Arkansas through the following day. Schaffer further informed Stern that there would be a charter plane available on Sunday to transport Espy, along with Senators Pryor and Sasser, back to Washington, D.C.

On May 11, 1993, Stern faxed Schaffer a note inquiring about, among other things, the agenda for the APF meeting, details regarding the charter plane and the location at which Espy and his security agent would stay the evening. Stern's note stated that USDA would expect to be billed for two first-class tickets (for Espy and his security agent), plus $1.00, so the government could reimburse the cost of the airfare. On the same day, Schaffer instructed Don Tyson's personal assistant to fill out a corporate aircraft request for a plane to carry passengers from Washington, D.C. to Russellville, Arkansas on May 14, 1993 and return passengers to Washington, D.C. on May 16, 1993. Schaffer told the assistant to add "one other" to the list of passengers flying to Russellville on May 14 and indicate "M[ike] Espy" and "one other" on the return flight to Washington on May 16. The "one other" for whom Schaffer requested seating was Patricia Dempsey, Espy's girlfriend.

Schaffer replied to Stern's facsimile the following day. Without mentioning the Tyson birthday party, he described a "conference of the leadership of Arkansas's poultry industry, who are meeting over this weekend," and stated that "the meeting will run throughout the day Saturday." Schaffer provided information on the charter plane, without disclosing that Tyson Foods owned the charter, and listed the other passengers on the charter, without naming Dempsey. ⁽³¹⁾ He stated that APF would bill USDA for the airfare. These representations concealed the true nature of Espy's travel. As a result, Stern, who was responsible for the Secretary's official expense vouchers, believed that Espy was on official business throughout his trip to Russellville. The false information Schaffer provided Stern resulted in the following being issued as Espy's official itinerary for May 15:

Espy did, in fact, go to the May 15 APF meeting, which was attended not by 150 people as Schaffer indicated to Stern but by 15 to 20 persons, including Schaffer and others from Tyson Foods. There was no APF dinner as indicated in Espy's official itinerary. Schaffer, other Tyson Foods officials, and Espy then drove to the Tyson Management Development Center for a lavish, weekend-long "musical celebration," which included entertainment by celebrity musicians. Allen, who had invited Espy to the APF meeting, claims not to have known that Espy would attend the Tyson event until he saw him there. Dempsey had arrived in Russellville the night before on the Tyson Foods plane Schaffer had requested and stayed with Espy upon his arrival. On Sunday, May 16, Espy and Dempsey flew back to Washington, D.C. on the Tyson Foods jet.

After the party, Schaffer continued to represent that Espy had only attended an APF function. On June 30, 1993, Stern faxed Schaffer a request for bills for the Secretary's travel and lodging. Although a Tyson Foods corporate aircraft flew Espy and Dempsey and they stayed at Tyson Foods' management training complex, Schaffer had Allen of APF prepare APF invoices to USDA for the lodging and airfare, giving the appearance that APF had provided these services. Schaffer then submitted the invoices to Stern.

Stern included APF's invoice for $69.55 in lodging costs on Espy's travel claim for the Russellville trip. Espy received reimbursement from USDA on August 23, 1993, but he did not then reimburse APF or Tyson Foods for the lodging. Ten months later, on June 11, 1994, one day after agents from the FBI interviewed him about the Russellville trip, Espy wrote APF a $69.55 check for the lodging in Russellville.

On September 13, 1994, Dempsey sent Don Tyson a check representing, in part, reimbursement of $830 for airfare to and from Russellville and $69.55 for lodging in Russellville. The check was returned because of insufficient funds. On November 17, 1994, Dempsey's attorney sent Tyson Foods a letter withdrawing the offer of reimbursement and asking that the check be sent back to her. (Espy and Dempsey's reimbursements are discussed in Section II.B.3.)

When OIG agents interviewed Espy in 1994 about his receipt of gifts from Tyson Foods, he did not disclose that he had attended a Tyson Foods event on this occasion. He instead stated that he was at an APF dinner at a Tyson Foods facility. He similarly did not disclose that Dempsey was with him.

Espy's own contemporaneous writings are inconsistent with his statements to the OIG agents. In his legal pads, for the date "4/27/93," within a list of things to do, Espy wrote:

Schedule b'day party - Ark.

Furthermore, in his pocket calendar, Espy noted "Tyson," rather than "APF,"

for the afternoon of May 15, 1993 and the morning of May 16, 1993.

(3)   Scholarship to Secretary Espy's Girlfriend

On September 18, 1993, Espy and Dempsey attended a Congressional Black Caucus Dinner in Washington, D.C. John Tyson, Schaffer and Tyson's lobbyist Williams also attended. During the course of the dinner, John Tyson approached Espy to lobby him with regard to USDA labeling requirements for poultry. Espy told John Tyson that there was nothing he could do about the regulation. Williams was within earshot of this discussion. After Espy walked away, John Tyson began speaking with Dempsey and, upon learning that she was planning to attend college, told her that she would qualify for a Tyson Foundation Scholarship.

Following the Congressional Black Caucus Dinner, Williams met with Espy at USDA and, during the course of the conversation, mentioned that he was aware that Dempsey was interested in going to college and in obtaining a scholarship. According to Dempsey, Espy told her that he told Williams he should take that issue up with Dempsey, not with him. One witness testified that Espy had urged Dempsey not to accept the scholarship because of his regulatory authority over the company, but that she insisted that she could accept it if she wanted to.

Dempsey followed up on this offer on November 22, 1993, when she faxed Williams a letter addressed to John Tyson, inquiring further about the scholarship and stating that she would be enrolling in college in January 1994. She asked Williams by telephone whether she would meet the residency requirement that applicants live near Tyson Foods facilities. Williams replied that she did not have to worry about it. Williams forwarded Dempsey's letter to John Tyson at Tyson Foods. On December 10, 1993, the Tyson Foundation faxed an application to Williams, and Williams faxed the form to Dempsey that same day. On December 21, 1993, Dempsey faxed the completed application to the Tyson Foundation. On January 3, 1994, the Tyson Foundation informed Dempsey that she had received the scholarship, in the amount of $1,200 per semester for up to eight semesters, or a total of $9,600. Dempsey subsequently received a check from the Tyson Foundation for $1,200 for the first semester. (Dempsey withdrew from the Scholarship program after it came under investigative scrutiny and never received the remaining $8,400.)

Cheryl Tyson, Don Tyson's daughter and president of the foundation, believed that Dempsey, who then resided in Silver Spring, Maryland, did not meet the residency requirement that an applicant live in the vicinity of an operating facility of Tyson Foods. She awarded Dempsey a scholarship, nonetheless, because Don Tyson told her that he wanted Dempsey to have it.

On September 13, 1994, Dempsey sent John Tyson at the Tyson Foundation a check for $1,200 to return the scholarship money. The check bounced because of insufficient funds. On November 17, 1994, Dempsey's attorney sent Tyson Foods a letter withdrawing the offer of reimbursement and asking that her check be returned. This reimbursement is discussed at Section II.B.3.

(4)   The Dallas Football Game

On September 18, 1993, Espy met with Williams at USDA, where they discussed Espy's possible attendance at a Dallas Cowboys football game at the team's Texas Stadium, where Tyson Foods had a skybox. Espy noted this discussion in his legal pad entry on that day.

In January of 1994, Dempsey made reservations to fly to Dallas, Texas to meet Espy and to attend with him a National Football League post-season playoff game between the Dallas Cowboys and the Green Bay Packers at Texas Stadium. On January 12, 1994, Williams purchased the round-trip air tickets for Dempsey at a cost of $1,009; he later submitted the expense to Tyson Foods, where Schaffer approved it. On January 13, 1994, after speaking to Dempsey on the phone, Williams had his hired driver deliver the tickets to Dempsey at her place of work. The next day, Williams spoke with Don Tyson's secretary about the travel arrangements for Espy and Dempsey.

On the morning of Saturday, January 15, 1994, a member of Espy's security detail, Millard Reid, phoned Supervisory Special Agent Thomas Bates of the USDA/OIG office in Dallas from Lubbock, Texas, where the Secretary was traveling. Reid informed Bates that, contrary to earlier information from Reid, the Secretary wanted to be briefed on operations by someone from the Dallas office. Bates thought the reason for the meeting sounded "hokey," as this information could have been provided to Espy without his coming to Dallas. Reid would later call Bates and tell him to meet the Secretary in the lobby of his hotel shortly before 2:00 p.m.

That same morning, Dempsey traveled to Dallas using the ticket Williams purchased and met Espy at the airport. Tyson Foods provided a limousine service, which took the couple to their hotel. Espy then met with Bates in the hotel lobby for approximately thirty minutes and Bates briefed him on the operations of the Dallas office. Espy did not mention his anticipated attendance at the football game the next day. Afterward, it was Bates's opinion that the meeting was a "set-up" - that the only reason for the meeting was to justify the Secretary's trip to Dallas.

The following day, the limousine service picked up Espy and Dempsey and took them to the airport to meet Don Tyson and others. Limousines then took the entire party to Texas Stadium, where Tyson Foods provided a pre-game meal and skybox seats for Espy and Dempsey. Following the game, a limousine drove Espy and Dempsey to a shopping mall and then to the airport for their return flight to Washington.

The Wall Street Journal reported on March 17, 1994 that Tyson Foods had "feted" Espy at a Dallas Cowboys football game in January. The next day, March 18, 1994, Espy sent Don Tyson a check for $68 as reimbursement for the January 16 game. The check was dated March 10, but Espy had backdated it from March 18, apparently to make it appear he had intended to make reimbursement prior to publication of the Wall Street Journal story.

On September 13, 1994, Dempsey sent Don Tyson a check representing, in part, $65 reimbursement for the football game and $275 for the limousine service. She did not reimburse Tyson Foods for the airplane ticket. The check was returned because of insufficient funds. On November 17, 1994, Dempsey's attorney sent Tyson Foods a letter withdrawing the offer of reimbursement and asking that the check be sent back to her. This reimbursement is discussed at Section II.B.3.

(5)   Basketball Tickets and Travel Benefits to Assistant Secretary

The March 17, 1994, Wall Street Journal article that prompted the investigation of Secretary Espy's receipt of gifts from businesses USDA regulates also alleged that Tyson Foods had recently hosted USDA Acting Assistant Secretary Patricia Jensen at a college basketball game in Arkansas. Jensen oversaw USDA's Marketing and Inspection Services, including the Food Safety and Inspection Service (FSIS).

The Department of Justice had jurisdiction over the Jensen investigation and declined to prosecute her. OIC's investigation, however, overlapped with the Jensen investigation to the extent that Tyson Foods had bestowed gifts upon senior officials at USDA. In conducting its investigation, OIC reviewed the evidence OIG had developed on this allegation. That evidence revealed that Tyson Foods, through its lobbyist Williams, had given Jensen a Tyson skybox ticket for a University of Arkansas basketball game and a flight upgrade to first class during Espy's tenure.

On January 31, 1994, Jensen addressed the Mid-American Dairymen Association, another Williams client, in Kansas City, Missouri. The next day, she and Williams traveled to Fayetteville, Arkansas, where she addressed the Arkansas Poultry Federation.

While they were in Arkansas, Williams gave Jensen a Tyson Foods skybox ticket for that evening's University of Arkansas-Vanderbilt basketball game and told her it had been provided by Schaffer, Tyson Foods' director of Media, Public and Governmental Affairs. Jensen said she insisted on paying for the ticket, which she ultimately did by mailing a personal check to Williams for $13, the value of the ticket according to Williams. Jensen dined with Williams and Schaffer as a guest of Southwestern Bell. After dinner, she rode with Williams and Schaffer to the arena, where she met Don Tyson and watched the game from the Tyson Foods skybox.

On February 2, Jensen gave her speech at the Arkansas Poultry Federation meeting and toured Tyson Foods facilities. On her flight back to Washington, D.C., Williams arranged to have her seat upgraded to first class. The government estimated that the ticket upgrade Williams gave Jensen was worth approximately $80.

d.   Allegations of Cash Payments from Tyson Foods to Public Officials

One aspect of OIC's investigation of Tyson Foods received a great deal of public attention for a short period of time, even though it did not result in any prosecutions. Early in the investigation, OIC heard allegations that Tyson Foods provided things of value to other government officials in addition to Secretary Espy. To the extent that Tyson Foods had in fact given gratuities or engaged in illegal conduct with other government officials, such evidence would have been relevant to Tyson Foods' intent in providing gratuities to Secretary Espy.

In late 1994, looking for possible information about Tyson Foods gifts to Espy, OIC interviewed Joseph Henrickson. Henrickson had been a pilot for Tyson Foods from 1978 to 1993 and was suing the company for wrongful termination. Henrickson gave OIC investigators credible information about Tyson Foods providing favors to political figures on a number of occasions.

According to Henrickson, Tyson Foods had placed substantial pressure on his attorney to halt his lawsuit, threatening that they would accuse him (falsely, according to Henrickson) with using Tyson aircraft to transport illegal drugs. When the investigators asked him why he thought Tyson Foods would react so strongly to his lawsuit, Henrickson, after reflection, responded that the only thing he could think of was the "envelopes of money."

According to Henrickson, in the 1980s and through 1991, he and other pilots had repeatedly on behalf of Tyson Foods transported white envelopes to Little Rock for ultimate delivery to Governor William Clinton. The envelopes were left at a desk at the airport or with a person driving an Arkansas State Police vehicle. By holding the envelopes to the light, Henrickson had seen the denomination of $100 through the envelope.

Recognizing that this accusation bore on the question of Tyson Foods' policies regarding gifts to public officials, OIC began to make further inquiries about the matter. Henrickson's wife confirmed that he had told her of these events at the time they were alleged to have transpired. However, OIC did not locate any other witnesses who corroborated the story.

Following this preliminary investigation, in January 1995, OIC requested that the Attorney General refer as a related matter these allegations of Tyson Foods' misconduct to the OIC for further investigation. Alternatively, OIC requested that its jurisdiction be expanded to include these allegations. The letter request, set forth in Appendix A, identified the evidence gathered to date and explained its relation to the ongoing Espy investigation. In addition to the alleged payments to former Governor Clinton, the allegations included the following:

• possible conduit campaign contributions by Don Tyson to elected federal officials other than Secretary Espy;
  
  
• entertainment by Tyson of elected members of Congress and other federal officials at his vacation residence in Cabo San Lucas, Mexico; and
  
  
• possible bribes paid to Mexican immigration and customs officials.

By letter dated February 17, 1995 (Appendix A), Attorney General Reno declined OIC's request. Shortly thereafter, someone outside OIC, in an apparent effort to discredit OIC's investigation, leaked Attorney General Reno's decision denying OIC's requests. ⁽³²⁾

Subsequently, OIC referred to DOJ the evidence it had concerning these allegations of Tyson gifts to then-Governor Clinton and other government officials other than Secretary Espy. Insofar as OIC is aware, DOJ conducted no further investigation of these allegations and brought no prosecutions relating to them.

Documentation of OIC's contacts with the Department of Justice concerning referral of this matter and leaks to the press are included in Appendix A to this Report.

e.   Summary Timeline

The following chronology summarizes the gifts Tyson Foods gave to Espy and significant events related to USDA policy matters of interest to Tyson Foods:

f.   False Statements to Federal Investigators

On March 22, 1994, OIG agents interviewed Tyson lobbyist Williams about the Dallas football game at which Tyson Foods hosted Espy and Espy's girlfriend, Dempsey. Williams, who had been placed under oath by the agents, ⁽³³⁾ replied that Tyson Foods owns a skybox at Texas Stadium, home of the Dallas Cowboys football team, but that he had heard only through rumor and news reports that Espy was a guest of Tyson Foods at the Cowboys-Packers playoff game that previous season. In truth, Williams had been actively involved in arranging for Dempsey to attend the football game with Espy.

On May 24, 1994, after USDA had referred these matters to the Department of Justice (DOJ), the FBI interviewed Schaffer, Tyson Foods' director of Media, Public and Governmental Affairs, at the company's offices in Springdale, Arkansas. The interview concerned Schaffer's participation in and knowledge of the giving of things of value to Espy. Schaffer denied any involvement in arranging Espy's attendance at the APF meeting or the Russellville birthday party. Further, he denied any knowledge of who arranged for Espy to attend the party. In fact, Schaffer knew that Don Tyson had invited Espy, because he had received a blind copy of the invitation and had himself made the arrangements for Espy's visit to Russellville.

Schaffer also falsely told the interviewing FBI agents that he had no involvement whatsoever in arranging for Dempsey to travel to Arkansas that weekend and to stay at the Tyson Foods Management Development Center. In fact, a Tyson Foods aviation form showed that he had requested the plane that brought Dempsey to Arkansas from Washington, D.C. and then returned Espy and Dempsey to Washington following the party.

On May 29, 1994, the FBI interviewed Dempsey at her apartment in Silver Spring, Maryland concerning her and Espy's attendance at the Russellville party and the Dallas football game. Dempsey stated that she paid for her round-trip airfare to Dallas to attend the game. In truth, Williams purchased the $1,009 airline tickets and he was subsequently reimbursed for that expenditure by Tyson Foods.

Dempsey also stated during the interview that, without Espy's knowledge, she had made arrangements with Don Tyson for her and Espy to attend the Dallas football game and that Espy did not know that she was attempting to obtain or had obtained tickets until Friday, January 14, 1994, two days before the game.

These assertions were contradicted by USDA records, including Espy's official travel itinerary, which was prepared on January 10, 1994 and updated several times, and which showed that Espy had planned to attend the game at least since January 10, 1994. Also inconsistent with the sequence of events advanced by Dempsey were phone records that reflected a 15-minute call from Espy's office to Don Tyson's direct dial phone only three days earlier, on January 7, 1994. Don Tyson's secretary testified that the call came from Espy. ⁽³⁴⁾

On June 9, 1994, the FBI interviewed Williams, who corroborated Dempsey's false claim that she, rather than Williams and Tyson Foods, had paid for her airfare to Dallas. Williams's corroborative statements are consistent with the conclusion that he knew Dempsey had lied to investigators and tailored his statements accordingly. In this interview, Williams stated that he did not recall speaking with Dempsey by phone and that he did not make travel arrangements for her. He further stated that he did not have her phone number, that he did not know where she was employed, and that he did not have any prior knowledge of Espy's trip to Dallas to attend the football game. These statements were false.

g.   Prosecution Decisions

As a result of the events described above, OIC brought the following:

• a criminal information against Tyson Foods for illegal gratuities under 18 U.S.C. § 201(c)(1)(A) (see Section III.B.1.a).
  
  
• an indictment against Jack Williams for conspiracy under 18 U.S.C. § 371, wire fraud under 18 U.S.C. §§ 1343 and 1346, violation of the bribery provision of the Federal Meat Inspection Act under 21 U.S.C. § 622, illegal gratuities under 18 U.S.C. § 201(c)(1)(A), and false statements under 18 U.S.C. § 1001 (see Section III.B.1.b); and
  
  
• an indictment against Archibald Schaffer for conspiracy under 18 U.S.C. § 371, mail fraud under 18 U.S.C. §§ 1341 and 1346, wire fraud under 18 U.S.C. §§ 1343 and 1346, violation of the bribery provision of the Federal Meat Inspection Act under 21 U.S.C. § 622, and illegal gratuities under 18 U.S.C. § 201(c)(1)(A) (see Section III.B.1.b).

As a consequence of its entire investigation, including the events described above, OIC included in the indictment sought against former Secretary Espy charges for wire fraud under 18 U.S.C. §§ 1343 and 1346, illegal gratuities under 18 U.S.C. § 201(c)(1)(B), violation of the Federal Meat Inspection Act under 21 U.S.C. § 622, and interstate travel to receive illegal gratuities under 18 U.S.C. § 1952 (see Section III.B.3).

To end what it saw as unacceptable delays to its central investigation, OIC granted Don and John Tyson immunity to require their complete cooperation before the grand jury. The evidence developed, in large part from their testimony, which could be compelled in full without claims of the privilege against self-incrimination, resulted in the unequivocal guilty plea of Tyson Foods, Inc. about seven months later, concluding the case against the company.

2.   Gifts from Sun-Diamond Growers of California and Richard Douglas

OIC's investigation disclosed that Sun-Diamond Growers of California, a multi-crop agricultural cooperative, and Richard Douglas, its senior vice president in charge of government affairs, gave Espy and his girlfriend Dempsey numerous things of value from January 1993 to April 1994 while Sun-Diamond had several matters pending before Espy and USDA. The largesse that Sun-Diamond and Douglas bestowed included a $2,427 set of luggage; tickets, limousines and meals during a 1993 U.S. Open tennis-tournament weekend in New York for Espy and Dempsey at a cost of more than $4,000; tickets to a Washington Bullets-New York Knicks basketball game for Espy and his girlfriend; a framed art print; a crystal bowl; several expensive restaurant meals; and $10,000 in contributions to the failed congressional election campaign of Espy's brother. Douglas also arranged for Dempsey to receive approximately $3,100 from the International Nut Council, which he advanced to her in cash so that she could accompany Espy to a conference in Athens, Greece.

a.   The Donors

Sun-Diamond Growers of California was a large agricultural cooperative corporation, with its principal offices in Pleasanton, California. It was owned in 1993 and 1994 by five member cooperatives which, in turn, were owned by approximately 4,500 growers. The five member cooperatives were: Sun-Maid Growers of California; Diamond Walnut Growers, Inc.; Sunsweet Growers, Inc.; Valley Fig Growers; and Hazelnut Growers of Oregon. Sun-Diamond's wholly owned subsidiary Sun-Land Products marketed and sold Sun-Diamond's fruit and nut products in mixtures for use in other products.

Sun-Diamond and its member cooperatives grew, processed, packaged, marketed and sold, among other products, raisins, walnuts, prunes, figs and hazelnuts. Each member cooperative was the largest producer of commodities in its respective industry. Sun-Diamond's net sales and other revenues totaled approximately $648 million in 1993 and $574 million in 1994. Sun-Diamond assisted its member cooperatives primarily in marketing and in dealing with state and federal government agencies, such as USDA. Sun-Diamond's members were subject to extensive regulation by USDA and were significantly dependent for their financial well-being upon certain USDA programs.

Richard Douglas, Sun-Diamond's senior vice president for Corporate Affairs, was in charge of and responsible for, among other things, dealing with the Secretary of Agriculture and other decision-makers at USDA and directing Sun-Diamond's government-lobbying activities. At least once during Espy's tenure, Douglas also did private consulting in which he pursued matters before USDA on behalf of a client, BKK Corporation, which had business before USDA, but was not affiliated or associated with Sun-Diamond. ⁽³⁵⁾

Douglas and Espy became friends when they were in college at Howard University. They renewed their friendship after Espy was elected to the U.S. House of Representatives in 1986. As a Congressman, Espy was required to file annual financial disclosure statements setting forth gifts, income, and reimbursements from outside sources. The Congressional disclosure that Espy filed reflected that Sun-Diamond, through Douglas, provided the following trips, honoraria, and campaign contributions to Espy from the time of his initial election to Congress:

Sun-Diamond's gifts and honoraria to Representative Espy apparently ceased after Congress amended the House Ethics Rules to prohibit receipt of honoraria, effective January 1991. ⁽³⁶⁾ Sun-Diamond's gifts to Espy through Douglas resumed in early 1993 after the newly-elected Clinton administration selected Espy to become Secretary of Agriculture, even though Executive Branch regulations prohibited gifts from entities having business before the recipient's agency.

Douglas had direct access to and influence with Espy, occasionally advising the Secretary on agricultural and staffing matters. Douglas had previously served as Assistant Deputy Secretary at USDA from 1981 to 1983 and headed the Farmers and Ranchers Political Action Committee for President George Bush during the 1992 presidential-election campaign. Despite differing party allegiances, Espy sought and received Douglas's advice and assistance in securing his nomination for Secretary of Agriculture in the Clinton administration.

Thereafter, Douglas assisted Espy in the selection and hiring of USDA staff members. During this process, Douglas encouraged Espy to hire as his chief of staff Kimberly Schnoor, who, while working for Sun-Diamond's Washington lobbying firm, Robinson Lake Sawyer and Miller, previously had worked for Douglas. Although Espy chose Ronald Blackley as his chief of staff, he created the position of "Counselor to the Secretary" for Schnoor. Douglas's access to Espy continued throughout 1993 and 1994; staff members testified that he would arrive at the Secretary's office unannounced to see Espy, and that Espy would occasionally bring Douglas to USDA events, such as USDA's 1993 retreat. All the while, Douglas lobbied Espy on behalf of Sun-Diamond.

Sun-Diamond continually used the relationship between Douglas and Espy to its benefit. For example, the company lauded Douglas in his November 1993 Performance Appraisal as follows:

Richard's long-term friendship with Mike Espy served Sun-Diamond's interests well when Mike became Secretary of Agriculture. Further, Richard's considerable knowledge of the workings within USDA have provided Secretary Espy with invaluable insight and assistance as he learned his new job.

Douglas received an $80,000 bonus in 1993 and a $90,000 bonus in 1994, based upon his contribution to the company.

Five years earlier, in Sun-Diamond's 1988 Annual Report, Douglas described how long-term friendships and relationships could be nurtured to the benefit of the company:

Effective political action, in many ways, is similar to farming. Just as the farmer works year-round between harvests, pruning, fertilizing and making improvements to his vineyard or orchard to maximize yields, so does your management team work year-round in the political arena. Successful political action today requires more than simply communicating our views to politicians or trying to get specific legislation passed. Like farming, it is an ongoing process whereby new ideas are planted, friendships developed and past relationships cultivated. This formula for effective political action has, over the years, not only protected our members' interests, but also allowed Sun-Diamond to emerge as a creative and effective force in the public policy arena. (Emphasis added.)

The philosophy behind Sun-Diamond's cultivation of government officials such as Espy is perhaps best exemplified by Douglas's confidential 1986 memo to Sun-Diamond's Board of Directors, in which he wrote:

We have no permanent friends or permanent enemies, only a permanent interest in Sun-Diamond Growers of California.

b.   Donors' Interest in Espy's Official Acts

Sun-Diamond and its member cooperatives frequently lobbied Espy and other USDA officials on myriad issues in which they had an interest. The cooperatives' board minutes testify to this fact, as they contain several references to issues before USDA and Douglas's efforts to affect governmental decisions on these issues.

In a memorandum, Sun-Diamond's Washington lobbyist James Lake ⁽³⁷⁾ identified the following as significant issues for Sun-Diamond in 1993 and 1994: (1) the phase-out and elimination of methyl bromide as a pesticide; (2) the market promotion program (MPP) and the possible deletion of Sun-Diamond's cooperatives from eligibility for coverage; (3) the government's purchase of products from Sun-Diamond's cooperatives for use in its school lunch programs, which was possibly in danger of elimination; and (4) the Delaney clause and its potential for prohibiting the use of certain types of pesticides on Sun-Diamond crops. These all proved to be matters of active concern for Sun-Diamond and Douglas, as did a long-running strike by the Teamsters' Union.

(1)   Methyl Bromide

The pesticide methyl bromide was of considerable importance to walnut growers belonging to Diamond Walnut, a Sun-Diamond cooperative. It became a contentious issue in 1992, when the Environmental Protection Agency (EPA), under the Clean Air Act, proposed to regulate and ultimately ban use of methyl bromide, because it determined that the substance was depleting the Earth's ozone layer.

While USDA did not directly regulate the use of methyl bromide, its views were of considerable importance to EPA, since restrictions on the chemical's use would principally affect agricultural interests. USDA's position, supported by Sun-Diamond and other agricultural groups, was that methyl bromide was crucial to agriculture in general and that EPA had moved precipitously and without adequate scientific basis in proposing to prohibit the chemical's use. USDA estimated the annual economic loss to U.S. agriculture of a methyl-bromide ban at $1 billion.

In 1993 and 1994, Sun-Diamond and its cooperatives were particularly concerned that a ban on methyl bromide and the lack of viable alternatives would hurt their ability to sell their products. As a 1994 memorandum to Douglas from Sun-Diamond's Washington lobbyists stressed

because of the enormous effect on Sun-Diamond cooperatives, it will be imperative to advance USDA's view of alternatives to methyl bromide . . . . While this is an industry wide issue, the effort required to protect Sun-Diamond's interests far exceeds the resources the industry groups are able to commit for adequate coverage.

During prior debates over a ban of the pesticide, Sun-Diamond President Larry D. Busboom had sent a memorandum to Douglas regarding methyl bromide and specifically asked, "[H]ow do we influence the process?" Following EPA's proposal to ban methyl-bromide use, Sun-Diamond sought Espy's assistance in persuading EPA to delay promulgating the phase-out rule and to mitigate the adverse effects of any such rule. Sun-Diamond also sought to have USDA increase research funding for alternatives to methyl bromide in the event that use of the chemical was restricted or prohibited.

Espy became involved in the effort to prolong the use of methyl bromide almost immediately upon taking office. On February 5, 1993, he signed a letter to Leon Panetta, then head of the Office of Management and Budget (OMB), urging OMB to support preservation of methyl bromide. On February 10, 1993, Douglas and Edward Ruckert, head of the Methyl Bromide Working Group, an organization dedicated to preserving methyl-bromide use, met with Espy at USDA to explain their positions on methyl bromide and to urge the Secretary's assistance in preserving the chemical's employment in agriculture.

In a number of speeches he gave as Secretary of Agriculture, Espy took credit for going to the bargaining table with EPA to delay restrictions on methyl bromide. On March 5, 1993, for instance, Espy spoke before the National Farmers' Union, stating:

We had a problem a few weeks ago because EPA had decided to list this methyl bromide as a class one ozone depleter. And of course they called us, and we ran over to discuss it with them. We sat down and we discussed this and we reached a compromise. It will be listed as a class one ozone depleter, but unlike all those in the class one category, we do not have to reduce manufacturing and use until the year 2000.

On or about March 18, 1993, EPA formally proposed a rule limiting methyl bromide's use as a pesticide. The proposed rule also included a prohibition on the chemical's employment as a fumigant on commodities, such as those exported by the Sun-Diamond cooperatives.

USDA again urged the preservation of methyl bromide's use in a May 17, 1993 letter from Deputy Secretary Richard Rominger to Carol Browner, EPA Administrator. On November 18, 1993, Espy himself wrote to Browner to convey USDA's official comments on EPA's draft final rule. While stating that the EPA final rule did address some of USDA's concerns, Espy expressed continued reservations about the proposal, citing ongoing scientific studies and the lack of adequate substitutes for methyl bromide.

Espy continued to address the subject in his speeches and actions. During a speech to the National Council of Farmer Cooperatives on January 19, 1994, Espy stated that EPA had put methyl bromide on the chopping block but USDA arranged a compromise to delay reduction in its use and manufacture until at least the end of 2001, allowing time for added research. On May 4, 1994, he wrote Senator Dianne Feinstein of California to report that USDA had placed the development of methyl-bromide alternatives among its highest research priorities. Espy further reported that USDA distributed funds in fiscal years 1993, 1994, and 1995 for developing alternative pesticides.

(2)   Market Promotion Program

In 1993 and 1994, and for several years prior, USDA administered the Market Promotion Program (MPP), a grant program designed to increase export sales of certain U.S. agricultural commodities, including prunes, raisins and walnuts, by subsidizing companies' advertisement of U.S. products overseas. The program relied on annual congressional funding, and USDA bore responsibility for apportioning and distributing the funds to participating entities. Sun-Diamond and its member cooperatives had previously received MPP money and, in 1993 and 1994, stood to benefit significantly from the program, depending on how much money Congress allocated and how USDA distributed the funds.

The MPP began as the Targeted Export Assistance Program in 1986, and annual funding for the program was an issue in Congress every year thereafter. There was, in fact, considerable opposition to the program within Congress, where it was criticized as a welfare program for corporations. USDA's support of the program therefore was important to MPP beneficiaries. Douglas, who handled governmental affairs for Sun-Diamond, lobbied Espy to back continued MPP funding throughout Espy's tenure. Congress renewed MPP each year from 1986 onward, with the encouragement of Sun-Diamond and other farm groups.

The issue of funding came to a head during Espy's tenure, when Congress threatened to reduce funding drastically or even eliminate the program. Sun-Diamond enlisted Espy's help in urging Congress to renew MPP. Douglas's November 1993 Performance Appraisal listed the following as one of his major accomplishments:

MPP funding has been maintained for our commodity groups despite federal budget pressure, increased requests from other commodity groups for funds, and the general attack on the program by certain members of Congress. During the budget deficit debate, Richard played a key role working with Secretary Espy, the Senate and House agricultural committees, and influential senators and representatives which ultimately resulted in federal funding of the MPP.

Funding concerns arose again the following year, however. As the board minutes for Sun-Diamond's Executive Committee noted in April of 1994:

Senior Vice President Douglas reported that hearings were conducted last week by Representative Richard Durbin (D-IL) on MPP, but support for the program was not sufficient; intensive lobbying will be required to maintain MPP in the future. . . . [V]isits to Member Cooperative facilities will be arranged for State Controller Gray Davis, along with a Town Hall meeting for Agriculture Secretary Espy, Senator Feinstein and Representative Dooley.

Indeed, sometime prior to February 1994, at Douglas's request, Espy telephoned members of the U.S. House Appropriations Committee and lobbied for continued MPP funding. Congress ultimately agreed to continue the program, and, on May 6, 1994, Espy authorized the 1994 MPP allocations, some of which went to Sun-Diamond member cooperatives.

The precise allocation of MPP funds was a yearly issue within USDA. Under MPP, USDA was authorized to award government funds to trade organizations if the Secretary determined that such organizations would significantly contribute to the sale of U.S. farm commodities in foreign countries. To receive money to market their commodities abroad, trade organizations submitted marketing-plan applications to USDA. By law, the Secretary of Agriculture had to approve the award of MPP money to each trade organization. The trade organizations would, in turn, award money to companies, such as the member cooperatives of Sun-Diamond, to pay for part of their foreign marketing campaigns.

Since MPP's inception, the major Sun-Diamond member cooperatives had applied for and obtained MPP money from trade organizations in which they participated. Each Sun-Diamond member cooperative was the largest member of its respective trade organization.

MPP subsidies to help sell raisins, prunes and walnuts abroad were of substantial importance to Sun-Diamond and its member cooperatives. During May 1994, USDA allocated $2,180,000 to the California Prune Board, the trade organization that administered MPP funds for prunes; $3,520,000 to the Raisin Administrative Committee, the trade organization that administered MPP funds for raisins; and $2,890,000 to the California Walnut Commission, the trade organization that administered MPP funds for walnuts. A portion of MPP funds allocated to each trade organization was dedicated to the sale of brand-name commodities, such as Sun-Maid raisins and Sunsweet prunes, and the remainder to advertising the commodities generally.

During 1994, the California Walnut Commission dedicated $45,941 to the marketing of brand-name walnuts; Diamond Walnut Growers received all of the brand-name dedicated funds. In 1994, the California Prune Board dedicated $2,362,685 of its MPP funds to the marketing of brand-name prune products; Sunsweet Growers received $1,232,000 (52%) of such funds. The Raisin Administrative Committee dedicated $445,750 of its MPP funds to brand-name marketing; Sun-Maid Growers received $165,000 (32%) of such funds. The remainder of all such MPP funds was spent on advertising for raisins, prunes and walnuts generally in selected foreign countries, which also benefitted Sun-Maid Growers, Sunsweet Growers, and Diamond Walnut Growers to the extent they sold their products in those countries.

Aside from questions of general funding and allocation of the funds, another issue regarding MPP arose during 1993 and 1994 that was of considerable concern to Sun-Diamond and its cooperatives. In August 1993, Congress directed Espy to give priority to "small business entities" applying for MPP funds and to define criteria for qualification as a "small business entity." A pending issue before USDA was whether to include cooperatives in the definition of small business entities. If USDA did not consider cooperatives to be small-sized entities, some Sun-Diamond member cooperatives would receive significantly less MPP money. Sun-Diamond wanted Espy to have USDA promulgate MPP regulations that would allow Sun-Diamond cooperatives to receive the preferences provided for small-sized entities and to continue to study the issue with a view toward giving cooperatives small-business preferences.

Lower-level USDA officials defined small business entities in a manner that excluded large cooperatives like Sun-Diamond. On May 5, 1994, Douglas called Schnoor and told her that he was upset at Espy because USDA had not included cooperatives in the MPP's small-business definition. At that time, Sun-Diamond member cooperatives were the only cooperatives still attempting to claim small-business status. Douglas threatened to go to Congress and "beat up the Secretary" over the issue. Later that day, Espy called Douglas to apologize for not paying enough attention to the issue and offered to remedy the matter by reversing his staff, a ruling that would have allowed the Sun-Diamond cooperatives to qualify for small business status. In a telephone conference shortly thereafter with Espy and Douglas, lobbyist James Lake stated that it would demonstrate favoritism toward Douglas and Sun-Diamond if Espy reversed his staff at that point. Espy did not reverse his staff on this issue.

In an August 1994 memorandum to Douglas, Lake noted the need for Sun-Diamond to continue to lobby USDA on MPP. He advised Sun-Diamond:

During the MPP debate there were serious discussions about deleting agricultural cooperatives from coverage under MPP . . . [and] when FAS wrote their regulations on MPP, they included limitations on the small entity status that were potentially difficult for Sun-Diamond member co-operatives. USDA . . . is re-thinking entire policy.

(3)   USDA Commodity Purchases

USDA purchased various commodities through its school-lunch program and other commodity purchase programs. In this capacity, USDA served as a direct customer to marketers of agricultural products, including Sun-Diamond. In the school-lunch program, commodity trade organizations petitioned USDA to purchase commodities such as raisins and walnuts. USDA would announce its intention to purchase specified amounts of various commodities and invite bids. The Sun-Diamond cooperatives, among others, bid on certain contracts, and, if they won, sold the commodities to USDA. These programs were important to the Sun-Diamond cooperatives, because they provided a safe market for crops in years in which farmers grew a surplus or could not sell all of their crop to their ordinary customers, and because they raised the market price for all sellers of a commodity that USDA purchased.

USDA purchased approximately $70,000 of commodities from one of Sun-Diamond's cooperatives in 1993, and slightly more than $500,000 worth in 1994. OIC uncovered no evidence that Espy was personally involved in making selections for USDA commodity purchases. However, in a 1994 memorandum to Douglas, Sun-Diamond's Washington lobbyists noted on this subject that "additional efforts are made at the Secretary's office . . . to gain support."

An alternative to direct USDA commodity purchases was the Commodity Letter of Credit (CLOC) program, a pilot program started prior to and continued during Espy's tenure at USDA. Under the CLOC program, USDA allowed a handful of school districts to make federally subsidized purchases of commodities directly rather than receive them through the USDA purchasing system. Sun-Diamond opposed the program, because the cooperatives feared that expansion of the program and delegation of purchasing authority from USDA to school districts could threaten the total volume of its school lunch sales.

On June 2, 1994, Douglas wrote a letter directly to Espy, asking him to oppose any expansion of the CLOC program:

On behalf of Sun Diamond Growers, I urge you to oppose any proposals which would expand the Commodity Letter of Credit (CLOC) demonstration project within the National School Lunch Program (NSLP). . . .

While we share the goal of the CLOC project, to improve the overall nutritional quality of school meals, we believe that goal can be accomplished without disrupting the important supply control functions of the commodity purchase program which are so vital to our livelihood.

A week later, a USDA official testified in a congressional hearing that USDA opposed expansion of the CLOC program. This stance was consistent with both the USDA's prior positions on the program and Douglas's suggestions.

(4)   Delaney Clause

The "Delaney Clause," named for its congressional sponsor, prohibits federal government approval of a food additive if it has been found, at any level, to induce cancer in experimental animals or humans. Under the regulations, any pesticide that concentrates in processed food is considered a food additive and therefore is subject to the Delaney Clause's zero-risk standard.

The Delaney Clause was an issue throughout Espy's tenure at USDA. In July 1992, the U.S. Court of Appeals for the Ninth Circuit held that the Delaney Clause required EPA to prohibit the sale of processed foods that contained any trace of cancer-causing additives, a decision the U.S. Supreme Court declined to review.

Raisins and prunes, as dried fruits, were considered processed foods and therefore within the reach of the Delaney Clause. The Ninth Circuit ruling barring all cancer-causing additives from processed foods threatened the continued use of a number of pesticides by fruit and vegetable growers, including members of the Sun-Diamond cooperatives.

To avoid the preclusive proscription of the Delaney Clause, Douglas and Sun-Diamond sought to have EPA classify prunes and raisins as raw rather than processed agricultural commodities. On behalf of Sun-Diamond, Douglas sought Espy's assistance in these endeavors.

On April 9, 1993, USDA's acting assistant secretary for Marketing and Inspection Services wrote an Informational Memorandum on the Delaney Clause for Espy. Sometime prior to April 28, 1993, Espy wrote EPA Administrator Browner urging classification of dried fruits and nuts as raw rather than processed commodities under the Delaney Clause. Douglas continued to lobby Espy on the issue. In testimony before Espy at a Farm Forum on August 2, 1993, Douglas urged that the Delaney clause be amended and said that USDA "should and must be at the forefront of that effort."

(5)   Teamsters Strike at Diamond Walnut

The International Brotherhood of Teamsters Local Union 601, which represented the workers at Diamond Walnut's processing plant, began a contentious and protracted strike against Diamond Walnut in 1991. The workers had agreed to take a pay cut when the cooperative's business was slow. Once business improved, the workers demanded that Diamond Walnut increase their salaries, but the company refused. The workers struck, and Diamond Walnut hired replacement workers. The labor dispute was an issue of major importance to the cooperative. Teamsters Union leaders likewise considered the strike highly important. Because of USDA's regulatory authority over Diamond Walnut in other matters, both sides were interested in Espy's reaction to the strike.

The Teamsters had supported Espy in his campaigns for Congress in Mississippi and had made him an honorary member. After Espy became the Secretary of Agriculture, the Teamsters' general president wrote to him on three separate occasions within a period of four months - June 9, September 21 and October 6, 1993 - seeking USDA assistance in the dispute negotiations with Diamond Walnut and asking Espy to meet with him and other members of the Teamsters. Among other things, the Teamsters asked Espy to consider withholding MPP funds from Diamond Walnut because of its treatment of the striking workers. Douglas, acting on behalf of Diamond Walnut, did not want Espy to meet with the Teamsters and told the Secretary so.

Espy resisted the efforts of the Teamsters Union to have him become involved on their behalf in the Diamond Walnut strike. Espy did not respond to the June 9, 1993 letter from the Teamsters inviting him to meet with striking Diamond Walnut cannery workers. Espy also did not respond to the September 21 and October 6, 1993 letters inviting him to meet with the Teamsters' general president. On December 27, 1993, Espy sent the Teamsters general president a letter stating that he would not get involved in the strike through MPP allocations to Diamond Walnut but that his office would set up an appointment. His staff did not contact the Teamsters, and three subsequent phone calls from the union failed to gain a meeting with Espy.

(6)   Forest Service Land Swap (Relating to a Douglas Consulting Client)

The power of the Forest Service, an agency of USDA, to exchange lands with private interests was of considerable importance to a Douglas client other than Sun-Diamond. The Forest Service is an agency within USDA that administers the National Forests. The Forest Service may exchange federally-owned forest lands for lands of comparable value held by other parties. Such exchanges require the approval of the Secretary of Agriculture.

BKK Corporation was involved in the business of waste disposal in the Los Angeles area. Elsmere Corporation, a BKK subsidiary, owned a landfill site adjacent to the Angeles National Forest and wanted to use some Forest Service land as part of a planned landfill. Consequently, Elsmere proposed a land swap with the Forest Service. Elsmere offered to trade properties it owned inside the Angeles National Forest for Forest Service-held land in Elsmere Canyon in Los Angeles County. The Forest Service land was adjacent to property Elsmere already owned that it planned to use as a landfill. Elsmere intended to combine its own land with the Forest Service's property in building the landfill.

Various citizens, politicians and environmental groups opposed the Elsmere land swap. In 1989, Elsmere began the administrative process necessary to win Forest Service approval of the deal - a process that included preparation of an Environmental Impact Statement.

BKK Chief Administrative Officer Ronald Gastelum contacted Douglas in late 1993 to discuss hiring him to lobby USDA on the land-swap proposal. Gastelum had previously hired a number of lobbyists to accelerate the project but had met with no success. He now wanted the Elsmere issue brought to the Secretary of Agriculture's attention to speed the decision-making process and had been told that Douglas was the man who could get to Espy.

Douglas agreed to represent Elsmere and BKK through the consulting firm PMK Associates. PMK Associates was a one-person firm in Washington, D.C., owned and operated by Patricia M. Kearney, Douglas's girlfriend. On January 10, 1994, PMK Associates entered into a retainer agreement with Elsmere to lobby USDA and, if necessary, Congress. The retainer agreement specified a fee of $60,000 for 1994, with an option for $100,000 additional if further work became necessary in 1995.

On February 4, 1994, Douglas arranged a meeting for Kearney and himself with Espy and USDA staff members to discuss the Elsmere matter. At that meeting, Douglas and Kearney made a presentation; Espy indicated that the land swap sounded good and urged his staff to "move it along." Specifically, he asked a staff member to commit to completing the requisite environmental impact statement in 1994.

Ralph Bauman, a Forest Service official whose duties included handling land swaps, attended the meeting. Bauman stated that, of the 100 or so land-related issues he was working on at any given time in 1993 and 1994, this was the only one for which he ever had a meeting with Espy. After the meeting, Bauman prepared an e-mail summary for other Forest Service officials, noting that "Espy wants us to move as fast as possible."

On April 22, 1994, Douglas or Kearney arranged another meeting with Espy. At the meeting, which Douglas did not attend, Gastelum lobbied Espy to accelerate the land-swap process.

In December 1994, after Espy had submitted his resignation but before he had left office, local Forest Service officials in Los Angeles recommended against approving the land swap. Although Elsmere continued to try to get the land exchange through, on November 1, 1996, the Forest Service received Elsmere's letter withdrawing the project from consideration for a land exchange. On November 12, 1996, the President signed Public Law 104-333, section 812 of which prohibited the transfer of any lands owned by the United States and managed by USDA as part of the Angeles National Forest for use as a solid waste landfill. On December 6, 1996, the Forest Service issued a public announcement notifying the public that the project had been withdrawn by its proponent and that, since the matter was no longer pending, the Forest Service would prepare no record of decision on the project. These actions ended the matter.

c.   Gifts Given

OIC's investigation uncovered numerous gifts provided to Espy by Douglas, most of which were approved and paid for by Sun-Diamond. One was paid for by the International Nut Council.

(1)   Gifts Given by Sun-Diamond

From January 1993 through March 1994, Sun-Diamond, acting through Douglas, spent approximately $14,300 in corporate funds to entertain and provide things of value to Espy and his girlfriend, Patricia Dempsey. Of this amount, Sun-Diamond spent approximately $5,900 directly on Espy. The balance, approximately $8,400, primarily went to pay the expenses of Douglas, Dempsey, and Douglas's own girlfriend while Douglas was entertaining Espy. Sun-Diamond reimbursed Douglas for all the money he spent on Espy, in accordance with Sun-Diamond's Policy Statement Number P-3, Expense Control and Reporting, which stated in pertinent part:

Entertainment expenses which are reimbursed are those ordinary and necessary costs that employees are required to incur for hospitality extended to individuals in sales promotion and in establishing or maintaining business relationships. These expenditures associated with the active conduct of business are reimbursed only if the entertainment precedes or follows a bona fide business discussion.

From January 5, 1993 through March 11, 1994, Douglas spent over $2,000 to provide meals and entertainment to Espy and others at premier restaurants. Of the amount, over $600 was for meals provided directly to Espy.

On March 14, 1993, in the parking lot of Steamer's Seafood Restaurant in Bethesda, Maryland, Douglas, on behalf of Sun-Diamond, gave Espy four pieces of a five-piece set of luggage. Douglas kept the fifth piece. The following month, Douglas submitted a check request to Sun-Diamond for the cost of the luggage, $2,427, describing the expense as "[r]eimbursement for honorarium gift to Congressman Mike Espy for presentation at Board of Directors' Meeting, 12/92." ⁽³⁸⁾ Sun-Diamond approved the expense and reimbursed Douglas for the cost of the luggage.

On or about September 10, 1993, Douglas, Espy and their girlfriends traveled from the District of Columbia to New York City to attend the U.S. Open tennis tournament. Douglas hosted Espy and Espy's girlfriend at the U.S. Open, paying for tickets to two tennis matches, limousines, and meals. Sun-Diamond reimbursed Douglas $9,183. Approximately $2,295 of the $9,183 was for tournament tickets, meals and limousines provided directly to Espy, while approximately $4,446 covered expenses for both Espy and his girlfriend.

On November 10, 1993, Douglas provided Espy, an avid sports fan, tickets to a Washington Bullets-New York Knicks basketball game. Douglas submitted a voucher for the tickets to Sun-Diamond, indicating that the tickets were for three congressmen and their staffers. In truth, Douglas took Espy and Dempsey to the game, and invited several professional athletes who wanted to meet Espy.

In addition, between October 1993 through January 1994, Douglas caused Sun-Diamond to spend approximately $524 to purchase a framed art print and a crystal bowl for Espy. Although Sun-Diamond paid for the print as a gift for Espy, Douglas never delivered it to him. An official of one of Sun-Diamond's cooperatives presented Espy with the crystal bowl during a conference in January 1994.

Douglas, acting on Sun-Diamond's behalf, also orchestrated a Washington, D.C. fundraiser and arranged for $10,000 in contributions to be made to the failed and indebted congressional campaign of Espy's brother. Of this $10,000, Sun-Diamond-related Political Action Committees contributed $4,000, while Douglas solicited $2,000 from his client in the Elsmere land-exchange matter and accumulated $4,000 through an illegal conduit-contribution scheme. (These activities are described in detail in Section II.E.1.d.)

(2)   Gifts Facilitated by Douglas

Douglas also secured travel funding for Espy's girlfriend through the International Nut Council (INC). INC comprised growers, handlers, brokers, agents, exporters and others, including Diamond Walnut Growers of California. Its purpose was to promote the worldwide consumption of tree nuts. INC wanted Espy to speak to its members at its Ninth World Tree Nut Congress, to be held May 22-24, 1993 in Athens, Greece. In January 1993, Don Soetaert, INC's president and a consultant to Sun-Diamond, sought Douglas's assistance in arranging for Espy to attend and speak at the Athens World Tree Nut Congress.

Soetaert solicited Douglas to assist in the effort because he understood that Douglas could get Espy to accept an invitation to speak at the Athens gathering. Soetaert told Douglas that INC would pay for Espy's travel. Douglas told him that USDA must pay for Espy, and suggested that INC pay instead for Espy's girlfriend Dempsey to travel to Greece. When Soetaert agreed to the suggestion, Douglas informed him that Dempsey's flight would cost around $7,000. Soetaert replied that INC could not pay that much. Douglas then estimated business-class airfare would cost about $3,000, and Soetaert agreed to provide that amount. Douglas was to purchase Dempsey's tickets and INC was to reimburse him. Douglas told Soetaert that Espy would speak at the event.

Subsequently, on February 9, 1993, Soetaert sent an invitation to Espy through Douglas. On March 26, 1993, Douglas's assistant faxed the invitation to Espy. USDA staff recommended that Espy decline the invitation because of the small size of the group and Espy's pre-existing travel schedule. Rejecting that recommendation, Espy formally accepted the invitation on April 7, 1993 and indicated that Douglas would assist in working out the details of his travel arrangements. Espy signed a letter to Sun-Diamond, care of Douglas, noting that "Richard Douglas will be hearing from my travel coordinator."

On May 13, 1993, Douglas gave Dempsey an envelope containing approximately $3,100 in $100 bills at his home in Washington, D.C., to pay for her travel to Greece. Douglas later admitted that part of his reason for using cash was to leave no paper trail back to INC. On May 21, 1993, Dempsey attended the INC event in Athens, as did Espy and members of Espy's staff. Douglas, Kearney and officials of Sun-Diamond's member-cooperative Diamond Walnut also attended the Athens conference.

On May 22, 1997, while at the conference, Douglas purchased dinner at Canaris Restaurant in Athens for Espy, Kearney, Dempsey and Schnoor, counselor to the Secretary. The total cost for the meal was $456.09. Douglas sought and received reimbursement for the dinner from Sun-Diamond as a business expense. The following day, May 23, 1997, Douglas purchased lunch for Espy and Dempsey at Diogenis Restaurant at a cost of $555.85. Sun-Diamond also reimbursed Douglas for this meal as a business expense. Schnoor stated that she reimbursed Douglas for her and Espy's meals, and that she told Douglas she insisted on paying because Douglas was a prohibited source.

While in Greece, Espy acknowledged to Douglas that he knew Douglas had given $3,100 to Dempsey, and told him to get reimbursed for it. On July 20, 1993, INC reimbursed Douglas by way of an electronic transfer of $3,155 to Douglas's personal bank account.

d.   Summary Timeline

The following timeline sets out chronologically the gifts Sun-Diamond and INC gave to Espy and significant events related to matters before USDA that were of interest to Sun-Diamond and Douglas:

e.   False Statements to Federal Investigators

In early June 1994, FBI agents interviewed Douglas as part of DOJ's investigation of accusations against Espy in the press. In the course of the interview, Douglas told the FBI agents that the only time Sun-Diamond had paid any expenses for Espy was when it had brought him, as a congressman, to California to speak at a convention. He stated that Sun-Diamond had no issues pending before USDA during Espy's tenure there and that MPP had never been an issue that would rise to the level of the Secretary of Agriculture. Douglas also stated that he provided Espy with the tickets the two had used to attend a Chicago Bulls-Phoenix Suns basketball championship game in Chicago and that, with the exception of a $500 contribution to a birthday party for Espy in November 1993, he had not given any gifts to Espy. In truth, Douglas had provided all of the above identified gifts from Sun-Diamond to Espy, the company had numerous matters pending before Espy and USDA during 1993 and 1994, and the tickets to the Bulls-Suns NBA game had come from the president of the Quaker Oats Company, not Douglas (see Section II.A.4.).

Douglas lied again to the FBI two weeks later when, in a subsequent interview, he told agents that Espy paid for Dempsey's trip to Greece to attend the INC meeting and that he was unaware of any gifts, contributions or favors given Espy by Sun-Diamond. All of these statements were false, and Douglas knew at the time he made them that they were false.

f.   Prosecution Decisions

As a result of the events described above, OIC brought indictments:

• against Sun-Diamond Growers of California for illegal gratuities under 18 U.S.C. § 201(c)(1)(A) (see Section III.B.2.a); and
  
  
• against Richard Douglas for illegal gratuities under 18 U.S.C. § 201(c)(1)(A) and false statements under 18 U.S.C. § 1001 (see Section III.B.2.b).

Also, as a result of its entire investigation, including the events described above, OIC included in the indictment sought against former Secretary Espy charges for illegal gratuities under 18 U.S.C. § 201(c)(1)(B) and interstate travel to receive illegal gratuities under 18 U.S.C. § 1952 (see Section III.B.3).

(3)   Gifts from Oglethorpe Power, Smith Barney, and EOP Group

Oglethorpe Power Corporation, an electric-power cooperative, tried to persuade the United States government to forgive substantial prepayment penalties, totaling approximately $300 million, on a federal loan it wanted to prepay. Although the decision lay with the Department of the Treasury, USDA guaranteed the bonds and administered the program. Oglethorpe's investment banker, Smith Barney, and its political consultant, EOP Group, enlisted Espy's direct intervention to assist the company in its effort to avoid the penalties. At the same time, Smith Barney and EOP facilitated Espy's receipt of things of value - specifically, a ticket to the January 1994 National Football League Super Bowl. Additionally, by providing employment to Espy's girlfriend, EOP was able to gain direct access to Espy and his office and to use that access to benefit its clients, including Oglethorpe.

a.   The Donors

Oglethorpe Power Corporation was an electricity generation and transmission cooperative, with principal offices in Tucker, Georgia, a suburb of Atlanta. In 1993, Oglethorpe provided wholesale electric service to 39 of 42 electric membership corporations in Georgia, serving approximately 2.3 million residents. In 1993, Oglethorpe had revenues of approximately $1.1 billion and assets of $5.3 billion.

Smith Barney, Inc. was an investment banking, securities trading, and brokerage firm, with principal offices in New York City. Smith Barney was a wholly-owned subsidiary of The Travelers, Inc., a publicly held financial services holding company. As an investment banking firm, Smith Barney underwrote debt and equity issues for United States and foreign corporations and for state, local and other governmental authorities. One of Smith Barney's clients was Oglethorpe. Steven Carosso, a managing director of Smith Barney's Public Power Group in its Municipal Securities Division, was responsible for Oglethorpe as a client.

EOP Group was a political consulting firm that provided analytical support and advice on agricultural and other issues to companies with business matters that involved the United States government. Michael J. O'Bannon was the principal of EOP. O'Bannon and Espy had been friends from shortly before Espy was first elected to Congress in 1986. However, O'Bannon stated that they became close friends only after Governor Clinton was elected President in 1992, when Espy was considering whether to seek the post of Secretary of Agriculture in the new administration.

In early 1993, after Espy became the head of USDA, Smith Barney hired EOP and O'Bannon to lobby Espy and two other USDA officials - Wardell Townsend, Assistant Secretary for Administration, and Bob Nash, Undersecretary for Rural Development - on behalf of its client, Oglethorpe. O'Bannon hired Patricia Dempsey, Espy's girlfriend, to work for EOP, beginning June 7, 1993; she then worked for EOP through March 1995; during that period, she communicated with Secretary Espy's staff on behalf of Oglethorpe. In 1994, Oglethorpe hired O'Bannon specifically to secure a meeting with Espy.

In 1993 and 1994, EOP acquired a number of other clients with matters before USDA. One of these, FMC Corporation, retained EOP to represent its interests regarding konjac flour (a powdered root derivative that could be used as a binder in meat products, with USDA approval) and carbofuran (a pesticide applied to crops that was subject to possible EPA restrictions). During 1993 and 1994, EOP submitted briefing papers to USDA, and O'Bannon even drafted a letter to the Food and Drug Administration concerning konjac flour, for signature by the appropriate USDA official.

b.   Donors' Interest in Espy's Official Acts

Congress enacted the Rural Electrification Act of 1936 (7 U.S.C. § 901, et seq.) (the Act) to facilitate the provision of electric service to rural consumers by, among other things, making federal loans available to companies seeking to provide such service. The Act established the Rural Electrification Administration (REA) as an agency within USDA to serve as the principal guarantor of capital for electric cooperatives. REA also administered the federal loan program in which Oglethorpe and other electrical cooperatives participated. The actual lender of the funds to the electric cooperatives was the Federal Financing Bank (FFB), an agency within the Department of the Treasury. The Secretary of the Treasury supervised and directed the FFB and served as chairman of its Board of Directors.

In 1975, Oglethorpe entered into a mortgage-and-loan contract with FFB and thereafter borrowed funds under the terms of the contract and various promissory notes. By the early 1990s, Oglethorpe had approximately $3.1 billion in loans outstanding with FFB. REA was the guarantor of FFB's loans to Oglethorpe. The pre-1983 loans carried substantial prepayment penalty terms.

With Smith Barney, EOP, and others working as its agents, Oglethorpe requested permission in 1993 to prepay the approximately $3.1 billion in outstanding loans with a reduction in penalties. REA favored permitting Oglethorpe to prepay the loans with substantially reduced penalties because this would lower power costs to rural consumers and free up capital to permit REA to make loans to other power cooperatives. It was FFB's policy, however, to require borrowers to pay all prepayment penalties. If FFB had agreed to prepayment and refinancing of the loans and Oglethorpe refinanced the loans by issuing debt securities, Smith Barney could have expected to have a significant role in a possible offering of debt securities as lead underwriter, and could have earned approximately $10 million in gross revenues.

By late March 1993, Smith Barney retained numerous consultants to work on the issue of "FFB prepayments." One of these consultants, EOP, was hired specifically to target USDA and Espy. Smith Barney told Oglethorpe that the Washington consultants understood their roles as assisting with Oglethorpe's "desire to have negotiated an administrative elimination or reduction of prepayment penalties by no later than the end of June 1993."

On June 15, 1993, Oglethorpe formally submitted a proposal to Treasury to prepay the REA loans. The key provision of the proposal was that the Treasury Secretary would use his explicit statutory authority to waive prepayment penalties of approximately $300 million on Oglethorpe's FFB advances outstanding as of July 2, 1986.

Espy first intervened on Oglethorpe's behalf concerning the proposal on August 19, 1993. He wrote to Secretary of the Treasury Lloyd Bentsen:

We strongly support the proposal and recommend that Treasury approve Oglethorpe's application for prepayment. . . . [signed 'Mike']

By late December 1993, Oglethorpe had heard from its Washington consultants that Treasury would not approve the prepayment request. On December 29, 1993, Smith Barney sent O'Bannon 36 pages of background information that included talking points and briefing memoranda concerning the refinancing proposal. Carosso at Smith Barney had called O'Bannon to tell him that "things were at a critical point" and that Espy "had not written or called" Secretary Bentsen in "some time." Oglethorpe and O'Bannon then pressured Espy to intercede again with Secretary Bentsen.

O'Bannon called Espy, and Espy said that he would not call Secretary Bentsen but would write a letter. On O'Bannon's recommendation, Thomas D. Kilgore, president and chief executive officer of Oglethorpe, wrote to Espy on January 3, 1994, expressing his concern over the anticipated imminent rejection of the proposal by Treasury and requesting a meeting. The next day, O'Bannon again requested Espy write Secretary Bentsen, and O'Bannon drafted a letter for Espy's signature. O'Bannon's assistant faxed the proposed letter to Espy's confidential assistant, Eloise Thomas. Later, Espy's girlfriend Patricia Dempsey, who was in EOP's employ at Espy's request, called Thomas to complain about delays in Espy sending the letter to Secretary Bentsen. Kimberly Schnoor, Counselor to Secretary Espy, testified that when O'Bannon learned that Espy was in Europe and had not sent the letter, he became "very short and terse with me because I had not completed the letter yet, and the Secretary told him that it would be completed." On January 4, 1994, Espy sent the following letter to Secretary Bentsen:

Dear Lloyd:

I am writing to follow up on my previous correspondence of August 19, 1993 to you regarding my support for the request of Oglethorpe Power Corporation (Oglethorpe) to prepay its Rural Electrification Administration (REA) loan. I reiterate my strong support of Oglethorpe's proposal and recommend approval of its application for prepayment. In particular, I wanted to bring to your attention that the Office of Management and Budget has also concurred with the support of the requested prepayment.

I appreciate your attention to this matter. If you have any questions regarding the Department's recommendation, I would be pleased to discuss it with you or provide you with further details.

Sincerely,
[signed 'Mike']
Mike Espy
Secretary

Espy's office faxed the letter to EOP, which, in turn, faxed it to Carosso at Smith Barney. On January 5, 1994, Schnoor faxed Espy, who was in London, England, confirmation that his letter on behalf of Oglethorpe to Bentsen had been hand-delivered to the Treasury Secretary and that she had called O'Bannon to advise him the letter had been delivered.

At about this same time, Espy also unsuccessfully lobbied White House Chief of Staff Leon Panetta to advocate Oglethorpe's position.

O'Bannon's and Espy's last-minute efforts on behalf of Oglethorpe were unsuccessful. On January 7, 1994, Treasury rejected Oglethorpe's prepayment proposal. Specifically, the FFB wrote the following to Kilgore:

It is longstanding Treasury policy . . . to deny requests for waivers of prepayment premiums because such premiums inure to the benefit of all taxpayers. After careful analysis, Treasury has concluded that approving Oglethorpe's request for a waiver of prepayment premiums would result in a substantial cost to taxpayers (approximately $286 million) at a time of severe budgetary constraint. Moreover, granting the requested waiver would benefit only one particular group or class to the detriment of all taxpayers.

Although Treasury turned down Oglethorpe's proposal, Oglethorpe, Smith Barney, and EOP continued to lobby Espy to persuade Treasury to reconsider its position and permit prepayment and refinancing of the loans. On January 11, 1994, O'Bannon spoke with Espy concerning Treasury's rejection of Oglethorpe's prepayment proposal.

On January 12, 1994, during a meeting with Smith Barney and Oglethorpe representatives, O'Bannon said that he believed they could have the matter reconsidered and that the appeal was "winnable." He also stated that Espy would be in Atlanta, Georgia for the Super Bowl and that he would arrange a meeting with Espy at Oglethorpe headquarters, near Atlanta, when Espy would be in town for the football game. He further said that Espy would need tickets for the game. On January 13, 1994, Oglethorpe hired EOP directly and assigned it responsibility for coordinating, preparing and transmitting an appeal to Espy and to

facilitate a meeting between the CEO of [Oglethorpe] for the purpose of reviewing the appeal with the Secretary of Agriculture as soon as possible after the letter is completed.

Under the terms of EOP's engagement, Oglethorpe would determine after the meeting with Espy whether to continue to employ EOP. On January 14, 1994, Smith Barney sent Oglethorpe and O'Bannon a proposed outline for an appeal letter to Espy.

O'Bannon succeeded in arranging a meeting between Espy and the principals of Oglethorpe in Atlanta to coincide with Espy's trip to the Super Bowl. On January 27, 1994, Kilgore wrote Espy confirming the January 29 meeting and lunch among Oglethorpe senior officials, Espy and O'Bannon at Oglethorpe's corporate offices. Carosso at Smith Barney received a copy of Kilgore's letter by fax. In preparation for the meeting, a lobbyist working with Oglethorpe sent a memo to Oglethorpe management with suggestions. He wrote that

meetings with Cabinet members do not come easily. Use this time to ask for concrete action. . . . Secretary Espy should be given a plan. . . . This White House inter-agency group will be able to bring all of the cabinet agencies to the table. Alone, USDA & OMB cannot win against Treasury. . . . [A]nother action item might be for [Espy] to arrange such a meeting [with Bentsen].

On January 29, 1994, Espy met with O'Bannon and Oglethorpe executives at Oglethorpe's headquarters in a suburb of Atlanta. ⁽³⁹⁾ Later that day, O'Bannon gave Espy a ticket for the next day's Super Bowl. He had obtained the ticket from Oglethorpe and Smith Barney. Within two weeks of the Super Bowl, O'Bannon spoke with Espy about the Oglethorpe appeal. Also, on February 4, 1994, less than a week after the meeting with Espy at Oglethorpe, Kilgore issued Oglethorpe's appeal letter asking Espy to help persuade the administration to reconsider the buyout proposal. Kilgore requested that Espy "elevate our proposal and its policy ramification within the Administration for reconsideration."

Espy did as Oglethorpe requested by "elevating" the matter within the administration. On an unknown date between February 1, 1994 and February 17, 1994, Espy discussed the refinancing proposal with Vice President Albert Gore. ⁽⁴⁰⁾ Espy then told O'Bannon about his discussion with Gore. On February 17, 1994, Espy sent the following letter to Jack Quinn, then Gore's Chief of Staff: ⁽⁴¹⁾

Dear Jack:

I'm writing to follow up on the brief conversation I had with the Vice President . . . concerning the Oglethorpe Power Corporation. Enclosed please find a copy of Oglethorpe's letter to me asking for a reconsideration of Treasury's pre-payment denial. Also, enclosed is a copy of FFB's letter to Oglethorpe.

As you will remember, USDA under our REA loan guarantee program authority, approved Oglethorpe's proposal to 'graduate' from the program after repaying @ $3B in accrued debt and interest and @ $200M in prepayment penalties. It seems to us that consistent with our 'reinventing' philosophy, we should allow financially strong companies like Oglethorpe to 'exit' this subsidy program and then turn our focus towards businesses with a greater need.

Jack, I know you're busy - but, I wish you would give this matter your close attention. This is the largest client in the USDA-REA loan program. I'd be pleased if they could be allowed a graceful exit.

Sincerely,
[signed 'Mike']
Mike Espy

Although Quinn never raised Espy's letter with the Vice President, he assigned Linda Lance, a member of the Vice President's domestic policy staff, to look into the Oglethorpe issue. On March 3, 1994, O'Bannon and Stanley Hill, an Oglethorpe vice president, met with Lance.

In March 1994, O'Bannon submitted to Oglethorpe an invoice for services rendered in February 1994, in which EOP identified certain services it had provided, in particular O'Bannon's work, including the following:

• Met with the Secretary of Agriculture and REA officials to discuss the next steps concerning the reconsideration of Oglethorpe's proposal.
  
  
• Obtained assurances from the Vice President's office that the Oglethorpe proposal will be reconsidered.

In March 1994, following the meeting with Lance, O'Bannon's lobbying efforts continued. Among other things, O'Bannon drafted a letter for Carosso to send to Lance, containing information relevant to the proposal. On April 5, 1994, Kilgore wrote to Espy "to obtain a change in the Administration's policies governing waivers of pre-payment penalties so that healthy REA co-ops . . . have an incentive to pre-pay their existing debt. . . ." On April 12, 1994, Carosso met with O'Bannon in Washington, D.C. concerning the refinancing.

On April 17, 1994, Lance wrote a memo to Quinn to update him on Oglethorpe, advising him that "their detailed calculations [were not] encouraging. . . . Based on what I know now, I believe White House involvement to alter the Treasury position would be inappropriate both substantively and politically." Also on April 17, 1994, Espy raised the matter of Oglethorpe refinancing with Vice President Gore for a second time. Quinn's written response to Lance was: "Can we discuss? We need to satisfy Espy that we took a good look, e.g., by having a [meeting with] USDA, OMB, [and] Treas[ury]."

By late April, Oglethorpe realized that it had little chance of succeeding with its appeal, but Espy's role in attempting to persuade the White House to force reconsideration remained prominent. On May 18, 1994, Lance wrote another memo to Quinn to advise him that "Treasury was very upset about what they viewed as political pressure from . . . the White House. . . . [T]he only reason we met with these [Oglethorpe] folks at all was because Espy asked the VP [Vice President] to review the issue and, as you know, I've always had serious reservations about our playing any role in this."

Nevertheless, Oglethorpe made one last try with Espy. On June 1, 1994, Espy met with O'Bannon, other EOP and Oglethorpe representatives, three senior USDA officials about refinancing of Oglethorpe's loan. EOP continued to work for Oglethorpe through July 1994.

In sum, Espy made great efforts on behalf of EOP's client, Oglethorpe - including the extraordinary step of taking its proposal to the Vice President - at a time when, as discussed below, EOP had hired Espy's girlfriend and Oglethorpe and EOP had provided Espy with a ticket to the Super Bowl.

c.   Gifts Given

In late April 1993, Espy asked O'Bannon if he would talk to Patricia Dempsey, his girlfriend, about job prospects. By June 7, 1993, O'Bannon had hired Dempsey to work at EOP as a seminar planner and staff associate at a salary of $17 per hour; her compensation over 22 months totaled over $63,000. Dempsey worked for EOP from June 1993, throughout Espy's tenure as Secretary, until March 31, 1995, even though O'Bannon received complaints about her job performance from other employees and partners at EOP, and from EOP clients. ⁽⁴²⁾ O'Bannon used Dempsey to communicate directly with Espy on two issues of significant concern to two of EOP's clients. ⁽⁴³⁾ O'Bannon even drafted correspondence for Espy's signature to Secretary of the Treasury Bentsen, which he transmitted to Espy through Dempsey.

In concert with Oglethorpe and Smith Barney, EOP also gave Espy a 1994 Super Bowl ticket. Espy met with Oglethorpe's executives on January 29, 1994 to discuss how Espy could further assist in persuading Treasury to agree to Oglethorpe's proposal for the prepayment of its loans. Shortly after the meeting concluded, O'Bannon provided Espy with a Super Bowl ticket.

Oglethorpe obtained the ticket O'Bannon gave to Espy from Carosso at Smith Barney. On January 12, 1994, Carosso, O'Bannon and other Oglethorpe and Smith Barney representatives met to discuss the strategy for securing reconsideration of the loan proposal. During the meeting, O'Bannon advised the group that Espy would be in Atlanta for the Super Bowl and suggested that he arrange a meeting with Espy there. According to another participant, whose memory of this aspect of the meeting was the most complete of those who testified about the meeting, O'Bannon said Espy or someone in Espy's entourage needed a ticket. ⁽⁴⁴⁾

On January 28, 1994, Carosso telephoned Philip D'Amico, a vice president of Bowne, Inc., financial printers in Atlanta, to request that he arrange for the purchase of three tickets to the Super Bowl. Carosso asked Bowne to advance payment of $6,600 for the 1994 Super Bowl tickets to an Atlanta-based ticket scalper and to have the tickets delivered to Oglethorpe for O'Bannon to pick up. The same day, Bowne, acting upon Carosso's request, paid $6,600 to the ticket scalper for three tickets to the 1994 Super Bowl. The face value of each ticket was $250. Carosso and D'Amico understood that Bowne would bill Smith Barney for the cost of the tickets. Later that day, three tickets to the Super Bowl game were delivered to Bowne for O'Bannon.

On January 29, 1994, Espy met with O'Bannon and other Oglethorpe executives at Oglethorpe's headquarters in a suburb of Atlanta to discuss the REA loan prepayment. Later that day, O'Bannon gave Espy one of the three Super Bowl tickets that Carosso arranged for and charged to Smith Barney. ⁽⁴⁵⁾

On January 30, 1994, Espy attended the 1994 Super Bowl but reportedly did not sit in the seat for which Smith Barney paid. He apparently attended the game using the ticket supplied by the Fernbank Museum. (See discussion at II.A.5.c). OIC could not determine what Secretary Espy did with the ticket he received from O'Bannon.

Invoices issued to Smith Barney initially disclosed Smith Barney's role in obtaining the ticket for Espy. On March 1, 1994, Bowne issued a $6,600 invoice to

SMITH, BARNEY, HARRIS, UPHAM & CO., INC.
Attn: STEVEN B. CAROSSO

with a description that stated, in pertinent part:

PROVIDING 3 SUPERBOWL TICKETS @$2,200.00 EACH.

D'Amico stated that he sent the invoice to Carosso. However, the invoice was not processed for payment at Smith Barney, indicating that Carosso never sent the invoice for payment. Instead, Carosso undertook to conceal the purchase of and payment for the Super Bowl tickets.

On June 6, 1994, Carosso instructed D'Amico to delete the reference to the Super Bowl from Bowne's invoice to Smith Barney. As a result of Carosso's instruction, D'Amico completed an "Invoice Inquiry," an internal Bowne form, to change the description on the invoice. The instructions on the Invoice Inquiry read:

CHANGE LANGUAGE ON INVOICE TO READ 'PRINTING CONSULTATION FEE ON OGLETHORPE POWER PROJECT.'

On June 14, 1994, Carosso instructed D'Amico to delete the word "consultation" from Bowne's invoice to Smith Barney. As a result of that telephone call, Bowne sent a new invoice to Smith Barney in the amount of $6,600 containing the following false description:

SMITH, BARNEY, HARRIS, UPHAM & CO., INC.
Attn: STEVEN B. CAROSSO
PD
PRINTING FEE ON OGLETHORPE POWER PROJECT.

On June 30, 1994, Carosso submitted directly for payment, or instructed a Smith Barney employee to submit, the invoice containing the false description through a "Request for Payment" form to his superiors and others, including accounts payable. On July 19, 1994, Smith Barney issued a $6,600 check to Bowne in payment of the invoice containing the false description. Smith Barney also entered into its accounts payable detail ledger, its permanent financial record, a payment of $6,600 to Bowne for "printing expenses." ⁽⁴⁶⁾ The undisputed evidence established that the payment was for three tickets to the 1994 Super Bowl, one of which was given to Espy.

In approximately August 1994, after newspaper articles first appeared about Oglethorpe's possible connection to Espy's attendance at the Super Bowl, Carosso called O'Bannon "to ask whether there was any trouble about the tickets." O'Bannon told Carosso "no," believing that Carosso wanted to know what O'Bannon did with the tickets - "and I just wasn't about to tell him." But Carosso knew that O'Bannon asked for the Super Bowl tickets because he wanted to have them for Espy. In a later interview, Carosso claimed that the tickets were for O'Bannon, that he never saw the first invoice from Bowne, and that the change in the invoices had nothing to do with Espy.

Additionally, in the Fall of 1993, O'Bannon, who also represented the American Crop Protection Association (ACPA), invited Secretary Espy to speak at its conference at the Greenbriar Resort in West Virginia from September 26-29, 1993. Espy accepted and attended. ACPA paid his hotel bill of $449.71. In addition, O'Bannon paid Espy's bills for a $100 massage and a $20 skeet-shooting session that, in turn, O'Bannon charged to ACPA. Espy's staff repeatedly advised him that O'Bannon's payment of Espy's hotel bill was a conflict-of-interest and that he needed to reimburse O'Bannon. (Espy had applied for, and had received reimbursement from USDA on October 26, 1993.) However, he did not reimburse O'Bannon for the hotel bill until August 25, 1994, 11 months later, after the Attorney General had applied for appointment of an Independent Counsel.

d.   Summary Timeline

The following timeline sets out chronologically the gifts Oglethorpe, Smith Barney and EOP gave to Espy, and the significant events related to their effort to obtain a prepayment penalty waiver:

e.   Prosecution Decisions

As a result of the events described above, OIC brought a civil complaint against Smith Barney, Inc. for the tort of participating in Espy's breach of the fiduciary duty he owed to the United States and of interfering with Espy's agency relationship with USDA and the Executive Branch. ⁽⁴⁷⁾ (This was apparently the first civil claim of its kind brought to address an offense in the nature of a gratuity to a public official.) OIC pursued the matter civilly because a criminal charge, which could have forced the company's closure under the securities laws, was disproportionate to the offense. The complaint further charged Smith Barney with supplementing the salary of an officer and employee of the Executive Branch as compensation for his services in violation of 18 U.S.C. §§ 209 and 216(b) (see Section III.E.1.a).

Also as a result of the entire investigation, including the events described above, OIC included in the indictment sought against former Secretary Espy charges for honest services fraud under 18 U.S.C. §§ 1343 and 1346 and illegal gratuities under 18 U.S.C. § 201(c)(1)(B) (see Section III.B.3).

During the investigation, OIC granted O'Bannon immunity from prosecution to compel his testimony before the grand jury. There was insufficient evidence to prove that anyone at EOP other than O'Bannon was involved in or knowledgeable about the Super Bowl tickets to Espy, and OIC consequently did not bring charges against O'Bannon or EOP.

Oglethorpe (through the acts of its principals) and Carosso participated in giving the Super Bowl ticket to Espy, and in altering the Bowne invoices Carosso attempted to conceal the purchase of the tickets. However, given the disposition of the civil case against Smith Barney, credibility questions surrounding necessary witnesses, the existence of conflicting testimony on key events, and Espy's acquittal on related charges, OIC, in an exercise of prosecutorial discretion, determined not to bring charges against Oglethorpe or Carosso.

4.   Gifts From Quaker Oats

The Quaker Oats Company is a major food processor whose meat-processing operations, in particular, are subject to USDA regulation. On one occasion, Espy solicited and received National Basketball Association championship game tickets from Quaker Oats' president.

a.   The Donor

The Quaker Oats Company is based in Chicago, Illinois, and its shares are publicly traded on the New York Stock Exchange. It manufactures a variety of food products that are sold in more than 35 countries around the world, including "Quaker" brand hot and ready-to-eat cereals, the sports beverage "Gatorade," prepared rice and pasta, pancake mixes and syrups, and other products. The company reported net sales of $5.73 billion in 1993 and $5.95 billion in 1994, and net income of $171.3 million and $231.5 million, in those years.

William D. Smithburg was Quaker Oats' chief executive officer. Smithburg also served as chairman of the Board of Directors of the Grocery Manufacturers Association (GMA), a trade association that represented and advocated on behalf of companies that processed and manufactured food and beverage products.

b.   Donor's Interest in Espy's Official Acts

At the time of Espy's tenure, Quaker Oats manufactured three products that contained meat: Van Camp Pork and Beans (the nation's leading brand of canned pork and beans), Wolf Brand Chili, and Celeste Pizza. These products represented approximately $180 million of the company's nearly $6 billion in annual sales, or about 3% of Quaker Oats' business.

Because these products contained meat, USDA, and therefore Espy, had regulatory power over this aspect of Quaker Oats' business under the Meat Inspection Act, 21 U.S.C. § 601 et seq. Under the act, Quaker Oats had to apply annually to USDA for inspection of its plants that processed meat products. If the company committed certain violations of the act, USDA could withdraw inspection and effectively close the plants.

Pursuant to this regulatory power, USDA, in March of 1993, requested a recall of up to 1.8 million pounds of Quaker Oats' Wolf Brand Chili when it discovered that the product was contaminated with sand. On June 8 of that year, USDA ruled that the recalled chili was unfit for human consumption and had to be destroyed. The company estimated that the resulting recall and destruction of the chili cost it more than $1 million.

Quaker Oats also participated in the commodity purchase program, through which USDA purchased various goods and thus was a direct customer of the marketers of agricultural products, including Quaker Oats. USDA purchased more than $4.5 million of commodities from Quaker Oats in 1993 and slightly more than $2.5 million in 1994.

Manley Molpus, a GMA lobbyist and the association's chief executive officer, arranged a dinner in Washington, D.C. on June 3, 1993, at which he, Smithburg, and Espy discussed the business of food processing and manufacturing in general, and Quaker Oats in particular. This was the first meeting between Smithburg and Espy.

c.   Gifts Given

In June of 1993, the Chicago Bulls advanced to the National Basketball Association (NBA) Finals against the Phoenix Suns. After winning three of the first four games in the series, the Bulls were within one game of becoming only the third team in NBA history to win three consecutive championships. Consequently, tickets to Game Five of the series were highly prized and difficult to obtain. The game, to be held in Chicago, coincided with a previously scheduled speech by Espy at the graduation of the Chicago Agricultural High School on June 18, 1993.

Espy was aware that Chicago Bulls player Michael Jordan was a spokesman for Quaker Oats' Gatorade. On June 17, 1993, Espy directed his confidential assistant, Eloise Thomas, to telephone Smithburg's office at Quaker Oats and request two tickets for the June 18 basketball game. Thomas then called Smithburg's secretary and requested two tickets for Espy. Smithburg's secretary relayed the request to Smithburg, who agreed to provide Espy two of his four personal tickets for the game. On the morning of June 18, Espy's security detail picked up the tickets from Quaker Oats' offices and provided them to Espy.

Espy used the tickets to attend the game with Richard Douglas, Sun-Diamond Growers of California's senior vice president in charge of government affairs, and the two sat in Smithburg's seats, approximately 15 rows from the court. Smithburg attended the game using one of Quaker Oats' eight tickets. During halftime, Espy and Douglas thanked Smithburg for providing their tickets. The tickets had a face value of $45 but were commanding a price in the range of $500 each from ticket scalpers.

Smithburg stated that there was a great deal of demand on him for those tickets, because they were for the NBA Finals. He admitted that one of the reasons he gave Espy the tickets was because Espy was the Secretary of Agriculture, but he stated that he did not give Espy the tickets "for or because of official acts." Smithburg stated that neither Espy nor any member of Espy's staff proposed reimbursing Smithburg for the tickets.

About a week after the game, Douglas gave Espy $50 and told him to add another $50 and reimburse Smithburg for the tickets. Douglas told Espy that Espy could not accept gifts from Smithburg or Quaker Oats, because he had no relationship with Smithburg prior to becoming Secretary of Agriculture. Espy did not reimburse Smithburg until August 25, 1994, shortly after Quaker Oats informed the media, and the media reported, that Espy had received tickets to the game from Smithburg. By this date, Espy and Douglas already had falsely told federal agents that Douglas received these tickets from an NBA player. (These statements are discussed in detail in Section II.B.1.b).

d.   Prosecution Decisions

As a result of the entirety of its investigation, including the events described above, OIC included in the indictment sought against former Secretary Espy charges for wire fraud under 18 U.S.C. §§ 1343 and 1346, illegal gratuities under 18 U.S.C. § 201(c)(1)(B), and violation of the gift provision of the Federal Meat Inspection Act, 21 U.S.C. § 622 (see Section III.B.3).

OIC brought no charges against Quaker Oats or William Smithburg. Neither Quaker Oats nor Smithburg initiated an offer of any gifts to Espy or sought through the gift given to influence official action at USDA. Espy solicited the NBA Finals tickets from Smithburg, and Smithburg provided Espy his personal, not company, tickets. Moreover, when media reports first appeared stating that Espy attended the basketball game and before any public suggestion that his tickets came from Quaker Oats, the company issued a press release stating that Smithburg had provided Espy with the tickets. OIC concluded that neither Quaker Oats nor Smithburg should be prosecuted.

5.   Gifts From Fernbank Museum

The Fernbank Museum received USDA grant money to present a Smokey Bear exhibit during Espy's tenure. Fernbank offered Espy two tickets to the 1994 Super Bowl, to make an official appearance with Smokey Bear at halftime. Espy, through his office, subsequently asked for and received two additional tickets to the Super Bowl and used all four, even though the Smokey Bear halftime presentation ultimately was canceled, and there was then no official reason for him to be at the Super Bowl.

a.   The Donor

Fernbank, Inc., was a private, nonprofit organization based in Atlanta, Georgia. It owned the Fernbank properties and the Fernbank Museum of Natural History. Fernbank was formed in 1938 to purchase 70 acres of forest, now known as Fernbank Forest, for preservation. Later, Fernbank worked in conjunction with the DeKalb County School System, educating school children in nature studies and operating the Fernbank Science Center, which received approximately 800,000 visitors a year during the early 1990s. The Fernbank Museum of Natural History opened in 1992 and had approximately one million visitors a year.

b.   Donor's Interest in Espy's Official Acts

During the summer of 1993, USDA, through one of its subordinate agencies, the Forest Service, began planning the 50^th Anniversary Celebration for Smokey Bear, the official Forest Service mascot and a registered trademark of USDA. Among the proposed year-long festivities was a traveling exhibit to be displayed in various cities around the country.

Fernbank, through an intermediate consultant, applied for and received approximately $71,000 in grant money from USDA to design, construct and display the Smokey Bear traveling exhibit, which opened on February 4, 1994 at the museum in Atlanta. The museum later extended the exhibit and obtained additional grant money.

In an effort to promote public awareness of the Smokey Bear 50^th Anniversary Celebration and the traveling exhibit, Fernbank and the Forest Service attempted to schedule an appearance for Smokey Bear at the National Football League's Super Bowl, which was to be held on January 30, 1994 in Atlanta. To lend additional credibility to the exhibit, Fernbank and the Forest Service decided to invite Espy to both the Super Bowl event and the traveling exhibit's museum opening. Fernbank and the Forest Service wanted Espy to appear and participate during the Super Bowl game-day festivities with a costumed Smokey Bear. Organizers hoped the media would broadcast Espy's participation with Smokey Bear to the Super Bowl television audience. The annual professional football championship historically ranks as the top television event of the year, attracting more U.S. viewers than any other single broadcast.

c.   Gifts Given

On December 8, 1993, Rankin Smith, a Fernbank trustee and owner of the Atlanta Falcons football team, wrote to Espy to invite him to launch the traveling exhibit by attending the Super Bowl. On the same day, Dr. Kay Davis, Fernbank's executive director, invited Espy to attend the February 4, 1994 opening of the traveling exhibition at the museum. On December 27, 1993, Espy accepted Smith's invitation to the Super Bowl and also accepted the invitation to attend the opening of the museum exhibit. However, when Smith invited Espy to the Super Bowl event and when Espy accepted the invitation Fernbank had not yet obtained tickets to the sold-out game.

Throughout December 1993 and January 1994, Kim Dunn, Fernbank's associate director, worked closely with Espy's office to schedule his activities for the weekend. In addition to her last-minute efforts to locate tickets to the game for Espy, Dunn also attempted to obtain tickets to Super Bowl-related events and to reserve a hotel room for him.

On approximately January 22, 1994, after much effort, Fernbank obtained two tickets to the Super Bowl. The tickets were purchased directly from the Atlanta Falcons for $350, using Smith as a contact. Dunn obtained the tickets believing that one ticket would be for Espy and the other for the person playing Smokey Bear. She called Stephanie Hague at Espy's office to inform her that she had the two tickets. During this conversation, Hague, at the direction of Espy's confidential assistant Eloise Thomas, insisted that Espy required two additional tickets so his children could also attend the game.

Fernbank obtained the second set of tickets through a contact that Fernbank President Robert C. McMahan had in the Atlanta community. To purchase this second pair of tickets expeditiously, Dr. Davis, Fernbank's executive director, wrote a personal check to the ticket owners. Fernbank later reimbursed Dr. Davis $507 for the two tickets.

More than a week before the January 30 Super Bowl, Fernbank and USDA learned that the National Football League would not permit Smokey Bear and Espy to make an appearance either at halftime or during pre-game festivities. The Forest Service immediately informed Espy's office. Betty Stern, Espy's travel coordinator, made a note on January 21, 1994 that the Forest Service called and informed her that "nothing official going to happen w/Smokey." Thomas testified that she knew the proposed Smokey appearance was not going to happen approximately a week before Espy was to leave for the trip to Atlanta. There was no official reason therefore for Espy to attend the Super Bowl.

Nevertheless, Espy attended the game with the four tickets Fernbank provided. Espy picked up the tickets on January 28 and, despite his representations to Fernbank, did not use the tickets to take his children to the Super Bowl. Instead, he took two acquaintances from Mississippi and Richard Douglas, senior vice president for government affairs for Sun-Diamond Growers of California.

During the game, a 20-second Smokey Bear 50^th Anniversary public-service announcement was shown twice on the giant Jumbotron television-like screen at the stadium. No event calling for the Secretary of Agriculture's attendance was staged. No stadium public-address announcement was made to the crowd that the Secretary was present, and the Smokey Bear public-service announcement did not refer in any way to Espy. Furthermore, Espy did not attend the February 4 opening of the Smokey Bear exhibit at the Fernbank Museum, even though he flew to Atlanta at government expense and attended the Super Bowl with tickets supplied by Fernbank.

On September 14, 1994, five days after the Independent Counsel was appointed to investigate Espy, Espy sent a $700 check to Fernbank as reimbursement for the Super Bowl tickets.

d.   Prosecution Decisions

As a result of the entire investigation including the events described above, OIC included in the indictment sought against former Secretary Espy charges for wire fraud under 18 U.S.C. §§ 1343 and 1346 and illegal gratuities under 18 U.S.C. § 201(c)(1)(B) (see Section III.B.3).

OIC concluded that no criminal charges should be brought against Fernbank Museum. Fernbank intended that the tickets be used for an official purpose. Consequently, OIC determined that Fernbank's conduct in providing these tickets did not warrant prosecution.

6.   Gifts From Robert Mondavi Winery

In October 1993, Espy traveled to a winery owned by Robert Mondavi Corporation (Mondavi) in California, and acting on a request of Richard Douglas, Sun-Diamond Growers of California senior vice president and Espy's traveling companion, Mondavi gave Espy a gift of six bottles of premium wine. During the visit, executives and employees of the winery discussed with Espy numerous issues pending at USDA for which he could perform official acts to the benefit of the winery and the wine industry as a whole. Then, in March 1994, Mondavi hosted a dinner in Washington, D.C. that Espy and his girlfriend attended. At the dinner, matters pending before USDA were discussed, and Espy was invited to use the "guest house" at Mondavi's Napa Valley Winery.

a.   The Donor

Robert Mondavi Corporation, based in Northern California, was founded in 1966 by Robert Mondavi and his elder son, R. Michael Mondavi. Michael Mondavi was the president and CEO in 1993 and 1994, and Robert Mondavi was chairman of the board. Mondavi was the largest exporter of premium California wines, selling wines in 90 countries. Mondavi conducted an initial public offering in 1993, and its stock trades on the NASDAQ national market system. It is one of the nation's largest wine producers.

b.   Donor's Interest in Espy's Official Acts

During 1993 and 1994, Mondavi actively lobbied Secretary Espy and other USDA officials on several issues in which they had an interest. An internal memorandum from Mondavi executive Herb Schmidt to senior officials written two days after Espy's visit to the winery in October 1993 highlights some of the issues discussed with Espy and of interest to Mondavi:

[W]e have embarked on a program of inviting cabinet secretaries to visit Napa during the next 9 months. . . . The first visit took place this past Friday, October 29. United States Secretary of Agriculture, Mike Espy, visited . . . (the first visit of a secretary since 1983). During his briefings at [the Mondavi winery, Espy] expressed the following feelings:

Health - Clinton administration believes wine in moderation is good for you! Important since his department is in charge of the nutrition of the nation.

Market Promotion Programs - Believes they need support but reform (perhaps should be removed from Wine Institute^{[ (48)]}).

NAFTA [North American Free Trade Agreement] - Thanked . . . for our unconditional support and noted it will not go un-rewarded.

Research Funding - Will make available greater USDA funding for research into grapevine pests and diseases.

[O]ne thing is clear, we have an unprecedented opportunity to make a difference on national policy regarding moderate consumption of wine. We must seize the opportunity! It will not happen again anytime soon. It is an ideal situation for political progress in terms of wine industry problems.

The health issue mentioned in Schmidt's memo refers to the "United States' Dietary Guidelines for Americans." These guidelines, which are jointly promulgated by USDA and the Department of Health and Human Services (HHS) every five years, advise Americans what foods to consume in what quantities to remain healthy. The 1990 version of the dietary guidelines discouraged the drinking of alcoholic beverages, specifically stating that "[d]rinking them has no net health benefit, is linked with many health problems, and can lead to addiction. Their consumption is not recommended." However, studies in the early 1990s had found some health benefits in moderate wine consumption, and Mondavi wanted this finding included in the next dietary guidelines. The fourth edition of the dietary guidelines, issued in 1995, eliminated the recommendation against alcohol consumption and included the following statements, which were consistent with Mondavi's position:

Alcoholic beverages have been used to enhance the enjoyment of meals by many societies throughout human history. If adults choose to drink alcoholic beverages, they should consume them only in moderation . . . . Current evidence suggests that moderate drinking is associated with a lower risk for coronary heart disease in some individuals.

The second matter of interest referenced in the Schmidt memo was the Market Promotion Program (MPP), a USDA-administered grant program designed to increase U.S. exports of agricultural commodities. (The details of the MPP are discussed in Section II.A.2.b.(2) of this Report, above). Through the Wine Institute, Mondavi received MPP funds of $79,295 for 1993 and $70,295 for 1994. Mondavi management believed that MPP funds should be spent predominantly on generic advertising and promotion to increase foreign sales of wine produced in the United States. It advocated a general reduction in the amount of MPP funds authorized for "brand marketing" - i.e., advertising by specific wine brands.

The third subject referenced in the Mondavi memo was the North American Free Trade Agreement (NAFTA), an agreement the Clinton administration worked to implement in late 1993 to create a free-trade bloc for North American countries. Mondavi believed that implementation of NAFTA would be beneficial to the state of California, including its wine industry, and consequently supported the administration's efforts. Mondavi also supported the General Agreement on Trade and Tariffs (GATT), which facilitates international trade.

The last matter listed in Mondavi's internal memo, research funding, was of particular concern to Mondavi at the time of Espy's visit. USDA provided funding to various universities in California for research concerning wine. Mondavi, along with other California vintners, sought USDA's commitment of additional research funds to combat the spread of phylloxera, a pest that was devastating vineyards in California. During Espy's visit, Mondavi officials pulled grapevines from the ground to show Espy the damage done by phylloxera and to encourage an increase of funding for a pesticide. In his remarks at a reception following his meeting with Mondavi officials, Espy acknowledged to the attendees:

This insect is harming grapes and the economy. We will move federal agricultural research funds to the front burner to help the wine industry deal with the problem . . . . We've got money for research. We can do more than we have been doing and I commit to you we will.

As a related matter, Mondavi was also concerned about preserving the use of the pesticide methyl bromide to fight pests affecting vineyards. (For a discussion of methyl bromide, see Section II.A.2.b.(1)).

In addition to the issues listed in Schmidt's memo, Mondavi had an interest in two other USDA actions and programs: (1) in or about late 1993, USDA was considering a cut in funding for the Soil Conservation Service's program to fight soil erosion, an action Mondavi opposed; (2) during 1993 and 1994, Mondavi was advocating that the wine industry be provided federal marketing orders, funds collected and disbursed by USDA, to promote marketing of particular agricultural products to specific geographic areas.

c.   Gifts Given

OIC's investigation revealed that on October 4, 1993, Douglas telephoned Schmidt and asked if Espy could visit the Mondavi winery in Napa Valley on October 29, 1993. Douglas told Schmidt that Espy would be traveling to San Francisco, California to deliver a speech and that Douglas wanted Espy to visit nearby Napa for broader wine-industry exposure. Shortly thereafter, Schmidt telephoned Douglas and told him that senior officials of the winery and other interested Napa Valley vintners would be available to meet with Espy on October 29, 1993. Douglas told Espy that Mondavi would be a company whose board of directors he might want to join after leaving USDA.

In a subsequent telephone call, Douglas told Schmidt that Espy and Patricia Dempsey, Espy's girlfriend, as well as Douglas's own girlfriend, Patricia Kearney, would remain in the San Francisco Bay Area over the weekend after his visit to celebrate a private event. Douglas then asked Schmidt, in substance, whether he could get some wine from the winery for Espy's group. Schmidt understood that they were not intending to pay for the wine and, although he knew it was wrong to provide gifts to Espy, he agreed to supply the wine.

On October 29, 1993, Espy visited the Mondavi winery in California and discussed matters of concern that were pending before him. After the meeting, Espy and Douglas received a tour of the facilities. Between the meeting and the tour, Douglas asked Schmidt whether he had the wine for Espy, and Schmidt replied, in substance, that the wine would not be a problem.

Following the tour of the vineyards, Espy attended a reception at another Napa Valley winery owned by Mondavi. Douglas again brought up the subject of the wine with Schmidt, who sent a Mondavi employee to obtain wine from the winery store. Schmidt told the employee that the wine was for Espy. The employee drew six bottles of premium wine from the company's retail gift shop. The employee wrote on the receipt that the purpose of the wine was a "GIFT FOR FED. AG. SEC." The total retail value of the six bottles of wine was $187.

The employee immediately returned to the winery with the six bottles of wine that he had drawn for Espy. Upon seeing the employee arrive at the winery with the wine, Schmidt and Douglas escorted the employee to the parking lot. Douglas advised Schmidt and the employee that Espy could not receive the wine directly but that it would be "OK if it was put in Douglas's car" for Espy. The wine was then placed into one of the two cars carrying Espy's traveling party. Neither Espy nor Douglas offered to or did pay for the six bottles of wine. Mondavi did not ask Espy or Douglas to pay for the wine.

Four months later, on March 8, 1994, Mondavi hosted a dinner in a private room at Kinkead's Restaurant in Washington, D.C. to celebrate the second American Wine Appreciation Week. Espy attended the dinner with Dempsey. During the dinner, a senior official of Mondavi spoke to those in attendance, including Espy, about, among other things, the healthful effects of wine consumption and federal market orders for wine. The total cost of the dinner was $1,660. The total value of the dinner to Espy for himself and Dempsey was $207. Espy was not asked to and did not pay for the March 8, 1994 dinner that he and Dempsey attended and Mondavi hosted.

On March 18, 1994, shortly after the dinner, Schmidt sent a memorandum to senior officials of Mondavi that recounted, in part:

Our meeting with some of the top officials of our government was very effective. . . . They were more than pleased to hear our point of view and want to be helpful.

The same day, a senior official of Mondavi wrote a letter to Espy that included the following:

It was an honor to have you join us for dinner last week at Kinkead's. . . . It was a pleasure to meet Pat [Dempsey]. What a lovely woman.

Please know that you have a standing invitation to visit us in Napa. . . . We do have a guest house which could be made available to you.

d.   Prosecution Decisions

As a result of the events described above, OIC brought a civil complaint against Robert Mondavi Winery for the tort of participating in Espy's breach of the fiduciary duty he owed to the United States and of interfering with Espy's agency relationship with USDA and the Executive Branch. OIC pursued the matter civilly because the company and its officers and employees cooperated extensively with the investigation. The complaint further charged Mondavi with supplementing the salary of an officer and employee of the Executive Branch as compensation for his services in violation of 18 U.S.C. §§ 209 and 216(b) (see Section III.E.1.a).

OIC did not bring charges against Espy for these gifts. The evidence did not support a finding that Espy solicited the wine and there was insufficient evidence to demonstrate that he was fully aware of the circumstances under which it was acquired.

7.   Gifts From Morgan Stanley

During the investigation, OIC investigators received information that Espy and his girlfriend Patricia Dempsey attended the 1993 annual Congressional Black Caucus Foundation (CBCF) Awards Dinner on September 18, 1993, using tickets provided by a principal in the investment-banking division of Morgan Stanley. Although Morgan Stanley was not regulated by USDA, it owned a significant interest in one of the nation's largest pork producers, a company that was subject to USDA regulation. OIC investigated the matter thoroughly to determine whether Espy violated any criminal law in accepting the tickets and whether Morgan Stanley violated any federal criminal law by providing the tickets to Espy.

a.   The Donor

Morgan Stanley, based in New York City was a global financial services firm that maintained leading market positions in each of its businesses - securities, asset management and credit services. In 1994, the firm had more than 36,000 employees and managed approximately $128 billion in assets.

Charles N. Atkins II was employed as a public-finance investment banker, specializing in student loans, at Morgan Stanley in New York City. Atkins first met Espy in 1971 at Howard University. Both were involved in student government and became friends. After college, Atkins and Espy kept in contact with each other, and Atkins attended Espy's confirmation hearings in January of 1993 as a guest of Espy.

b.   Donor's Interest in Espy's Official Acts

Morgan Stanley itself had no matters pending before USDA and was not regulated by the Department. Morgan Stanley did, however, have a merchant-banking fund that invested in private companies. In 1993, that fund owned approximately 70% of Premium Standard Farms, Limited Partnership, then the nation's fourth-largest pork producer. USDA regulated pork production under the Federal Meat Inspection Act. 21 U.S.C. § 601 et seq.

c.   Gifts Given

On or about September 8, 1993, Atkins submitted a Morgan Stanley check request in the amount of $25,000 for a check payable to the CBCF. ⁽⁴⁹⁾ The request listed as its purpose "Sponsor and Supporter tables at the Congressional Black Caucus Foundation Annual Awards Dinner - 9/18/93" and at the top bore the notation: "RUSH." A $25,000 check made payable to the "CBC Foundation, Inc." was drawn on a Morgan Stanley account the following day. For this payment to the CBCF, Morgan Stanley received, among other things, 10 tickets for seating at a "platinum" tier table at the Foundation's annual awards dinner, which was held on Saturday, September 18, 1993 at the Washington Convention Center, Washington, D.C.

Atkins phoned Espy and, through Espy's scheduler, Eloise Thomas, offered him two of the tickets, which Espy accepted. Some time later, Thomas asked Atkins if he had another ticket available. Atkins agreed to provide another ticket and ultimately left three of the 10 dinner tickets at the Foundation's office for Espy's use. Espy, Thomas and Dempsey attended the dinner, using the Morgan Stanley tickets, and sat at the table Morgan Stanley purchased. Tickets to the event, not including seating at a platinum table, cost $500 each.

d.   Prosecution Decisions

OIC's investigation did not develop evidence that Atkins or Espy specifically knew of Morgan Stanley's interest in matters pending before USDA or relating to, or substantially affecting, Premium Standard Farms. The evidence did not support a finding that Atkins or Morgan Stanley gave Espy the tickets to the CBCF dinner "with intent to influence" him in the discharge of his duties under the Meat Inspection Act (21 U.S.C. § 622) or "for or because of any official act performed or to be performed" by him (18 U.S.C. § 201(c)), or that Espy received the tickets for such purpose. Viewing the totality of the evidence, OIC, in the exercise of prosecutorial discretion, concluded that this matter did not warrant prosecution.

8.   Espy's Acceptance of Gifts Unrelated to Agriculture

While investigating Secretary Espy's receipt of gifts from entities with business before USDA, OIC also determined that Espy had received gifts provided by persons without agricultural ties. These gifts are briefly discussed here.

a.   Inaugural Party in Espy's Honor and Event Tickets

OIC uncovered evidence of a number of additional gifts that Espy and his girlfriend, Patricia Dempsey, received from Patrick C. Koch, a Washington, D.C. lobbyist. Koch, a lawyer, had been a registered lobbyist since 1982, principally representing the telecommunications industry. Koch first met Espy while Espy was a congressman; he stated that he liked Espy and thought he "was going places." On Monday, January 18, 1993, the evening prior to a presidential inaugural dinner that Espy attended as the guest of Tyson Foods, Inc., Koch threw a party at the City Tavern Club in Washington, D.C. in honor of Espy's appointment as Secretary of Agriculture. The cost of the party to Koch exceeded $10,000. More than 100 persons attended, most invited from a list provided to Koch by Espy's congressional office.

Additionally, Koch recalled giving Espy and Dempsey tickets for the Washington Capitals hockey team and other events, such as a Michael Bolton concert and the "Ice-Capades." He claimed he could not recall if these gifts were made while Espy was a congressman or Secretary of Agriculture. Dempsey admitted knowing that, like Richard Douglas of Sun-Diamond Growers of California and Michael O'Bannon of the EOP Group, Koch was a person who could obtain tickets to sporting events for her and Espy.

OIC did not find evidence of criminal culpability related to Koch's conduct with Espy. Koch advised that he primarily represented the telecommunications industry rather than agriculture and had never represented a client at USDA. When asked why he spent $10,000 on a party for Secretary-designate Espy, he stated the event had "business value" because it would provide an opportunity for Koch and his clients to "meet and greet" Espy's colleagues in Congress. He stated he did not give gifts to Espy because of any interest in the Secretary-designate's official actions, and OIC uncovered no evidence to the contrary. Espy was legally required to disclose the gifts he received from Koch on his public financial disclosure form (see Section II.B.2.) but did not. In the exercise of prosecutorial discretion, OIC did not charge Espy with violation of criminal law on the basis of this omission.

b.   March 1994 Beverly Hills, California Trip

Following a lead developed in the FBI investigation preceding the appointment of the Independent Counsel, OIC also investigated whether Secretary Espy violated any federal law in accepting an all-expense-paid trip to Beverly Hills, California from Ebony and Jet magazine publishers Johnson Publishing Company, Inc.

In December 1993, Johnson Publishing selected Espy to receive the company's "Trailblazer Award" at its Fifteenth Annual American Black Achievement Awards presentation on Sunday, March 13, 1994 in Hollywood, California. To encourage attendance at the taping of the awards show, the company provided award recipients and one guest, including Secretary Espy and his guest Patricia Dempsey, round-trip airfare to Los Angeles, three nights accommodations at The Beverly Hilton Hotel in Beverly Hills, limousine transportation to and from the airport and the awards show, meals during their stay, and tickets to a pre-show reception and a post-show gala at The Beverly Hilton Hotel's penthouse restaurant.

OIC concluded that neither Secretary Espy nor Johnson Publishing violated any criminal law by engaging in this activity. The benefits Espy received appeared to be provided by Johnson Publishing for non-official reasons. The company was not regulated under the Meat Inspection Act, and OIC discovered no relationship between the company and the Department of Agriculture. However, Secretary Espy was legally required to disclose his receipt of this travel and hospitality from Johnson Publishing on his public financial disclosure form (see Section II.B.2.) but did not. In the exercise of prosecutorial discretion, OIC decided not to charge Espy with a violation of criminal law on the basis of this omission.

c.   $2,800 Monotype

OIC's investigation disclosed that Secretary Espy accepted an art work valued at $2,800 from Mississippi-born artist William Dunlap.

Espy and William R. Dunlap met through the "Mississippi Society," an informal social organization for native Mississippians living in Washington, D.C., shortly after Espy was first elected to Congress. To assist Congressman Espy in decorating his new office, Dunlap provided him with a piece of art. The two men maintained some social contact into the early 1990s.

Shortly after Espy was appointed Secretary of Agriculture, Dunlap met with Espy on several occasions at the National Museum of American Art, National Gallery of Art, and the Corcoran Gallery of Art to select pieces of art to hang in the Secretary's suite of rooms at USDA. (Cabinet members are allowed to borrow art from national museums to decorate their offices.) After making these selections, Dunlap provided Espy a hand-colored monotype portraying a scene from the Mississippi Delta. Although that particular monotype had not been sold, Dunlap advised that one similar in size and content had sold for $2,800.

Dunlap had no business before USDA. He stated that he provided Secretary Espy the monotype because none of the other paintings selected for hanging in the Secretary's suite of offices were of Mississippi, because he admired Espy personally, and because he wanted a piece of his work included among the others to be displayed at USDA.

While Secretary Espy's receipt of this art did not violate either the Meat Inspection Act or the gratuities statute, Espy did not report his receipt of this gift on his public financial disclosure form as required by federal law. OIC included this and some of the other omissions from his 1993 disclosure form as one count in the indictment it sought against former Secretary Espy (see Section III.B.3).

B.   Espy's Concealment of Gifts Received

In addition to the substantive offenses for which it investigated Espy, OIC focused on incidents of concealment or non-disclosure by which Espy attempted to deflect scrutiny of his actions. Some of these actions proved to be prosecutable offenses, and the grand jury charged them in the indictment against Espy. These acts fell into three categories: false statements to federal officials, failure to make legally required disclosures, and after-the-fact reimbursements.

1.   False Statements to Federal Officials

Secretary Espy was indicted for making false statements to three federal agencies or offices that made inquiries into his conduct - USDA's Office of Inspector General, the Federal Bureau of Investigation, and the White House Counsel's Office.

a.   False Statements to the USDA Inspector General

On March 17, 1993, The Wall Street Journal reported that Espy and USDA Acting Assistant Secretary for Marketing and Inspection Services Patricia Jensen accepted tickets to sporting events from Tyson Foods, Inc. USDA's Office of Inspector General (OIG) commenced an investigation into the Jensen allegations and opened discussions with the Department of Justice (DOJ) regarding the Espy allegations. OIG and DOJ decided that OIG should meet with Espy to discuss the allegations that he accepted football tickets from Tyson Foods and, if the allegations were confirmed, refer the matter to DOJ's Public Integrity Section for investigation.

On April 1, 1994, USDA investigative agents interviewed Espy about the Wall Street Journal article. Espy confirmed that he attended a Dallas Cowboys football game using a ticket provided by Tyson Foods and that he watched the game from a Tyson Foods skybox. The investigators then asked Espy whether he had received any other thing of value from an outside source. Espy expressly limited his response to Tyson Foods and then stated that he had stayed overnight at a Tyson Foods management complex in Arkansas. Espy further stated that he had flown back to Washington, D.C. the next morning on a Tyson plane because he was directed to return to the White House for dinner with the President and there were no available commercial airline facilities to return him to Washington, D.C. in time to attend the dinner.

Documentary evidence, however, established that as early as 10 days before the flight, Espy had planned to return to Washington, D.C. on a Tyson Foods plane, and that Espy's staff had previously made commercial reservations from Arkansas to Washington National Airport, which he directed his staff to cancel. Espy did not disclose to the OIG agents that he had met his girlfriend, Patricia Dempsey, in Dallas and had attended the game with her, that Tyson Foods paid for Dempsey's airfare to and from Dallas, or that he also had met her in Russellville for the party.

During the interview, Espy reviewed, but did not show the agents, documents that the agents assumed were the trip itineraries that he had submitted to USDA for his travel to Dallas, Texas (where he attended the Dallas Cowboys football game) and for his travel to Russellville, Arkansas (where he stayed at the Tyson Foods management complex). The agents requested copies of Espy's itineraries for those two trips and Espy told the agents that he would provide them. One of the agents informed Espy that he would attach those itineraries to a report to DOJ.

On April 8, 1994, Espy asked his confidential assistant, Eloise Thomas, to pull copies of those itineraries. Thomas retrieved copies of those itineraries from Betty Stern, Espy's USDA travel coordinator, and brought them to Espy. After receiving the Dallas itinerary, Espy told Thomas to take out the "personal stuff," because "it wasn't relevant." In doing so, Espy pointed at specific items on the itinerary to indicate the "personal stuff" he wanted removed, which were the references to his girlfriend, Tyson, and the football game. At Thomas's direction, Stern, who was unaware that the itineraries would be provided to OIG, made the indicated deletions from the computer version of Espy's itinerary and printed out a new copy.

The following excerpt from Espy's itinerary for Saturday, January 15, 1994 indicates, in [italic underline] font, the items removed on Espy's instructions:

In Espy's itinerary for the following day, Sunday, January 16, the information shown in strikeout font was deleted at Espy's instruction:

When Thomas gave the altered itinerary to Espy, he reviewed it again before directing her to make it available to OIG. OIG received the itinerary from Thomas on April 8, 1994, redacted as shown above, and, unaware that information had been deleted, provided it to the Department of Justice, as it had told Espy it would.

b.   False Statements to the FBI

On June 1, 1994, FBI special agents interviewed Espy. The agents asked Espy if he could recall any time when he accepted favors, benefits or gifts from any organizations or companies other than Tyson Foods. He responded that he could not. At the time Espy made this statement, he had received a number of gifts and favors from companies and organizations other than Tyson Foods. As this Report details elsewhere, he personally had received approximately $6,000 in gifts from Sun-Diamond Growers of California, a National Football League Super Bowl ticket from EOP Group and Oglethorpe Power, employment for Dempsey from EOP Group, tickets to a National Basketball Association championship game from the Quaker Oats Company, four Super Bowl tickets from Fernbank Museum, and three tickets to the 1993 Congressional Black Caucus Foundation Awards Dinner from Morgan Stanley.

In the June 1, 1994 interview, the agents also asked Espy who had provided him with a limousine and driver in Dallas. Espy responded, "I didn't ask whose car it was, and I didn't want to know." Thus, Espy claimed he was wilfully ignorant of benefits he was receiving and did not want to know where they came from.

Espy also told the agents that Richard Douglas of Sun-Diamond had provided him with the tickets to the NBA championship game that he in fact had received from the CEO of Quaker Oats. Five days later, in a June 6, 1994 interview with an FBI agent, Douglas corroborated this false story. Douglas stated that he had provided the tickets for the NBA game in Chicago and that he had received them for free from a friend who was an NBA basketball player.

Douglas later admitted that he was lying about this incident at Espy's request. Douglas knew that Espy acquired the two tickets from the chief executive officer of Quaker Oats. Indeed, Douglas had told Espy that he should not have solicited the tickets and should make reimbursement. Douglas stated that Espy had called him shortly after the June 1, 1994 interview, admitted that he had lied to the FBI about the source of the Chicago Bulls tickets, and asked Douglas, who was to be interviewed a few days later, to "cover for him." Douglas understood that Espy was asking him to lie to the FBI about the source of the playoff tickets, and Douglas did so.

c.   False Statements to the White House Chief of Staff

As discussed in Section I.C.4, above, on September 30, 1994, White House Chief of Staff Leon Panetta asked Espy to meet him at the White House to discuss allegations involving Espy's personal use of a government-leased Jeep and Dempsey's scholarship from Tyson Foods, neither of which had previously been publicly known. By the time of the September 30 meeting, the allegations that had publicly surfaced included Secretary Espy's attendance at the Dallas Cowboys football game and the Russellville Musical Celebration as a guest of Tyson Foods; his attendance at the Bulls-Suns NBA finals as a guest of the President of Quaker Oats; his attendance at the January 1994 NFL Super Bowl as a guest of Fernbank Museum; Dempsey's receipt of a job from the EOP Group; and his brother's receipt of a campaign debt retirement fundraiser hosted by agricultural interests.

Answering Panetta's questions about USDA's lease of the Jeep kept in Mississippi, Espy stated that, although it was located in his old congressional district, he was using the vehicle for purposes related to his duties as Secretary of Agriculture and that he had approval of USDA counsel for the lease of the Jeep. Espy did not disclose to Panetta that he was also using the Jeep for personal use, that he had represented to USDA counsel that the Jeep was for use in the Washington, D.C. area, and that counsel had only approved its use in Washington, D.C. in lieu of a chauffeured limousine.

After discussing Espy's use of the Jeep and Dempsey's scholarship from Tyson Foods, Panetta asked Espy whether there were any other matters about which the White House should be concerned:

I said, how much - how much else is out there that's going to come out, that you know, that will continue to impact on your ability to do your job. And the indication from the Secretary was that, you know, that pretty much everything that had been uncovered had already been uncovered and that was it . . . that, look, what you have - what you see is what you have, and that's it.

Espy did not tell Panetta about a number of gifts he knew he and his family and girlfriend had received from agricultural interests, including the following: four $1,500 tickets to a 1993 inaugural dinner from Tyson Foods; $3,100 in cash from Douglas so that Dempsey could travel to Greece; a $2,427 set of luggage from Douglas and Sun-Diamond; over $4,000 in tickets and limousines to the U.S. Open tennis tournament in New York for himself and Dempsey from Douglas and Sun-Diamond; $10,000 in campaign contributions for Espy's brother orchestrated by Douglas; the $2,200 Super Bowl ticket from EOP's Michael O'Bannon; and the 1993 Congressional Black Caucus Foundation Awards Dinner tickets from Morgan Stanley worth at least $500 each.

With regard to the two allegations that Panetta raised at the White House meeting - the government-leased Jeep and the Tyson Foods scholarship - Panetta felt "that the responses were not adequate, as far as . . . the appearances of impropriety." Panetta informed Espy that he would expect Espy's resignation on the following Monday morning. Shortly thereafter, Espy submitted his resignation effective December 31, 1994. Espy recused himself from meat and poultry issues for the 2-month remainder of his tenure.

2.   False Statements in Disclosure Reports

Espy also failed to disclose on his public financial-disclosure reports many of the things of value he received during 1993 and 1994 that he was legally required to divulge.

As a federal official, Espy was required to file an SF-278 public financial-disclosure form, reporting, among other things, gifts, travel, entertainment, meals and lodging he personally received from any one source in a calendar year totaling above $250. The SF-278 is designed to allow federal officials and the public to review the financial activities of public officials to determine compliance with applicable federal laws and regulations. The form also provides the government with a method of reviewing whether actual conflicts of interest exist between the filer's private activities and public duties, regardless of whether the filer believes that conflicts exist.

Before submitting the completed form to his or her agency, each filer must certify that the statements "made on this form and all attached schedules are true, complete and correct to the best of my knowledge and belief." The instructions to the form warn the filer that a "knowing and willful falsification of the information required to be filed by section 102 of the [Ethics in Government] Act may also subject you to criminal prosecution and sentencing under 18 U.S.C. §§ 1001 and 3571."

On his SF-278 financial disclosure report covering the calendar year 1993, Espy reported that he received:

• from the Minister of State for the Nation of Turkey, a "Turkish silk prayer rug" valued at $250;
  
  
• from Fernbank Museum in Atlanta, "Football tickets (Smokey Bear Anniversary Event)" valued at $350; and
  
  
• from the Japanese government, "Pressed wood plaque; lacquered wine goblets" valued at $143.

Espy failed to report the following: ⁽⁵⁰⁾

• the value of one seat at a $1,500-per-seat inaugural event provided by Tyson Foods;
  
  
• luggage worth approximately $2,427 from Douglas and Sun Diamond;
  
  
• the value of his entertainment ($500) during the Tyson Foods weekend party in Russellville, Arkansas;
  
  
• the value of his U.S. Open ticket and limousines in New York City ($2,100 for the ticket to both days' matches and $123 for the limousine transportation) paid for by Douglas and Sun Diamond during a U.S. Open tennis weekend;
  
  
• the $500 ticket to the Congressional Black Caucus Foundation Awards Dinner he received from Morgan Stanley;
  
  
• his $111 ticket to the Washington Bullets-New York Knicks basketball game from Douglas and Sun Diamond;
  
  
• the meals from Sun-Diamond Growers of California;
  
  
• the $2,800 framed lithograph from William Dunlap;
  
  
• the January 18, 1993 City Tavern Club party in Espy's honor, and other gifts from Patrick Koch; and
  
  
• the $569 hotel bill, massage, and hunting lesson at the Greenbriar Resort, paid by the American Crop Protection Association and by O'Bannon of EOP.

Donald D. Downing was the director of the Employee Relations Division of the Office of Personnel and the alternate designated agency ethics officer for USDA in 1993 and 1994. Downing received Espy's SF-278 for 1993 on June 30, 1994, after granting Espy an extension. After reviewing Espy's SF-278 for 1993, Downing prepared a list of questions regarding Espy's receipt of football tickets from the Fernbank Museum ⁽⁵¹⁾ and informed Espy that Fernbank was a prohibited source. Downing gave the questions to Wardell Townsend, assistant secretary for administration at USDA, who told Downing he would present them to Espy. Downing never received any response from either Espy or Townsend.

In a continuing effort to ensure that Espy's SF-278 indicated no problems, Downing's office on January 3, 1995 followed up its earlier questions with a further inquiry about the Fernbank Museum tickets:

Please provide the following: 1. The date you received the tickets; 2. The source, if known, from which Fernbank Museum received the tickets; 3. The reason you were given the tickets; and 4. The number of tickets and face value of each. We request that you provide us requested information by February 17, 1995. If you should need assistance, please contact Dave Spradlin . . . .

David Lee Spradlin was an attorney and an ethics specialist in the Office of Personnel at USDA. Spradlin received no communication from Espy or from anyone acting on Espy's behalf regarding the questions raised by Mr. Downing. Because Downing's questions were not answered, neither Downing nor Spradlin could make a final evaluation of Espy's 1993 SF-278.

On February 17, 1995, Spradlin received Espy's SF-278 for 1994, which reported that he had received:

• from G-Tech, Inc., in Boca Raton, Florida, "Airline ticket, hotel room incident to job interview as consultant on project unrelated to USDA 12/20/94" valued at $1,080;
  
  
• from Ascom Timeplex, Inc. in Irvine, California, "Airline ticket, hotel room incident to job interview as consultant on project unrelated to USDA 11/18-20/94" valued at $2,123.

Espy failed to report the following items of value that he had received:

• his share ($484) of the limousine and parking charges in Dallas provided by Tyson Foods;
  
  
• two additional Super Bowl tickets from Fernbank Museum, valued at $507;
  
  
• the Super Bowl ticket from Oglethorpe/Smith Barney/EOP worth $2,200;
  
  
• the Beverly Hills trip from Johnson Publishing; and
  
  
• the crystal bowl and meals from Sun-Diamond Growers of California.

Espy's counsel argued at trial that Espy did not "intentionally" fill out the forms wrong and asserted that Espy was either too busy or too poorly served by his staff to complete them accurately. In the same vein, he argued that Espy failed to make the required disclosures because the forms were simply too complicated:

You will find that those financial disclosure forms are so dog-gone complicated, there is a whole unit over at the government just to help the people deal with the fact that people keep screwing up the forms. That's how complicated the dog-gone form is. He made a mistake. The fact he made a mistake in filling out the form is not a crime. It's a mistake.

Espy's inability to fill out the forms appears to have been exaggerated. As a congressman, Espy had been required to file annual financial disclosure statements setting forth income, gifts, and reimbursements from outside sources. (See Section II.A.2.a). These forms were similar, though not identical, to the SF-278 forms he was required to file as Secretary of Agriculture. Moreover, Espy rebuffed the efforts of his designated agency's Ethic's officer, Downing, to obtain clarification on various items on his SF-278 1993 report.

3.   After-the-Fact Reimbursements

Espy made reimbursements for many of the gifts he received, but those reimbursements generally came only after the events became public or after the Independent Counsel was appointed. Espy made these after-the-fact reimbursements contending that he had always intended to reimburse for things of value from agricultural interests. The grand jury found probable cause to believe that these reimbursements were part of Espy's efforts to conceal his receipt of unlawful gifts, and included allegations relating to the reimbursements in the honest-services fraud counts of the Espy indictment. (Honest-services fraud is grounded in a public official's efforts to conceal information from the public for his personal benefit. See discussion in Section III.B.3.a.)

These reimbursements included the following:

• On March 17, 1994, The Wall Street Journal reported that Espy received a ticket to a Dallas Cowboys football game in January from Don Tyson, the chairman of Tyson Foods. The next day, March 18, Espy sent Tyson a payment of $68 for the ticket. With the payment, Espy included the following note:
  
  

  Dear Don - Here is my check for $68.00 to reimburse you for the Dallas-Green Bay football ticket. I enjoyed everything. To serve in government in this environment is very difficult. Best wishes! Mike.

Espy dated the check March 10, 1994, but the envelope in which he sent the check was postmarked March 18, 1994. A review of Espy's canceled checks surrounding the check to Don Tyson revealed that Espy had written dates later than March 10, 1994 on checks earlier in the series. The evidence supported the inference that Espy wrote the reimbursement check after the Wall Street Journal article was published and backdated the check to make it appear that he had intended to reimburse Don Tyson before the matter became public.

• On June 1, 1994, special agents of the FBI interviewed Espy and asked him about his travel to Russellville, Arkansas in May of 1993 to attend the birthday party hosted by Don Tyson. Shortly after Espy's attendance at the Russellville party, his travel coordinator, Betty Stern, had requested an invoice from Archibald Schaffer of Tyson Foods so that USDA could reimburse them for Espy's lodging. At Schaffer's request, Don Allen of the Arkansas Poultry Federation (APF) had given her in July 1993 an invoice that indicated that the APF had provided lodging to Espy at an approximate cost of $69.55. The invoice had been submitted with Espy's travel voucher, and USDA had reimbursed Espy for the amount. ⁽⁵²⁾ However, despite periodic reminders from his travel coordinator, Espy did not pay the invoice until June 2, 1994, one day after the FBI interviewed him about the trip. Espy, through Stern, sent a letter to the APF with the reimbursement that stated:
  
  

  Please find enclosed a check from Secretary of Agriculture Mike Espy in the amount of $69.55. This is payment of his lodging expense the night of May 15, 1993, per your enclosed invoice. Sorry for the delay in reimbursement.
  
  

• On August 7, 1994, the media reported that Espy had received tickets for the Chicago Bulls-Phoenix Suns NBA championship game on June 18, 1993, for himself and Douglas of Sun-Diamond, from William Smithburg, chief executive of the Quaker Oats Company. In June 1993, approximately one week after the game, Douglas gave Espy $50 in cash and told him that he should reimburse Smithburg. Despite this admonition, Espy did not make any reimbursement until the media reported the incident nearly a year later. On August 25, 1994, Espy sent Smithburg a check for $90, with a note that stated:
  
  

  Last year, you provided Richard Douglas and me with two tickets for the Chicago Bulls-Phoenix Suns playoff game. In reviewing my travel itineraries and expense records, I recently discovered that, by oversight, I have not yet reimbursed you.
  
  

• Following the August 9, 1994 request by the Attorney General for the appointment of an Independent Counsel, Espy sent a check on August 25, 1994, for $449.71 to the American Crop Protection Association as reimbursement for his September 1993 lodging at the Greenbriar Resort. This lodging had been arranged and paid for by EOP's O'Bannon. Espy did not send reimbursement for the $100 massage or the $20 skeet-shooting lesson he received during his stay at the Greenbriar Resort.
  
  
• On September 9, 1994, the Special Division of the United States Court of Appeals appointed the Independent Counsel to investigate Espy's acceptance of gratuities, gifts and things of value. On September 14, 1994, Espy sent a check in the amount of $700 (payable to "Fernbank Museum") to a museum trustee for four tickets to the January 30, 1994 Super Bowl, with a letter stating:
  
  

  Enclosed is my personal check in the amount of $700.00 to reimburse the Fernbank Museum for the cost of four tickets to the January, 1994 Superbowl Game in Atlanta.
  
  

• Also following the September 9, 1994 appointment of the Independent Counsel, Espy made a September 15, 1994 payment of approximately $6,204 to USDA for his personal use in Mississippi of a Jeep Cherokee vehicle, for which USDA made lease payments. With his check for $6,204.40, Espy included a letter that stated:
  
  

  In January 1993, I requested that the Department of Agriculture (USDA) assume the lease of a 1993 Jeep Grand Cherokee for my use on official business in Mississippi, in lieu of car service provided by the Government. The request was granted and on February 1, 1993, USDA assumed the two-year, high-mileage lease with Chrysler Credit at $775.55/month.
  
  From February 1, 1993 to September 30, 1993, the Jeep was part of USDA's Office of Inspector General (OIG) fleet in Mississippi and was kept at the airport in Jackson, Mississippi. It was made available to OIG agents for their use when the vehicle was not being used by me. On October 1, 1993, I purchased the Jeep from Chrysler Credit to convert it to my exclusive personal use in the Washington area.
  
  The lease of the Jeep by USDA was completely proper and appropriate given the number of official business trips I made to Mississippi. However, because I occasionally used the Jeep for some personal uses (such as transporting my children from home to school), I have decided to reimburse the USDA for the cost of the lease to avoid even the slightest appearance of impropriety. Accordingly, enclosed please find a personal check in the amount of $6,204.40 made payable to USDA.
  
  

Contrary to the assertions in this letter, the Jeep was not part of the OIG's fleet in Mississippi, nor was it approved to be kept in Mississippi for Espy's use there. (See Section II.C.1.a.)

In addition to the above reimbursements, following the appointment of an Independent Counsel on September 9, 1994, Espy's girlfriend, Patricia Dempsey, also made purported reimbursements of benefits she had received from Tyson Foods. On September 13, 1994, she sent Don Tyson a check in the amount of $1,239.55 for gifts related to the Russellville trip and the Dallas Cowboys football trip, with a letter stating:

As you know, there have been several press accounts . . . questioning the propriety of two social events that you invited me to which involved the presence of Secretary Mike Espy. . . .

. . . I would like to reimburse you for the Arkansas Poultry Federation charter flight as well as the expenses that I incurred through your generosity. I am enclosing a check for $1,239.55. I would appreciate your forwarding the amount of $830.00 to the Arkansas Poultry Federation to cover the charter flight. Listed below you will find a breakout of the expenses.

May 1993
Airfare to and from Russellville	$ 830.00
Friday night accommodations at Tyson's Facilities	69.55
Subtotal   $ 899.55
January 1994
Sedan for airport pick up/drop off service provided     at the stadium and mall	$   275.00
Ticket to Dallas football game	65.00
Total   $1,239.55

The letter did not include any reference to, or repayment for, the $1,009 airplane ticket that Tyson Foods lobbyist Jack Williams purchased for Dempsey to travel to Dallas for the football game and submitted as an expense to Tyson Foods.

On the same date, Dempsey also sent a check for $1,200.00 to John Tyson at the Tyson Foundation as reimbursement for the scholarship she had received, with a letter stating:

To avoid even the slightest appearance of impropriety, I would like to reimburse the Foundation for the scholarship that was awarded to me to continue my education. I have enclosed a check for $1,200.00 made payable to the Foundation. . . .

Subsequently, Dempsey's two checks bounced because of insufficient funds, and Dempsey, through her attorney, requested their return stating in part:

As you know, the checks were submitted to Ms. Dempsey's bank and returned due to insufficient funds. She has made arrangements to borrow the money to cover these checks, but now . . . wishes to retain the kind gifts that Mr. Tyson provided her and retain the scholarship money which she had already used to pay for her tuition during the spring semester of 1994.

Dempsey's checks were eventually returned to her, and she made no further efforts to reimburse Tyson Foods.

4.   Prosecution Decisions

As a result of the events described above, OIC brought an indictment against Richard Douglas for false statements under 18 U.S.C. § 1001. (See Section III.B.2.b.)

Also, as a result of the entire investigation, including the events described above, OIC included in the indictment sought against former Secretary Espy charges for false statements under 18 U.S.C. § 1001, witness tampering under 18 U.S.C. §§ 1512(b)(2)(A) and (B), and 1512(b)(3), and honest services fraud under 18 U.S.C. §§ 1341, 1343, and 1346. (See Section III.B.3.)

C.   Espy's Other Abuses of Office for Personal Benefit

In the course of examining the benefits that Secretary Espy had received while in office, to determine whether any might constitute illegal gratuities, OIC uncovered certain other instances in which Espy's conduct appeared to violate federal regulations. These additional matters are detailed below.

1.   Abuses Related to Government Vehicles

Shortly after the appointment of the Independent Counsel, the Department of Justice referred to the OIC the related allegation that an Espy automobile loan had been paid for by a government contractor. During the course of the investigation, the following information came to light.

a.   USDA Lease of Jeep Cherokee

USDA maintains an executive car pool of leased vehicles for official business. The pool consists of two Lincoln Town Cars and five or six smaller cars leased by the General Services Administration (GSA). By statute, the Secretary of Agriculture is provided home-to-office transportation and all transportation necessary to perform official USDA business. These services are normally provided by a USDA Lincoln Town Car and driver.

Members of Congress are also entitled to use cars at government expense. House rules entitle members to reimbursement for the long-term lease of automobiles used exclusively in the conduct of the members' official duties. Espy leased such a vehicle during each of his three terms in Congress, kept it at the Jackson, Mississippi airport while he was away from his district and used it in Mississippi while there. On December 21, 1992, following his third reelection to Congress and three days before President-elect Clinton formally nominated him to be Agriculture Secretary, Espy leased a new Jeep Grand Cherokee for 24 months at $775.55 per month.

In the early weeks of January 1993, before he assumed the position of Secretary, Espy told Wardell Townsend, his congressional chief of staff, that he wanted to use the Jeep in Washington, D.C. in lieu of a Town Car and chauffeur. Espy asked Townsend to find out whether this was allowed and whether the Jeep lease could be transferred to USDA.

Townsend called James Michael Kelly at the USDA's Office of General Counsel and asked Kelly about Espy's use of a Jeep as his official vehicle at USDA. Townsend's question focused on two points: (1) could Espy use a Jeep rather than a Town Car for official transportation, and (2) was Espy required to use a driver to commute. Townsend gave Kelly the impression that Espy wanted to use a Jeep rather than a Town Car for official purposes in Washington, D.C. so that he would be viewed as "a man of the people." Kelly did not know and was not told that Espy had already leased a Jeep Cherokee in Mississippi.

Kelly told Townsend that regulations did not require a specific type of vehicle or a driver, and therefore Espy could use a Jeep and could drive himself. Kelly took pains to point out that USDA vehicles could be used only for official government purposes and could not be used for personal transportation.

Kelly recalled speaking repeatedly on this issue with Townsend and at least once, during the transition between administrations after the 1992 elections, with Ronald Blackley, Espy's designated USDA chief of staff. The clear implication Kelly received from these conversations was that USDA would surrender the Lincoln Town Car and lease a Jeep instead.

Townsend also called John Kratzke, director of USDA's Office of Operations, to inquire about USDA's assumption of the Jeep's lease. (The Office of Operations ultimately is responsible for the procurement and maintenance of property by USDA.) Townsend explained to Kratzke that Espy would substitute the Jeep for the car and chauffeur to which Espy was entitled. Kratzke believed that USDA could therefore save money by leasing one fewer Town Car. Kratzke called Norman Downs, chief of USDA Executive Services. (Executive Services provides the Secretary of Agriculture with daily operational services, and the executive car pool falls within its budget.) Kratzke asked Downs to determine whether USDA could take over a lease from a House member, and told Downs to call Townsend regarding the request. Downs called Townsend, who reaffirmed that Espy wanted to use the Jeep in lieu of a Town Car and driver.

Shortly after he assumed the position of Agriculture Secretary, Espy asked Downs if the Jeep lease had been transferred to USDA. Downs informed Espy that the issue was under review. Espy reaffirmed to Downs that he would be using the Jeep for home-to-office transportation in Washington, D.C.

At some point, the USDA procurement office determined that it could lease a Jeep Grand Cherokee for less than $775.55 per month. When this information was relayed to Espy, who had personally signed the 24-month lease for this particular Jeep, he insisted, through Blackley, that he wanted the same Jeep that he had had as a congressman.

USDA assumed the lease on Espy's Jeep Cherokee, effective February 1, 1993, and began making the $775.55 monthly payments. Even though the federal government is self-insured, USDA also assumed Espy's personal insurance on the Jeep, paying $713.28 to Michael Matlock, Espy's insurance agent and brother-in-law.

Contrary to his representations to USDA, Espy did not bring the Jeep to Washington, D.C. He kept it at the Jackson, Mississippi airport and put it to personal use when he was in Mississippi. Several people reported that they saw Espy using the Jeep for personal business and even rode with Espy in the Jeep on personal outings. Espy also used the Jeep for USDA business when he was in Mississippi, and one member of Espy's security detail claimed to have used the vehicle on several occasions while doing advance work for Espy's trips to Mississippi.

While he kept the Jeep in Mississippi, Espy also availed himself of the USDA Lincoln Town Car and driver in Washington, D.C. USDA driver logs show that, by March 1993, Espy was using a Town Car and driver for official use and soon after for daily home-to-office transportation. Pursuant to GSA's contract, new Lincoln Town Cars were acquired in March of 1993, with no reduction in the USDA fleet.

In the summer of 1993, President Clinton issued a presidential directive ordering each department to reduce its automobile fleet size by 50%. Shortly thereafter, Ronald Blackley, by this time Espy's USDA chief of staff, approached an agent of the USDA Office of Inspector General (OIG) and asked whether the OIG's Jackson, Mississippi office could store and maintain the Jeep. Blackley represented that OIG would be permitted some use of the Jeep when Espy did not need it. OIG refused this unusual request, believing that making the vehicle available to them would merely be a cover for the Jeep's expenses.

Pursuant to the presidential directive, USDA took an inventory of its fleet. The lease of the Jeep, its housing in Mississippi, and Espy's use of it came to light. USDA chose not to continue paying for the Jeep as of September 30, 1993. Bound by his original 24-month lease with the dealership, Espy thereafter personally made the payments. He brought the Jeep to Washington, D.C. in December of 1993, claiming reimbursement from USDA for the mileage - 1,070 miles at $0.25 per mile (USDA's standard reimbursement for using a personal car for official USDA business) for a total of $267.50.

On September 15, 1994, less than a week after the Independent Counsel was appointed, Espy submitted to USDA his personal check for $6,204.40, representing lease payments for the Jeep of $775 a month for eight months. With the check he submitted a letter stating that he had used the Jeep for some personal business and was therefore reimbursing the government for the cost of the lease.

b.   Use of USDA Ford Explorer

By September 1994, OIG also was investigating whether Espy used for personal purposes another USDA-leased automobile, over which he had taken control for more than 10 months. The OIG's Headquarters Investigation and Protective Operations Division leased two cars for official business, one of which was a 1993 Ford Explorer. On or about July 3, 1993, Espy obtained the keys to the Ford Explorer and drove it away. It appears that OIG personnel repeatedly requested return of the vehicle, but Espy nevertheless continued to use it for more than 10 months. ⁽⁵³⁾

On April 25, 1994, OIG received a "hotline" complaint that Wardell Townsend, USDA assistant secretary for administration, had authorized the lease of a vehicle to the Secretary for personal use. Having no knowledge of the Jeep Espy had leased in Mississippi, OIG personnel thought the complaint was referring to the OIG's Explorer. As a result of the hotline complaint, Acting Inspector General Chuck Gillum became aware that Espy had the OIG's Explorer. Gillum ordered his subordinates to secure the vehicle's prompt return. Espy returned the Explorer to OIG on May 7 or 8, 1994.

The evidence supports the inference that Espy used the Explorer for personal business. The car Espy owned in Washington, D.C. remained parked at a USDA parking space during the 10 months he retained the Explorer. The Explorer thus appears to have been his only source of personal transportation in the Washington, D.C. area until the end of December 1993, when he retrieved the Jeep leased in Mississippi. Additionally, Espy's confidential assistant Thomas recalled receiving a telephone call from Patricia Dempsey, Espy's girlfriend, who had to borrow money from Thomas because while Dempsey was using the Explorer around Washington, D.C., the vehicle had been "booted" (i.e., a lock was placed on one of its wheels because of outstanding parking tickets). The Explorer's car-phone bills, moreover, revealed a large number of weekend calls from the Explorer on dates on which Espy's calendars and itineraries revealed no USDA business. Finally, upon its return, the Explorer's odometer registered an added 5,477 miles, which suggested significant personal use, given that Espy often employed a USDA-leased Town Car for official business and for home-to-office transportation.

c.   Jeep Payments by Government Contractor

Questions of impropriety surrounding Espy and motor vehicles extended beyond his personal use of vehicles leased by USDA. An allegation also arose that a prohibited source had made payments on the Jeep Cherokee after the Secretary personally assumed the lease. On August 10, 1994, a radio talk-show host announced over the air in Seattle, Washington that an individual had provided him with documents revealing that a government contractor had paid certain of Espy's debts, including an automobile loan. OIG referred the matter to the DOJ Public Integrity Section. On September 14, 1994, Attorney General Janet Reno referred to the Independent Counsel, as a related matter, whether a "[d]ebt of Secretary Espy, including an automobile loan, have been paid by a government contractor."

The OIC investigation disclosed that in September of 1993, Espy discussed with Algernon Cooper, an acquaintance and Washington, D.C. attorney who represented the National Association of Minority Automobile Dealers (NAMAD), that he was about to begin making monthly payments of $775.55 on the Jeep Cherokee. Cooper thought the payments were high and advised Espy that the monthly amount could be reduced through refinancing. Cooper subsequently arranged for Espy to meet with Benjamin Fitzpatrick, a member of NAMAD who owned an automobile dealership in Seattle, Washington. Fitzpatrick refinanced the Jeep Cherokee by paying off the pending lease, then selling the Jeep to Espy through a five-year loan financed by Chrysler Credit. The net effect of the refinancing was to lower the Secretary's monthly payments to $423.25 per month, with payments to begin in November 1993.

Espy, however, failed to make his monthly payments for November and December 1993. When no payment had been received from Espy by January of 1994, Fitzpatrick informed Cooper of Espy's delinquency. Cooper wrote two checks on his personal checking account totaling $846.50 for Espy's November and December payments and mailed them to Chrysler Credit. On the same day, Cooper mailed Espy a letter explaining that he had made Espy's payments and enclosed an unsecured personal promissory note for $846.50 for Espy's signature. Four days later, on January 25, 1993, Espy mailed Cooper a check for $846.50 and a letter stating that he thought the car payments did not begin until January 1, 1994.

Cooper explained to investigators that he covered Espy's payments without request by Espy, because he felt responsible for the arrangement between Espy and Fitzpatrick. The investigation confirmed that Cooper was not a government contractor with business before USDA and found only that he represented a few clients with de minimis issues before USDA.

d.   Prosecution Decisions

As a result of the entire investigation, including the events related to the procurement of the Jeep Cherokee, OIC included in the indictment sought against former Secretary Espy a charge of honest-services fraud under 18 U.S.C. §§ 1341 and 1346. (See Section III.B.3.)

The evidence uncovered surrounding the OIG Explorer suggested that Secretary Espy made personal use of this government vehicle. Title 31, United States Code, Sections 1344 and 1349 prohibit personal use of government automobiles and require a mandatory minimum penalty of a 30-day suspension for any violation. However, OIC concluded that Espy's use of the OIG Explorer did not amount to criminal conduct and it was not made a subject of criminal indictment.

OIC's investigation confirmed that Algernon Cooper wrote two personal checks totaling $846.50 to cover Espy's overdue payments on his Jeep Cherokee. The evidence indicated, however, that these payments were not made to influence official action at USDA. Cooper had little if any interest in USDA decisions; he made the payments without Secretary Espy's knowledge or request, because he felt responsible for the Jeep purchase agreement, and he immediately informed Espy of his actions and requested that Espy execute a promissory note to repay him. Espy reimbursed Cooper the full amount within the week, stating that he did not know the payments were due. In light of these facts, OIC concluded that neither Cooper nor Espy committed a criminal offense through these acts.

2.   Abuses Related to Official Travel

OIC's investigation also disclosed numerous improprieties by Secretary Espy related to his official travel.

a.   Travel Expenses Paid by Subordinates and Others

Federal employees whose duties include official travel are routinely provided credit cards by their agencies to cover travel-related expenses. After returning from official travel, the employees submit travel vouchers detailing their travel-related expenses and corresponding receipts. The agencies then reimburse the employees by check, with which the employees pay off the credit card charges. Employees are personally liable for all charges on their credit cards, but this system lessens the need for employees to use their own cash to cover expenses necessitated by official travel.

During his term in office, Secretary Espy had his subordinates and others "pick up the tab" on approximately $1,500 of his official travel-related expenses. Espy directed subordinates traveling with him to pay bills on at least 11 separate occasions, often stating that he did not have his government credit card or that he was in a hurry. On other occasions, Espy allowed outside sources, including prohibited sources, to pay expenses incurred by his travel. Secretary Espy thereafter submitted travel vouchers and received reimbursement checks from USDA for the expenditures others paid at his direction. Upon receiving such reimbursement, the Secretary often kept the entire amount without reimbursing the subordinate or outside source who had actually paid his bill.

Whenever Espy's USDA travel coordinator, Betty Stern, became aware that another had paid Espy's reimbursable expenses, she attached a "post-it" adhesive note to the Secretary's travel vouchers, indicating to Espy that he needed to make reimbursement. As the list of subordinates to whom Espy owed money grew, Stern generated lists that identified the individual creditors and the amounts owed by Espy. Stern prepared a "checks needed" list in July 1993, October 1993, November 1993, January 1994, March 1994, May 1994, and June 1994, and two such lists in August 1994. Stern provided the lists to Espy's confidential assistant, Eloise Thomas, who personally presented them to the Secretary.

As an example, Stern's June 1994 list reminded Espy of the following amounts he owed others for picking up his travel-related expenses:

June 13, 1994
Eloise [Thomas]/Fred [Slabach]/Kim [Schnoor]
SECRETARY ESPY'S OUTSTANDING TRAVEL **NOTE: CHECKS NEEDED FROM SECRETARY ESPY**
1993
5/2-6/93	Trip to Brussels
	(Telephone expenses)
	Check payable to: USDA-FAS	$200.61
	(Secy. received reimbursement 7/26/93)
5/21-26/93	Trip to Greece/Italy
	(Meals/valet expenses paid by Kim)
	Check payable to: Kim Schnoor	$93.06
	(Secy. received reimbursement 7/27/93)
5/27-6/3/93	Trip to Mississippi/Louisiana/California
	(Overnight expenses 5/28, 29 & 5/31)
	Check payable to: Steve Kinsella	$99.89
	Check payable to: Meg Evans	$95.20
	(Secy. received reimbursement 7/19/93)
	Check payable to: Eloise Thomas	$88.78
	(Secy. received reimbursement for reclaim 8/23/93)
6/19-20/93	Trip to Annapolis, MD
	(Overnight expenses)
	Check payable to: Ronald Blackley	$112.73
	(Secy. received reimbursement 7/15/93)
8/8-9/93	Trip to Dallas, TX
	(Overnight expenses)
	Check payable to: Steve Kinsella	$68.00
	(Secy. received reimbursement 10/26/93)
9/26/93	Greenbrier, WV
	Overnight expenses at The Greenbrier paid for my [sic] Michael O'Bannon - conflict of interest- need to reimburse O'Bannon.	?
	(10/13 voucher filed for M&IE rate only. Secy. received reimbursement 10/26. Wrote O'Bannon to bill Secy. for hotel expenses.)
10/9-22/93	Asian Trip
	(Tokyo hotel expenses $49.60 and $80.00 given Secy. by ATO-Hong Kong paid by Kim)
	Check payable to: Kim Schnoor	$129.60
	(11/9 voucher sent NFC)
12/1-7/93	Brussels/Geneva
	(Hotel expenses paid by Bill Sanders-OIG)
	Check payable to: Bill Sanders	$331.41
	(Secy. not due reimbursement - had $1,000 travel advance. 1/26 voucher sent NFC)
1994
1/18-19/94	Louisiana
	Missing hotel receipt. Holding voucher	?
	(Wrote Farm Credit Council requesting they bill Secy. for hotel expenses.)
3/16-17/94	Florida
	(Hotel expenses paid by New York Cotton Exchange)
	Check payable to: NY Cotton Exchange	$150.00
	(Holding voucher for Secretary's check.)
3/23-24/94	Missouri/Indiana
	(Hotel expenses paid by Chris Golightly- IN OIG agent. Reid wrote check to Chris Golightly reimbursing him.)
	Check payable to: Millard Reid	$117.69
	(4/7 voucher sent NFC)

In addition to Stern's lists, three of the Secretary's senior advisors counseled Espy on different occasions that he needed to repay these individuals. When confronted by his advisors, Espy provided excuses for his failure to make the payments, asserted that he would pay them back, and complained about his financial situation.

Although Espy received reimbursement from USDA for these payments of his travel-related expenses, he did not repay the persons who had picked up his tabs. Even after Espy's conduct came under inquiry, Espy reimbursed only those expenditures paid for by prohibited sources and not those paid for by his subordinates at USDA. In the end, these subordinates wound up out-of-pocket for the advances they had provided to Espy.

b.   The $71,000 Plane Charter to Facilitate Attendance at a Birthday Party

Sometime during the Fall of 1993, Patricia Dempsey and Richard Douglas began arranging a surprise party for Secretary Espy's 40^th birthday on November 30, 1993. To further the effort, Dempsey and Douglas arranged a lunchtime meeting with USDA staff members to discuss the event. The group was asked to present names of people who should be invited and to make financial contributions of between $75 and $500. Douglas, Kearney, O'Bannon, and Atkins each contributed $500.

After plans for the party were under way, Douglas contacted USDA Associate General Counsel James Michael Kelly and inquired whether there was anything wrong with holding a birthday party for Espy if it was small in nature and paid for by limited contributions from a handful of close personal friends such as himself. Kelly understood Douglas and Espy to be longtime friends and responded that, if put on in that form, a party would be okay. Kelly subsequently told OIC investigators that he could not recall if Douglas had mentioned to him a specific dollar amount for contributions, but stated that he would have advised Douglas that $500 was excessive.

Dempsey asked the USDA staff whether she should invite Don Tyson to the party and at least one staffer responded that she should not. Dempsey nevertheless extended an invitation to Don Tyson, who responded that he would be out of the country and could not attend.

In all, Dempsey and Douglas collected at least $7,500 for the party. Dempsey arranged for the party to be held on November 30, 1993 at 6:30 p.m. at the Sequoia Restaurant in Washington, D.C. The total bill for the party was slightly over $6,700.

Meanwhile, after seven years of negotiations, General Agreement on Tariffs and Trade (GATT) talks were reaching a conclusion in late 1993 in Brussels, Belgium. On or about November 28, 1993, Espy was informed that he had to attend the GATT negotiations on December 1. Travel arrangements were made for Espy and four support personnel to fly to Brussels via commercial airlines. However, if Espy adhered to these travel arrangements, he would have been unable to attend his November 30 birthday party. (Espy knew about the party, although it was supposed to be a surprise.) Attempts were made to accommodate the Secretary, but all available commercial flights from Washington to Europe necessitated Espy's departure before the party.

Espy told his chief of staff, Ronald Blackley, that he was not going to miss the birthday party and directed him to charter a plane to transport Espy and his group to Belgium late in the evening of November 30, after the party. Blackley, through Espy's USDA travel coordinator, Stern, priced charters and learned that such a charter would cost approximately $70,000. Blackley told Espy of the cost and recommended Espy fly commercial instead, warning him that he would be called on the charter expense by the White House. Espy responded that he was not going to miss the party and directed Blackley to charter the plane. Blackley signed a contract for the charter of a private Gulfstream aircraft to fly Espy and his staff from Washington National Airport at 9:00 p.m. on November 30, 1993 to Brussels, Belgium. The total price of the charter was $71,096, plus costs for catering and phone charges to be invoiced after the trip was completed.

On the evening of November 30, Secretary Espy attended the birthday party. He then drove to Washington National Airport, where he met the members of his support staff shortly before 9:00 p.m. Before Espy boarded the chartered plane, one of the pilots informed him that the plane was having mechanical difficulties and that efforts were being made to correct the problem. The plane ultimately was repaired but only after National Airport's 10:00 p.m. noise curfew, so it could not depart.

Espy and the USDA staff flew to Brussels the next morning via commercial airlines. Espy noted in his diary that he was glad he attended the party and also that he was able "to avoid a 71K cost of a charter jet." Bad weather had postponed the talks in Brussels, so Espy arrived in time for the discussions despite having left Washington, D.C. later than planned. USDA did not have to pay for the charter.

c.   Frequent Travel to Mississippi at Government Expense

Before the Independent Counsel's appointment, the press raised questions regarding the number of trips Secretary Espy made at taxpayer expense to his home state of Mississippi. OIC looked into this issue during the early stages of its investigation as part of its effort to determine if Espy was meeting with any donors while in Mississippi. Evidence revealed that Espy traveled to Mississippi 18 times during his first 16 months in office. The majority of these trips were arranged around weekends and afforded him considerable free time in Mississippi.

In particular, there were seven trips during which Secretary Espy visited Mississippi on a weekend and had at least one entire day free, and three additional trips during which Espy had one short event scheduled on a weekend day. Many of the trips were predicated on or extended because of Espy's attendance at one or two brief events, including one-on-one meetings - often with supporters whom Espy had appointed to state USDA positions in Mississippi.

As examples, Espy's itineraries reveal the following trips to Mississippi during 1993 and 1994 at government expense:

The Secretary possessed the discretion to travel as he deemed appropriate to conduct official business. However, the travel records support Espy's statement to USDA Associate General Counsel James Michael Kelly in January 1993 that he planned on visiting Mississippi often to see his children (see Section II.D.1).

d.   Prosecution Decisions

Federal regulations prohibit a public official from causing subordinates to pay for the official's expenses. Specifically, 5 C.F.R. § 2635.302 prohibits any federal employee from, directly or indirectly, coercing or accepting a gift from a subordinate. A related regulation, 5 C.F.R. § 2635.702(a), also precludes an employee from using his public office for private gain, stating:

Inducement or coercion of benefits. An employee shall not use or permit the use of his Government position or title or any authority associated with his public office in a manner that is intended to coerce or induce another person, including a subordinate, to provide any benefit, financial or otherwise, to himself or to friends, relatives, or persons with whom the employee is affiliated in a nongovernmental capacity.

OIC determined that no criminal charges should be brought based upon Espy's actions in causing subordinates to pay for his travel expenses, but it did introduce at Espy's trial evidence relating to this conduct as proof of his motive and intent in accepting the unlawful gratuities for which he was indicted.

Espy's order to charter the plane to Belgium appears to have been a willful misuse of government funds notwithstanding the aborted journey. However, the signature on the charter agreement was Blackley's, and only Blackley could have testified that Espy gave the order to charter the plane. Blackley was not available to testify at the time of Espy's indictment, because his appeal of his own conviction was pending and he would have asserted his Fifth Amendment privilege if called. OIC determined not to bring charges against Espy for these actions.

Secretary Espy's frequent travel to Mississippi was governed by, among other rules and regulations, the Federal Travel Regulations. Federal Travel Regulation § 301-1.3 states in pertinent part:

An employee traveling on official business is expected to exercise the same care in incurring expenses that a prudent person would exercise if traveling on personal business. Excess costs, circuitous routes, delays, or luxury accommodations and services unnecessary or unjustified in the performance of official business are not acceptable under this standard.

Federal Travel Regulation § 301-1.101(b)(3), further provides:

Travel authorizing officials shall authorize or approve only that travel necessary to accomplish the agency mission in the most effective and economical manner.

As the Secretary of Agriculture, Espy authorized his own travel, and had significant discretion in doing so. Accordingly, no charges were brought regarding these activities.

D.   The Role of Espy's Staff in Avoiding Abuses

One explanation that Espy offered for his conduct, both during the investigation and during his trial, was that he was inattentive to ethical matters because of the press of business and therefore relied on his staff to handle such details. For example, during Espy's June 23, 1994 interview with the FBI, he acknowledged that the Secretary of Agriculture could not accept gifts from individuals or companies regulated by USDA but advised, in substance, that he did not concern himself with "prohibited sources" because he had schedulers and staffers who watched over his travel and other activities to ensure his compliance with ethics regulations and the Meat Inspection Act. Espy's counsel reiterated this argument at his trial, emphasizing that the Secretary's office was "in chaos" during 1993 and suggesting that this instability contributed to inadvertent ethical errors.

The contention was that Espy's staff had let him down. The facts, however, were otherwise.

1.   Instruction and Counseling on Ethical Matters

One way in which Espy's staff at USDA could protect him from ethical breaches was to make sure that he was aware of the restrictions to which he was subject. Espy rebuffed the efforts made to educate him on these matters.

As detailed in Section I.B.2.b, almost immediately upon his selection as Secretary of Agriculture, Espy was given various memoranda designed to make him aware of the ethical regulations that applied in his new position in the executive branch. Specifically, he received materials regarding the prohibitions against gifts to public officials and the requirements regarding financial disclosure.

On December 29, 1992, within one week of his nomination to the post of Secretary of Agriculture, Espy received a memorandum from Vice President-elect Albert Gore's chief of staff summarizing the federal ethics rules. The memorandum informed incoming administration officials that the ethics rules required financial disclosure through annual financial disclosure reports (government form SF-278) and that the rules forbade acceptance of gifts from prohibited sources, with a few exceptions (such as gifts under $20). On the same date, Espy also received a memorandum from the transition counsel specifically regarding inaugural events and gifts. The memorandum warned:

As the Inaugural approaches, it is important that presidential designees be aware of the federal rules governing the receipt of gifts by executive branch employees - including attendance at receptions, parties and other events.

On January 22, 1993, the day Espy was sworn in as Secretary of Agriculture, a personnel assistant at USDA gave him a copy of the Standards of Ethical Conduct for Employees of the Executive Branch and told him that "it was a book he should read." The document included the ethical regulations regarding the receipt of gifts by executive-branch employees.

All appointees and employees of USDA were also to receive ethics briefings. James Michael Kelly, USDA's associate general counsel, was one of the department's ethics counselors and an advisor to USDA's ethics program. He was responsible for "shepherding" all USDA presidential appointees through conflict-of-interest issues in relation to the filing of financial disclosure forms, and for providing guidance on ethical issues. Kelly had the immediate responsibility for briefing Espy on these matters.

Espy scheduled a meeting in his office with Kelly for the afternoon of his swearing in as Secretary of Agriculture on January 22, 1993. Kelly prepared a list of ethics issues to address at the meeting. The meeting, however, proved to be simply a "meet-and-greet" among Espy, Kelly and four or five other heads of USDA agencies; no substantive discussion of ethics issues took place.

At the conclusion of the meeting, Espy had a brief side discussion directly with Kelly. Espy stated that while he had been a member of Congress he had traveled to Mississippi on as many weekends as he could, because his children lived in Mississippi. He said that he wished to continue this practice while he was Secretary and that he would be looking for Kelly's assistance in making such travel happen as often as possible. ⁽⁵⁴⁾ Espy told Kelly that he had mentioned this to the President-elect when Clinton offered him the Secretary position and that the President-elect indicated that he understood. Kelly replied that he would be willing to give Espy every assistance he could but that he knew of no issue more sensitive for any political appointee than repeated trips to his hometown.

A meeting was subsequently scheduled for January 29, 1993, at which Kelly was to provide an ethics briefing for Secretary Espy and his staff. Members of Secretary Espy's staff attended, but Espy did not. Kelly gave another ethics briefing to many of the new presidential appointees at USDA on May 20, 1993, but Espy did not attend this meeting, either. Kelly discussed with Kimberly Schnoor, counsel to the Secretary, the need for Espy to have an ethics briefing, but such a briefing never occurred.

In addition to particularly tailored briefings, ethics briefings were held as a matter of course at USDA. Five to eight such briefings occurred during 1993, at which Hatch Act matters (i.e., rules prohibiting officials from engaging in certain forms of political activity, such as soliciting contributions for political campaigns), travel rules and regulations, and conflict-of-interest matters were discussed. Espy attended none of these briefings.

2.   Espy's Reliance on Staff to Prevent Ethical Lapses

The evidence established that Espy's staff had in fact worked hard to keep him in line with ethical laws and regulations but that Espy simply did not share their concerns. Indeed, his staff largely succeeded in their endeavor, at least as to gifts coming to Espy at USDA. However, Espy received most of the gifts that OIC investigated while he was away from USDA and outside the scrutiny of his staff. Espy's staff, like the staff for prior Secretaries, maintained a "gift log" that recorded all gifts that arrived at USDA for Secretary Espy's benefit. (Under ethics regulations, Secretaries could accept gifts worth less than $20.) USDA staff also advised Espy on ethical matters and even returned inappropriate gifts that arrived at USDA; whether Espy heeded his staff's advice was not within their control.

For example, in March 1993, C&G Railway Company presented Espy with a signed, limited edition art print. Margaret Lynne Jenkins Finnerty, a confidential assistant in the Office of the Secretary, asked Michael Kelly, USDA's associate general counsel, to prepare a memo on whether the print could be accepted. Kelly's memo addressed the applicable regulations and concluded that Espy could not accept the print because C&G Railway Company was a prohibited source under the ethics regulations. Sharron Harris, Espy's Executive Assistant, advised him that he could not keep the print, and she believes that it was returned. Harris, who had worked for Espy since 1986 and had received an ethics briefing upon entering USDA, stated that she spoke with Espy often about possible conflicts of interest, including not accepting gifts from people who did business with USDA. Harris stated that Espy thought she was too "technical" in her ethics determinations.

Similarly, on May 10, 1993, only days before the Tyson Foods' Russellville "Musical Celebration," (known to Espy's staff only as an Arkansas Poultry Federation event), three CDs and one cassette tape arrived at the USDA for Secretary Espy as a gift from Tyson Foods. John Maynor, then Espy's confidential assistant, returned the gifts to Tyson Foods as unacceptable because they had an estimated value of $60 and were from an agricultural interest.

Steven Rolf Kinsella, USDA's press secretary, also advised Espy regarding ethics matters. Kinsella stated that he personally informed Espy on a number of occasions not to take anything of value from a prohibited source. When he became aware that the Smokey Bear half-time events at the Super Bowl were canceled, Kinsella advised Kim Schnoor, Espy's USDA counsel, that Espy should not use the tickets for the event he had received from the Fernbank Museum because there was no official reason for his attendance. Schnoor advised Espy of Kinsella's recommendation, but he attended anyway. Kinsella and Schnoor both also advised Espy that he should not travel to Mississippi as much as he did. Kinsella even gave Espy old news articles criticizing Cabinet officials for traveling to their home states frequently, but Espy disregarded his advice.

Betty Stern, Espy's USDA travel coordinator, attempted to make sure no difficulties arose regarding Espy's travel. Stern questioned the purposes of trips and, when it came to her attention that others had covered Espy's travel-related expenses, Stern prepared lists advising Espy of persons he needed to reimburse. Stern further identified on these lists whether the person who picked up Espy's expenses was a prohibited source, to emphasize the need for reimbursement.

Ronald Blackley, Espy's Chief of Staff, also advised Espy on at least one ethics-related matter. When Blackley learned that Espy did not want to fly on a commercial airline to Belgium because he would miss his birthday party, and instead wanted to spend $70,000 on a charter plane, Blackley advised Espy against the charter and warned him that the White House would question the charter. Espy disregarded Blackley's advice and ordered the charter (although in the end he did not take the flight because of mechanical difficulties).

Thus, Espy's staff did try to keep him out of ethics-related problems. Indeed, several staff members stated that they specifically discussed with Espy the issue of acceptance of gifts from persons with business before USDA. Espy's lapses seem to have been less the result of his staff's failure to protect him than they were the result of his own failure to heed the staff's advice, or of his active concealment of his actions from his staff.

E.   Henry Espy Campaign Offenses

Shortly after Espy left Congress to become Secretary of Agriculture, his brother Henry Espy lost the special election to fill his congressional seat and became saddled with campaign debts in excess of $150,000. Secretary Espy was concerned that his political support in his home community could erode if the indebtedness was not repaid. He therefore personally confirmed to a bank holding a substantial loan for the debt that he would assist in the retirement of Henry Espy's indebtedness. This campaign debt raised a possible avenue by which agricultural interests could confer benefits on the Secretary - i.e., via assistance to his brother.

By letter dated September 14, 1994, the Attorney General referred to OIC as a related matter the allegation that "Secretary Espy hosted a fundraising dinner, attended by agriculture lobbyists, the purpose of which was to retire the campaign debt of his brother." This allegation was premised, in part, on an anonymous "hotline" complaint received by the USDA's Office of Inspector General (OIG). The complaint stated:

[O]n about the last Thursday in April 1994, Secretary Espy, Former California Representative Tony Coelho, and Richard Douglas hosted a dinner for approximately eight agricultural lobbyists. The dinner was held at the 116 Club. Henry Espy also attended. Richard Douglas told the lobbyists that Mike Espy wanted to attend but that he could not. Douglas said that they needed to raise money to retire the debt of Henry Espy and that each of them should raise $10,000. Coelho said that it was a matter of great importance that Espy remain a good name in Mississippi politics and that is why they should retire Henry's debt.

After the Attorney General referred the matter to the Independent Counsel, OIC undertook a thorough investigation that uncovered a wide range of criminal acts undertaken to garner Secretary Espy's favor by assisting Henry Espy.

OIC's investigation established (1) that a fundraiser had indeed been held (not on the last Thursday of April but on the last Thursday of March 1994); (2) that Secretary Espy had planned to, but had not, attended the event; (3) that Tony Coelho had requested the attendees to assist in the retirement of Henry Espy's debt; and (4) that Richard Douglas, senior vice president of Sun-Diamond Growers of California, a multi-crop agricultural cooperative, had hosted the event. OIC also found that $10,000 in campaign contributions had been deposited in a Henry Espy campaign account at a Washington, D.C. bank the day following the fundraiser, and that Douglas was the account's only signatory.

The investigation followed the flow of the $10,000 into other Henry Espy campaign accounts, into which additional funds had been deposited from a wide variety of sources, including cash deposits in excess of $20,000. The effort to determine the sources and purposes of these campaign contributions resulted in a wide-ranging investigation that uncovered numerous violations of law and led to the prosecution of four entities and six individuals:

• Sun-Diamond Growers of California and its senior vice-president, Richard Douglas;
  
  
• Crop Growers Corporation and two of its principals, John Hemmingson (chairman of the board, chief executive officer, and president) and Gary Black (chief financial officer);
  
  
• Henry Espy;
  
  
• Alvarez Ferrouillet, a New Orleans lawyer, his law firm Ferrouillet & Ferrouillet, and his insurance brokerage company Municipal Healthcare Cooperative, Inc.; and
  
  
• James Lake, a partner in Robinson Lake Sawyer and Miller, a Washington, D.C.-based public-relations firm and Sun-Diamond's principal outside lobbyist in Washington.

The investigation also led OIC to refer evidence of other campaign violations (which proved not to be related to Secretary Espy) by Sun-Land Products, Inc., a wholly-owned subsidiary of Sun-Diamond Growers, to the Department of Justice ⁽⁵⁵⁾, and by American Family Life Assurance Company of Columbus, Georgia to the Federal Election Commission.

1.   Unlawful Campaign Contributions to Obtain Access to Secretary Espy

The common theme in the campaign contribution violations prosecuted by OIC was that agricultural interests used Henry Espy's financial distress as an opportunity to gain favor with his brother, the Secretary of Agriculture, who had taken an active interest in paying down his brother's campaign debt. In fact, agricultural interests actively supported Henry Espy's campaign both before and after the March 1993 primary election as a means of getting close to the Secretary, and several of these interests broke the law in doing so.

a.   Henry Espy's Campaign Attracts the Interest of Agribusiness

Henry Espy lived in Clarksdale, Mississippi, where he owned and operated a funeral home. From 1989 to 1997, he was Clarksdale's mayor, and from 1992 to 1995 he served as president of the National Conference of Black Mayors, an organization created to provide management and technical-support resources to mayors across the country.

In early 1993, Henry Espy ran in the Democratic primary election for Mississippi's Second Congressional District seat, which his brother had held for six years and had vacated upon becoming the Secretary of Agriculture. As soon as Henry Espy announced his candidacy, numerous agribusiness donors contributed, many with little if any connection to Mississippi's Second Congressional District. According to reports filed by the Henry Espy campaign with the Federal Election Commission (FEC) for the period January 1993 through April 19, 1993, the number of out-of-state contributors totaled 165, nearly equal to the campaign's 181 Mississippi contributors; contributions also came from 61 out-of-state political action committees (PACs), compared to eight in-state PAC contributors.

In his election bid, Henry Espy used several of the same campaign organizations that had served his brother. One of these, Creative Campaign Consultants, Inc. from Washington, D.C., coordinated a Henry Espy fundraiser held on February 23, 1993 at the Beneficial Town House in Washington, D.C. Approximately 75 to 100 persons attended, including Secretary Espy, and $50,000 to $75,000 was raised. The invitees included lobbyists for and representatives of various agribusinesses.

Secretary Espy asked the fundraising coordinator to report to him on the agribusinesses that supported his brother's effort and provide the names of the persons who "attended and/or contributed." In a March 2, 1993 memorandum to Secretary Espy, marked "confidential," the coordinator wrote:

It was great seeing you last week at Henry's Washington fundraiser. . . . We had good participation from agriculture groups in supporting the event last week. As you requested, following are the names of people who attended and/or contributed . . . .

The memo identified 43 agribusinesses that had supported the fundraiser and listed the amounts each paid or pledged.

Among the 43 names, Jack Williams, a lobbyist for Tyson Foods, Inc., appeared as having contributed $5,000 for Tyson Foods, based in Springdale, Arkansas, and $5,000 for Riceland Foods, Inc. of Stuttgart, Arkansas. The only other $5,000 contribution was from the Mid-American Dairymen cooperative of Springfield, Missouri, which Williams also represented. FEC records reflect that Tyson Foods-related persons and entities also contributed to the Henry Espy campaign as follows: Joe Fred Starr, Sr., vice president, $1,000; Don Tyson, chairman of the Board of Directors, $1,000; Jack Williams, lobbyist, $1,000; Leland Tollett, vice chairman of the Board of Directors, president and CEO, $1,000; and Tyson Foods' PAC, $2,000.

In addition, Sun-Diamond PACs, whose contributions Douglas controlled, contributed as follows: Diamond Walnut Growers, Inc., $1,000; Sunsweet Growers, Inc., $1,000; and Sun Maid Growers, Inc., $1,000.

b.   Crop Growers Insurance Becomes Involved in the Henry Espy Campaign

Among the agribusiness supporters of Henry Espy's campaign was Crop Growers Insurance, Inc., based in Great Falls, Montana. This privately held company sold and serviced federal multi-peril crop insurance (MPCI) to farmers. In 1994, Crop Growers Insurance and several of its constituent crop insurance-related companies, including Crop Growers Software, Inc. and Prairie Mountain Insurance, Inc., joined to form a public holding company, Crop Growers Corporation (Crop Growers).

(1)   The USDA Role in Crop Insurance Reform Becomes Important to Crop Growers Insurance

The federal government has offered crop insurance since 1930 to protect farmers against crop loss resulting from drought, floods and other natural disasters. The Federal Crop Insurance Program was revised extensively in 1980, yet by the early 1990s, USDA and Congress perceived the need for further substantial revision of the program. By 1992, it became well known within the crop-insurance industry that MPCI would undergo major changes that could directly affect industry profits.

At that time, crop insurance was available only through private companies, and few farmers carried it. As a result, Congress annually passed ad hoc legislation to assist farmers hit by natural disasters. During the late 1980s and early 1990s, Congress, the General Accounting Office and other oversight bodies grew dissatisfied with the crop-insurance program because it cost too much money, while farmers grew dissatisfied because they felt the program was not providing enough protection against losses. When Espy became Secretary of Agriculture in January 1993, crop-insurance reform was already a priority at USDA, and major floods in the Midwest in July and August 1993 brought the issue to a head. USDA held a crop-insurance roundtable that summer, leading to the formation of a USDA-led task force.

The task force generally proposed eliminating ad hoc disaster aid and replacing it with an ongoing crop-insurance program. It planned to do this by offering catastrophic coverage that farmers could obtain for a small processing fee. Other levels of coverage could still be purchased through private insurers. Under the plan, crop insurance was to be "linked" with participation in other farm programs - a farmer would have to carry crop insurance in order to participate in government subsidy programs - so that farmers essentially would be required to purchase crop insurance. The idea was to provide crop insurance in a very economical and accessible form.

The proposed reforms raised concern among private crop insurers eager to know who would sell the new insurance to farmers. Initial proposals included alternatives under which the federal government, through the Agricultural Stabilization and Conservation Service (ASCS), would provide crop insurance directly to farmers. This would have eliminated Crop Growers Insurance and other private crop-insurance companies from the program and undermined their financial viability.

The USDA-led task force also considered the use of a dual-delivery system, whereby farmers could purchase their coverage either through a private insurance agent or through a local USDA office. Crop insurers supported a single-delivery system, under which catastrophic coverage would be available exclusively through private insurers. Ultimately, to move the legislation forward, the task force issued an internal decision memorandum on January 19, 1994 that recommended a compromise - a dual-delivery system, but one that limited the availability of coverage through government offices to those areas where it was most needed. The private insurers were to retain most of their market in the dual-delivery system.

In a public-disclosure document issued in connection with its initial public offering of common stock in 1994, Crop Growers noted that federal crop-insurance reform proposals could have a very direct bearing on the profitability of private crop insurers:

Crop Growers expects that a majority of its revenues will continue to be derived from its [multi peril crop insurance] business for the foreseeable future . . . .

The Federal Crop Insurance Reform Act of 1994, which was proposed by the Secretary of Agriculture on March 2, 1994 . . . provides for significant reform to the current Multiperil Crop Insurance Program. The Secretary of Agriculture has also proposed a comprehensive 'Blueprint for Financial Soundness' strategy to improve the financial integrity and actuarial soundness of the MPCI program.

* * * *

. . . No assurance can be given that any ultimate enactment or implementation of the Federal Crop Reform Act or the Blueprint [for Financial Soundness] will not materially adversely affect [Crop Growers'] results of operations and financial condition. (Emphasis added.)

2.   Crop Growers Insurance Makes Illegal Campaign Contributions to Henry Espy

On January 30, 1993, the same day that Henry Espy filed his Statement of Candidacy with FEC, Danny Baxley, a Crop Growers Insurance regional manager in Mississippi, telephoned John Hemmingson, Crop Growers' chief executive officer, president, chairman of the board, and largest shareholder, to suggest that he contribute to and raise money for Henry Espy's congressional campaign. Hemmingson, who had made very few political contributions in the past, ⁽⁵⁶⁾ committed to raise $40,000 on Henry Espy's behalf.

On February 1, 1993, Hemmingson met with Barry Coday, Crop Growers Insurance's controller, and Gary Black, Crop Growers Insurance's executive vice president, chief financial officer, treasurer, second-largest shareholder, and a director. The purpose of the meeting was to discuss contributing to Henry Espy's campaign. Hemmingson knew that corporate contributions to a federal candidate were illegal. Nevertheless, he directed Black and Coday to devise a method by which individuals would contribute to the campaign and receive reimbursement from Crop Growers Insurance constituent companies.

Hemmingson, and others acting at his direction, carried out this plan by soliciting Crop Growers Insurance employees and agents to act as conduits for illegal corporate contributions. These persons, who had never heard of Henry Espy and had no interest whatsoever in contributing to Henry Espy's campaign, nevertheless complied with Hemmingson's direction. Between January 31 and February 3, 1993, 23 individuals, including seven members of Crop Growers Insurance's senior management, acted as conduits for $1,000 apiece in illegal contributions. ⁽⁵⁷⁾ By late March 1993, Hemmingson had solicited and obtained three additional conduit contributions of $1,000 each to Henry Espy's campaign, for a total of $26,000 in illegal contributions in 1993.

Crop Growers Insurance and its constituent companies reimbursed in full the conduit contributors for writing the $1,000 contribution checks to the Espy campaign. The companies falsely recorded the reimbursements in their financial books and records as travel reimbursements, travel advances, payments for the purchase of computers, expense-account advances, crop-loss adjustments, consulting fees, commissions and desktop-publishing labor costs.

On March 31, 1993, Henry Espy lost the primary election for his brother's former congressional seat. In the process, his campaign amassed a debt totaling between $150,000 and $200,000. In an effort to pay down the debt, Henry Espy contacted Crop Growers Insurance's Baxley, requesting additional financial assistance. Baxley responded by again calling Hemmingson and asking him to raise additional funds. On April 21, 1993, Henry Espy's campaign debt reduction manager told one creditor of the campaign that his outstanding bill would be taken care of with financial help from, among others, "Fruit Growers," which he described as a trade association in the West that had something to do with insurance and did a lot of business with Secretary Espy.

Although it failed to file many of the FEC reports required by federal regulations, the Henry Espy for Congress Committee filed Reports of Receipts and Disbursements with FEC in March and August 1993. In the reports, the committee listed the contributions received during the period January 1, 1993 through June 30, 1993 and identified the 26 Crop Growers Insurance conduits as contributors. The reports did not identify any of the Crop Growers Insurance constituent corporations as the true contributors to the campaign.

3.   Crop Growers Insurance Obtains Access to Secretary Espy

By early April 1993, Hemmingson gained the access he had sought to Secretary Espy through Henry Espy. Hemmingson laid the groundwork on February 28, 1993, when he traveled to Mississippi to meet with Henry Espy. During this meeting, Hemmingson learned that Henry Espy was not familiar with crop insurance and explained the program. By early March, Henry Espy had arranged the first meeting between his brother Secretary Espy and Hemmingson.

In anticipation of this first meeting with the Secretary, scheduled for April 14, 1993, Hemmingson hired as a consultant James Cason, the immediate past manager of the Federal Crop Insurance Corporation an agency within USDA. On March 4, 1993, Hemmingson and Cason met in Washington, D.C. to begin preparing Hemmingson for his meeting with the Secretary. By letter dated March 19, 1993, Cason sent Hemmingson the "talking points I agreed to provide you for your meeting with Secretary Espy." Cason also suggested that the text of Hemmingson's cover letter to the Secretary include the following statement:

Perhaps, at some time in the future, we will be able to arrange a Mississippi tour for you and Congressman Henry Espy if our efforts on his behalf are successful (this part has to be subtle). (Emphasis added.)

In the resulting April 7, 1993 letter and talking points sent to Espy, Hemmingson said that he wanted to discuss crop and disaster insurance, among other issues, at their meeting a week later in Washington, D.C. In the 18 pages of correspondence, Hemmingson expressed concern about the Secretary's positions on crop insurance, disaster assistance, area-yield plans, private-sector insurance delivery, limits on covered crops, and similar regulatory issues relevant to Crop Growers' business activities.

Hemmingson's personal calendar reflected a meeting on April 14, 1993 among Hemmingson, Secretary Espy and Henry Espy at USDA in Washington, D.C. (At trial, Hemmingson denied that this meeting took place.) Additionally, on July 27, 1993, Hemmingson met with Secretary Espy and Henry Espy at USDA, and the discussion focused on crop insurance. According to Hemmingson, the meeting addressed an updated version of Cason's "talking points" letter and only lasted a few minutes. Henry Espy stated that he, Hemmingson, and Secretary Espy were present at both the April 14, 1993 and the July 27, 1993 meetings. Henry Espy indicated that the April meeting took about 15 minutes and that crop insurance and retirement of his campaign debt were discussed. During the June meeting, according to Henry Espy, Hemmingson discussed crop insurance, satellite identification of crops, and crop mapping.

On August 24, 1993, Hemmingson sent a second letter to Secretary Espy, addressing the potentially "drastic" effect on private insurers of proposed reform legislation that would make the federal government the sole deliverer of multi-peril crop insurance. In addition to sending the letter directly to the Secretary, Hemmingson faxed it to Henry Espy, with the note: "These thoughts are for Mike's consideration in response to the recent rumors regarding the ASCS involvement in the crop insurance program."

Henry Espy later facilitated another meeting between Hemmingson and Secretary Espy. On February 15, 1994, Crop Growers Insurance, at Hemmingson's direction, purchased airplane tickets for Henry Espy and his girlfriend to travel to Washington, D.C. Henry Espy accompanied Hemmingson to his meeting with Secretary Espy in the Secretary's office at USDA on February 24, 1994. During the meeting, Secretary Espy gave Hemmingson a private preview of the crop-insurance reform legislation that would be introduced in Congress the following week. On the following day, February 25, 1994, Secretary Espy disclosed this information publicly to a group of prominent representatives of the crop-insurance industry. Secretary Espy had the Federal Crop Insurance Reform Act of 1994 introduced in Congress on March 2, 1994. The Act, which called for a dual-delivery system for crop insurance, won congressional approval in October 1994 by a wide margin.

On March 24, 1994, in a third letter to Secretary Espy, written on behalf of a business associate, Hemmingson sought reduction of the waiting period for the planting of corn after a pesticide had been used in a cornfield. The letter had nothing to do with crop insurance, and it demonstrated the extent to which Hemmingson had cemented this relationship with the Secretary.

c.   Henry Espy Borrows Money to Cover His Campaign Debts

In his effort to win the Democratic nomination for the congressional seat formerly occupied by his brother, Henry Espy spent far more than he had raised in campaign contributions. In the aftermath of his March 31, 1993 primary-election defeat, Henry Espy faced a campaign debt in excess of $150,000.

(1)   Ferrouillet Arranges a Fraudulent Loan

In February 1993, Alvarez T. Ferrouillet, Jr., a New Orleans lawyer, volunteered to help Henry Espy retire his campaign debt. Ferrouillet was a 50% partner of the law firm of Ferrouillet & Ferrouillet (F&F), which specialized in personal-injury matters. He also conducted an insurance business through his corporate alter ego, Municipal Healthcare Cooperative, Inc. (MHC). Ferrouillet sought to expand his insurance business through the National Conference of Black Mayors, an organization in which Henry Espy, as mayor of Clarksdale, Mississippi, was a member. In 1993, Henry Espy served as president. Ferrouillet had supported Henry Espy in his unsuccessful congressional bid and had hosted a campaign fundraiser in New Orleans in March 1993. The next month, he became chairman of the effort to retire Henry Espy's campaign debt.

Henry Espy and Ferrouillet came under increasing pressure to address campaign creditors' demands for payment on non-sufficient funds (NSF) checks. On April 21, 1993, for example, Nick Clark of Nick Clark Printing in Jackson, Mississippi, called Ferrouillet, demanding payment on a $5,000 NSF check for printing services, and told Ferrouillet that he would file charges with the district attorney for passing a bad check if he was not paid. Ferrouillet assured Clark that the bill would be paid, that he was in the process of obtaining a loan, that two fundraisers had been planned, and that a company located in the West called "Fruit Growers," which did a lot of business relating to insurance with Henry Espy's brother, would take care of Clark's bill. Other campaign creditors resorted to referring bad checks to the district attorney or filing suit against Henry Espy.

In response to continuing pressure from campaign creditors, Henry Espy and Ferrouillet obtained a loan from the First National Bank of Clarksdale, Mississippi (FNB Clarksdale) to pay off the debt. The bank, however, refused to make the loan unless it had collateral, and Henry Espy did not have collateral to support a $75,000 loan. On April 28 and again on May 3, 1993, Ferrouillet and Henry Espy, in order to qualify for the loan, submitted an application that falsely represented to the bank's loan officer that Henry Espy was due a $75,000 commission from Ferrouillet's shell insurance company, MHC. They represented that the $75,000 commission was for services rendered by Henry Espy since April 1992 in assisting MHC with securing government and private contracts.

Ferrouillet also represented that he had been in communication with federal-election authorities at FEC and had confirmed that the proposed lending agreement was the best manner for handling the liquidation of Henry Espy's campaign debt. Ferrouillet had not in fact had such contact with FEC. Moreover, FEC campaign-finance regulations prohibit, as an excessive campaign contribution, a loan guarantee in the amount discussed with FNB Clarksdale.

Ferrouillet signed the loan papers as guarantor, on behalf of his law firm F&F. FNB Clarksdale issued the loan on May 4, 1993, and Henry Espy deposited the $75,000 into a new campaign account at FNB Clarksdale, opened under the names of Henry Espy and Alvarez Ferrouillet. From the account, Henry Espy and Ferrouillet paid themselves $5,000 and $1,500, respectively, and then used the balance to pay off pressing campaign debts.

Even with the proceeds from the FNB Clarksdale loan, the campaign remained under intense pressure from campaign creditors, many of whom threatened legal action. Nick Clark Printers and Campaign Performance Group, a campaign direct-mail consultant based in Alexandria, Virginia, ultimately sued Henry Espy personally to obtain payment on outstanding balances owed by the campaign. Both plaintiffs obtained judgments and garnished the wages that Henry Espy received as mayor of Clarksdale.

(2)   Secretary Espy Involves Himself in Retiring the Fraudulently Obtained Loan

Pressure to pay down the campaign debts reached not only Henry Espy and Ferrouillet, but also Secretary Espy. Some creditors of the Henry Espy campaign who had also worked on Michael Espy's congressional campaigns contacted Secretary Espy in an effort to have their overdue bills satisfied. Nick Clark of Nick Clark Printing wrote Secretary Espy, and attempted to reach him by telephone on at least two occasions, in an effort to have his $12,000 bill paid. Secretary Espy made and kept several handwritten notes regarding Henry Espy's debt. A note dated August 26, 1993 specifically referred to the Nick Clark bill and the money owed by the campaign to two campaign consultant organizations.

Throughout 1993 and early 1994, Secretary Espy held several meetings at his USDA office with Henry Espy and Ferrouillet (and sometimes USDA staff) to discuss reducing the campaign debt. He also confided to his USDA counsel that he had received calls regarding payment of these debts and that he was concerned about the impact his brother's outstanding debts would have on his family name and his ability to run for office in the future.

Henry Espy, Secretary Espy, and Ferrouillet decided that additional fundraisers could assist in paying down the campaign debt. Secretary Espy instructed his Counselor, Kimberly Schnoor, to put together a list of "agricultural people" to solicit in retiring Henry Espy's campaign debt, and twice reminded her to do so. Schnoor stated that she did not put together such a list because she believed it would be unethical to do so.

Ferrouillet used the contemplated fundraisers and Secretary Espy's participation to postpone collection on the $75,000 loan. Although the original loan agreement imposed a loan repayment date of June 15, 1993, Ferrouillet sought and obtained repeated deadline extensions. FNB Clarksdale initially extended the loan until September 30, 1993 on Ferrouillet's representations that fundraisers were scheduled and that Henry Espy, purportedly according to FEC rules, was ineligible to receive reimbursement for monies obtained through fundraisers if he used personal funds to pay off the loan. When the loan was not repaid by September 30, Ferrouillet sought an additional extension from FNB Clarksdale, explaining that fundraisers had been delayed because Secretary Espy, who was assisting in the campaign-debt retirement, had been unable to secure permission from the White House to participate. Ferrouillet wrote to the bank:

The postponement was the result of Secretary of Agriculture, Mike Espy's, inability to secure White House approval for his personal involvement in the scheduled fund raisers; the same being vital to the success of the fundraisers raisers.

On September 24, 1993, Mayor Espy and I had a meeting with Mike at the Secretary's office in Washington, D.C. at which time he informed us that he had received the President's approval to go forward with the fund raiser in Washington, D.C.^{[ (58)]} Mike suggested that we have both fund raisers combined into one and have that one held in the Washington, D.C. area.

I have put together a steering committee in Louisiana and the invitations are being worked up now. Secretary Espy envisions no problems in raising $200,000. . . .

In fact, no fundraisers were actually held, and none were apparently scheduled between October 1993 and February 1994.

In mid-November 1993, the bank granted another extension of the loan, to December 31, 1993. Secretary Espy himself wrote a note to a senior bank officer on November 30, 1993:

This note is to confirm my willingness to assist my brother, Henry, in the retirement of his debt incurred in his most recent campaign for Congress.

Hopefully, all outstanding and disputed amounts for services rendered to the Henry Espy for Congress Committee can be paid by February 1, 1994. I will give it my best effort.

Respectfully,
Mike Espy

Three days later, Secretary Espy wrote a note in his diary that said:

Fundraiser for Henry (200-K) to retire his debt. Maybe it can be done.

When the loan remained unpaid by December 31, 1993, the bank declared it substandard and sent the matter to its attorney for collection.

d.   The First Installment of the Loan Is Paid with Illegal Campaign Contributions

In early January 1994, Ferrouillet and Henry Espy again met with Secretary Espy at his office in Washington, D.C. and requested the Secretary's assistance in paying down the campaign debt. Secretary Espy stated that he would get the assistance of Douglas of Sun-Diamond in raising funds and reducing the debt. Shortly thereafter, Ferrouillet sent Secretary Espy a fax itemizing the details and amounts of the campaign debts.

Douglas initially discouraged Secretary Espy from participating in his brother's campaign-debt problems, but the Secretary persisted. Douglas then agreed to assist in the effort. According to Douglas, Secretary Espy was concerned about his brother's debt because it could harm his credibility and name with people in Mississippi, where he aspired to run some day for United States senator or for governor.

Douglas committed to help by raising $10,000 for the retirement of Henry Espy's campaign debt. At Espy's direction, Fred Slabach, his Assistant Secretary for Congressional Relations, opened a private mailbox to receive checks and letters for the Henry Espy campaign. Douglas took the key to the mailbox and told Secretary Espy he would control it.

(1)   Douglas Solicits Illegal Campaign Contributions

Douglas set out to assist Secretary Espy in retiring Henry Espy's debt in several ways. He first contacted James Lake of Robinson Lake Sawyer and Miller (Robinson Lake), a Washington, D.C. public relations firm. Sun-Diamond had used Robinson Lake lobbying services since 1983. Robinson Lake also represented other agricultural entities with business before USDA, but Sun-Diamond was one of its most important and long-standing clients. Douglas, who was responsible for Sun-Diamond's political and lobbying activities, maintained an office in Robinson Lake's Washington, D.C., headquarters. James Lake, a founding partner of Robinson Lake, had recommended to Sun-Diamond that it hire Douglas in the first place. Lake oversaw the Sun-Diamond account and took his directions on Sun-Diamond matters from Douglas. Lake regularly reported to Douglas on the status of issues directly impacting Sun-Diamond. In 1993, Robinson Lake was on a monthly retainer of $20,000, plus expenses, with Sun-Diamond.

Douglas asked Lake to solicit $5,000 in contributions. Lake responded that he did not know anyone who would want to contribute. Douglas assured Lake that Sun-Diamond would reimburse the contributions through a false-billing scheme and told Lake to request $5,000 in reimbursement from Robinson Lake for tickets to a dinner for the Joint Center for Political and Economic Studies, which Lake had not actually attended that year. Robinson Lake would submit an invoice to Sun-Diamond for the dinner, and Douglas would approve the invoice.

Lake wrote one $1,000 check (the maximum contribution from an individual permitted under federal law) to Henry Espy's campaign and asked four other persons at Robinson Lake to do likewise. One refused, and three complied. Lake provided the four $1,000 checks to Douglas. Following Douglas's instructions, Lake created and submitted a false bill in the amount of $5,000 to Robinson Lake for the Joint Centers' dinner. Robinson Lake invoiced that amount to Sun-Diamond, Douglas approved it for payment, and Sun-Diamond paid it. Lake reimbursed the contributors from the Sun-Diamond payment, including himself, and kept the extra $1,000. As a result of this conduit scheme, Henry Espy's campaign received $4,000 in illegal corporate contributions, originating from Sun-Diamond but given in other persons' names.

Beyond the $4,000 obtained through Lake, Douglas secured another $6,000 in contributions for the Henry Espy campaign. He wrote $3,000 in contributions from two Sun-Diamond PACs and obtained $2,000 from clients of his own, who had matters before USDA. Finally, Douglas made a personal contribution of $1,000, bringing the contributions he gathered to a total of $10,000.

(2)   Douglas Organizes the 116 Club Fundraiser

Douglas, with the assistance of former California Congressman Tony Coelho, ⁽⁵⁹⁾ also organized a Henry Espy fundraiser to be held at the 116 Club, a private club in Washington, D.C. Douglas sent invitations on Sun-Diamond letterhead to "a small gathering of supporters of Mayor Henry Espy." The invitations stated that "[t]he purpose of this dinner meeting is to seek your advice and counsel on how best to assist Henry in retiring his debt." The fundraiser occurred on March 31, 1994. Douglas and Coelho met with Secretary Espy immediately before and told him not to attend. The Wall Street Journal article, "Tyson Foods, With a Friend in the White House, Gets Gentle Treatment From Agriculture Agency," had appeared two weeks earlier, citing "complaints about selective enforcement" of federal rules by USDA and saying that "the Tyson-Clinton connection stands out even in a department long faulted for a tendency to accommodate agribusiness interests."

All of the approximately 12 fundraiser participants either worked for or represented agribusinesses. They included Crop Growers' Hemmingson, who had engineered $26,000 in illegal corporate conduit contributions for Henry Espy's campaign before the election.

During the dinner, Douglas solicited each of his guests to raise $10,000 to help Henry Espy retire his campaign debts. Coelho told the guests that the fundraiser was not about the Secretary of Agriculture and that they were not supposed to say or think they were there because of Secretary Espy. He said very little about Henry Espy, except that he needed money and that the Espy name should not be tarnished. No contributions were made at the dinner.

After the dinner, at Henry Espy's hotel room, Ferrouillet, Douglas and Hemmingson met with Henry Espy. An argument ensued between Douglas and Henry Espy when Douglas stated that Secretary Espy wanted him to control the money. Douglas asserted that he would deposit money raised by the fundraiser into a campaign account that he would control. Henry Espy protested and requested that he be given the money. Douglas refused and telephoned Secretary Espy, who told his brother that Douglas would control the money.

On April 1, 1994, the day after the 116 Club fundraiser, Douglas deposited the $10,000 in contributions he had previously accumulated - from Lake, Sun-Diamond PACs, his own clients, and himself - into a new Henry Espy for Congress Committee account at Washington Federal Bank in Washington, D.C. Douglas held sole authority to write checks on the account. Douglas stated that he would clear any checks he wrote from that account with Secretary Espy prior to writing them. Shortly thereafter, Secretary Espy wrote in his diary

Tony Coelho might become [White House] C[hief] of S[taff]!! Anyhow he & R[ichard] D[ouglas] agreed to raise $ for Henry. Good 100K.

In the end, Douglas only wrote one check from the account - for $4,000 to pay a longtime Henry Espy campaign debt to a Secretary Espy campaign worker who had worked for Henry Espy's campaign. Douglas then wired the rest of the money to Ferrouillet for a Henry Espy campaign bank account in New Orleans, Louisiana.

By mid-May, the only contributions that followed the 116 Club dinner were the $10,000 that Douglas had previously raised. Ferrouillet and Henry Espy, however, needed at least $75,000 to satisfy the FNB Clarksdale loan of May 4, 1993.

Ferrouillet wrote the bank's lawyer a letter on May 17, 1994. He said the reason the fundraiser failed was that their efforts in Washington, D.C. had been sabotaged and that most of the contributors ran for cover because of telephone calls from the news media. He wrote that Henry Espy's associates had withdrawn because they did not want to be associated with the "influence peddling" that had "raised its ugly head" in Washington. Ferrouillet explained that Henry Espy and he were going to "several pre-arranged meetings" and, unlike the D.C. fundraiser, these meetings would be "not at all dependent" on the "Washington personalities and will likely take the heat off the Washington coalition allowing it to be more effective."

(3)   Ferrouillet Makes the First Repayment on the Delinquent Loan

In May and June of 1994, Ferrouillet spoke with representatives of FNB Clarksdale on numerous occasions regarding repayment terms for the $75,000 loan. On June 21, 1994, Ferrouillet called Tom Ross, the attorney for the bank, to forestall the bank from enforcing the guarantee given by F&F, the law firm in which Ferrouillet was a half partner. Ferrouillet worked out an agreement by which Ferrouillet would give the bank three checks, each in the amount of $25,000, postdated June 30, July 30 and August 30, 1994. On June 28, 1994, Henry Espy and Ferrouillet opened a Henry Espy for Congress bank account at Omni Bank in New Orleans, Louisiana, with an initial deposit of $60 in cash. That same day, Ferrouillet sent to Ross the three $25,000 postdated checks, all drawn on the Omni account.

On July 1, 1994, Ferrouillet deposited $9,000 in contributions into the Omni account, $7,000 of which had come from persons related to AFLAC (as discussed in Section II.E.3). On July 5, Ferrouillet transferred into the Omni account the full $14,475 balance then in the Washington Federal Bank account, controlled by Douglas. (This amount included the $10,000 raised by Douglas, and $4,475 in other contributions collected in April and May and deposited into the account on June 1.) On July 12, Ferrouillet deposited a $2,000 check from his personal account, bearing the notation "Loan to Henry Espy," into the Omni account, bringing the balance to $25,499. By July 12, the June 30, 1994 check to FNB Clarksdale had been returned twice because of insufficient funds. On July 14, Ferrouillet wired $25,000 from the Omni account to FNB Clarksdale as the first installment to pay down the loan.

e.   The Second Installment of the Loan Is Paid with an Illegal Campaign Contribution

By June 21, 1994, the date of Ferrouillet's agreement with FNB Clarksdale to provide three postdated checks for $75,000, the Henry Espy campaign-debt retirement effort had proven futile. Unable to raise the necessary $75,000 through legitimate means, Ferrouillet turned to illegal methods to help pay down the loan. Specifically, he designed a scheme, with the assistance of Crop Growers' Hemmingson, to funnel $20,000 in illegal corporate contributions into the campaign's coffers.

This scheme followed on the heels of Hemmingson's $26,000 in illegal contributions to the Henry Espy campaign in 1993. The earlier contributions provided Hemmingson access to Secretary Espy, which he sought to maintain. Because of his 1993 contributions, Hemmingson was invited to the 116 Club fundraiser of March 31, 1994. After the event, he joined Henry Espy, Ferrouillet, and Douglas in Henry Espy's hotel room for further discussion of the campaign-debt retirement efforts. Shortly thereafter, on May 12, 1994, Ferrouillet sent a letter of thanks to Hemmingson over Henry Espy's name, stating:

I am further grateful to you for the immediate and much needed assistance you pledged in helping me retire my congressional campaign debt. Friends who come to the aide [sic] of friends are never forgotten.

(1)   Hemmingson Provides a $20,000 Contribution From Crop Growers Corporation

On June 28, 1994, the day on which Henry Espy and Ferrouillet opened the Omni Bank account in Louisiana, Ferrouillet and Hemmingson fabricated a phony $20,000 legal services agreement between F&F and Crop Growers Corporation, the holding company Hemmingson controlled and whose assets included Crop Growers Insurance. The first paragraph of the "engagement letter" recited its purported purpose:

[Ferrouillet & Ferrouillet is] pleased that you [Hemmingson] have chosen our firm to represent you as Special Corporate Counsel in connection with the development of a comprehensive healthcare plan which your firm might co-sponsor, along with Municipal Healthcare Cooperative Inc., for presentation to and implementation within the membership of the National Conference of Black Mayors.

The engagement letter called for a $20,000 retainer to be paid to F&F. In exchange, according to the contract, F&F would perform a series of detailed, identified tasks, including developing the comprehensive healthcare plan, issuing detailed, monthly computer-generated statements that reflected related costs, preparing status reports, and retaining all files for three years.

The engagement letter was, however, simply a means to disguise and conceal a $20,000 illegal corporate contribution from Crop Growers Insurance to Henry Espy's campaign fund. Neither Ferrouillet nor F&F ever performed any legal services under the contract, and Ferrouillet covertly funneled the money into the Henry Espy fund.

Hemmingson amended the contract's $20,000 retainer provision, adding "to be earned at $1,000.00 per month starting August of 1994." Then, on July 26, 1994, Hemmingson sent Ferrouillet a $20,000 check, drawn on a Crop Growers Insurance account, payable to "Alvarez T. Ferrouillet, Jr., Attorney at Law."

Crop Growers recorded the $20,000 retainer as a prepaid legal expense in the financial books of its subsidiary, Crop Growers Insurance. By identifying the disbursement as a prepaid expense amortized over 20 months, Hemmingson minimized the likelihood that the entry would be questioned by outside auditors.

No Crop Growers entity had any record of statements, correspondence or work product from F&F or Ferrouillet to support the expenditure, other than the engagement letter and the check. Furthermore, the companies maintained no records related to healthcare plans or insurance connected with Ferrouillet. Ferrouillet's name did not appear in Hemmingson's calendars for 1992 through 1995. Indeed, Kristen Juras, an outside counsel to Crop Growers who became the company's general counsel in December 1994 and who was responsible for dealing with law firms the company retained, did not learn of the alleged relationship with F&F and the existence of the sham engagement letter until approximately October 1995, just weeks before OIC issued grand-jury subpoenas to Crop Growers. Juras testified that the only documents in Crop Growers' possession that referred to any relationship with Ferrouillet or his law firm were the engagement letter and the check paid to F&F.

Similarly, F&F had no record of Crop Growers. Eric Ferrouillet, Alvarez Ferrouillet's brother and the firm's managing partner, kept the firm's books and financial records. He did not become aware of the engagement letter and related $20,000 check, or his firm's purported representation of Crop Growers, until after OIC's investigation of the matter began. F&F primarily did personal-injury litigation and did not have in its files any monthly statements, time sheets or status reports - or any work product whatever - for any Crop Growers entity or Hemmingson. In fact, Ferrouillet and his law firm performed no services at all for Crop Growers.

(2)   The $20,000 Check Is Laundered

On July 28, 1994, Ferrouillet cashed the $20,000 check that he and Hemmingson had fraudulently procured from Crop Growers Insurance at the Evergreen Supermarket, a corner grocery store in the Algiers section of New Orleans. He stated that he wanted all the cash in $100 bills. Abdel Judeh, Evergreen's owner and Ferrouillet's friend and longtime client, provided Ferrouillet with $5,000 cash immediately and said that he needed a week to obtain the $15,000 balance. Judeh then deposited the $20,000 check into the grocery store's bank account. Within the week, Judeh withdrew the balance from the grocery store's account and provided Ferrouillet $15,000 in $100 bills. Because the amount of the cash transaction exceeded $10,000, Judeh was required by law to complete a federal currency-transaction report (CTR). He did not do so, however, thereby effectively concealing the source of the funds.

On August 8, 1994, Ferrouillet deposited $10,000 in $100 bills, along with $800 in checks, into the Henry Espy for Congress bank account at an Omni Bank branch in Kenner, Louisiana, a suburb of New Orleans. The Omni Bank teller who took the deposit completed a CTR for the transaction. Ordinarily, banks require CTRs only for cash transactions in excess of $10,000, unless the transaction involves suspicious circumstances. The teller who handled the transaction stated that he filled out the CTR because he thought the deposit was suspicious. He left it to superiors at the bank to decide whether to indicate on the CTR that the transaction was suspicious and whether to make an immediate report of the transaction to the government (as is generally required for cash transactions a bank determines are suspicious). The bank did not. The teller further testified that Ferrouillet became "irate" when he requested Ferrouillet's driver's license to complete the CTR.

Two days later, on August 10, 1994, at 5:18 p.m., Ferrouillet made a $9,000 cash deposit, also in $100 bills, into the same account at the same branch. (Because this transaction involved less than $10,000, it did not require completion of a CTR.) The following morning, at 9:20 a.m., Ferrouillet deposited $1,000 in $100 bills into the same account at a different Omni Bank branch, located in Metairie, Louisiana, another suburb of New Orleans. On August 19, 1994, after the second of the postdated $25,000 checks given as security to FNB Clarksdale had bounced, Ferrouillet wired the proceeds of the Crop Growers Insurance check, plus $1,000 additional (for a total of $21,000), from Omni Bank to FNB Clarksdale. The wire transfer represented the second installment on the balance on the Henry Espy campaign loan. After this installment, the balance of the loan stood at more than $36,000.

f.   Ferrouillet and Henry Espy Make the Final Payments on the Loan

On August 30, 1994, the date of the final postdated $25,000 check, the Omni Bank account in Louisiana had a balance of only $231. On September 8, 1994, Ferrouillet deposited $4,000 in contributions into the Omni account and wired the funds to FNB Clarksdale on September 12, 1994. On September 16, 1994, Ferrouillet deposited another $4,000 in contributions into the Omni account and wired the funds to FNB Clarksdale on October 13, 1994.

Ferrouillet did not make an additional payment on the $75,000 loan until May 1995, two months after OIC agents interviewed him. Alvarez and Eric Ferrouillet opened a Municipal Healthcare Cooperative, Inc. (MHC) checking account on May 19, 1995 at the First National Bank of Commerce in New Orleans (First NBC), with a $70,000 check from AFLAC. ⁽⁶⁰⁾ MHC was Ferrouillet's shell insurance company. On May 25, 1995, Henry Espy and Ferrouillet signed a "Receipt and Release" that purported to reduce the amount owed by Ferrouillet to Henry Espy (per their earlier representations to FNB Clarksdale) from $75,000 to $20,000. Ferrouillet then provided Henry Espy a $20,000 check, drawn on the MHC account, and Henry Espy endorsed it back to MHC. On May 26, 1995, Ferrouillet wired $20,000 from the MHC account directly to FNB Clarksdale; the transfer left a balance of $12,014.64 still due on the bank's loan to Henry Espy. Ferrouillet deposited the $20,000 check, which Henry Espy had endorsed back to MHC, into the MHC account at First NBC.

On the same day they signed the "Receipt and Release," Ferrouillet and Henry Espy entered into another agreement, under which Henry Espy borrowed $12,014.64 from GD & Associates Investments, an entity controlled by F&F and used primarily to lend money to clients of the firm. Ferrouillet then gave Henry Espy a $12,014.64 check (the precise amount still due on the Henry Espy loan), drawn on Ferrouillet's personal account and payable to "First National Bank of Clarksdale." On or about May 30, 1995, Henry Espy met FNB Clarksdale's president in a Wal-Mart parking lot in Clarksdale, where he delivered the check. The check from Ferrouillet subsequently bounced because of insufficient funds.

On October 20, 1995, Eric Ferrouillet wrote a $12,500 check to Alvarez Ferrouillet, purportedly representing Alvarez Ferrouillet's interest in their law partnership. That same day, Ferrouillet deposited the check into his personal account and used the proceeds to purchase a $12,269.84 cashier's check. Ferrouillet sent the cashier's check to the attorney for FNB Clarksdale. Thus, on October 24, 1995, almost 28 months after the first maturity date on the loan and after OIC had subpoenaed records from Ferrouillet, Ferrouillet finally paid off the $75,000 loan.

2.   Concealment of Campaign Offenses

Both Hemmingson and Ferrouillet knew that corporations may not contribute to federal political campaigns and, accordingly, designed a scheme to disguise the contributions that would be made by Crop Growers. Because of this scheme, Hemmingson later caused Crop Growers, when it became a public company, to violate a number of statutes requiring public corporations to keep complete and accurate financial books and records. Crop Growers' books did not disclose the $46,000 in illegal contributions that were made to the Henry Espy Campaign in 1993 and 1994. Similarly, Ferrouillet lied to OIC interviewing agents when questioned about the sources of cash deposits in the campaign account.

a.   Crop Growers Conceals Its Illegal Campaign Contributions in Its SEC Filings

In 1993 and 1994, Hemmingson created a public holding company, Crop Growers Corporation, from the various crop-insurance entities he controlled, including Crop Growers Insurance, Crop Growers Software, Inc., and Prairie Mountain Insurance, Inc. The company retained KPMG Peat Marwick as independent auditors to perform an audit of its books, records, and accounts for the preparation of financial statements that the Securities and Exchange Commission (SEC) required Crop Growers to file as a condition to its public offering. Crop Growers summarized the records of its subsidiaries in the new holding company's financial statements, as required by the accounting rules.

The documents created in this process contained substantial misrepresentations. The books and records relied upon in preparing these financial statements included those in which Hemmingson had concealed the company's illegal contributions to Henry Espy's congressional campaign - $23,000 in 1993, and $20,000 in 1994. These statements contained no disclosures of these illegal contributions. Hemmingson, Black, and Coday also made written and oral representations to the auditors that there had been no illegal conduct and, based on those false representations, the auditors provided an "unqualified opinion" concerning Crop Growers' financial statements that permitted it to proceed with its public offering.

The SEC also requires the disclosure of various "Risk Factors" - factors that may be of concern to prospective purchasers of securities. Crop Growers did not disclose at least six significant factors: (1) Crop Growers violated the Federal Election Campaign Act (FECA) by making illegal campaign contributions; (2) it had a material contingent liability for potential criminal and civil penalties as a result of the FECA violations; (3) its financial statements were misleading; (4) it had maintained false books and records; (5) Crop Growers Insurance, Crop Growers Software, and Prairie Mountain Insurance - and their key officers - faced potential criminal and civil sanctions in addition to those possible under FECA; and (6) these corporations were potentially subject to restrictions on their ability to operate before the USDA as a result of the illegal conduct. Each of these risks jeopardized the company's insurance license, ability to obtain reinsurance, and market acceptance.

Between June 23, 1994 and November 30, 1994 Crop Growers sold approximately 3,900,000 shares to the public, realizing approximately $36,000,000.

b.   Ferrouillet Makes False Statements to Federal Investigators

On March 27, 1995, OIC investigatory agents interviewed Ferrouillet. The agents showed him a copy of the initial $10,000 cash deposit receipt from Omni Bank, representing the first deposit of laundered funds originating from Crop Growers, and inquired as to the source. Ferrouillet explained that the money came from donations by several individual contributors. To support this statement, Ferrouillet presented the agents with a document entitled "CASH DONORS," listing 46 individuals and corresponding amounts purportedly donated by each contributor.

On July 18, 1995, OIC agents began contacting the persons named on the "CASH DONORS" list to determine whether they had contributed to the Henry Espy for Congress Committee. Only one person had contributed. On July 21, 1995, while the interviews were continuing, Ferrouillet telephoned OIC and told a supervising agent that OIC agents should not waste their time calling the balance of the people on the "CASH DONORS" list, because they had not given contributions. Rather, Ferrouillet asserted, they had pledged money to support Henry Espy. That statement, too, was false, as none of the persons on the list had pledged any money or other support to the Henry Espy for Congress Committee.

3.   AFLAC's Illegal Contributions to the Henry Espy Campaign

In August 1994, while attempting to determine the source of the $20,000 cash deposit Ferrouillet made to the Henry Espy for Congress debt-retirement account, OIC investigators discovered an unlawful conduit-contribution scheme carried out by Warren B. Steele II, vice president of marketing administration for American Family Life Assurance Company of Columbus, Georgia (AFLAC). The purpose of the scheme was to funnel corporate funds from AFLAC to Henry Espy's campaign-debt reduction efforts.

AFLAC is a New York Stock Exchange-listed company that sells supplemental health insurance to individuals. The company is a global insurer of more than 40 million people, predominantly in the United States and Japan. In 1996, AFLAC's revenues approached $8 billion, and its assets topped $30 billion.

In late November 1992, AFLAC, through Steele, began working with Ferrouillet and his newly formed company, MHC, to offer supplemental health-insurance products to municipalities. Ferrouillet and Steele intended to use the National Conference of Black Mayors (NCBM), of which Henry Espy was then president, as their principal vehicle to present the MHC proposals to municipalities.

To further this effort, AFLAC hosted a cocktail reception for the NCBM Board of Directors at an NCBM weekend conference at Hilton Head, South Carolina in December 1992. The next day, Ferrouillet presented his MHC proposal to the NCBM board. Henry Espy, as NCBM president, approved a resolution establishing a committee to study the proposal and, a few months later, the NCBM board accepted the MHC plan.

Atlanta, Georgia and Memphis, Tennessee were selected as the first municipalities to which MHC would attempt to sell this supplemental health insurance. Ferrouillet and AFLAC worked to secure these deals throughout the remainder of 1993 and most of 1994. Through this activity, Steele had several contacts with NCBM and Henry Espy. He was told in late 1993 that Henry Espy had a pressing campaign debt and that Ferrouillet had cosigned a loan to help reduce the debt.

On April 28, 1994, Paul Amos, AFLAC's board chairman, attended an NCBM awards luncheon in Washington, D.C. and received NCBM's "President's Corporate Responsibility Award" on behalf of AFLAC. At this meeting, he first met Henry Espy.

Henry Espy and Ferrouillet arranged a meeting with Paul Amos at AFLAC's corporate office in Columbus, Georgia for June 29, 1994. Paul Amos did not know the purpose of the meeting, but after some pleasantries, Henry Espy and Ferrouillet informed him of the pressing campaign debt and solicited his assistance.

Paul Amos discussed the legality of contributions to Henry Espy's campaign with Joey Laudermilk, general counsel and corporate secretary of AFLAC's Board of Directors, who was present during the meeting. Upon being informed that he and his wife could each contribute $1,000, Paul Amos prepared two $1,000 checks for the campaign - one from him and one from his wife. Laudermilk, who oversaw the contributions of AFLAC's political action committee, AFLAC-PAC, prepared a $5,000 check from AFLAC-PAC to the campaign. (These contributors complied with Federal Election laws).

In July of 1994, Henry Espy sent Dan Amos, AFLAC's president and chief executive officer (and Paul Amos's son), a letter thanking him for his generosity in helping to retire the campaign debt. Dan Amos provided Steele a copy of the letter, on which he had written,

Warren, we need to discuss this matter, Dan.

The following month, Dan Amos, Laudermilk and Steele met to discuss Henry Espy's campaign-financing difficulties.

In late August, Steele telephoned AFLAC's sales coordinator for the state of Georgia, Don Beck, and said he wanted Beck and his wife each to donate $1,000 to the Henry Espy campaign. When Beck balked at contributing, Steele assured him that AFLAC would "take care" of him. Beck made the two $1,000 contributions, and Steele subsequently caused AFLAC to reimburse Beck by way of a $2,700 check purportedly for "administrative support." (The extra $700 was a reimbursement for taxes that would have to be paid for the $2,700 of income.) Beck recorded the deposit of this check as reimbursement for the campaign contribution.

At about the same time, Steele had a similar conversation with Tom Giddens, AFLAC's regional sales coordinator for Atlanta, Georgia. Steele asked Giddens and his wife each to contribute $1,000 to Henry Espy's campaign fund and assured them that AFLAC would "take care" of them. After Giddens and his wife contributed $2,000, Steele sent Giddens an AFLAC check for $2,700 to reimburse him for the contributions and the estimated taxes on the $2,700 in income. ⁽⁶¹⁾ Steele, testifying pursuant to a grant of immunity from prosecution, subsequently admitted that he knew his actions were illegal and that they violated federal campaign laws.

On May 17, 1995, although the city of Atlanta had not yet enrolled with AFLAC, the company provided Ferrouillet $70,000 as a commission advance on the Atlanta contract, a portion of which Ferrouillet eventually used to pay off the remainder of the Henry Espy loan from FNB Clarksdale.

4.   Prosecution Decisions

As a result of the events described above, OIC brought indictments:

• against Crop Growers Corporation, John Hemmingson, and Gary Black for conspiracy to defraud the United States and to violate federal election laws under 18 U.S.C. § 371, false statements under 18 U.S.C. § 1001, falsifying corporate books and records under 15 U.S.C. §§ 78m(b)(2)(A) and 78ff(a), securities fraud under 15 U.S.C. §§ 77q(a) and 77x, and false statements to auditors under 17 C.F.R. § 240.13b2-2 and 15 U.S.C. § 78ff(a) (see Section III.C.1.a);
  
  
• against Henry Espy, Alvarez Ferrouillet, Ferrouillet & Ferrouillet, and Municipal Healthcare Cooperative, Inc. for conspiracy to make false statements under 18 U.S.C. § 371 and false statements to a federally insured bank under 18 U.S.C. § 1014 (see Section III.C.2);
  
  
• against Alvarez Ferrouillet for interstate transportation of stolen property under 18 U.S.C. § 2314, money laundering under 18 U.S.C. §§ 1956(A)(1)(b)(i) and (ii) and 1957, and false statements under 18 U.S.C. § 1001 (see Section III.C.2);
  
  
• against John Hemmingson for interstate transportation of stolen property under 18 U.S.C. § 2314 and money laundering under 18 U.S.C. §§ 1956(A)(1)(b)(i) and 1957 (see Section III.C.2);
  
  
• against Sun-Diamond Growers of California for wire fraud under 18 U.S.C. §§ 1343 and 1346 and illegal campaign contributions under 18 U.S.C. §§ 441b(a), 441f and 437g(d)(1)(A) (see Section III.B.2.a);
  
  
• against Richard Douglas for mail fraud under 18 U.S.C. §§ 1341 and 1346, and illegal campaign contributions under 18 U.S.C. §§ 441b(a), 441f and 437g(d)(1)(A) (see Section III.B.2.b).

Also as a result of the events described above, OIC brought a criminal information against James Lake for wire fraud under 18 U.S.C. §§ 1343 and 1346 and for illegal corporate and conduit campaign contributions under 2 U.S.C. §§ 441b(a) and 437g(d)(1)(A) (see Section III.B.2.c).

Because the AFLAC contribution did not appear to be related to Secretary Espy and because the company did not direct or endorse the alleged activities, OIC elected not to prosecute AFLAC or its employees and instead referred the matter to the Federal Election Commission. (See Section III.F.2.)

F.   Other Conflicts of Interest Within the Department of Agriculture

OIC's investigation of possible gratuities given to Secretary Espy uncovered evidence of conflicts of interest surrounding the actions of Secretary Espy and his chief of staff, Ronald Blackley. As the investigation progressed, OIC developed evidence of indictable offenses committed by Blackley and others with whom he was affiliated. Ultimately, the Special Division of the United States Court of Appeals for the District of Columbia Circuit referred jurisdiction over these matters to the Independent Counsel.

1.   Ronald Blackley's Earlier Employment with USDA and Congressman Espy

Ronald H. Blackley served as Secretary Espy's Chief of Staff from January 1993 to February 1994. Prior to that, he had been one of Congressman Espy's district representatives and had both worked for USDA and represented clients before USDA. Blackley used his government experience and contacts to his profit in his private-sector work, and continued to assist and receive payments from his private sector clients when he returned to government service.

In 1983, Blackley started Mississippi Rice Services, the first of his two agriculture-related businesses in Mississippi. Mississippi Rice Services was a sole proprietorship that brokered rice between Mississippi farmers and wholesale purchasers.

Toward the end of 1983, Blackley began exploring the possibility of working at the USDA's county office in Greenville, Mississippi as a field assistant. A field assistant carries out duties that include visiting area farms to measure crop production for compliance with USDA programs. Before hiring him, Blackley's future supervisor warned him that his rice brokerage business could create a conflict of interest with his responsibilities at USDA. Blackley was instructed that he must keep his brokerage business separate from his duties as a USDA field assistant and that he could not use his USDA position to solicit clients for Mississippi Rice Services.

With this clear instruction, Blackley was hired. For approximately the next four years, Blackley worked as a field assistant for USDA, visiting area farms to measure crop production. In 1987, Blackley was forced to resign from USDA when his supervisor discovered that he was using his USDA position to benefit his personal business.

Shortly after his resignation, Blackley started his second business, Ron Blackley & Associates, through which he provided consulting services to farmers in Mississippi who sought to do business with USDA, including applying for subsidy payments. Using the experience he gained while working at USDA, Blackley advised his clients on rules and regulations pertaining to USDA programs, helped them prepare the necessary paperwork, and even represented them at hearings before USDA.

In May 1989, while still operating Mississippi Rice Services and Ron Blackley & Associates, Blackley rejoined the federal government as the part-time district agricultural representative for Congressman Espy, who then represented Mississippi's Second Congressional District. Blackley's responsibilities in his new government job included assisting Espy's constituents with agriculture-related problems. From May 1989 until December 1992, Blackley simultaneously served as Congressman Espy's agricultural representative and continued to run both Mississippi Rice Services and Ron Blackley & Associates.

2.   Blackley Becomes Espy's Chief of Staff

Following the 1992 presidential election, President-elect Clinton nominated Representative Espy to become the Secretary of Agriculture. Espy then tapped Blackley to be his chief of staff. In early January 1993, Blackley traveled to Washington, D.C. to help Espy prepare for his Senate confirmation hearings.

In preparation for Espy's hearings, Blackley received numerous ethics materials and briefings from the President-elect's transition team, which had the task of educating incoming officials about, among other issues, federal ethics regulations. Included in these materials was a briefing book that specifically described the various ethics rules and regulations prohibiting conflicts of interest, the receipt of gifts, and the misuse of an employee's official position. The materials included a discussion of the prohibition against certain outside employment. Blackley also received a copy of the Standards of Ethical Conduct for Employees of the Executive Branch, which described limitations on outside earned income and restrictions against accepting things of value from "prohibited sources." The materials stressed the importance of accurate and full disclosure on the federal government's Public Financial Disclosure Report, form SF-278.

Shortly before Espy's confirmation hearing on January 14, 1993, Blackley's earlier conflicts of interest during his tenure with USDA in Mississippi came to the Senate Agriculture Committee's attention. Espy and Blackley were advised of the problem. On the day of the hearing, Blackley drafted a memorandum to Espy in which he said that he had been "dissolving" his financial interests from the time that Espy had asked him to serve as chief of staff and that, as of the date of the memorandum, Blackley's only income was from his government salary as Espy's district congressional representative. Blackley's memorandum was false - he had not disposed of his financial dealings in the manner represented and he continued to enjoy income from his private businesses. The Senate and the President-elect's transition team relied on Blackley's false statements in the confirmation process.

After he became chief of staff, Blackley continued to press the interests of his private business associates before USDA and received money from them. In total, while he held his USDA chief-of-staff position, Blackley received at least $22,025 from associates who had business before USDA and who were receiving USDA subsidies.

3.   Blackley's Receipt of Funds from Charles Fuller

One of the associates from whom Blackley continued to receive money while serving as USDA chief of staff was longtime friend Charles Fuller, with whom Blackley had numerous business relationships. Fuller and Blackley, for example, each owned a 50% interest in Buck Brush, Inc., a farm-operating entity in Mississippi and Louisiana that received substantial sums of money from USDA in 1993. Immediately before becoming USDA chief of staff, Blackley transferred his ownership interest in Mississippi Rice Services to Fuller.

Fuller was a prohibited source of gifts for Blackley because Fuller owned and operated Buck Brush and operated M&T Partnership in Mississippi, which received USDA subsidies, and received yearly conservation subsidy payments while eligible for other subsidies from USDA for an Arkansas farming operation. ⁽⁶²⁾ Despite Fuller's prohibited-source status, Blackley received 10 checks during 1993 signed by Fuller and deposited into Blackley's checking accounts. These payments are summarized below.

These payments to Blackley were made and concealed, in part, through the use of Blackley's wife, Sharon Blackley. Fuller made four of the checks payable to Sharon Blackley, and all but two of the checks were deposited into the joint account of Ron and Sharon Blackley.

4.   Blackley's Receipt of Funds from David Cochran

After becoming Espy's chief of staff, Blackley also maintained a close financial relationship with another longtime friend and agricultural client, David T. Cochran. Cochran ran the farming operation known as Coco Planting Company, which received approximately $300,000 in USDA subsidies in 1993 alone. As a consultant, Blackley had assisted Coco Planting in numerous ways, including preparing its farm plans, which enabled Cochran to qualify for hundreds of thousands of dollars of USDA subsidies, and representing Coco Planting in USDA appeal hearings.

In 1992, the USDA county office in Greenville, Mississippi rejected a part of Coco Planting's farm plan. As a result, Cochran would have received far less money from USDA subsidy payments than he was seeking. Cochran appealed the decision, with Blackley's assistance, but USDA denied the appeal at the state level and ultimately at the National Appeals Division in Washington, D.C.

In the normal course of business at USDA, this would have exhausted the appeal process. However, once Blackley became chief of staff in early 1993, he ordered two subordinates at USDA to review the Cochran decision, as well as the denial of subsidies to two other Mississippi farmers on whose plans Blackley had worked. Shortly thereafter, Cochran's case was reopened, all previous rulings were overturned, and Cochran received approximately $32,000 in additional subsidies from USDA.

Less than two months after Cochran received these additional USDA subsidies, his wife wrote a $1,000 check, nominally payable to Blackley's son, Ronald H. Blackley, Jr. Blackley's son testified that he had never received the proceeds of this check and had never seen the check. The check was drawn on the Coco Planting account and deposited into the elder Blackley's checking account.

5.   Blackley's Involvement in USDA Program Fraud by Supporters of Espy

In the course of its investigation, OIC uncovered two instances in which Espy's close associates committed a type of USDA program fraud known as the "Mississippi Christmas Tree," by which farmers, through a variety of false statements, claim unwarranted subsidies from USDA, and related offenses. Blackley had ties to both fraudulent claims. He had prepared and advocated one of the fraudulent subsidy applications and had arranged for the preparation of the other.

a.   Rodalton Hart and Hart Farms

One individual OIC investigated regarding USDA program fraud was Rodalton Hart, a Mississippi farmer and Espy supporter. Hart and Espy first met in 1986, while Hart was serving as a County Supervisor for the State of Mississippi, and subsequently became close personal friends. Hart actively supported Espy's congressional races and, after Espy became Secretary of Agriculture, advised Espy on whom he should appoint to state USDA positions.

Hart owned and operated Hart Farms, a farming operation of more than 4000 acres in Mississippi. Hart Farms participated in the Price Support and Product Adjustment Program, administered by the Agricultural Stabilization and Conservation Service (ASCS) of USDA. The program provided that, if the market price for certain crops, including cotton and rice, fell below target prices set each year by Congress, the government would pay subsidies known as "deficiency payments" to participating qualified farm entities.

ASCS determined the annual amount of such subsidies, in part, by the number of persons or entities that owned and operated the farming operation, as deficiency payments were limited to $50,000 per eligible entity. Eligibility requirements included but were not limited to the following: the extent to which a person was "actively engaged in farming"; the contribution made by a person to the farming operation through such things as capital contribution; a person's active personal labor on the farm and/or active management of the farm; a person's separate and distinct interest in the land or crop involved and separate responsibility for such interest.

To apply for these subsidies, farming operations submitted "farm plans" annually to ASCS, identifying the persons and entities that owned and operated the farming operation. The $50,000-per-entity limitation provided a strong incentive to structure farm plans to maximize the number of entities that could claim a subsidy. A "Mississippi Christmas Tree" was a farm plan scheme that overstated the number of entities owning and operating the farm so as to increase the amount of subsidies that USDA paid.

In late 1992 or early 1993, Blackley called David Clanton, an ASCS County Executive Director in a different county who had reviewed numerous farm plans for ASCS approval. Blackley told Clanton to help Hart with his farm plans. Norris Faust, an Espy supporter who was appointed Mississippi ASCS State Executive Director in early 1993, also told Clanton that Hart was coming to see him about his farm plans and instructed Clanton to "make it work."

During a subsequent meeting, Clanton helped Hart and one of his brothers deceptively restructure their farming operation to inflate its deficiency-payment eligibility. Hart and Clanton created, on paper only, five partnerships, each consisting of two members of the Hart family, as follows:

Partnership	Partners
Hart Farms	Larry and Dennis Hart
C & D Farms	Cleveland and Chester Hart
J & R Farms	James and Raymond Hart
J & P Farms	John and Prince Ella Hart
R & C Farms	Rodalton and Carmella Hart

The Harts then prepared and filed with ASCS five separate farm plans, one for each partnership, in which each partnership claimed to be an independent farming operation. To support this assertion, the farm plans each stated that their respective owners (all Hart family members) resided in Mississippi and operated their own farming operation. Clanton also assisted the Harts in dividing, again on paper only, the farming operation's equipment among the five fictitious farming operations so as to make the farm plans more likely to pass ASCS muster. The farms plans withstood ASCS review, and the Hart farming operation received $461,072.99 in deficiency payments from 1993 to 1995, at least $300,000 of which was the result of the fictitious farm plans.

During interviews with OIC agents, Rodalton Hart and other members of the Hart family admitted that the family had one large farming operation, with one large pool of equipment, and that they divided the operation and equipment on paper to secure additional USDA subsidies. Furthermore, a number of these Hart family members lived out of state and contributed little, if anything, to the farming operation.

b.   Brook Keith Mitchell, Sr. and Five M Farming Enterprises

The other individual OIC investigated regarding program fraud was Brook Keith Mitchell, Sr. (Mitchell), a Mississippi farmer for whom Blackley served as a paid consultant. Mitchell, a longtime Espy friend and supporter, was an advisor to Espy while Espy was a congressman and served, along with Blackley, on Congressman Espy's Farm Advisory Committee. He continued to advise Espy after Espy became Secretary of Agriculture. Mitchell held several fundraisers for Espy's congressional races and later for Espy's brother Henry's congressional race. At least once in 1987 Mitchell also apparently gave Blackley a small cash gratuity while Blackley was working for USDA. Mitchell also issued a $300 check to Espy on June 20, 1992, which he stated was intended as a contribution to Espy's congressional campaign and not a payment to Espy personally. However, financial records disclosed that Espy deposited the $300 check into his personal checking account.

Mitchell owned and operated Five M Farming Enterprises, a 4,700-acre farming operation in Greenville, Mississippi. Five M participated in the Price Support and Product Adjustment Program.

Through his consulting firm, Ron Blackley and Associates, Blackley assisted Mitchell in developing a farm plan for Five M Farms. In April 1992, Mitchell submitted a farm plan to ASCS, which he and Blackley had drafted, that artificially inflated the number of Five M's owners to make the farming operation eligible for additional and unwarranted federal subsidies. The farm plan stated that three corporations - wholly owned by Mitchell's two sons, who were then full-time students - would contribute 50% of the active personal management of Five M's farming operation, thus making the three entities eligible for deficiency payments. In fact, neither of Mitchell's sons was actively engaged in the management of the farming operations.

In 1992, the Mississippi ASCS implemented a rule requiring applicants to identify students who supposedly controlled entities claiming subsidies. The rule required Mitchell to disclose the status of his sons as students. Students were not automatically disqualified from receiving subsidies, but their identification assisted reviewers in making accurate determinations of their contributions to a farming operation. By letter dated April 30, 1992, the Mississippi State ASCS Office concluded that the three "entities" wholly owned by Mitchell's two sons were not "actively engaged in farming" under the federal regulations and therefore were not entitled to subsidy payments. Specifically, the state office determined that the sons' management contributions were not essential to the profitability of Five M's farming operation and that the sons' management contributions were not commensurate with their claimed share of Five M's operation.

Mitchell appealed the decision to the Mississippi State ASCS Committee. Blackley, then serving as an aide to Congressman Espy but acting as a paid consultant for Mitchell, represented Five M. After reviewing the materials that Mitchell submitted and holding an informal hearing on August 25, 1992, the committee denied Five M's appeal. Mitchell then appealed to the National Appeals Division (NAD) of ASCS in Washington, D.C. NAD reviewed the case file, held another informal hearing (at which Blackley again represented Five M), and reached the same result, concluding that Mitchell's two sons were not actively engaged in the farming operation. This would normally have ended the appeal process.

6.   Blackley and Secretary Espy's Efforts on Behalf of Mitchell

According to Mitchell, Espy told Mitchell shortly after the 1992 presidential election that if he were appointed Secretary of Agriculture, Mitchell would not have to worry about his deficiency-payment appeal, which NAD had rejected. Hart also advised David Clanton in or about March of 1993 that Espy wanted the Mitchell appeal "taken care of." Blackley told Mitchell that if he, Blackley, became USDA chief of staff, Mitchell's deficiency-payment appeal would "be taken care of." After Blackley was appointed chief of staff, Mitchell called Hart and asked for help. Hart told Mitchell he would contact Espy's confidential assistant. Two hours later, a representative of ASCS in Washington, D.C., who had been contacted by Blackley, called Mitchell to assure him that ASCS would look further into his appeal.

Shortly before becoming USDA chief of staff and again after taking the position, Blackley directed the ASCS Administrator's Office in Washington D.C. to review the Five M decision, as well as those of Coco Planting Company and another farming operation on whose farm plan Blackley had worked. Pursuant to Blackley's request, ASCS's acting administrator removed Five M's case from NAD and ordered his own office to review the decision.

In reviewing Five M's appeal, David Grahn, Special Assistant to the ASCS Administrator, scheduled a telephone call with Mitchell to question him about his sons' participation in the Five M farming operation. When Grahn called, Mitchell and his sons (pursuant to Mitchell's request) each intentionally misrepresented the sons' contributions to the farm. In response to Grahn's request for documentation, Mitchell created fictitious documents supporting the Mitchells' misrepresentations and faxed copies to Grahn in Washington D.C.

Relying on these false statements, Grahn concluded that Mitchell's sons were actively engaged in the farm, and recommended that the administrator reverse the decisions of the Mississippi State ASCS Office and NAD. As a result, on August 5, 1993, ASCS awarded Five M an additional deficiency payment of $179,520. In the following years, Mitchell submitted essentially the same farm plan, requesting deficiency payments for six entities, including the three "entities" composed entirely of his two sons. Pursuant to these farm plans, Five M received $776,860 in deficiency payments for the crop years 1992 through 1995.

At about the same time, Espy took actions that had the effect of making it easier for Mitchell to claim subsidies. By at least March 1993, Espy had selected Mitchell to sit on the Mississippi State Committee of ASCS, a committee that hears appeals of farm plans that have been disapproved at the county level, as Five M's had in 1992. The fact that Mitchell had an active appeal of a disapproved plan made his appointment to the state committee problematic. According to Clanton, who was involved in the matter, Norris J. Faust, Espy's handpicked ASCS state executive director for Mississippi, stated that Blackley was pulling strings in Washington to influence Five M's appeal. Mitchell's appointment became effective in May of 1993.

On the morning of March 8, 1993, Espy, Blackley, and Faust met at the federal building in Jackson, Mississippi, and Faust was sworn in as ASCS state executive director for Mississippi. Mitchell, Hart, and other proposed members of the Mississippi State ASCS Executive Committee were also in attendance. The entire group had lunch at a local restaurant and then went to the Mississippi State ASCS office, where they held an informal meeting. Espy left at some point during the meeting.

During the afternoon meeting of March 8, 1993, Blackley and Mitchell encouraged Faust to exercise his new power as state executive director to rescind the Mississippi state ASCS regulation that required farmers to identify students claiming federal subsidies through ASCS farm plans. (By March of 1993, the regulation had been revised to require farmers to identify all persons listed on farm plans who had significant outside interests.) Without conferring with the agency's program specialist, Faust honored the request of Blackley and Mitchell and signed an order eliminating the Mississippi regulation.

Faust's action contravened the agency's normal protocol. The rescission of the regulation opened the way for Mitchell to collect farm subsidies on behalf of his sons without disclosing the fact that they were full-time college students and had insignificant involvement in the operation of Mitchell's farm.

As part of its investigation, OIC sought to determine to what extent Blackley and/or Espy intervened in the Mitchell appeal and whether Espy knew about or was involved in the rescission of the Mississippi state ASCS regulation. In an interview with Special Agents detailed to OIC, Mitchell admitted that when he first received Grahn's phone call, he knew he would have to misrepresent the involvement of his sons, because the two sons, in fact, had not contributed and were not contributing to the management of the farming operation as he had previously stated. Rather, one son contributed approximately 2% toward the management of the farm, and the other did not play any active role in the farm's management, because he was away at college throughout most of the year. Mitchell admitted that he advised his sons to misrepresent their contribution to the farming operation to Grahn and that it was his initiative to mislead ASCS.

OIC also questioned Faust before a federal grand jury in the course of its investigation. As to the events surrounding his rescission of the Mississippi state regulation, Faust stated that he conferred with ASCS program specialists, Robert Williams and Tom Breland, before making the decision to rescind that regulation. Faust also stated that, on the morning of his grand jury appearance, he had spoken with Breland who advised him that John Tanner, the payment limitation program specialist, assisted in drafting the rescission notice. Faust asserted that he did not see, participate in, or direct the drafting of the rescission notice, but "left it up to the specialists to do what they thought was right on it." However, both Williams and Breland denied discussing the matter with Faust in advance of the rescission.

Other evidence also was inconsistent with Faust's sworn testimony. Specifically, Williams was not an ASCS program specialist at all. Breland, although an ASCS program specialist, was a specialist in conservation and had no involvement in the Payment Limitation Program - the program affected by the Mississippi regulation. Moreover, Breland testified that he had not conferred with Faust before Faust's decision to rescind the Mississippi regulation and that he did not participate in drafting the rescission notice. Nor had Tanner, ASCS's payment limitation program specialist, conferred with Faust prior to the rescission or participated in the drafting. Indeed, Tanner was out of town on the day in question and, upon his return the following week, Faust informed him that he had rescinded the state regulation and asked him to resign because Faust believed their views differed over how accessible program subsidies should be to farmers.

7.   Blackley's Failure to Disclose Receipts from Agricultural Interests

On June 28, 1994, Blackley submitted his SF-278 Public Financial Disclosure Report for 1993, in which he failed to list his receipt of the 11 payments from Fuller and Cochran. The law required him to report: (1) all sources of income that generated more than $200 during 1993 for himself, his wife or his son; (2) all gifts from one source totaling $100 or more in value received by himself, his wife or his son in 1993; (3) all liabilities in excess of $10,000 owed by himself, his wife or his son to any one creditor at any time during 1993; and (4) any agreement or arrangement for the continuation of payments of money during 1993.

Later in 1994, OIG was investigating Blackley's possible conflicts of interest. By this time, Blackley had been removed as chief of staff and was working in another area of USDA. On November 28, 1994, Blackley signed under oath a 21-page, typewritten declaration, in which he falsely stated the following: (1) that he had severed himself from all of his prior business and financial interests, including Mississippi Rice Services, Ron Blackley & Associates and Buck Brush, Inc., when he became chief of staff; (2) that the only income he earned from January 22, 1993 (i.e., his first day as chief of staff) to November 28, 1994 (i.e., the date of the declaration) was his USDA salary; and (3) that the absence of any outside business interests or income had been documented in his financial disclosure report, which he had signed and submitted on June 28, 1994.

In June 1995, Blackley moved to yet another high-level government position, this time at the United States Agency for International Development (US AID), where he was required to maintain a "top secret" security clearance. In 1996, OIC obtained indictments against the Mitchells and their farming operation, Five M, for making false statements and submitting false documents to USDA; the indictment referred to an unindicted co-conspirator who had assisted the defendants in submitting their false documentation to USDA. Surmising that Blackley was the unindicted co-conspirator, US AID's OIG interviewed him about the matter. On August 15, 1996, Blackley signed a sworn written statement in which he stated: "After I ended my consulting business and entered U.S. Government service, I did not receive any remuneration of any kind from Mitchell or anyone else." He gave this statement to OIG agents from US AID.

8.   Petition to the Special Division

To avoid needless jurisdictional disputes in investigating the above matters, OIC informally suggested to the Attorney General that she refer them expressly to OIC as related matters pursuant to 28 U.S.C. § 594(e), the referral provision of the Independent Counsel Statute. The Attorney General declined to make the referral.

OIC then applied to the Special Division for a referral under the same statute, which empowers both the Attorney General and the Special Division to make the referral. The Department of Justice opposed this application, on the grounds that the matter was not related to the Independent Counsel's prosecutorial jurisdiction and that the Special Division did not have the power to make a referral that the Attorney General had refused to make. In a published decision, the Special Division held that it did have the power to refer a matter to an independent counsel after the Attorney General had declined to do so and that the subject matter was sufficiently related to justify a referral. In re Espy, 80 F.3d 501 (D.C. Cir. 1996).

Specifically, the Special Division referred to the Independent Counsel the following related matter:

The jurisdiction and authority to investigate and prosecute any violation of any federal law, other than a Class B or C misdemeanor, by any organization or individual, related to any application, appeal, or request for subsidy made to or considered by the United States Department of Agriculture, for which Secretary of Agriculture Alphonso Michael (Mike) Espy and/or his Chief of Staff Ronald Blackley intervened in the application, approval, or review process.

In re Espy, Div. No. 94-2, April 1, 1996 Order of Special Division of D.C. Circuit; see also United States v. Blackley, 167 F.3d 543, 545 (D.C. Cir. 1999).

9.   Prosecution Decisions

As a result of the events described above, OIC brought indictments:

• against Ronald H. Blackley for false statements under 18 U.S.C. § 1001 (see Section III.D.1.a.);
  
  
• against Five M Farming Enterprises, Brook Keith Mitchell, Sr. and Brook Keith Mitchell, Jr. for conspiracy under 15 U.S.C. § 714m(d) and for false statements under 15 U.S.C. §§ 714m(a) and 714m(b)(ii) (see Section III.D.2.);
  
  
• against Norris Faust for perjury under 18 U.S.C. § 1623 (see Section III.D.2.a.(5)).

The investigation also indicated that Hart Farms had defrauded USDA of federal subsidies for the program years 1993 through 1995, implicating Rodalton Hart, his brothers (Larry, Raymond, Chester, James, Cleveland and John), his nephew (Dennis), his wife (Carmella) and his sister-in-law (Prince Ella). Because OIC determined that this matter could be handled by USDA OIG, it was referred back to that agency. (See Section III.F.4.)

G.   Other Matters Investigated by the Office of Independent Counsel

OIC's investigation of possible illegal gratuities given to Secretary Espy included a thorough review of his finances, the sources of funds to him personally or for his accounts, and his relationship to the donors of gifts he received. This review uncovered the additional offenses described below.

1.   Richard Douglas Mortgage Offenses

OIC investigated the relationships among Richard Douglas, Sun-Diamond Growers of California, and Secretary Espy in connection with its examination of the gratuities offenses discussed in Section II.A.2, above. Because Douglas gave gratuities to Espy, OIC thoroughly investigated possible sources of the funds with which Douglas purchased the gratuities, including Douglas's personal finances. In the course of its investigation, OIC uncovered substantial irregularities in Douglas's efforts to obtain a mortgage loan on a house he was attempting to purchase at the time he was giving gratuities to Espy and engaging in other acts for which OIC prosecuted him.

On the basis of the evidence developed, the Attorney General referred to OIC on October 15, 1996, as a related matter, the allegation that "Richard Douglas may have obtained a mortgage loan in 1993 by making false representations and submitting false writings and documents to a broker and a lender." This matter was included in OIC's indictment of Douglas, along with the gratuities offenses and the Henry Espy campaign-fund offenses.

a.   OIC's Investigation

In June of 1994, before the appointment of the Independent Counsel, the FBI interviewed Douglas in connection with its preliminary investigation of Espy. In the interview, Douglas told the FBI that his employer, Sun-Diamond, had not paid any of Espy's expenses while he was Secretary of Agriculture, that Sun-Diamond had no issues pending before USDA since Espy became its head, and that he, Douglas, had obtained tickets to a professional basketball game for Espy from Greg Anthony, who was a friend and a professional basketball player. These statements proved to be false and later became the basis of a false-statements prosecution against Douglas.

OIC learned through a review of documents that Sun-Diamond and Douglas had given Espy a number of gratuities, that Douglas had paid for these gratuities, and that Sun-Diamond had reimbursed him for them. To investigate the relationship among Douglas, Sun-Diamond, and Espy, OIC examined all of Douglas's finances for any evidence relating to gratuities from 1987, when Espy was first elected to Congress, through at least December 1994, when Espy resigned as Secretary of Agriculture.

The grand jury issued subpoenas to Douglas and to third parties to obtain information about Douglas's finances. OIC analyzed the records obtained to determine where Douglas acquired and how he spent his funds. The records contained references to the following: a "PHH U.S. Mortgage Company"; a $57,990 wire transfer into Douglas's bank account on April 9, 1993; and a check to cash for $105,843, dated April 20, 1993. OIC issued subpoenas to the holders of documents related to these transactions.

The records obtained through the additional subpoenas and related interviews revealed that the $57,990 wire transfer had come from a bank account of Greg Anthony, who, according to Douglas, had supplied free basketball tickets to Espy for the NBA championship game in June of 1993. (OIC ultimately learned that Anthony did not supply these tickets and that they were, in fact, given to Espy by the Quaker Oats Company, as is discussed in Section II.A.4.) Douglas and Anthony had jointly owned an investment account. OIC's financial review also revealed that Douglas had received $10,000 in cash through a wire transfer from his girlfriend, Patricia M. Kearney. Documents established that Douglas had obtained a mortgage loan on a California residential property from a company called PHH U.S. Mortgage Company (PHH) in Denver, Colorado; that these cash transfers were made in connection with the loan; and that the $105,834 represented the total down payment he made for the purchase of the property in connection with the loan.

In the course of reviewing these matters, OIC became aware that Douglas's financial records were inconsistent with representations he had made in his application to PHH for the California home loan. In particular, in the loan application, Douglas substantially overstated both his assets and his income, even though he was expressly on notice that false statements made in applying for the loan could subject him to federal criminal penalties. The falsely reported assets included the investment account held with Anthony and the cash transfer from Kearney; the falsely reported income including supposed rent Douglas was receiving for rental properties in the District of Columbia area.

Because these inconsistencies could have represented an attempt to hide funds related to the gratuities that Douglas had been giving to Espy or related to Sun-Diamond's reimbursements for these gratuities, OIC attempted to determine the basis for the inconsistencies. It learned that Douglas had had an interest of approximately $58,000 in the investment account he had held jointly with Anthony. However, on his final loan application he represented that his interest in the account was its total value of $109,598. The $57,990 wire transfer from Anthony proved to be Anthony's payment to Douglas for Douglas's share of the account; this transfer came after Douglas executed the final loan application but before the loan closed. With the transfer, Douglas ceased to have any interest at all in the account. At the loan closing, however, Douglas falsely represented again that he owned an interest of $109,598 in the investment account. Additionally, the $10,000 wire transfer from Kearney to Douglas was a loan, according to Kearney's testimony, but Douglas represented it at the closing as a "gift" instead of a liability.

The PHH loan documents themselves revealed that Douglas overstated his income by falsely claiming rental income from two properties in the Washington, D.C. area. PHH documents further showed that a PHH underwriter suspended Douglas's application pending proof of the rental income, because the income was not indicated in his tax returns. Douglas then provided to the bank two fabricated leases and an untruthful written explanation to support his false statements that he received $40,000 in annual lease payments. Douglas's written explanation made elaborate false statements about his own use of the subject properties. ⁽⁶³⁾

On April 21, 1993, as a result of his application and the representations he made in support of it, Douglas received a mortgage loan of approximately $400,000 from PHH.

b.   Attorney General Referral

Throughout its investigation, OIC maintained contact with the Public Integrity Section of the Department of Justice (DOJ). In particular, OIC discussed the evidence of Douglas's mortgage fraud as it developed. DOJ agreed that it was appropriate for OIC to investigate these matters in connection with its ongoing investigation of the gratuities Douglas gave to Espy.

In the fall of 1996, when the Independent Counsel was preparing to present an indictment against Douglas to the grand jury, it was apparent that the facts supported mortgage-fraud charges. OIC contacted DOJ to discuss the Attorney General's formal referral of the mortgage-fraud claims to OIC as a related matter under 28 U.S.C. § 594(e). The Attorney General referred the matter by letter on October 15, 1996.

c.   Prosecution Decisions

As a result of the events described above, OIC brought an indictment against Richard Douglas for wire fraud under 18 U.S.C. § 1343. (See Section III.B.2.b.)

2.   Irregularities in Secretary Espy's Congressional Campaign Account

In the course of its investigation, OIC discovered a deposit of $95,111 into a campaign account for Espy that was opened three months after he became Secretary of Agriculture. While investigating this deposit, OIC uncovered substantial irregularities in the maintenance and use of campaign funds that Espy had amassed while running for Congress in Mississippi.

a.   OIC's Investigation

In August of 1997, as a part of its investigation into Secretary Espy's acceptance of illegal gratuities, OIC conducted a detailed analysis of the Secretary's financial dealings. The analysis examined Espy's personal finances to determine whether he depended upon the largess of others, including his receipt of gratuities, to live beyond his means. In examining deposits to Espy's congressional campaign accounts, OIC was led to investigate the activities of Thomas Espy, the Secretary's brother, and Wardell Townsend.

Thomas Huddleston Espy was a businessman in Jackson, Mississippi. During Espy's congressional career, Thomas Espy served as his brother's campaign manager. In that capacity, Thomas Espy controlled all bookkeeping and campaign expenditures, acting, in fact, as the campaign's treasurer.

Wardell Clinton Townsend was a close associate of Congressman Espy. Townsend worked on Espy's first congressional campaign in 1986 and, after Espy won that election, joined his congressional staff as legislative director. Shortly after Espy's reelection in 1988, Townsend also assumed the role of Espy's chief of staff. In 1992, Townsend took over many of Thomas Espy's campaign-committee duties, including overseeing expenditures and fundraising.

OIC found that a congressional campaign account for then-Secretary Espy had been opened in Mississippi on April 20, 1993, with the deposit of a $95,111 check. Federal election laws limit the amounts and sources of contributions to federal campaigns, and the $95,111 check clearly exceeded the limits. The contribution was made to the campaign three months after Espy had been sworn in as Secretary of Agriculture and thus at a time when he was not running for Congress. Because the check came from a then-unknown source, OIC investigated it as a possible illegal gratuity.

OIC then subpoenaed additional bank records. These revealed that the check originated from a Mississippi law firm, Ott Purdy and Scott, which itself had received a $115,000 check from Thomas Espy. The law firm issued the $95,111 check payable to "Espy for Congress" and wrote a second check to Thomas Espy for the remainder of the money, $19,889. Thomas Espy delivered the $95,111 check to campaign treasurer Michelle Matlock, Secretary Espy's twin sister, who then, at the Secretary's direction, opened a new Espy for Congress bank account with the check.

OIC personnel retrieved copies of the Mike Espy for Congress Committee Disclosure Reports from the FEC. These FEC disclosure reports did not document the Espy congressional campaign's receipt of the $95,111 check, even though the FEC requires that any transaction over $200 involving a congressional campaign be disclosed in the reports. OIC then performed the investigation necessary to determine the source of the funds. The ensuing investigation revealed the following information.

(1)   The Campaign Committee's Initial Infrastructure and the Misuse of Funds

The operations of the Mike Espy for Congress Committee readily permitted misuse of campaign funds. Congressman Espy set up the campaign using his twin sister Michelle Matlock as a straw treasurer. ⁽⁶⁴⁾ In truth, it was agreed that Thomas Espy would be solely responsible for performing all of the actual duties of treasurer, including collecting and depositing contributions, filling out FEC reports, maintaining receipts and records, and making disbursements from the committee. ⁽⁶⁵⁾

Before 1992, the campaign's checkbooks were stored in a file cabinet to which only Thomas Espy had access. Thomas Espy sometimes wrote checks to various campaign creditors or to himself and sent them to Matlock, whose office was several blocks away. Matlock signed them as the campaign treasurer. The more common practice, however, was for Thomas Espy to send a number of blank checks to Matlock, who signed them in blank, allowing Thomas Espy the use of campaign funds in any way he pleased, without further scrutiny.

Congressman Espy also gave Thomas Espy exclusive control over FEC reports, further allowing Thomas Espy to conceal his misuse of campaign funds. Thomas Espy penciled receipts and disbursements into the FEC reports, calculating all of the sums on his own. He then gave the FEC reports to one of his employees for typing. Sometimes these typed reports went to Matlock for her signature; at other times Thomas Espy directed an employee to sign Matlock's name on the reports.

Between 1990 and 1992, Thomas Espy repeatedly abused this system. Specifically, he took or used for his own personal benefit at least $95,000 - and perhaps as much as $175,000 - of campaign funds from Mike Espy for Congress bank accounts.

Thomas Espy also used Clyde Smith, a Mike Espy for Congress Committee employee, as his personal chauffeur and assistant. Smith picked up Thomas Espy's children from school, drove Thomas Espy around Jackson, Mississippi, and ran errands for Thomas Espy's company. Thomas Espy paid Smith out of campaign funds. Other employees recall similar experiences of performing Thomas Espy's personal work while employed by the Mike Espy for Congress Committee. Thomas Espy often had the campaign disburse a check to one of these employees and then had the employee cash the check and split the proceeds with him. Thomas Espy would use the proceeds to pay his personal bills. On several occasions, campaign employees also saw Thomas Espy pocket cash donations given to the campaign.

(2)   Congressman Espy's Knowledge of the Misuse of Funds

In or about March 1992, Congressman Espy told his girlfriend, Patricia Dempsey, that approximately $80,000 was missing from his congressional campaign accounts and that Thomas Espy had been spending the money. About a month later, Espy and Wardell Townsend, his congressional chief of staff and confidant, traveled to Jackson, Mississippi. There, Espy and Townsend confronted Thomas Espy about the missing funds, and Thomas Espy responded he would get the money back. In an effort to prevent disclosure of these purloined funds, Congressman Espy devised a plan to conceal Thomas Espy's theft.

First, Congressman Espy designated Townsend to be "assistant treasurer" of the Espy congressional campaign. In this position, Townsend opened a new Espy campaign bank account in March 1992 in Washington, D.C. This permitted Congressman Espy to have day-to-day control of the activities of his Mississippi congressional campaign funds. At the same time, Congressman Espy nominally placed Matlock in charge of keeping the campaign checkbook and preparing FEC reports. In fact, however, Matlock continued to act largely in a ministerial capacity. Townsend instructed Matlock what financial data to report to the FEC. This allowed Congressman Espy and Townsend to continue to hide the missing money by misreporting the cash-on-hand figures - a maneuver employed until the money was finally replaced about a year later, in April 1993. None of the reports filed with the FEC showed any campaign contributions to be missing. ⁽⁶⁶⁾

In September 1992, Congressman Espy had conversations with Townsend about the missing money and instructed him to contact Thomas Espy about replacing the money. However, as of the November 1992 congressional elections, the money had not been replaced. Moreover, neither the FEC nor the voters in Congressman Espy's congressional district were ever advised of the missing funds.

(3)   The House Bank Investigation

In the spring of 1992, it came to public attention that some Members of the United States House of Representatives, including Congressman Espy, had been abusing their House banking privileges by drafting a large number of checks while their accounts had insufficient funds.

While looking at the House Bank scandal, the FBI had noticed that, among other anomalies in the campaign's accounting, many of the disbursements by the campaign to Congressman Espy were in round figures. Closer investigation revealed that Congressman Espy sometimes would be reimbursed more money than he was entitled to receive and would even be paid twice for the same travel expenses. Although the FBI pursued the matter, many campaign records were missing, making review difficult. ⁽⁶⁷⁾

In late November and early December 1992, the FBI stepped up its investigation into Congressman Espy's campaign activities. As part of its investigation, the FBI interviewed Congressman Espy and Thomas Espy, and each made numerous false statements. At the time of the interviews, both men knew that a substantial amount of campaign money was missing. Congressman Espy, however, was then lobbying President-elect Clinton for a Cabinet position and knew that disclosure of the problem would greatly undermine his chances. ⁽⁶⁸⁾ In response to the FBI's questions, Congressman Espy flatly asserted that he had every confidence that none of the funds collected for campaign purposes had at any time been diverted by anyone for non-campaign-related personal use. Shortly thereafter, Congressman Espy discussed the interview with his girlfriend and expressed his dismay over the missing campaign money and the need to file a report with the FEC. The FBI did not then discover that the on-hand cash indicated in the FEC reports was no longer in the campaign's accounts.

(4)   The Transition Process

On December 24, 1992, President-elect Clinton asked Congressman Espy to be his Secretary of Agriculture. Prior to the announcement, the President-elect's vetting team had looked into Espy's background to see if any potentially embarrassing information could come back to vex the new administration. Examiners interviewed Espy about his past, including Thomas Espy's prior felony conviction and the House Bank scandal. Congressman Espy never told the "vetters" about the missing campaign funds.

All Cabinet appointees must be confirmed by the United States Senate. As part of the confirmation process, the relevant Senate committee probes a candidate's life. Committee members are privy to FBI reports on the candidate and questionnaires filled out by the candidate. Members receive recommendations from people who know the appointee and also hear criticisms. The process culminates in a committee hearing in which the candidate is questioned. The committee then votes on whether to send the nomination to the Senate floor for a vote. The Senate Agriculture Committee had jurisdiction over Congressman Espy's confirmation.

To help him prepare for the Senate confirmation process, the Clinton-Gore transition team assigned several advisors to Congressman Espy. One of the individuals was assigned to advise Espy on federal ethics. Congressman Espy never told any member of the transition team that his congressional campaign account was short almost $100,000 or that he had filed numerous false FEC reports to cover up this fact.

These same transition team members helped Congressman Espy prepare answers to written interrogatories from the Senate Agriculture Committee. In the interrogatories, Congressman Espy continued to conceal the missing campaign funds. Because of the House Bank scandal, Congressman Espy's campaign finances were a topic of great interest to the Senate Agriculture Committee. During the committee hearing, Senator Richard Lugar of Indiana, the senior minority member at the time, asked Congressman Espy specific questions about his campaign funds, including whether money had ever been misspent and what role Thomas Espy played in the campaign. Congressman Espy responded by blaming his brother's shoddy bookkeeping. In short, Espy failed to disclose that almost $100,000 was missing from his campaign funds and that he, his brother, and Townsend were covering up the defalcation.

(5)   White House Interest

At the time of Secretary Espy's confirmation, the transition team's legal office became interested in what former congressmen such as Espy would do with their excess campaign funds once they assumed administration positions. To avoid conflicts of interest, transition-team lawyers wanted these appointees to dispose of all their congressional campaign funds. The Federal Election Campaign Act (FECA) specifically states that campaign money may not be diverted to a former congressman's personal benefit and that any political use had to meet the donation requirements specified by the FEC. The transition team wanted Congressman Espy to donate his surplus campaign funds to other Democratic candidates or the Democratic National Committee.

The demand of the transition team - and later the White House - that former Congressman Espy dispose of his accumulated campaign funds created a serious problem for the new Agriculture Secretary. According to FEC reports Espy had been filing, his campaign had well over $100,000 in cash on hand. In reality, the campaign had less than $20,000.

Secretary Espy directed Townsend to meet with James Michael Kelly of USDA's General Counsel office, and to arrange for Kelly to write a letter to the Office of Government Ethics, stating that Secretary Espy would not use the campaign money for any partisan purposes but would keep the money in his existing accounts. During the course of repeated discussions on the issue, Secretary Espy and Townsend both concealed from Kelly - and thus from the White House, with whom Kelly was communicating - that a substantial sum of money was missing from the congressional campaign accounts. In fact, they falsely represented to Kelly that the accounts contained between $115,000 and $120,000 in excess campaign funds; Kelly then relayed the representation to the White House via draft letters.

At a meeting among Espy, Townsend, and Kelly on March 5, 1993, Kelly presented the campaign-fund letter to Espy for his signature, but Espy refused to sign. Espy stated that he wanted to delay signing the letter until he had received all money due to him. Espy told Kelly that Townsend would get back to him at some time after he, Espy, decided he wanted the letter sent. In the end, neither Espy nor Townsend ever sent such a letter to the Office of Government Ethics or the White House.

(6)   Fraudulent Means Used to Replace Campaign Funds

After the FBI interview and the confirmation process at the beginning of 1993, Secretary Espy and Townsend called Thomas Espy and told him to replace the missing campaign account money. Thomas Espy went to Stephen Edds, a Mississippi lawyer with whom he had previously worked, to discuss what to do about the missing money. They decided that Thomas Espy needed to return the money as unassumingly and quietly as possible.

Thereafter, Thomas Espy decided to use a parcel of land he and his wife owned to effectuate a scheme to raise the needed cash. ⁽⁶⁹⁾ Thomas Espy directed his wife to approach her brother, Clyde McLaurin, about a deal in which Thomas Espy would sell 10 acres of land to McLaurin and buy it back in two years. McLaurin would take out a loan to purchase the property and give the proceeds to Thomas Espy, who would then make McLaurin's monthly payments on the note. The monthly payments from Thomas Espy to McLaurin would be funneled through Thomas Espy's wife's checking account to conceal Thomas Espy as the true source. McLaurin agreed to this plan, because he thought he was helping his sister.

To get his hands on the loan proceeds quickly, Thomas Espy brought McLaurin to a local bank where he knew the loan officer. Thomas Espy knew that the loan officer would not ask questions and would expedite the loan. At Thomas Espy's direction, McLaurin told the loan officer that the land purchase would be used for business purposes, specifically the building of new medical facilities to serve a nursing home. He also told the loan officer that a sizable down payment had been made. Neither of these statements was true. The false information was reflected in the credit application McLaurin brought to the bank. Thomas Espy also instructed McLaurin not to tell the loan officer that Thomas Espy would be the one making the payments on the note.

Edds helped Thomas Espy assemble all relevant paperwork for this loan. Throughout the several weeks that Thomas Espy was arranging the transaction, Townsend, at the Secretary Espy's direction, kept track of Thomas Espy's progress. Secretary Espy and Townsend were anxious to get the money back into the account and wanted continual updates on Thomas Espy's progress.

On April 12, 1993, Thomas Espy and McLaurin executed the sales contract for the land. The contract noted a $150,000 purchase price and a $35,000 down payment. Eight days later, after receiving the loan from the bank, McLaurin signed a land deed of trust, with Merchants and Farmers Bank in Mississippi as the secured party. McLaurin also signed the note and the security agreement, using a life-insurance policy as collateral for the loan.

On April 20, 1993, Thomas Espy picked up the loan-proceeds check from Merchants and Farmers Bank and took the check to Edds's law firm, Ott Purdy and Scott. Edds placed the check in the firm's escrow account so Thomas Espy could hide the source of the funds. Edds then had the proceeds distributed in two smaller checks, one for $95,111 made payable to "Espy for Congress," and another for the remaining $19,889, made payable to "Tom Espy." Both of the checks were given to Thomas Espy.

Earlier in the same week, Secretary Espy had called his twin sister and campaign treasurer, Matlock, and instructed her to open a new campaign account and deposit in it the $95,111 check. Later, when Thomas Espy gave her the $95,111 check, Matlock followed Espy's instructions and placed the check into the campaign's newly-opened bank account. The check appeared to have come from the Ott Purdy and Scott law firm. No report to the FEC ever listed the money coming into the campaign accounts, as required by federal election law. With the replacement of the missing funds, the campaign accounts contained slightly more than $117,000 and the subsequent FEC reports, while still not entirely accurate, reported approximately the same amount in the Espy campaign accounts.

b.   Petition to the Special Division

In brief, the evidence discussed above showed the following: (1) that by about March of 1992, then-Congressman Espy discovered that his brother Thomas had taken or misused a substantial amount of money from his campaign accounts; (2) that the campaign submitted reports concealing this fact to the FEC; (3) that while he was under consideration for appointment as Secretary of Agriculture, Espy failed to disclose to FBI agents the fact that funds were missing from his campaign accounts; (4) that as a Congressman and then as Secretary of Agriculture, Espy continued to conceal these matters during his vetting and confirmation hearings and throughout his tenure; (5) that in April of 1994, then-Secretary Espy caused a $95,111 check to be deposited into a newly opened campaign account, without reporting the money to FEC; and (6) that this deposit consisted of funds fraudulently obtained by Thomas Espy.

OIC uncovered no evidence that Secretary Espy was directly involved in the fraudulent bank loan. Consequently, on May 15, 1998, OIC referred the evidence of the fraudulent bank loan to the United States Attorney's Office for the Southern District of Mississippi. The United States Attorney's Office ultimately declined prosecution.

OIC considered presenting to the grand jury several possible criminal charges against Secretary Espy, Thomas Espy, and Townsend. These included conspiracy to defraud the FEC from discovering that more than $95,000 in contributions was missing from the Mike Espy for Congress campaign accounts; violations of FECA in failing to fully and accurately report all campaign moneys received or disbursed during specific periods of time; and false statement offenses in making false statements to the FBI and U.S. Senate regarding the amount and nature of funds in the campaigns accounts. ⁽⁷⁰⁾

On May 28, 1998, on the basis of the facts described above, OIC petitioned the Special Division of the Court of Appeals for the D.C. Circuit to refer these allegations to OIC as matters related to the Independent Counsel's jurisdiction. The Department of Justice opposed this petition. On June 12, 1998, the Special Division denied OIC's petition. In re Espy, 145 F.3d 1365 (D.C. Cir. 1998).

The afternoon of the Special Division's order, OIC referred the matter to the Department of Justice for prosecution. The statute of limitations ran a few days later, without any further prosecutorial action.

3.   Richard Blackmore's Loan Application to USDA

Early in the investigation, an allegation surfaced that Secretary Espy and one of his executive assistants, Oleta Garrett Fitzgerald, had used their positions to influence a $500,000 loan from the USDA's Alternative Agricultural Research and Commercialization Center (AARCC) to Mississippi businessman Richard Blackmore's company, Environmental Remediation Technology, Inc. (ERT). The evidence revealed a close link between Espy and Fitzgerald on one hand, and Blackmore and his company's loan application on the other, but OIC discovered no direct evidence linking Espy or Fitzgerald to any improper influence on behalf of Blackmore. OIC did, however, uncover evidence indicating that Blackmore provided false information to AARCC in support of his company's loan application.

a.   OIC's Investigation

Richard Blackmore, a former professional football player, was a Mississippi entrepreneur. He was the president and majority stockholder of ERT, a company that marketed bioremediation products used for environmental cleanups. One of these products was Enretech I, an absorbent designed to mop up oil spilled on land. Enretech I was an agricultural product, because it was made from cottonseed lint, a byproduct of cotton processing.

AARCC, a venture-capital entity wholly owned by USDA, was established pursuant to the Food, Agriculture, Conservation, and Trade Act of 1990 to promote research and commercialization of industrial products developed from agricultural materials. AARCC made funds available to businesses in the form of loans and equity investments to help commercialize such bio-based industrial products. Businesses obtained funds by submitting detailed proposals to AARCC.

Oleta Fitzgerald worked as a member of Espy's congressional staff. It was in this position that she first met Blackmore. When Espy became Secretary of Agriculture, Fitzgerald became an Executive Assistant to Espy and, after arriving at USDA, lobbied for and received an appointment from Espy to the eight member board of directors for AARCC.

In September of 1993, ERT sought funding from AARCC to produce and market its bioremediation material. Blackmore, who had known Secretary Espy as a Congressman and who bragged about his connections to Espy, copied the Secretary on ERT correspondence to AARCC and met with Espy on at least one occasion prior to the approval of ERT's application.

Blackmore's September 1993 application to AARCC included the following false information: (1) that two Mississippi cities - Hollandale and Tchula - were participating organizations and investors in the ERT proposal; (2) that ERT maintained and operated certain facilities and equipment, which, in fact, belonged to another company; (3) that ERT had exclusive rights for the next 10 years to the largest quantity of the requisite raw product in the world; and (4) that ERT had patents pending and intellectual property rights in the product it was selling.

In November 1993, ERT's application passed initial staff review at AARCC and was assigned for further review to two board members, one of them Oleta Fitzgerald. On February 28, 1994, Blackmore conducted a tour of plant facilities in Mississippi for an AARCC staff member and the other board member (Fitzgerald was scheduled to, but did not, attend), during which he represented that the facilities were those of ERT. In fact, however, ERT did not own or operate the facilities, which belonged to one of its competitors. During the tour, Blackmore further falsely reasserted that ERT had exclusive rights to the raw product and that ERT had patents pending.

On the basis of the application and Blackmore's representations, Fitzgerald and the other board member recommended ERT's proposal for approval; the board approved the application on March 18, 1994. In May 1994, AARCC and Blackmore, on behalf of ERT, executed a Venture Capital Agreement under which AARCC would invest $515,000 in ERT in return for 10% of ERT's stock. On July 5, 1994, the United States Treasury issued a check for $515,000 to ERT. The following month, ERT hired Ted Luckett, a man whom Fitzgerald had known for years and with whom she had a personal relationship.

b.   Prosecution Decisions

OIC found no evidence to corroborate the allegations that Espy had intervened in the decision to award AARCC funding to ERT. Nor did the investigation disclose direct evidence that Fitzgerald improperly intervened to approve the ERT application or that the job for Luckett was a quid pro quo for Fitzgerald's role in approving the loan. Consequently, OIC closed its investigation and referred the evidence it had accumulated regarding the ERT loan, together with evidence OIC had uncovered relating to a bank fraud in which Blackmore had participated, to the FBI and DOJ, which were conducting an ongoing investigation regarding that fraud. (The United States Attorney for the Southern District of Mississippi had recused his office.) The Department ultimately indicted Blackmore for bank fraud on March 25, 1998. (See Section III.F.3.)

4.   Thomas Espy's $3.5 Million USDA Loan Request

OIC also investigated an allegation that first appeared in The Atlanta Journal-Constitution that Secretary Espy's brother, Thomas Espy, had applied for a $3.5 million USDA loan guarantee in April 1994. The investigation focused on whether Secretary Espy had tried to influence USDA's decision on whether to grant this loan guarantee. OIC found no evidence that Secretary Espy sought to influence USDA's decision, which ultimately was to deny the loan.

a.   OIC's Investigation

The Rural Development Administration (RDA), an agency of the USDA, administers a loan guarantee program whereby it underwrites loans made by private banks to finance projects in rural areas. Under this program, if the borrower defaults on the loan, the RDA uses government funds to repay the bank a percentage of the loan amount.

Since at least 1990, Thomas Espy sought to open a latex glove factory in rural Mississippi. However, he experienced difficulties securing financing, equipment, and space for his business venture. After other measures to raise the necessary capital failed, Thomas Espy filed a loan guarantee application with the RDA office in Jackson, Mississippi on April 7, 1994. The loan request, made in the name of Ameriglove International, Inc., was for $3,500,000 to purchase equipment and raw inventory and to start up a latex glove manufacturing plant.

The Jackson, Mississippi RDA office recommended the project based on a feasibility study, finding that there appeared to be a sufficient market to support the business. On August 17, 1994, the Mississippi state RDA office signed off on the plan, recommending to the acting administrator favorable consideration for the loan guarantee request. Following a review of the loan package by an internal RDA committee in Washington, D.C., the acting administrator of the RDA denied the loan application on August 25, 1994. In a letter to the RDA Mississippi state director, the RDA administrator listed six specific business reasons for the denial.

OIC interviewed persons involved in the loan application review process, each of whom stated that they knew Thomas Espy was the brother of the Secretary. However, each stated that they were not contacted by Secretary Espy regarding the loan applications and that they had not been pressured by anyone within USDA to grant the loan.

b.   Prosecution Decisions

Because Secretary Espy did not intervene in the loan guarantee decision and there was no evidence to suggest that he otherwise attempted to influence the decision, OIC closed this investigation. No criminal charges or referrals resulted from this investigation.

5.   Sun-Land Products' Illegal Campaign Contributions

While investigating Sun-Diamond Growers of California for giving gifts to Secretary Espy and illegal campaign contributions to Henry Espy, OIC uncovered evidence that, beginning in 1990, a wholly-owned Sun-Diamond subsidiary - Sun-Land Products - had also carried out an illegal campaign-contribution scheme. The scheme ultimately proved to be unrelated to Secretary Espy or his brother, and OIC therefore referred it to other federal enforcement agencies.

Sun-Land marketed and sold Sun-Diamond's fruit and nut products in mixtures for use in other products. Sun-Land was managed and controlled by the same persons who managed and controlled Sun-Diamond; the two companies had the same officers and directors. Sun-Land's directors' meetings were held immediately after Sun-Diamond's directors' meetings.

Two directors of Sun-Diamond and Sun-Land, William Hosie and William Cuff, provided OIC with information about Sun-Land's political campaign contributions after receiving grants of immunity. From them, OIC learned that officers of Sun-Land had set up a scheme for making illegal corporate campaign contributions to candidates in state and federal elections, using Sun-Land directors as conduits.

In May 1990, during a board meeting, either Sun-Land senior vice president Richard Douglas or Sun-Land president Larry D. Busboom suggested that Sun-Land could declare a stipend for its directors in the amount of $2,500 and that, with the stipend, it might be a very good idea for the directors to support the candidacy of Pete Wilson for governor of California. It was further suggested that, out of the stipend, $1,000 could be donated by a director and $500 by the director's spouse or other party to Pete Wilson's campaign, while the remaining $1,000 would cover the income-tax liability. The directors were urged to deliver contributions to Douglas's secretary so they could be "bundled" to inform the candidate that all the contributions were coming from people connected to Sun-Diamond and Sun-Land.

The stipends facilitated a prohibited corporate campaign contribution through illegal conduit payments. Board member Hosie stated his belief that the purpose behind the stipend was its use as a political contribution and that if there had not been a gubernatorial campaign in which Sun-Land had an interest, the stipends would not have been discussed. No other stipends were issued for Sun-Land directors, except those discussed in connection with political contributions. Several of the directors recalled discussing the legality of what they were doing with Douglas and with the Sun-Land General Counsel George Petty, who, they claimed, reassured them that it would be legal.

Sun-Land repeatedly engaged in this practice. In 1990, Sun-Land issued the stipend to approximately 18 of its non-management directors, many of whom used the money for political contributions to Pete Wilson's campaign. In 1991, there was no stipend, but in 1992, again at Douglas's suggestion, Sun-Land issued stipends and suggested that the money be used to contribute to the Bush-Quayle '92 Primary Committee, Inc. In 1993, Sun-Land again voted for stipends, and it was suggested that the directors contribute to Campaign America, a fund for Senator Bob Dole's presidential-election effort. The funds were collected shortly before Senator Dole visited Sun-Diamond headquarters in Pleasanton, California. In 1994, Sun-Land issued stipends again and suggested that the funds be contributed to Pete Wilson's campaign for reelection as governor of California.

OIC referred the evidence it acquired relating to Sun-Land Products to the Department of Justice, because it did not appear to fall within the Independent Counsel's jurisdictional mandate. As a result, the Department of Justice filed a criminal information against Sun-Land Products in the Northern District of California, charging two counts of making conduit contributions in the name of another (in violation of 2 U.S.C. §§ 441f and 437g(d)). (See Section III.F.1.)

The Department of Justice also referred the Sun-Land matter to the Federal Election Commission, which brought its own civil action against Sun-Land for the same conduct. (See Section III.F.1.)

H.   Litigation Regarding Privilege Claims Before the Grand Jury

In connection with the proceedings before the grand jury, OIC frequently found itself litigating matters before the district court, particularly moving to compel testimony or production, or opposing motions to quash grand jury subpoenas. A large number of these proceedings concerned objections to OIC's investigation grounded on the Independent Counsel's jurisdiction. The Special Division of the United States Court of Appeals for the District of Columbia Circuit noted in 1996 that OIC's jurisdiction had been tested in district court in 43 motions in the first 15 months after it began grand-jury proceedings. In re Espy, 80 F.3d 501, 507 n.2 (D.C. Cir. 1996). Many additional jurisdictional challenges were brought thereafter; cumulatively these challenges substantially impeded the conclusion of this investigation.

Only three of these grand-jury matters resulted in published court decisions, all concerning the exercise of evidentiary privileges. Two of these were relatively routine resolutions of evidentiary questions. The third, which concerned the White House's exercise of executive privilege in opposition to a document subpoena, raised more substantial issues of law and policy.

1.   AFLAC's Attorney-Client Privilege Claim

During OIC's investigation, the American Family Life Assurance Company of Columbus (AFLAC) asserted the attorney-client privilege and work-product doctrine to shield certain evidence from the grand jury. OIC had determined that AFLAC Vice President Warren Steele had facilitated illegal corporate and conduit contributions to the Henry Espy campaign. (See discussion in Section II.E.3, above.) AFLAC refused to produce two documents subpoenaed by the grand jury: one written by Steele to record a meeting with the company's general counsel and president concerning the campaign contributions, and one written by the general counsel on the subject of the illegal contributions. Noting that the circumstances of the documents' creation suggested efforts to effect the illegal contributions,

OIC argued to the district court that the documents fell within the crime-fraud exception to the attorney-client privilege and that therefore the attorney-client and work-product protections were overcome. ⁽⁷¹⁾ The district court reviewed the documents in camera, found that the crime-fraud exception applied, and held the company in contempt when it refused to produce the documents.

Additionally, AFLAC sought a protective order from the district court to keep Steele from testifying about a meeting he had had with the company's president and general counsel, again claiming attorney-client privilege. OIC again argued that the meeting appeared to facilitate AFLAC's illegal campaign contributions to Henry Espy and that the crime-fraud exception therefore likely overcame the privilege. The district court refused to enter the requested protective order and required Steele to answer questions about the meeting when he appeared in the grand jury.

AFLAC appealed both decisions to the Court of Appeals for the D.C. Circuit. In re Sealed Case, 107 F.3d 46 (D.C. Cir. 1997). Reviewing the documents in camera, the appellate court found that the factual record did not provide adequate support for application of the crime-fraud exception and reversed the orders of the district court.

Following remand, OIC and AFLAC entered into an agreement to resolve the questions surrounding the withheld documents. Pursuant to the agreement, AFLAC allowed OIC to review the two withheld documents for the limited purpose of allowing OIC "to satisfy itself that Mr. Steele's activities were not taken at the direction of, or with the knowledge of, AFLAC or its other officers or directors."

2.   The CBS Journalists' Privilege Claim

On September 25, 1994, the CBS news magazine program "60 Minutes" broadcast a segment entitled "F.O.B.? Billionaire Businessman Don Tyson Explains His Relationship with Bill Clinton." (The acronym F.O.B. stands for "Friends of Bill" and refers to longtime friends and supporters of President Clinton.) The program featured extensive interviews with Don Tyson, the chairman of the board of Tyson Foods, Inc. The broadcast included questioning about the gifts that Tyson Foods had given Espy.

When OIC learned of the "60 Minutes" broadcast, it purchased a tape and transcript of the broadcast from CBS and reviewed them. The interviews presented in the broadcast were edited versions of more extensive interviews. Without a full set of the field tapes that CBS had recorded, OIC was unable to determine whether any of the material recorded was of relevance to the ongoing grand jury investigation.

The Department of Justice has detailed regulations governing compulsory process directed to news-gathering organizations. 28 C.F.R. § 50.10. These regulations require the exploration of alternative sources for the information, negotiation with the affected member of the news media, and express Attorney General approval of the issuance of process. OIC was required by statute to adhere to Justice Department policies when feasible (28 U.S.C. § 594(f)) and did so in this instance.

Seeking an alternative source of the information, OIC learned that Tyson Foods had made its own tapes of some portions of the CBS interviews. OIC obtained these tapes by subpoena, but they only highlighted the need for the CBS tapes, as the Tyson Foods tapes showed that, in some instances, CBS had edited out portions of questions and answers or modified questions included in its broadcast tape. The Tyson Foods tapes, moreover, were incomplete and did not show all the interviews taped by CBS.

OIC attempted to negotiate the production of materials related to the broadcast, but CBS's attorneys insisted that any such negotiations be on the record rather than confidential. OIC found this requirement unacceptable, because it would compromise grand-jury and investigative secrecy, and insisted that negotiations be confidential, a condition that CBS refused to accept. Consequently, OIC found that it had no alternative but to subpoena the testimony and materials from CBS through the persons responsible for the "60 Minutes" broadcast. The Independent Counsel gave formal approval for the issuance of subpoenas. ⁽⁷²⁾ On October 29, 1996, OIC issued grand jury subpoenas for the uncut, unedited tapes of the "60 Minutes" interviews with Don Tyson.

CBS, through the subpoenaed reporters, moved to quash the subpoenas, contending that OIC had failed to comply with Justice Department regulations; that compliance would be "unreasonable or oppressive"; that the subpoenas infringed common law and First Amendment privileges; that the subpoenas exceeded the scope of OIC's authority; and that OIC was improperly using the grand jury to gather evidence to support a pending indictment. The district court rejected each of these arguments and denied the motion to quash.

The district court's decision included a detailed examination of the law concerning subpoenas directed to news gatherers, concluding that journalists, like all citizens, must respond to grand-jury process, unless a subpoena is presented in bad faith or for purposes of harassment. Because the decision could serve as a guide to future litigation in a developing area, OIC asked the district court to publish it in the official reports. The court did ultimately publish the decision as In re Grand Jury 95-1, 59 F.Supp.2d 1 (D.D.C. 1996).

3.   The White House's Executive Privilege Claim

On October 11, 1994, approximately one month after the appointment of the Independent Counsel and one week after Espy's resignation as Secretary of Agriculture, the White House publicly released a report from the White House Counsel to the President concerning Espy. According to the report, White House Counsel had reviewed the allegations raised against Espy to examine whether the President should take any further action with respect to Espy's conduct and what actions should be taken to avoid similar incidents.

The report indicated that White House Counsel had reviewed the following matters:

• Espy's use of a Jeep leased by USDA;
  
  
• Espy's girlfriend Patricia Dempsey's receipt of a scholarship from the Tyson Foundation;
  
  
• Espy's receipt of gifts, including specifically tickets to a National Basketball Association game from the Quaker Oats Company, lodging at the Tyson Management Development Center, a ticket to a Dallas Cowboys football game from John Tyson, and Super Bowl tickets from the Fernbank Museum;
  
  
• Espy's travel to Mississippi at government expense; and
  
  
• Espy's participation in a matter involving Oglethorpe Power at a time when EOP Group, which then employed Espy's girlfriend, represented Oglethorpe.

The White House Counsel's report concluded that in light of Espy's reimbursement of the costs of questionable transactions, his announced intention to resign, and his recusal from meat and poultry issues, no further action by the White House with respect to Espy was warranted.

Matters that the White House had reviewed were identical to some of the concerns of OIC's investigation and, to ensure its efforts were comprehensive, OIC sought the materials underlying the White House report. Consequently, on October 14, 1994, the grand jury issued a subpoena to the White House Counsel, asking for all documents relating to the White House Counsel review that led to the October 11 report.

On October 19, 1994, the White House issued a press release disclosing that it had received the subpoena and representing that "[t]he White House will comply." White House Counsel initially informed OIC verbally that it would not furnish any drafts of its report but that it would otherwise respond to the balance of the calls of the subpoena. By letter dated November 4, 1994, the White House Counsel withdrew this representation and stated that it would "provide all documents that are responsive to the subpoena, with the exception of those documents that fall within the traditional work product privilege."

On November 17, 1994, the White House responded to the subpoena by producing some responsive documents, and by representing that it had withheld from production an undisclosed number of other documents

that, in the litigation context, fall within the scope of the traditional work product doctrine and[,] in the Executive Branch context, fall more appropriately in the closely related deliberative process privilege.

OIC responded by disputing the applicability of the claimed privileges and requesting a privilege log.

On December 12, 1994, the White House produced to OIC a privilege log for the withheld documents. The log listed 85 total documents, including copies, representing a total of 67 unique documents withheld. The White House claimed a deliberative-process privilege for 66 of the 67 unique documents and protection under the attorney work-product doctrine for the remaining one.

On June 7, 1995, following several months of unsuccessful negotiations seeking White House compliance with the grand jury subpoenas, OIC filed a motion in the District Court to compel the White House to produce the withheld documents to the grand jury. The district court ordered the White House to produce the documents to the court for in camera inspection, and the White House complied. On September 30, 1996, 15 months after the motion was filed, the court issued an order upholding the claim of privilege on all documents, without stating its reasons for doing so.

OIC appealed the district court's decision to the United States Court of Appeals for the D.C. Circuit. Following briefing and oral argument, the appellate court issued its decision in June of 1997. In re Sealed Case, 121 F.3d 729 (D.C. Cir. 1997).

The appellate-court decision presents a detailed analysis of the presidential-communication privilege. It establishes the following legal principles with regard to the claimed privilege:

• The privilege applies not only to communications directly to and from the President but also to communications that presidential advisers and their staff author and receive in the course of performing their function of advising the President on official governmental matters.
  
  
• The presidential-communications privilege is qualified; to overcome the privilege, the party seeking production must demonstrate a specific need for the subpoenaed documents.
  
  
• To make the required showing of need, the subpoenaing party must demonstrate that each discrete group of the subpoenaed materials likely contains important evidence, and that this evidence is not available with due diligence elsewhere.

Applying these tests, the U.S. Court of Appeals found that the subpoenaed documents were protected by the qualified presidential-communication privilege. It held that the White House had not waived the privilege through its initial representations that it would comply with the subpoena. Given that the privilege applied, the court concluded that OIC was required to make a further showing of need to overcome the privilege with respect to documents generally relating to the allegations against Espy reviewed by the White House. It also held that OIC had already made a sufficient showing of need with regard to any documents containing statements made by Espy or his attorney to the White House. It vacated the district court's decision and remanded the case to the district court for further proceedings.

Following remand to the district court, the White House continued to oppose production of the documents. It next argued that, because former Secretary Espy had been indicted, OIC's investigation had concluded so it no longer needed the documents. The district court rejected this argument and determined the contents of the documents to which OIC was entitled. The White House then opposed production on the ground that, because the district court presiding over the Espy trial had dismissed the count charging Espy with making false statements to the White House, the documents at issue, which contained statements by Espy to the White House, could not advance OIC's investigation. The court again rejected the White House's argument, and on February 17, 1998 ordered the White House to produce the redacted documents to OIC. On March 25, 1998 - more than 41 months after the White House received the grand jury's subpoena - the White House produced most, but not all, of the documents ordered by the court.

III.   PROSECUTIONS, CIVIL ACTIONS, AND REFERRALS

The facts uncovered in the investigations discussed above led OIC to institute numerous criminal prosecutions and two civil actions. Where the criminal acts uncovered did not relate to the Independent Counsel's jurisdictional mandate, OIC referred them to the appropriate federal enforcement agency.

A.   The Indictment Process

All prosecuting authorities that develop evidence of criminal offenses must exercise discretion in deciding what conduct to prosecute. Critics of the independent-counsel statute frequently charged that it created an ad hoc office that did not exercise prosecutorial discretion in the same manner and to the same extent as a continuing agency with general authority, such as the Department of Justice (DOJ). Mindful of this concern, OIC instituted procedures for reviewing all indictment decisions using DOJ's standard practices, directly involving the career prosecutors on OIC's staff and career prosecutors and former prosecutors outside the office who served in an advisory capacity.

The Independent Counsel was required by statute to comply with DOJ policies, except where doing so would be inconsistent with the purposes of the independent-counsel statute. 28 U.S.C. § 594(f)(1). To this end, OIC routinely consulted and followed the Justice Department's United States Attorneys Manual (USAM) and the Attorney General's published regulations. In both the investigative and prosecutive phases of its work, OIC also frequently consulted with career prosecutors who had relevant DOJ expertise.

In determining whether to present matters to the grand jury for indictment, OIC addressed the seven factors that the USAM identifies (at section 9-27.230) as relevant in determining whether prosecution should be declined because no substantial federal interest would be served by prosecution. These factors are: (1) federal law-enforcement priorities; (2) the nature and seriousness of the offense; (3) the deterrent effect of prosecution; (4) the person's culpability in connection with the offense; (5) the person's history with respect to criminal activity; (6) the person's willingness to cooperate in the investigation or prosecution of others; and (7) the probable sentence or other consequences if the person is convicted. The USAM also notes that the personal circumstances of an accused person might be relevant to the decision to indict.

OIC followed the USAM criteria both in letter and spirit. In particular, it considered the following factors before seeking an indictment from the grand jury:

1. Was the matter within the four corners of OIC's jurisdictional mandate, as amplified by the various "related matters" referred by DOJ and the Special Division of the United States Court of Appeals for the District of Columbia Circuit? If the matter did not fall within OIC's jurisdictional mandate but it appeared a federal offense had, in fact, been committed, OIC referred the matter to DOJ, to the United States Attorney in whose district it fell, or to the appropriate federal agency.
   
   
2. Did the admissible evidence obtained in the investigation clearly establish the commission of a federal criminal offense? This standard is more stringent than the one stated in the USAM, which authorizes a prosecution for which the government attorney "has probable cause to believe that a person has committed a federal offense." USAM 9-27.200 (Emphasis added.)
   
   
3. Was there a substantial probability that the defendant would be convicted by an impartial jury on the basis of the admissible evidence OIC possessed? This standard is more stringent than the one stated in the USAM, which is that the government may recommend prosecution if "the person's conduct constitutes a federal offense and the admissible evidence will probably be sufficient to obtain and sustain a conviction." USAM 9-28.220.
   
   
4. Was a substantial federal interest served by the prosecution?

Independent counsel investigations focus on the investigation and prosecution of a public official. Opponents of independent counsel investigations - usually the lawyers for the persons whose conduct is under investigation - invariably want to paint the investigations as politically motivated. However, even if such efforts secure the desired effect of increasing public distaste for the investigation, it is a tenet of DOJ's policy that:

The potential that - despite the law and the facts that create a sound, prosecutable case - the fact finder is likely to acquit the defendant because of the unpopularity of some factor involved in the prosecution or because of the overwhelming popularity of the defendant or his/her cause, is not a factor prohibiting prosecution. For example, in a civil rights case or a case involving an extremely popular political figure, it might be clear that the evidence of guilt - viewed objectively by an unbiased fact finder - would be sufficient to obtain and sustain a conviction, yet the prosecutor might reasonably doubt whether the jury would convict. In such a case, despite his/her negative assessment of the likelihood of a guilty verdict (based on factors extraneous to an objective view of the law and the facts), the prosecutor may properly conclude that it is necessary and desirable to commence or recommend prosecution and allow the criminal process to operate in accordance with its principles.

USAM at 9-27.220 Comment.

Throughout its efforts, OIC was acutely aware of the requirement that a proposed defendant's race, religion, sex, national origin, political association, activities, and beliefs may not be considered in the investigation, indictment, or other decision-making processes. (USAM 9-27.260) OIC conscientiously and scrupulously followed this directive. A principal goal of the Independent Counsel, impressed upon all members of the OIC team, was that all proceedings must be race neutral both in fact and in appearance.

This consideration was of primary importance in an investigation in which the named target was one of the highest-ranking African-American officials in the United States government. By its very nature, an independent counsel investigation singles out the subject government official for scrutiny outside the normal processes of government. Espy was, in the late 1990s, one of seven officials (including the President) with regard to whom an independent counsel had been appointed. By written directive, from the outset of the investigation, OIC investigators were instructed to be sensitive to the possibility that some witnesses might harbor biases against Espy.

OIC was fortunate in being able to attract a diverse staff, including experienced career prosecutors and other personnel, across the racial spectrum, who were both able to and encouraged to lend their insight into all aspects of the investigation, including the directive on race neutrality. In fact, the prosecutors and personnel of this office openly considered and debated race as an influence in its prosecutorial decisions. The presence of a diverse staff allowed this office to proceed with confidence that it complied with the USAM directive. Further, OIC also considered carefully the validity of the allegations of defense counsel that arose from time to time concerning racial bias, and in every case found the allegations to be groundless. OIC's decisions were scrupulously reviewed, vetted, and cleared for allegations of race-based charges and other potentially improper charging decisions.

In making its prosecution decisions, on race-neutrality, venue determinations, propriety of charges, and other prosecutorial issues, OIC developed a procedure for vetting proposed indictments before experienced panels of present or former prosecutors to supplement the knowledge and experience of its full-time personnel. These included current and former public-corruption prosecutors from outside the office, who voluntarily gave their time to review investigative reports, evidence, and proposed indictments, and to participate in pre-indictment conferences. ⁽⁷³⁾ These prosecutors were chosen for the vetting sessions based on their experience, reputations for thoroughness and professionalism, and candor.

At these conferences, the attorney in charge of the investigative matter and case agents who conducted the investigation presented the evidence accumulated, the proposed indictment, and an explanation of how and why the available admissible evidence supported each of the elements of the proposed offenses. The attorneys in attendance commented on, tested, and challenged the assertions of the presenters. Moreover, investigative efforts and evidence were viewed in the light of DOJ policies and procedures. At least two such pre-indictment conferences usually preceded each indictment. By this process, OIC sought to ensure that the prosecutions brought met the same criteria and standards as comparable prosecutions brought by the Public Integrity Section of DOJ or a United States Attorney's office.

In the highest-profile prosecution this office brought, that of Secretary Espy, the defendant was ultimately acquitted on all counts. This inevitably led to public criticism of the decision to indict but, in this Office's view, that decision in retrospect remains sound - the indictment clearly met all of the Office's stringent requirements for bringing a charge before the grand jury. The matters charged were squarely within OIC's jurisdictional mandate; the admissible evidence clearly established, in the view of OIC and of its advisory group, the commission of a federal offense; there was a substantial probability that the Espy would be convicted by an impartial jury; and the prosecution served a substantial federal interest. On the other hand, the potential that the factfinder might acquit because of the unpopularity of some factor involved in the prosecution (disfavor of independent counsel prosecutions in some quarters) or the popularity of the defendant was not weighed as a factor against prosecution of what was an otherwise sound case. USAM at 9-27.220(B).

Not all of this office's prosecutions resulted in conviction. However, in all instances the decision whether to prosecute was undertaken carefully, with due consideration of the federal law enforcement interests to be served.

B.   Prosecutions Regarding Gifts to Secretary Espy

1.   The Tyson Foods Cases

Tyson Foods, Inc. and its employees and agents were implicated in the OIC prosecutions United States v. Tyson Foods, Inc. (District of Columbia) and United States v. Jack L. Williams and Archibald R. Schaffer, III (District of Columbia). Charges related to Tyson Foods also arose in United States v. Alphonso Michael Espy (District of Columbia).

a.   United States v. Tyson Foods, Inc.

Tyson Foods pleaded guilty in December 1997 to giving Secretary Espy more than $12,000 in gratuities. It agreed to pay a substantial fine and to reimburse OIC for investigative costs. Pursuant to the plea agreement, Tyson Foods entered into a detailed compliance agreement.

(1)   The Charges

A one-count information, filed December 22, 1997, charged Tyson Foods with giving illegal gratuities to Espy for or because of official acts performed or to be performed by Espy, in violation of 18 U.S.C. § 201(c)(1)(A). The information alleged that Tyson Foods had interests, issues, questions and matters pending before USDA, including, among others, the safe-handling emergency interim final rule. It identified the following "things of value" that Tyson Foods gave to Espy: (1) four tickets to a January 18, 1993 Presidential Inaugural Dinner, valued at $6,000; (2) round-trip air transportation for Espy's girlfriend and one-way air transportation for Espy on a Tyson Foods jet, and meals, lodging, and entertainment at the musical celebration at the Tyson Management Development Center in Russellville, Arkansas, valued at $2,556; (3) a Tyson Foundation scholarship check for Espy's girlfriend in the amount of $1,200 for the first semester of an eight-semester college program; and (4) airline tickets for Espy's girlfriend, and skybox tickets, food and limousines for Espy and his girlfriend to attend the January 1994 Dallas Cowboys-Green Bay Packers playoff football game, valued at $2,271.

(2)   The Plea Agreement

At its arraignment on December 22, 1997, Tyson Foods pleaded guilty to the one-count information. The company agreed to pay a fine of $4,000,000, to pay $2,000,000 toward the costs of OIC's criminal investigation, and to pay a special assessment of $250. Tyson Foods also agreed to enter into a compliance agreement with OIC, USDA, and the Defense Logistics Agency (DLA) to address administrative matters relating to Tyson Foods' relationships with USDA and DLA. (DLA, which purchases food and other items for the military, was a customer of Tyson Foods.) The compliance agreement also obligated Tyson Foods to cooperate fully with OIC's ongoing investigations and prosecutions of Espy and of Tyson Foods' agents Jack Williams and Archibald Schaffer. Other terms of the plea agreement were: (1) that Tyson Foods, including its officers, employees and agents, would not make any press or other statements that Tyson Foods was innocent of the charges to which it pleaded guilty; (2) that Tyson Foods would not seek direct or indirect reimbursement from the government for legal or related expenses incurred in connection with the OIC investigation and prosecutions; and (3) that Tyson Foods would file with the district court a board of directors' resolution authorizing execution of the plea agreement.

OIC, in turn, agreed to close its ongoing investigation of Tyson Foods, and certain of its directors, officers, employees, and agents identified in a sealed letter filed with the court. OIC also agreed not to make any press statement that Tyson Foods committed crimes other than those set forth in the information. OIC reserved the right to explain fully the charging document, plea agreement, and compliance agreement and to make statements of public policy related to the plea as necessary and appropriate. Tyson Foods' compliance with all the terms and conditions of the plea agreement constituted the consideration for the closing of the investigation of Tyson Foods and related parties and for the decision not to bring additional prosecutions not otherwise excepted by the plea agreement.

(3)   The Sentence

On January 12, 1998, the trial court sentenced Tyson Foods to: (1) pay $6 million to the United States Treasury, consisting of $4 million in criminal fines and $2 million toward OIC's cost of investigation; (2) adhere to a comprehensive corporate-compliance agreement; (3) fully cooperate with OIC's ongoing investigations and prosecutions; and (4) serve four years' probation. The trial court rejected the December 29, 1997 plea agreement insofar as it did not include a term of probation but accepted a revised plea agreement with a four-year probationary term and judicial supervision over implementation of the corporate-compliance agreement. The trial court also required the corporation, through its chairman Don Tyson, to enter a new guilty plea to the information.

As part of the plea agreement, Tyson Foods entered into a comprehensive corporate-compliance agreement with OIC, USDA and DLA. Generally, the compliance agreement obligated Tyson Foods to strengthen its auditing of corporate conduct and to implement a multi-part, internal education program on legal and ethical behavior.

USDA assumed lead agency responsibility for monitoring Tyson Foods' implementation and discharge of the terms of the compliance agreement. USDA's assistant deputy administrator of Food Safety and Inspection Service (Field Operations, District Enforcement Operations) chairs the government's monitoring committee, which includes representatives of other USDA agencies, OIC and DLA. The monitoring committee took an active role in the approval of Tyson Foods' ethics compliance officer and continues to meet with Tyson Foods' officials to measure the company's adherence to the substance and spirit of the agreement.

Although USDA found cause to debar Tyson Foods from its procurement and non-procurement programs, it elected not to do so. USDA determined that the terms and conditions of the compliance agreement provided adequate assurance that Tyson Foods' future dealings with the federal government would be conducted with the high integrity the government expects of its business partners. ⁽⁷⁴⁾ USDA further decided not to suspend, debar, or withdraw inspection from Tyson Foods based upon the events forming the basis for the criminal information, provided that Tyson Foods continued to comply with the terms of the agreement.

b.   United States v. Jack L. Williams and Archibald R. Schaffer, III

OIC's investigation led to the conviction of two agents of Tyson Foods - Jack L. Williams, for making false statements to federal agents, and Archibald R. Schaffer III, for providing Espy a thing of value with the intent to influence him in the performance of his official duties. OIC obtained convictions against Williams, Tyson Foods' Washington lobbyist, for making false statements regarding gratuities to the Secretary, but the trial court granted him a new trial on the ground that the background of a prosecution witness had not been adequately disclosed. United States v. Williams, 1997 WL 335794 (D.D.C. 1997). A superseding indictment then named Schaffer, Tyson Foods' director of Media, Public and Governmental Affairs, as a co-defendant, and both were tried and convicted.

(1)   The Charges - The First Indictment

The original indictment, entered September 17, 1996, stated two counts, against Williams only. The first count alleged that he had made false statements in violation of 18 U.S.C. § 1001 to agents of the USDA's Inspector General in an interview conducted on March 22, 1994 at Williams's home in Washington, D.C., in which he stated that he only knew of Espy's attendance at the January 16, 1994 Dallas Cowboys-Green Bay Packers playoff football game through rumor and news reports. The second count alleged that he made false statements to FBI agents in violation of 18 U.S.C. § 1001 during an interview conducted on June 9, 1994 at his home in Washington, D.C., in which he stated that he did not remember talking to Patricia Dempsey, Espy's girlfriend, on the telephone at any time and certainly not to make travel or other arrangements for her or Espy on behalf of Tyson Foods; that he did not have Dempsey's telephone number; that he did not know where she worked; and that he did not have any prior knowledge of the Secretary's social or travel plans, including Espy's attendance at the January 1994 Dallas-Green Bay playoff game.

(2)   The First Trial

At trial, OIC contended the evidence showed that Williams made oral false statements to government agents on two occasions. The defense's position was that the agents who conducted the two interviews were not trustworthy witnesses in that the exact questions asked were not written down and Williams's responses were not written down verbatim. Williams did not testify at the trial.

On March 21, 1997, the jury returned a verdict of guilty on both counts.

(3)   The Order Granting a New Trial

In the course of Williams's trial, OIC had presented an FBI agent as an expert witness on the subject of the materiality of Williams's false statements to the FBI (Count 2). After the agent had testified, OIC for the first time became aware of a letter of censure in the agent's personnel file. The OIC was unaware of the letter and the agent had not recalled the letter because it had been issued over ten years earlier. OIC immediately disclosed information regarding the letter in chambers to the trial judge and to defense counsel. The disclosure came after the examination of the agent and immediately prior to the commencement of closing arguments. Defense counsel argued that the case should continue with closing arguments and then be sent to the jury, and the court concurred.

On May 20, 1997, the defense filed a motion for new trial based on OIC's post-testimony disclosures relating to the agent. The defense argued that had it been aware that the credibility of OIC's "materiality" witness had previously been questioned, it would have had the opportunity to impeach the witness effectively on cross examination. The defense further contended that a new trial was warranted in that the timing of events called the jury's ultimate verdict into question. OIC opposed the motion, arguing that the newly discovered evidence was not material to the outcome of the trial, and further arguing that, if it were, it related only to Williams's conviction on Count 2 (lying to the FBI) and not Count 1 (lying to the Inspector General). The FBI agent whose credibility the defendant had questioned had offered no testimony at all on Count 1.

Notwithstanding a lack of any relationship between the FBI agent's testimony and Count 1, the court granted Williams's motion for new trial. In so ruling, the court found no wrongdoing by government counsel. ⁽⁷⁵⁾ To avoid the delay that would have resulted from an appeal, OIC elected to retry Williams rather than seek review of the new trial order.

(4)   The Charges - The Superseding Indictments

Following the order granting Williams a new trial, OIC obtained two successive superseding indictments. ⁽⁷⁶⁾ The second, issued January 15, 1998, added a new defendant, Tyson's government affairs director Archibald R. Schaffer III.

Count 1 of the second superseding indictment charged both defendants with conspiring with Tyson Foods, Don Tyson, John Tyson, the Tyson Foundation, and others to defraud the United States of the honest services of former Secretary of Agriculture Espy by giving him things of value and concealing these activities in violation of 18 U.S.C. § 371. Counts 2 through 6 charged Schaffer and Williams with various acts of mail and wire fraud in violation of 18 U.S.C. §§ 1341, 1343, and 1346, in arranging for Espy to come to the birthday party in Russellville, Arkansas given by Don Tyson and in arranging a scholarship for Espy's girlfriend. Counts 7 through 9 charged Schaffer and Williams with violations of the Meat Inspection Act, 21 U.S.C. § 622, in hosting Espy at the Russellville birthday party and at the Dallas Cowboy football game and also in hosting Espy's acting assistant secretary at a college basketball game and giving her an airline-seat upgrade. For the same acts and for providing Espy four seats at a 1993 presidential inaugural dinner, ⁽⁷⁷⁾ counts 10 through 13 charged Schaffer and Williams with providing gratuities to public officials in violation of 18 U.S.C. § 201(c)(1)(A). Counts 14 and 15 charged Williams with false statements regarding these activities in violation of 18 U.S.C. § 1001.

On defendants' pre-trial motions, the trial court dismissed counts 9 and 13, concerning the basketball game and flight upgrade given to the acting assistant secretary, for lack of venue in the District of Columbia. United States v. Williams, 7 F.Supp.2d 40 (D.D.C. 1998). At the same time, it rejected numerous other motions attacking the indictment. Id.

(5)   The Second Trial

The second trial, with both Williams and Schaffer as defendants, commenced on June 15, 1998.

OIC argued that Williams and Schaffer facilitated Tyson Foods' giving these gifts to Espy and his girlfriend with the intent to influence official action at USDA, and that Williams lied about his role in this conduct when questioned by federal agents.

Williams argued that he was only doing his job and did not directly give any gifts to Espy. With respect to the scholarship, he argued that he was merely an "electronic courier" who faxed materials between Dempsey and the Tyson Foundation, and that he had no real role in offering or giving the scholarship to Dempsey. As to the Dallas trip, Williams argued that he purchased the ticket for Dempsey at Don Tyson's request, not knowing the purpose for the trip and not knowing that it was a gift to Espy. He also argued that he did not make false statements, asserting that the agents got his statements wrong and that no one knew what questions he was actually asked.

Schaffer argued that he was only doing his job for Don and John Tyson and that he had no intent to "buy" Espy. He asserted that, if Don Tyson had given gifts to Espy, he had done so because he liked to be around celebrities and liked Dempsey, not because the zero-tolerance and safe-handling labels issues were pending before USDA. Schaffer also argued that the matters pending were of limited importance to Tyson Foods, because the proposed rule changes would not have cost the company as much as OIC alleged and because the company would have passed the cost on to consumers. Neither Williams nor Schaffer testified at trial.

The court dismissed the conspiracy and fraud counts (counts 1 through 6) at trial on defendants' motions for a judgment of acquittal. The jury returned guilty verdicts against Williams on both false-statement counts and not guilty verdicts in his favor on both gratuities counts. The jury returned guilty verdicts against Schaffer on the Meat Inspection Act count concerning the Russellville birthday party and the gratuities count concerning the inaugural-dinner tickets. It returned a not-guilty verdict in favor of Schaffer on the gratuities count concerning the Russellville birthday party.

(6)   Post-trial Motions

Following trial, Schaffer moved for a judgment of acquittal or, in the alternative, for a new trial on the two counts on which he was convicted, arguing that OIC had not shown a sufficient nexus between the gratuities given and the official acts for which they were given to satisfy either the gratuities statute or the Meat Inspection Act. The trial court granted him a judgment of acquittal on both counts and conditionally denied the new-trial motion. United States v. Williams, 29 F.Supp.2d 1 (D.D.C. 1998). Williams also moved for judgment of acquittal or new trial; the trial court denied these motions. Id.

(7)   The Williams Sentence

On November 2, 1998, the court sentenced Williams to pay a fine of $2,500 and a special assessment of $50 for each of the two counts on which he was convicted. It did not impose imprisonment or a term of probation.

Williams noticed an appeal of his convictions but dismissed the appeal before briefing and his conviction became final.

On January 20, 2001, as one of his last official acts in office, President Clinton granted a pardon to Jack Williams.

(8)   The Schaffer Appeals

OIC appealed Schaffer's judgment of acquittal. Schaffer took a protective cross-appeal ⁽⁷⁸⁾ of the trial court's failure to grant him a new trial. The appellate

decision is reported at 183 F.3d 833 (D.C. Cir. 1999). The Court of Appeals affirmed the judgment of acquittal on the gratuities statute, holding that the evidence was insufficient to establish beyond a reasonable doubt the nexus between the gift of inaugural-dinner tickets and the matters Schaffer allegedly sought to influence. The Court of Appeals requested supplemental briefing on whether the interpretation of the gratuities statute, 18 U.S.C. § 201(c), in United States v. Sun-Diamond Growers of California, 526 U.S. 398 (1999), applied to the Meat Inspection Act ⁽⁷⁹⁾. It then found that the Meat Inspection Act carries a less stringent nexus requirement than the gratuities statute and that, in any event, the evidence was sufficient to establish the requisite nexus between the gift of the Russellville party and the official acts even under the gratuities statute test. Consequently, the court reversed the judgment of acquittal on the Meat Inspection Act count, reinstating the conviction on this count. The Court of Appeals also affirmed the denial of Schaffer's new-trial motion.

(9)   Schaffer's New-Trial Motions Following the Espy Trial

On October 13, 1999, following the Court of Appeals' decision reversing the judgment of acquittal on the Meat Inspection Act count, Schaffer filed a third new-trial motion, purportedly on the ground of newly discovered evidence. In this motion, Schaffer argued that Espy had been unavailable as a witness at Schaffer's trial, because Espy would have claimed a Fifth Amendment privilege against testifying, given his own pending trial. Schaffer asserted that Espy's testimony would probably have resulted in an acquittal, because it would have undermined OIC's proof of criminal intent. Now that Espy had become available as a witness because of his acquittal, Schaffer asserted that he was entitled to a new trial so that he could present this "newly available" evidence.

OIC opposed the motion on the grounds that it was untimely and therefore outside the court's jurisdiction; that Schaffer had not been sufficiently diligent in

bringing the matter before the court; and that the "newly discovered" evidence proffered would not probably result in an acquittal. The district court nevertheless ordered an evidentiary hearing for the defense to present Espy's testimony. OIC sought a writ of mandamus and a stay from the Court of Appeals to prevent the district court from proceeding on the ground that it was without jurisdiction to act on Schaffer's untimely motion, and requested reassignment of the case to a different district court judge. The Court of Appeals denied mandamus and denied the requested reassignment.

Following the evidentiary hearing, the district court granted Schaffer a new trial on the ground of newly discovered evidence. United States v. Schaffer, 83 F.Supp.2d 52 (D.D.C. 1999). OIC appealed and the D.C. Circuit reversed and again reinstated the jury's verdict. United States v. Schaffer, 214 F.3d 1359 (D.C. Cir. 2000). The Court of Appeals held that Schaffer was not diligent in his efforts to procure this evidence before his trial and that the evidence would not likely produce an acquittal upon retrial. The Court declined to reach the question of whether Schaffer's motion was based on "newly discovered evidence" so as to be timely. On November 22, 2000, the Court granted Schaffer's petition for rehearing en banc and vacated the panel decision.

On December 22, 2000, President Clinton granted Schaffer a presidential pardon, ending the prosecution.

(10)   The Schaffer Sentence

Prior to the Court of Appeals' en banc decision to grant rehearing, the case was remanded to the district court for sentencing. The U.S. Probation Office calculated that under the U.S. Sentencing Guidelines, Schaffer should be sentenced to 33 to 36 months' imprisonment for his conviction under the Meat Inspection Act. This conclusion included an upward adjustment for obstruction of justice. OIC agreed with this calculation but asked that an additional two-level upward adjustment should be applied for Schaffer's leadership role in the offense, making the appropriate sentence 36 months' imprisonment.

Schaffer advanced several arguments against the Probation Office's calculation. Schaffer contended that a correct calculation would result in a sentencing range of 0 to 6 months' imprisonment. He also asserted that he should be sentenced to probation only, notwithstanding the Meat Inspection Act's express requirement that anyone convicted under that statute "shall be punished . . . by imprisonment not less than one year."

On September 25, 2000, the district court adopted most of Schaffer's arguments and sentenced him to imprisonment of 12 months and one day. In so doing, the court rejected the Sentencing Commission's determination that Meat Inspection Act violations should be sentenced under the bribery and extortion guideline, holding that Schaffer's case was not one of bribery or extortion but was more akin to a gratuity and should be sentenced under the gratuity guideline. The court further rejected OIC's argument for a "leadership role" upward adjustment, applied a "minor role" downward adjustment, and rejected the Probation Office's determination that an obstruction of justice upward enhancement was warranted.

The court also stated that it wanted to grant a downward departure from the guidelines because Schaffer's conduct did not fall within the "heartland" of the gratuity guideline. (The sentencing guidelines are designed to apply to typical cases (the "heartland"), and district courts may depart from the guidelines if factors exist that make the case atypical.) Specifically, the court asserted its belief that Schaffer received no personal gain from his offense, that Schaffer had an extraordinary record of community service, and that these findings made Schaffer's conduct atypical. The court ruled, however, that such a departure (which would result in a final sentencing range of 0 to 6 months' imprisonment) was precluded by the Meat Inspection Act's statutory minimum of one year imprisonment. Consequently, the court imposed a one-year sentence, the statutory minimum under the Act.

Both Schaffer and OIC appealed the sentence. President Clinton's pardon, issued December 22, 2000, has mooted these appeals.

2.   The Sun-Diamond Cases

Sun-Diamond Growers of California interests, employees or agents were implicated in the OIC prosecutions United States v. Sun-Diamond Growers of California (District of Columbia), United States v. James H. Lake (District of Columbia) and United States v. Richard Douglas (Northern District of California). Charges related to Sun-Diamond also arose in United States v. Alphonso Michael Espy (District of Columbia), as well as in the referred matters United States v. Sun-Land Products (Northern District of California) and In the Matter of Sun-Land Products (Federal Election Commission).

a.   United States v. Sun-Diamond Growers of California

The most notable outcome of the Sun-Diamond gratuities prosecution is that it resulted in a Supreme Court decision defining the scope of the gratuities statute, 18 U.S.C. § 201(c). United States v. Sun-Diamond Growers of California, 526 U.S. 398 (1999). (See discussion of Sun-Diamond decision at Section IV.A.)

(1)   The Charges

On June 13, 1996, a grand jury in Washington, D.C. indicted Sun-Diamond on nine counts. The first two concerned gratuities offenses in violation of 18 U.S.C. § 201(c)(1)(A) - the first charges in over 100 years for gratuities given to a sitting member of the Cabinet. The remainder concerned campaign-contribution offenses related to the Henry Espy congressional campaign.

The first gratuities count (count 1) charged that Sun-Diamond, through Senior Vice President Richard Douglas, gave illegal gratuities to Espy - specifically, a $2,427 set of luggage, several meals and entertainment during the period January 1993 through March 1994, and a weekend at the U.S. Tennis Open tennis tournament in New York City in September 1993 - for or because of official acts. Sun-Diamond spent approximately $14,000 on these gratuities.

The second gratuities count (count 2) charged that Sun-Diamond, through Douglas, secured and advanced money for Espy's girlfriend, so she could be with the Secretary during an official trip to Greece in May 1993. Specifically, Douglas arranged for Espy to speak at the International Nut Council (INC) Conference in Athens; a Sun-Diamond constituent cooperative, Diamond Walnut Growers, was an INC member. Douglas then advanced $3,100 in cash to Espy's girlfriend, Patricia Dempsey, so that she could buy an airline ticket to accompany Espy while he was in Greece. By prearrangement, INC later reimbursed Douglas for the money he gave Dempsey.

The gratuities statute (18 U.S.C. § 201(c)(1)(A)) prohibits giving gratuities to an official of the federal government, such as Secretary Espy, "for or because of an official act performed or to be performed." The statute defines "official act" as "any decision or action on any question, matter, cause, suit, proceeding or controversy, which may at any time be pending, or which may by law be brought before any public official, in such official's official capacity, or in such official's place of trust or profit." 18 U.S.C. § 201(a). The indictment identified two pending matters upon which Espy acted that were of interest to Sun-Diamond at the time it gave the gratuities. These were the USDA's Market Promotion Program, which gave grants that benefitted Sun-Diamond member cooperatives, and the Environmental Protection Agency's pending restrictions on the use of methyl bromide, a pesticide important in the products marketed by Sun-Diamond's member cooperatives.

The Sun-Diamond indictment also contained seven charges related to the Henry Espy congressional campaign. Counts 3 and 4 charged the company with wire fraud related to $4,000 in illegal contributions orchestrated by Douglas in violation of 18 U.S.C. §§ 1343 and 1346. Count 5 charged the company with an illegal corporate campaign contribution in violation of 18 U.S.C. §§441b(a) and 437g(d)(1)(A). Counts 6 to 9 charged the company with illegal conduit campaign contributions in violation of §§441f and 437g(d)(1)(A).

Before trial, the court denied Sun-Diamond's motion to dismiss all of the counts of the indictment. United States v. Sun-Diamond Growers of California, 941 F.Supp. 1262 (D.D.C. 1996).

(2)   The Trial

At trial, OIC contended that the gifts given to Espy were illegal gratuities given for or because of official acts that the Secretary could perform in his position as head of USDA. The defense maintained that Sun-Diamond, as a corporation, was not responsible for Douglas's actions because it was not aware of all the gratuities Douglas gave. The defense also contended that Sun-Diamond did not intend to violate the law; rather, it gave the gifts because it wanted to facilitate Douglas's ability to obtain information from and maintain his relations with USDA, and because Douglas and Espy were friends - not for or because of any official acts by Espy.

In connection with the trip to Greece, OIC sought to prove that Douglas arranged for the airfare payment for Dempsey on behalf of Sun-Diamond because Sun-Diamond's member cooperative Diamond Walnut belonged to the INC, and because Sun-Diamond and Diamond Walnut benefitted by having Espy attend and speak at the council's meeting in Athens. The defense sought to show that Sun-Diamond did not pay for Dempsey's airfare and had no knowledge of Douglas's actions.

With respect to the campaign-contribution counts, OIC sought to prove that Douglas, acting on behalf of Sun-Diamond, and James H. Lake agreed to defraud Lake's firm Robinson Lake Sawyer Miller (Robinson Lake) and its parent company Bozell Worldwide, Inc. of Lake's honest services and of the funds used to reimburse the conduit campaign contributions. (Robinson Lake was Sun-Diamond's principal lobbying firm in Washington.) OIC further sought to prove that the campaign contributions were made in violation of the Federal Election Campaign Act. The defense's position was that the campaign-contribution offenses were a scheme by Lake alone, that Sun-Diamond had nothing to do with it, and that Sun-Diamond was a victim in that it was defrauded of $5,000.

With respect to the gratuities counts, the jury convicted Sun-Diamond on count 1 ($14,000 in gratuities to Espy) and acquitted on count 2 ($3,100 in cash to Dempsey). The jury returned a guilty verdict on each of the campaign-contribution counts, numbers 3 through 9.

Following trial, the court denied Sun-Diamond's motion to dismiss the campaign-offenses counts as inapplicable to its actions and unconstitutional. United States v. Sun-Diamond Growers of California, 941 F.Supp. 1277 (D.D.C. 1996). It also denied Sun-Diamond post-judgment motion for acquittal on the campaign counts. United States v. Sun-Diamond Growers of California, 964 F.Supp. 486 (D.D.C. 1997).

(3)   Sentencing

For all counts, the trial court imposed a fine of $1,500,000 and a special assessment of $1,225. The fine reflected a two-level upward departure from the sentencing guidelines on the basis of Espy's Cabinet-level status. The court also sentenced Sun-Diamond to five years' probation on each count, concurrent with probation imposed for other counts. A special condition of the probation was that Sun-Diamond and its member cooperatives provide quarterly submissions reporting their expenditures related to federal employees, officeholders and office seekers.

(4)   The Appeal

The Court of Appeals for the D.C. Circuit reversed the gratuities conviction, affirmed the campaign-contribution convictions, and remanded for resentencing. United States v. Sun-Diamond Growers of California, 138 F.3d 961 (D.C. Cir. 1998). With regard to the gratuities conviction, the Court of Appeals noted the somewhat inconsistent circuit court interpretations of the gratuities statute and concluded that the jury instructions on the gratuities counts had invited the jury to convict on less evidence than the statute demands. Id. at 968. Specifically, it held that the jury instructions did not require the jury to find that Sun-Diamond gave the gratuities to Secretary Espy for or because of official acts and instead permitted the jury to convict for gifts "driven simply by Espy's official position." Id. While it acknowledged that "the difference might not seem great," the court nevertheless held that the statute requires the government to prove more than the jury instructions required. Id. The court determined that the error was not harmless and reversed the gratuities conviction. Id.

Sun-Diamond also appealed its conviction on the campaign-contribution counts. With respect to all of these counts, it argued that Douglas's actions could not be attributed to the corporation, because he was not acting to benefit the corporation. The Court of Appeals rejected this argument, noting that part of Douglas's job was to cultivate the company's relationship with Espy. The court held that the jury was therefore entitled to conclude that in responding to the Secretary's request to help his brother Henry, Douglas was acting with an intent to further the interests of his employer. Id. at 970-971.

Sun-Diamond argued on appeal that if Douglas's actions could be imputed to his employer, Sun-Diamond, then Lake's actions must be attributed to Lake's employers, Robinson Lake and Bozell, and, therefore, it was not possible to convict Sun-Diamond for having defrauded Robinson Lake and Bozell. The Court of Appeals rejected this argument, noting that the imputation rules need not be the same for the perpetrator and the victim. Id. at 971.

Sun-Diamond also argued on appeal that the evidence did not support the factual conclusion that the scheme to defraud preceded the wire communication that was charged, and, therefore, the communication could not have been "for the purpose of executing" the scheme, as required by the statute. However, the Court of Appeals found that there was ample evidence from which the jury could have concluded that the scheme preceded the communication. Id. at 972.

The Court of Appeals also rejected Sun-Diamond's core challenge to the wire-fraud counts. Id. at 972-974. The jury had been instructed that it could convict if it found that Sun-Diamond had devised a scheme to defraud with either of the following two objectives: to obtain from Bozell, temporarily, $5000 or to deprive Bozell of Lake's honest services. With respect to the $5,000, Sun-Diamond argued that Douglas had contemplated the funds would quickly be repaid, but the court noted that extensions of credit can form the basis for wire-fraud liability, even if the scheme fully intends to pay off the loan. With respect to Lake's honest services, Sun-Diamond argued that the government was required to show that Lake intended economic harm to the victim of his scheme to defraud, but the court upheld the conviction, noting that it was sufficient for the government to prove that the economic harm from the deprivation of honest services were within the perpetrator's reasonable contemplation. Id. at 974.

With regard to the sentence, the Court of Appeals reversed the trial court's two-level upward departure from the sentence imposed by the Guidelines in recognition of the Secretary of Agriculture's position. It noted that the sentence set under the Guidelines explicitly reflected an eight-level increase for a gratuity given to an official with a high-level, decision-making, or sensitive provision. Id. at 974-977. Additionally, the court found that the trial court lacked the power to impose probation requirements on Sun-Diamond's member cooperatives, which were not defendants in the case. Id. at 977.

OIC petitioned for and obtained Supreme Court review of the Court of Appeals' reversal of the gratuities conviction. The Court denied Sun-Diamond's cross-petition for certiorari review of the wire-fraud convictions. The Supreme Court affirmed the Court of Appeals' decision, articulating a new standard to be applied in prosecutions under the gratuities statute. Specifically, the Supreme Court interpreted the requirement in the gratuities statute, 18 U.S.C. §§ 201(c)(1)(A) and 201(c)(1)(B), that the gratuity given to the public official be given "for or because of any official act performed or to be performed by such public official," as requiring that the government identify one or more specific official acts for which the gratuity was given. (See discussion of Sun-Diamond Supreme Court decision at Section IV.A.)

(5)   Postappeal Prosecution Decisions

As a result of the appellate decisions, Sun-Diamond's conviction was reversed as to Count 1 and remanded to the trial court on March 20, 1998 for further proceedings. Because Sun-Diamond's convictions on Counts 3 through 9 were undisturbed and remained valid, OIC, in the exercise of prosecutorial discretion, chose not to retry Sun-Diamond on the single count of gratuities violations. Accordingly, the matter came before the trial court for resentencing consistent with the appellate decisions.

On September 7, 1999, following remand, the district court entered a new judgment consistent with the appellate decisions. The court reduced Sun-Diamond's total fine to $36,000, plus an assessment of $1,025, and sentenced the company to three years' probation on each remaining count, to be served concurrently. The court ordered a refund of $1,464,200 for the fines and assessments Sun-Diamond had previously paid in excess of the new fine and assessment.

Sun-Diamond also asked the district court for $202,638.74 in interest on the funds returned to it, a request OIC opposed. The district court denied Sun-Diamond's request, by order dated October 29, 1999, and Sun-Diamond appealed.

On appeal, Sun-Diamond argued that the refunded fine had simply been a deposit to be held by the court on the company's behalf, and that the court should have placed this money in an interest-bearing account. Because the court had placed the money in the Crimes Victims Fund, a non-interest bearing account, Sun-Diamond argued that it was entitled to "constructive interest," the interest the money should have earned. OIC responded that the district court correctly followed the law in placing the fine in the Crime Victims Fund, that the fine properly became the property of the United States pending Sun-Diamond's appeal, and that sovereign immunity precluded Sun-Diamond from recovering an award of interest.

On May 23, 2000, the Court of Appeals affirmed the lower court's decision. United States v. Sun-Diamond Growers of California, 212 F.3d 603 (D.C. Cir. 2000). The court ruled that, upon receiving payment of the fine, the district court was statutorily obligated to deposit those funds into the Crime Victims Fund. As Sun-Diamond's claim for interest hinged upon its position that the district court should have placed the fine into an interest-bearing account, the holding to the contrary was dispositive, and the appellate court did not reach the questions of constructive interest or sovereign immunity.

On July 13, 2000, the Court of Appeals denied Sun-Diamond's petition for rehearing or rehearing en banc.

b.   United States v. Richard Douglas

The gratuities-related offenses with which Richard Douglas was charged largely overlapped those for which his employer, Sun-Diamond Growers of California, was prosecuted. The investigation disclosed that Douglas provided Espy with gratuities in several locations, that he lied to investigators in California and in Washington, D.C., and that he committed mortgage fraud in California. OIC sought an indictment of Douglas in the Northern District of California - the only district where venue existed for the mortgage-fraud counts and one of the false-statement counts and where Douglas applied for reimbursement from and was reimbursed by Sun-Diamond for the Espy expenditures.

(1)   The Charges

On October 16, 1996, a grand jury in San Francisco, California indicted Richard Douglas, Sun-Diamond's senior vice president, on 19 counts. The first four concerned gratuities offenses (including obstruction of the government's investigation of gratuities offenses through false statements to law-enforcement officers). The remainder concerned campaign-contribution offenses related to the Henry Espy congressional campaign and mortgage fraud.

Count 1 of the indictment charged that Douglas, on behalf of Sun-Diamond, spent approximately $7,680 of Sun-Diamond funds on or for the benefit of Espy. It itemized in particular Hartmann luggage, entertainment at the United States Open tennis tournament, and meals and entertainment provided from January 1993 to May 1994.

Count 4 of the indictment charged that Douglas gave Espy's girlfriend approximately $3,100 in cash to travel to Athens, Greece, where Espy spoke at an International Nut Council (INC) conference in May 1993; Douglas was later reimbursed by the council. The indictment also charged that Douglas provided $1,011 in entertainment to Espy, Espy's girlfriend and an Espy aide while the three were in Athens.

The indictment identified several matters that Sun-Diamond and its member cooperatives had pending before USDA and Secretary Espy, for or because of which the above gifts were given. These were: USDA funding for research on alternatives to methyl bromide; USDA assistance in persuading the Environmental Protection Agency to delay and soften the regulation to phase out methyl bromide; the allocation of Market Promotion Program (MPP) monies; and the definition of small-sized entities for determining preferences in the distribution of MPP funds.

Counts 2 and 3 of the indictment charged Douglas with making false statements to the FBI in violation of 18 U.S.C. § 1001. Count 2 charged that Douglas falsely told the FBI that the only time Sun-Diamond paid Espy's expenses was while he was a congressman, that Sun-Diamond had no issues pending before USDA while Espy was Secretary of Agriculture, and that MPP was an issue that would never rise to the level of the Secretary. Count 3 charged that Douglas falsely told the FBI that he had given Espy a ticket to a National Basketball Association championship game between the Chicago Bulls and Phoenix Suns and that he had obtained the tickets for himself and Espy at no cost from a friend, when in fact Douglas knew that Espy had received the tickets from the chief executive officer of the Quaker Oats Company, a corporation regulated by USDA.

Six counts of the indictment charged Douglas with offenses related to the Henry Espy campaign fund. Count 5 charged that Douglas, in association with James H. Lake, orchestrated a scheme involving use of the United States mail to defraud Lake's firm and its parent company in violation of 18 U.S.C. §§ 1341, 1346 and 2. Count 6 charged Douglas with illegal corporate campaign contributions to the Henry Espy for Congress Committee in violation of 2 U.S.C. §§ 441b and 437g and 18 U.S.C. § 2. Counts 7 through 10 charged Douglas with causing illegal conduit campaign contributions to be made in another person's name to the Henry Espy for Congress Committee in violation of 2 U.S.C. §§ 441f and 437g and 18 U.S.C. § 2.

The indictment also included 9 counts relating to Douglas's mortgage fraud, the subject of a referral of jurisdiction from the Attorney General to the Independent Counsel. Counts 11 through 19 of the indictment charged Douglas with wire fraud in a scheme against Union Trust Mortgage Services of San Francisco and PHH U.S. Mortgage Company of New Jersey to obtain a mortgage loan, in transmitting documents and funds in support of a fraudulent loan application, in violation of 18 U.S.C. § 1343.

On Douglas's motion, the trial court on April 2, 1997 severed the mortgage-fraud counts from the other counts of the indictment for separate trial.

(2)   Dismissal of False-Statement Counts

Also in its April 2, 1997 order, the district court relied on the "exculpatory no" doctrine to dismiss Counts 2 and 3 of the indictment, which charged Douglas with making false statements to the FBI in violation of 18 U.S.C. § 1001. The "exculpatory no" doctrine was a judicially forged limitation on section 1001, applied to varying degrees in some of the judicial circuits, that exempted from the statute's coverage false statements made to federal law-enforcement officials when the purpose of the statements was to exculpate the person making the statements. The trial court held that Douglas's statements, if false, satisfied the Ninth Circuit's criteria for application of the doctrine, which arguably were among the most liberal in the United States.

The Independent Counsel appealed the dismissal of the section 1001 counts to the United States Court of Appeals for the Ninth Circuit and briefed and argued the appeal. While the appeal was pending, the Supreme Court granted certiorari in another "exculpatory no" case, Brogan v. United States. By order dated April 21, 1998, the Ninth Circuit stayed the appeal of the dismissal of the section 1001 counts while Brogan was pending. The Supreme Court thereafter eliminated the "exculpatory no" doctrine, Brogan v. United States, 522 U.S. 398, 118 S.Ct. 805 (1998), and consequently revived the false statements counts against Douglas.

(3)   The Trial

The trial of Douglas for the gratuities and campaign-finance offenses commenced on October 28, 1997. OIC argued at trial that Douglas's intent to give Espy things of value for or because of official acts was demonstrated by:

• Sun-Diamond's interests in the various matters pending at USDA that were important to Sun-Diamond's business and Douglas's interest in a land swap with USDA proposed by Elsmere Corporation,
  
  
• Douglas's signature on each reimbursement form that the money he spent on Espy was spent in furtherance of Sun-Diamond's business, and
  
  
• Douglas's various assertions to the boards of directors of the Sun-Diamond cooperatives and to Sun-Diamond President Larry Busboom that he was successfully lobbying Espy (and others in Washington, D.C.) on behalf of the company with respect to the matters pending.

Counsel for Douglas argued that Douglas gave the gifts solely out of friendship and that there was little that Espy could do or did do to benefit Sun-Diamond or Douglas. Therefore, defense counsel argued, Douglas did not give the gifts for or because of official acts performed or to be performed by Espy.

On November 24, 1997, the jury returned a verdict of guilty on count 1 of the original indictment, which concerned the gratuities that Douglas gave directly to Espy on behalf of Sun-Diamond and himself. The jury could not reach a verdict on what had been count 4 of the original indictment, concerning the travel that Douglas had arranged for Espy's girlfriend through the International Nut Council.

As to counts 5 through 10, related to the Henry Espy campaign-contribution scheme, OIC argued that the evidence, primarily Lake's testimony, demonstrated that Douglas had formulated the scheme as another favor to Espy. Defense counsel argued that Douglas was not aware that Lake had falsely billed the contributions back to his company and that Lake perjured himself as part of a deal with OIC to provide evidence against Douglas.

The jury returned not-guilty verdicts for Douglas on all of the campaign-contribution counts. After executing his plea agreement in March of 1998 and receiving a grant of immunity, Douglas admitted that Lake's version of the events was in fact generally accurate.

(4)   Post-trial Dismissal

On February 20, 1998, three months after the trial, on Douglas's post-trial motion, the trial court held that the Northern District of California was not the proper venue to try the gratuities counts and dismissed both of them. United States v. Douglas, 996 F.Supp. 969 (N.D. Cal. 1998). These dismissals were without prejudice to reindictment and retrial in a different venue. OIC appealed the dismissals to the Ninth Circuit. ⁽⁸⁰⁾

Ultimately, the appeal was dismissed on OIC's motion, as part of the plea agreement with Douglas.

(5)   The Plea Agreement and Sentence

The parties resolved all of the charges against Douglas in a plea agreement executed on March 16, 1998. Pursuant to this agreement, Douglas pleaded guilty to a one-count information charging him with violating 18 U.S.C. § 1001 by making false statements to FBI agents. The information effectively incorporated counts 2 and 3, the false-statement counts, of the original indictment.

Specifically, Douglas pleaded guilty to telling the FBI agents falsely that "the only time Sun-Diamond ever paid any expenses for Secretary Espy was when they brought him out to California to speak at a convention, but he was a Congressman at the time, not Secretary of Agriculture." In fact, as the information specified, Douglas and/or Sun-Diamond gave Espy the following while he was Secretary of Agriculture:

• Hartmann luggage at a cost of $2,427;
  
  
• tickets, limousine services, and meals in the approximate amount of $4,590 for Espy and his girlfriend to attend the U.S. Open Tennis Tournament in New York;
  
  
• approximately $665 in meals for Espy;
  
  
• approximately $3,100 in cash to Espy's girlfriend so that she could accompany Espy to the World Tree Nut Congress in Athens, Greece; and
  
  
• a minimum of $7,000 in contributions to the Congressional campaign debt retirement account of Espy's brother Henry.

Douglas also pleaded guilty to telling the FBI agents falsely that "Sun-Diamond had no issues pending before the Department of Agriculture since Michael Espy became the Secretary of Agriculture." In fact, as the information specified, Sun-Diamond and Douglas had pending before USDA and Espy the following matters:

• the proposed prohibition on the use of methyl bromide as a pesticide;
  
  
• the disbursement of Market Promotion Program (MPP) funds;
  
  
• the classification of co-operatives as "small-sized entities" under the MPP;
  
  
• pesticide issues;
  
  
• the school lunch program; and
  
  
• the Teamsters strike of Sun-Diamond member co-operative Diamond Walnut.

As part of his guilty plea, Douglas agreed to cooperate with OIC in future proceedings, and he later testified in the trial of United States v. Espy. When it came to sentencing, OIC asked the court to impose a sentence of six months because Douglas had been less than forthcoming and less than truthful in his cooperation with the Government. In particular, he told OIC about the dinner at which Mondavi Winery had hosted Espy, but he failed even to mention the gift of wine to Espy that he himself had requested of Mondavi, and later denied any recollection of his involvement. Additionally, he continued to maintain that he had not literally lied to the FBI agents about the basketball tickets that Espy received from Quaker Oats, on the ground that the agents had not asked him the correct questions, even though this denial was incredible in light of the plea agreement. The Government expressed its reasoning in a sentencing memorandum filed with the court, a copy of which appears in Appendix B. Nevertheless, the Court sentenced Douglas to 18 months' probation, a $3,000 fine, a $100 special assessment, and 100 hours' community service, but no incarceration. After 12 months, over OIC's objection, the district court terminated Douglas's probation.

Following Douglas's guilty plea, the Ninth Circuit on August 27, 1998 dismissed the appeal of the dismissal of the false statements counts on the Independent Counsel's motion. United States v. Douglas, 161 F.3d 15 (9th Cir. 1998) (table).

On January 20, 2001, as one of his last official acts in office, President Clinton granted a pardon to Richard Douglas.

c.   United States v. James H. Lake

James H. Lake pleaded guilty to offenses related to the scheme to obtain illegal donations from Sun-Diamond Growers of California to retire the Henry Espy campaign debt.

(1)   The Charges

On October 23, 1995, OIC filed a three-count information against Lake. Count 1 charged that he committed wire fraud against his employers (Robinson Lake and Bozell, Inc.), depriving them of his honest services and of money and property, in violation of 18 U.S.C. §§ 1343 and 1346. The information detailed how Richard Douglas of Sun-Diamond (neither identified by name) obtained Lake's cooperation in the scheme in which Lake solicited four other Robinson Lake officers and employees to contribute to retiring Henry Espy's campaign debt, issued a fictitious bill to Sun-Diamond, and then reimbursed the three Robinson Lake officers and employees who made the requested contributions using the funds obtained from Sun-Diamond. Count 2 charged Lake with an illegal corporate campaign contribution of $4,000 in violation of 18 U.S.C. §§ 441b(a) and 437g(d)(1)(A), in directing Sun-Diamond's funds to the Henry Espy for Congress Committee. Count 3 charged Lake with an illegal conduit campaign contribution of $1,000 - i.e., the contribution he personally made to the Henry Espy for Congress Committee, for which he accepted reimbursement from Sun-Diamond, in violation of 18 U.S.C. §§ 441f and 437g(d)(1)(A).

(2)   The Plea Agreement

Lake pleaded guilty to all three counts of the information on October 25, 1995.

(3)   Sentencing

On January 30, 1998, Lake was sentenced to a $25,000 fine, a $25 special assessment and two years' probation. The probation carried the special condition that he write and distribute at his own expense a monograph to more than 2,000 lobbyists, describing the criminal provisions of federal laws governing campaign contributions.

On January 20, 2001, as one of his last official acts in office, President Clinton granted a pardon to James Lake.

(4)   Federal Election Commission Conciliation Agreements

In July 1999, the Federal Election Commission announced that it had reached conciliation agreements related to Lake's campaign offenses. Under the agreements, Lake and his two sons paid a $9,000 civil penalty; Mark Helmke (the other conduit contributor) paid a $1,700 civil penalty; and Robinson Lake Lerer and Montgomery (Lake's firm) paid an $8,000 civil penalty.

3.   The Case Against Former Secretary Espy - United States v. Alphonso Michael Espy

OIC's core jurisdictional mandate was to determine whether former Secretary Espy violated any federal law by accepting gifts from persons and entities with business before USDA. In August 1997, a grand jury returned an indictment against Espy alleging his acceptance and concealment of unlawful gifts while serving as the Secretary of Agriculture, and other offenses. After a two-month trial in late 1998, at which the defense called no witnesses, the jury found Espy not guilty on all charges.

a.   The Charges

On August 2, 1997, a District of Columbia grand jury returned a 39-count indictment against Espy. Although the counts charged a variety of offenses under different statutes, the unifying theme was that Espy had received things of value in violation of his obligations as a public official, concealed that conduct from the public, and lied about that conduct when questioned by government agents.

The first set of charges (counts 1 through 12) alleged that Espy committed honest services fraud, which is prosecutable under the mail and wire fraud statutes. This type of fraud derives from the principle that public service is a public trust. Federal government officials work for, and owe fiduciary duties to, the United States and its citizens, and the public has a right to the honest services of its employees.

Most honest services fraud charges previously brought against public officials have involved instances where a public official intentionally failed to disclose his personal interest in a matter upon which he voted, or where a public official "sold" his office by taking a particular official action in exchange for a bribe. However, a public official also commits honest services fraud where he accepts unlawful gifts (in violation of either criminal statutes or ethical regulations) and then conceals his action from the public, in contravention of an affirmative duty to disclose such gifts. The public official is then performing an official duty aware that his actions are not in the best interests of the public while concealing his transgression from the public.

Counts 1 through 12 charged that Espy defrauded the public of his honest services by engaging in a pattern of accepting gifts he could not lawfully receive, concealing those gifts from the public in contravention of his legal duty to disclose such information, and using the mails and wires to effect these actions. Counts 1 through 7 charged Espy with wire fraud, in violation of 18 U.S.C. §§ 1341 and 1346, as follows:

Counts 8 through 12 charged Espy with mail fraud, in violation of 18 U.S.C. § 1341 and 1346, as follows:

The second set of charges (counts 13 to 25) alleged that Espy received illegal gratuities for and because of official acts, in violation of the gratuities statute 18 U.S.C. § 201(c)(1)(B). The indictment cataloged the donor, the gratuities and their value as follows:

a.   DONOR: SUN-DIAMOND GROWERS/DOUGLAS:

b.   DONOR: TYSON FOODS/WILLIAMS:

c.   DONOR: OGLETHORPE POWER/EOP/SMITH BARNEY:

d.   DONOR: EOP:

e.   DONOR: QUAKER OATS:

f.   DONOR: FERNBANK:

The third set of charges (counts 26 to 28) alleged that Espy received illegal gifts while authorized to perform duties under the Meat Inspection Act (21 U.S.C. § 601 et seq.) from persons subject to the Act, in violation of 21 U.S.C. § 622. The indictment cataloged the illegal gifts as follows:

a.   DONOR: TYSON FOODS/WILLIAMS:

b.   DONOR: QUAKER OATS:

The fourth set of charges (counts 29 to 33) alleged that Espy traveled in interstate commerce in connection with his acceptance of gifts that were illegal under the gratuities statute or the Meat Inspection Act, in violation of 18 U.S.C. § 1952. The indictment detailed these charges as follows:

The remaining charges (counts 34 to 39) alleged that Espy concealed his illegal activities by making false statements to government officials or otherwise obstructed justice. Count 34 alleged that he made false statements to the USDA Office of Inspector General (OIG) regarding the reason for his travel on a Tyson Foods corporate jet after Tyson Foods' Russellville birthday party in May 1993, and that he caused to be provided to the OIG a false travel itinerary from which he had instructed his subordinate to delete information regarding his and his girlfriend's attendance at the Dallas Cowboys football game as guests of Tyson Foods, all in violation of 18 U.S.C. § 1001.

Count 35 alleged that Espy tampered with a witness when he instructed his subordinate to alter the Dallas itinerary and provide it to the OIG, in violation of 18 U.S.C. §§ 1512(b)(2)(A) and (B). Count 36 alleged that he made false statements to the FBI by stating that Richard Douglas had provided his ticket to the 1993 NBA playoff game in Chicago, when he knew that the President of Quaker Oats had actually provided the ticket pursuant to Espy's request, and by stating that he could not recall ever accepting favors or gifts from any companies other than Tyson Foods, all in violation of 18 U.S.C. § 1001.

Counts 37 and 38 alleged that Espy violated 18 U.S.C. § 1001 by making false statements in Public Financial Disclosure Reports for calendar years 1993 and 1994, respectively, by omitting several things of value he had received from regulated entities and was required by law to disclose. Count 39 alleged that he made false statements to the Executive Office of the President by falsely stating that all favors and gifts he had received from regulated entities had by that time been disclosed, in violation of 18 U.S.C. § 1001.

b.   Pre-trial Dismissals and Appeal

Espy's counsel filed motions to dismiss numerous counts of the indictment, some of which the trial court granted. United States v. Espy, 989 F.Supp. 17 (D.D.C. 1997). By order dated December 23, 1997, the court dismissed the three Meat Inspection Act charges (counts 26 to 28), holding that the act did not extend to the Secretary of Agriculture. Additionally, it dismissed one charge of false statements on the ground that the statute prohibited only false statements made to an executive "department" or "agency," holding that the Executive Office of the President, to which the statements were made, was not a "department" or "agency" within the meaning of the statute. The court rejected other motions attacking the indictment, although it did strike some phrases as surplusage and granted a bill of particulars on limited issues. Id.

On March 25, 1998, the Court of Appeals for the D.C. Circuit reversed, in part, the trial court's dismissals. United States v. Espy, 145 F.3d 1369 (D.C. Cir. 1998). It held that the Meat Inspection Act's prohibition on the receipt of gratuities by officers with duties under the act does indeed extend to the Secretary of Agriculture, reinstating counts 26 through 28. It affirmed the dismissal of the false-statements count, agreeing with the district court that the Executive Office of the President was not a "department" or "agency" within the meaning of the false-statement statute. (Congress has since amended the statute and closed this loophole.) Although most of the charges were reinstated, the appeal caused a 14-month delay between indictment and trial and resulted in OIC having to recreate the trial team three times before trial began.

The trial court rejected subsequent defense attempts to have the gratuities charges limited or dismissed in light of the Court of Appeals' decision in United States v. Sun-Diamond Growers of California, 138 F.3d 961 (D.C. Cir. 1998). United States v. Espy, 23 F.Supp.2d 1 (D.D.C. 1998).

c.   The Trial

On October 1, 1998, trial before a jury began and lasted 30 trial days. The prosecution called 71 witnesses. The defense did not call any witnesses, and Espy did not testify.

The prosecution argued that Espy accepted items of value from persons and entities regulated by USDA while he was Secretary of Agriculture-designate and then throughout his USDA tenure. It also argued that he concealed his actions from the public by various means. The government emphasized the magnitude of decisions pending before USDA at the time of the gifts, the financial impact these decisions would have on the gift givers, and the intangible value of the gifts, such as tickets to the NFL Super Bowl, the U.S. Open tennis tournament, and the 1993 NBA finals game. The prosecution further argued that Espy's true motive and intent were most clearly revealed through his attempts to conceal his acceptance of these gifts, particularly his instruction to a member of his staff to delete incriminating information from one of his travel itineraries before providing it to investigating agents, and his request to Richard Douglas of Sun-Diamond to falsely tell government agents that Douglas provided Espy with his ticket to the NBA finals game. The prosecution stressed to the jury that it did not need to and was not attempting to prove that Espy granted any person or entity favorable treatment in exchange for the gifts they provided.

The defense argued that Espy felt, as the first black Secretary of Agriculture, that he would be more closely scrutinized and subject to more criticism than his predecessors. ⁽⁸¹⁾

Therefore, according to defense counsel, Espy took extra efforts to be a very good Agriculture Secretary and this kept him very busy, routinely traveling throughout the United States and the world. As a consequence, the defense claimed, he left many details to be handled by his staff, making some honest mistakes because of his schedule, and some of these matters slipped through the cracks. The defense also argued that Espy thought the gifts Douglas gave him were personal gifts from Douglas, given out of friendship, and not gifts from Sun-Diamond. The defense further asserted that Espy did not know about or could not control the acceptance of gifts by his girlfriend, Patricia Dempsey. The theme often repeated by the defense was that Espy was, in fact, a good Secretary of Agriculture and that he did not do any favors for any of the companies involved.

On November 24, 1998, the trial court ruled on Espy's motion for judgment of acquittal on all counts. It held that OIC had failed to present sufficient evidence to sustain counts 4, 5, 6, 12, 17, 20, 25, 33 and 34a, ⁽⁸²⁾ but found that, as to the remaining 31counts, a rational jury could find Espy guilty beyond a reasonable doubt based upon the evidence presented. The district court restricted each side to only three hours to deliver closing arguments and denied repeated requests by OIC for additional time because of the length of its case, the number of witnesses, and the complexity of the charges. On November 30, 1998, the case went to the jury, which on December 3, 1998 returned a verdict of not guilty on all remaining counts.

C.   The Henry Espy Campaign Contribution Cases

1.   The Crop Growers Case - United States v. Crop Growers Corp., John J. Hemmingson, and Gary A. Black

a.   The Charges

On May 30, 1996, a federal grand jury in the District of Columbia returned a 17-count indictment against Crop Growers Corporation (Crop Growers) and its two principal officers and directors, and largest shareholders, John J. Hemmingson and Gary A. Black. The indictment alleged offenses related to Crop Growers' illegal contributions to the Henry Espy campaign in 1993 and 1994. The grand jury returned a superseding indictment on October 1, 1996, which added an additional count, and a second superseding indictment on October 31, 1996.

Count 1 of the second superseding indictment charged all three defendants with a conspiracy to make and conceal $46,000 in illegal contributions to the Henry Espy campaign fund for the purpose of gaining access to Secretary Espy. It charged the defendants with violating 18 U.S.C. § 371 in conspiring to defraud the Federal Election Commission (FEC) and the Securities and Exchange Commission (SEC), and to violate certain federal statutes regarding corporate disclosures and false statements to government officials.

Counts 2 and 3 charged Hemmingson and Black with violating 18 U.S.C.

§ 1001, in knowingly and willfully causing the Henry Espy for Congress Committee (HECC) to make material false statements to the FEC in two reports by identifying 26 individuals as having made $1,000 contributions to the campaign, when the defendants knew that the contributions were made illegally by Crop Growers through its constituent companies.

Count 4 charged the three defendants with violating 15 U.S.C. §§ 78m(b)(2)(A) and 78ff(a), in failing to keep corporate books and records that accurately reflected the transactions and dispositions of the company's assets and by falsely recording illegal corporate campaign contributions as legitimate expenses.

Count 5 charged Hemmingson and Black with violating 15 U.S.C. §§ 78m(b)(5) and 78ff(a) and 17 C.F.R. § 240.13b2-1, in falsifying Crop Growers' records by maintaining records that inaccurately recorded illegal corporate campaign contributions.

Counts 6 through 15 charged the three defendants with violating 18 U.S.C. § 1001, in filing securities registration statements, amendments, prospectuses and an annual report with the SEC that were false because they omitted material facts regarding the illegal campaign contributions to HECC - i.e., the potential consequences of illegal campaign contributions.

Count 16 charged the three defendants with securities fraud in violation of 15 U.S.C. §§ 77q(a) and 77x, in omitting to state in the offer or sale of securities to the public the material facts regarding the illegal campaign contributions to HECC.

Counts 17 and 18 charged Hemmingson and Black with lying to the company's independent auditors in violation of 17 C.F.R. § 240.13b2-2 and 15 U.S.C. § 78ff(a) when they omitted and caused other persons to omit material facts in connection with 1993 and 1994 audits and the preparation of registration statements and an annual report filed with the SEC, in that they stated that Crop Growers' books reflected no irregularities, no falsifications of documents, and no violations of laws or regulations.

b.   Pre-trial Dismissals

By order dated January 3, 1997, the trial court dismissed several of the counts of the second superseding indictment. Counts 4, 5, 17 and 18, concerning falsification of books and records and false statements to auditors, were dismissed as outside the venue of the District of Columbia court. United States v. Crop Growers Corp., 954 F.Supp. 335 (D.D.C. 1997). (OIC later referred these charges to the United States Attorney for the District of Montana, who ultimately declined prosecution.) Counts 6 through 15, concerning false statements to the SEC about the illegal contributions to the Henry Espy campaign, were dismissed because the court found that defendants had no duty to disclose uncharged criminal conduct. Count 16 was dismissed because the court found that defendants had no duty to disclose the charged omissions to the investing public. The court upheld the other counts of the indictment against various motions to dismiss on various grounds. Id.

c.   Crop Growers' Plea

Shortly before trial, Crop Growers was found guilty pursuant to its plea of nolo contendere to Count 1 (conspiracy to defraud the United States and to violate federal law) and Count 4 (falsifying corporate books and records) (reinstated because Crop Growers waived its venue objection). Count 1 charged that, in 1993, Crop Growers made illegal corporate contributions to Henry Espy totaling $26,000, disguised as individual contributions from various employees, related parties, and their spouses, and an additional $20,000 corporate contribution to Henry Espy in 1994 to obtain and maintain access to Secretary Espy. Count 4 charged that the corporation's books were falsified by the recording of illegal corporate contributions as legal fees, travel advances, expense account advances, consulting fees, computer purchases, and an advance on crop loss adjustments paid to the individuals who served as conduit contributors on behalf of the corporation. Crop Growers was sentenced to pay $2,000,000 pursuant to its plea agreement, and OIC dismissed all other charges against the company. This concluded the prosecution of Crop Growers.

d.   The Trial

On January 27, 1997, the case proceeded to trial against Hemmingson and Black on counts 1 through 3 - the conspiracy count, and the two counts of causing the Henry Espy for Congress Committee to file false reports with the FEC.

OIC argued that when Hemmingson, Black, and Barry Coday, Crop Growers' controller, discussed contributing to Henry Espy, they knew that corporations could not contribute to federal election campaigns, so they concocted an illegal conduit contribution scheme and concealed the contributions in the company's books and records. The conduit scheme in turn caused Henry Espy's campaign to file false reports with the FEC, identifying the conduits rather than the corporation as the source of the contributions. OIC argued that the defendants disguised the conduits and failed to repay the "advances" used to refund the conduit contributors, thereby indicating an intent to contribute corporate funds. OIC stressed that the defendants intended to gain access to Secretary Espy through his brother Henry, and that they succeeded in this effort.

OIC further argued that in 1994, after the 116 Club dinner, Hemmingson made a final illegal corporate contribution through Alvarez Ferrouillet, head of the Henry Espy campaign-debt retirement effort. The $20,000 check to Ferrouillet was part of the larger scheme to defraud, as evidenced by Hemmingson's phony engagement letter, the absence of work performed by Ferrouillet, and the laundering of the funds to the Henry Espy campaign. Crop Growers falsely recorded the payment to Ferrouillet in its books and records as legal fees.

The defendants argued that the 1993 conduit contributions were a mistake and that they did not intend to violate the law. They relied heavily on the company's controller, Coday, who testified that Hemmingson asked how Crop Growers could legitimately provide financial assistance to employees for them to contribute to Henry Espy. The defense asserted that Coday, acting in good faith, advised that "advances" were a permissible way. The defendants argued that Coday was at fault and that the advances were not repaid because of an accounting error. The defendants asserted that no defendant acted willfully to violate the law and that they acted in good faith and simply made mistakes.

As to the 1994 contribution, Hemmingson contended that he had a legitimate business relationship with Ferrouillet and had no idea what Ferrouillet did with the $20,000 check upon receiving it. Black argued that there was no evidence that he was involved with Ferrouillet or with the $20,000 check.

The jury returned not guilty verdicts for both defendants on the three counts that went to trial.

2.   The Henry Espy Case - United States v. Henry William Espy, Jr., Alvarez T. Ferrouillet, Ferrouillet & Ferrouillet, Municipal Healthcare Cooperative Incorporated, and John J. Hemmingson

On July 9, 1996, in the Eastern District of Louisiana, a grand jury returned a 15-count indictment against Henry William Espy, Jr., Alvarez T. Ferrouillet, Ferrouillet & Ferrouillet (F&F), and Municipal Healthcare Cooperative Incorporated (MHC) for offenses related to the financing of the Henry Espy campaign debt and the $20,000 illegal campaign contribution from Crop Growers Corporation (Crop Growers) used to pay down that debt. The grand jury returned a 16-count superseding indictment on August 8, 1996, adding John J. Hemmingson as a defendant and adding one additional count. The court denied all defendants' motions to dismiss the indictment on the basis of the Independent Counsel's limited jurisdiction. United States v. Espy, 1996 WL 586364 (E.D. La., Oct. 9, 1996). The court also denied OIC's motion for an order requiring advance notice of an intent to rely on an advice-of-counsel defense. United States v. Henry Espy, 1996 WL 560354 (E.D. La., Oct. 2, 1996).

The district court transferred six counts against Ferrouillet, Henry Espy, F&F, and MHC to the Northern District of Mississippi, where they were tried or resolved by plea agreement. This left ten counts against Ferrouillet and Hemmingson to be tried in the Eastern District of Louisiana. Proceedings in the two venues are described separately below.

a.   The Charges - Eastern District of Louisiana

The charges against Ferrouillet and Hemmingson that remained in the Eastern District of Louisiana (after the court transferred six counts to the Northern District of Mississippi) were restated in a 10-count "redacted" indictment. These counts charged Ferrouillet and Hemmingson with committing various offenses while funneling Crop Growers' illegal $20,000 corporate contribution to the Henry Espy for Congress Committee (HECC).

Count 1 charged both defendants with interstate transportation of fraudulently obtained property (the $20,000 check from Crop Growers), in violation of 18 U.S.C. § 2314. Counts 2 and 5 charged Ferrouillet with laundering the proceeds of the check by exchanging it for $5000 in cash at a grocery store, in violation of 18 U.S.C. § 1956(A)(1)(b)(i). Counts 3 and 4 charged both defendants with laundering the proceeds of the check by causing the grocery store to deposit it with a bank, in violation of 18 U.S.C. §§ 1956(A)(1)(b)(i) and 1957. Counts 6 and 7 charged Ferrouillet with laundering cash obtained in exchange for the check at the grocery store by depositing it in a bank in amounts below the federal reporting threshold, in violation of 18 U.S.C. §§ 1956(A)(1)(b)(i) and 18 U.S.C. § 1956(A)(1)(b)(ii). Count 8 charged both defendants with laundering the proceeds derived from the $20,000 check by transferring them from a campaign bank account to another bank, in violation of 18 U.S.C. § 1957. Counts 9 and 10 charged Ferrouillet with making false statements to federal agents, in violation of 18 U.S.C. § 1001, in identifying a phony list of donors as the source of the money he deposited into the campaign's accounts.

The court denied Hemmingson's motion to dismiss the indictment on the ground of improper simultaneous prosecution in the District of Columbia. United States v. Espy, 1996 WL 607018 (E.D. La., Oct. 23, 1996). It also denied Hemmingson's motion to be severed from the case on the ground that he wanted to present evidence from Gary Black, his co-defendant in the case filed in the District of Columbia, because Black would claim a Fifth Amendment privilege against testifying before his own trial was concluded. United States v. Espy, 1996 WL 626296 (E.D. La. 1996).

The court further denied defendants' motions to dismiss counts 3 and 4 on the ground of multiplicity, counts 3, 4 and 8 for failure to state essential facts constituting the offenses, and count 1 for failure to allege an offense. United States v. Ferrouillet, 1996 WL 684461 (E.D. La. 1996); United States v. Espy, 1996 WL 607020 (E.D. La. 1996); United States v. Espy, 1996 WL 601428 (E.D. La. 1996). The court granted in part and denied in part defendants' motion to require a bill of particulars and to strike surplusage. United States v. Espy, 1996 WL 637759 (E.D. La. 1996).

b.   The Trial - Eastern District of Louisiana

Prior to trial, the court granted in part Hemmingson's motion to have OIC disclose to him the evidence it would offer under Federal Rule of Evidence 404(b), which governs evidence of "other acts." United States v. Ferrouillet, 1996 WL 665767 (E.D. La. 1996). The court granted Ferrouillet's motion to exclude, as unduly prejudicial, evidence of Ferrouillet's false statements in obtaining the loan from FNB Clarksdale. United States v. Ferrouillet, 1996 WL 709426 (E.D. La. 1996); United States v. Ferrouillet, 1996 WL 696489 (E.D. La. 1996). The court denied Hemmingson's motion in limine to exclude OIC's evidence of the illegal campaign contributions he engineered in 1993 as inadmissable character evidence. United States v. Ferrouillet, 1996 WL 696507 (E.D. La. 1996).

Trial commenced on December 9, 1996 and ran for seven trial days, during which 27 witnesses testified for the prosecution and 20 witnesses testified for the defense, including both Hemmingson and Ferrouillet.

OIC argued that this was a case about disguise and concealment by two individuals who needed Secretary Espy for different reasons - Hemmingson for financial gain and Ferrouillet for access to Washington and help with the Henry Espy campaign debt. Hemmingson had a substantial financial interest in obtaining and maintaining access to Secretary Espy. Hemmingson devised a scheme in 1993 to funnel sizeable conduit contributions to the federal campaign of Henry Espy. As a result, Hemmingson was able to send letters concerning matters in which Hemmingson's company had a keen interest to Secretary Espy, and to

meet with him personally on at least two occasions. Ferrouillet, who bound his law firm as guarantor on a $75,000 bank loan to Henry Espy, had become concerned about his firm's exposure on the loan after the debt remained unpaid almost a year after its original maturity date and needed Secretary Espy's help to retire the debt.

OIC argued that Hemmingson's and Ferrouillet's paths first crossed on March 31, 1994 at the 116 Club fundraiser in Washington, D.C., where the attendees learned of Henry Espy's remaining outstanding debt and were solicited to contribute additional funds. OIC asserted that Hemmingson and Ferrouillet subsequently devised a scheme to funnel $20,000 from Crop Growers to Henry Espy. As part of the scheme, OIC argued, the defendants created a fictitious engagement letter, which purported to create a legitimate business arrangement between F&F and Crop Growers Insurance under which F&F would perform legal services on behalf of Crop Growers Insurance in exchange for a $20,000 retainer. However, OIC asserted, Ferrouillet and Hemmingson never intended that F&F perform services as special corporate counsel for Crop Growers Insurance; rather, this money was to be laundered and funneled into a Henry Espy for Congress Committee bank account. OIC argued that when federal law-enforcement agents subsequently confronted Ferrouillet with evidence of his illegal activity, Ferrouillet continued his concealment by lying to federal agents about the source of the funds.

Hemmingson and Ferrouillet asserted that, in 1994, Crop Growers Insurance was expanding into health insurance. At the 116 Club fundraiser, they maintained, Hemmingson learned that Ferrouillet also worked in the health-insurance field and, through MHC, had recently received the sole endorsement of the National Conference of Black Mayors. The defendants asserted that Ferrouillet informed Hemmingson that he was about to sign the City of Atlanta to an MHC/American Family Life Assurance Company of Columbus, Georgia (AFLAC) insurance plan. They argued that Hemmingson, attracted to outside ventures offering lucrative returns, was impressed with Ferrouillet and his plan.

After delays precipitated by the initial public offering of Crop Growers Corporation stock, the defense asserted, Hemmingson and Ferrouillet agreed that Ferrouillet would design a health care plan for MHC and Crop Growers Insurance to propose to the National Conference of Black Mayors for endorsement. For this work, the defendants maintained, Hemmingson would pay Ferrouillet $20,000. Although Ferrouillet received the payment from Crop Growers Insurance, he claimed that he awaited completion of the City of Atlanta deal before proceeding on the Crop Growers Insurance plan. Before Ferrouillet was able to sign the Atlanta contract in September 1995, according to the defense, Hemmingson and Crop Growers Insurance abandoned health insurance as an area into which Crop Growers purportedly wanted to expand. Thus, asserted the defense, Crop Growers Insurance never received any work product from Ferrouillet.

Ferrouillet asserted that he cashed the $20,000 Crop Growers Insurance check at a grocery store and engaged in unusual financial transactions because he wanted to use the money to pay down the First National Bank of Clarksdale campaign debt retirement loan without detection by the Federal Election Commission. He did this, he claimed, because he believed using his own funds to pay down the loan would constitute an unlawful excessive contribution.

On December 19, 1996, the jury returned guilty verdicts against both defendants on all counts, except that it found Hemmingson not guilty on Count 8, which charged money laundering in the wire transfer of the contribution from one campaign account to another.

c.   Sentencing - Eastern District of Louisiana

As noted above, some of the charges against Ferrouillet were transferred to the Northern District of Mississippi for trial. His conviction pursuant to guilty plea in that venue (discussed below) was transferred to the Eastern District of Louisiana for sentencing in conjunction with his Louisiana conviction.

Under the United States Sentencing Guidelines, both Ferrouillet and Hemmingson were to be sentenced to 33 to 41 months' imprisonment for their convictions. Both defendants moved for and received a downward departure on the ground that their behavior did not fall within the "heartland" of the money-laundering guideline. United States v. Ferrouillet, 1997 WL 266627 (E.D. La. 1997). (The sentencing guidelines are designed to apply to typical cases (the "heartland"), and district courts may depart from the guidelines if factors exist that make the case atypical.) The court refused to grant Ferrouillet a downward departure on the basis of family circumstances and civic activities, and it refused to allow the record to be supplemented to support such claims. United States v. Ferrouillet, 1997 WL 678157 (E.D. La. 1997).

The district court rejected OIC's argument that it should impose a two-level upward adjustment against Ferrouillet for abusing a position of public trust and a special skill as an attorney. The court also denied Hemmingson's motion for bail pending appeal. United States v. Hemmingson, 1997 WL 285029 (E.D. La. 1997).

On all counts, the court departed downward and sentenced Ferrouillet to 12 months' imprisonment, and an $800 special assessment. The court departed downward and sentenced Hemmingson on all counts to 12 months' imprisonment, a $30,000 fine, and $20,000 in restitution.

d.   The Appeal

Hemmingson appealed his conviction, and Ferrouillet appealed both his conviction and his sentence. OIC appealed the downward departures in sentencing. The appeals were consolidated, and the Court of Appeals affirmed the convictions and the sentences. United States v. Hemmingson, 157 F.3d 347 (5^th Cir. 1998).

First, the court rejected Hemmingson's and Ferrouillet's sufficiency of the evidence arguments. It held that, while their claim that the $20,000 check was part of a legitimate business deal and not a disguised contribution to Henry Espy's campaign was plausible, the evidence was "easily sufficient" to support the jury's finding to the contrary. Id. at 353-55.

The Court of Appeals also rejected every other claim that Hemmingson raised. It held that prosecution in two forums, New Orleans and Washington, D.C., did not violate Hemmingson's due process rights because the two indictments involved different events and different crimes. Id. at 356. It also held that OIC did not advance inconsistent positions in the two trials, as OIC identified the shareholders of Crop Growers as the victim in both prosecutions. Id. The court also rejected as insubstantial Hemmingson's arguments that OIC had engaged in improper forum shopping and that his case should have been severed from Ferrouillet's. Id. at 356-357. It also found no merit in Hemmingson's jurisdiction claims, noting:

At risk of belaboring the obvious, this prosecution's connection to Michael Espy is quite plain: Hemmingson, as a crop insurer heavily dependent on the Department of Agriculture, sought access to Michael Espy through Henry Espy, who, other than his fraternal tie, had little to commend him as an object of Crop Growers' beneficence.

Id. at 356-57.

As to Hemmingson's argument that the district court should have instructed the jury not to consider Ferrouillet's false statements to federal agents against Hemmingson, the court agreed that the trial court "probably should have issued a limiting instruction under these circumstances." However, because the statements could not be used directly against Hemmingson, because the statements were not "powerfully incriminating," and because the trial court issued a more general instruction that served the same purpose, there was no reversible error. Id.

Ferrouillet's claims on appeal also failed. One component of his appeal was that "the method of jury selection violated the Jury Selection and Service Act . . . and the Constitution" because "he, a black man, was tried before an all-white jury." Id. at 357-358. However, Ferrouillet conceded that the method of jury selection was entirely color-blind. Id. at 358. He did not allege any sort of intentional race-based discrimination, but instead argued that arbitrary decisions excusing some jurors from service had, by happenstance, resulted in an all-white jury. Id. Finding that the district court made reasonable, color-blind judgments about which members of the venire faced hardship or inconvenience, the Court of Appeals held that there was no violation of statute or of the Constitution. Id. at 359.

As to sentencing, the court held that it lacked jurisdiction to address Ferrouillet's claim that he was entitled to a downward departure based on his "good works." Id. at 359. The court noted that, in any event, the district court did not appear to have abused its discretion in finding that Ferrouillet's work was not so "exceptional" to warrant a reduction in his sentence. Id.

The Court of Appeals rejected OIC's argument that the trial court should have increased Ferrouillet's sentence because he, as an attorney, abused a public trust and used special skills in committing his crimes. Id. at 359-360. Noting that Ferrouillet had not, in fact, performed legal services in facilitating and concealing the crimes, the appellate court held that the trial court had not clearly erred in refusing to depart on this ground.

OIC also appealed the district court's decision to depart downward in sentencing because of its finding that Hemmingson's and Ferrouillet's conduct did not fall within the "heartland" of the money laundering guideline. OIC argued that the defendants' conduct - engaging in financial transactions so as to conceal the source and nature of proceeds of criminal activity - is precisely the conduct that the money laundering statute sought to prohibit and that the money laundering guidelines contemplate. OIC further argued that the district court's conclusion that this case was atypical of money laundering cases was based on its belief that this was, in substance, simply an illegal campaign contribution case, and that the Court, therefore, erroneously focused on the defendants' ultimate goal rather than their actions.

The Court of Appeals disagreed. The court reasoned that the district court believed that this was not simply a campaign contribution case but instead was an unusual money laundering case in that the money involved was corporate funds rather than the proceeds of drug offenses or organized crime, and that the defendants were not seeking to legitimize a stream of illegal income into the mainstream economy. Id. at 361-63. Given the "considerable discretion" granted to district courts in identifying facts and circumstances that warrant departure, the Court of Appeals concluded that the district court did not abuse its discretion in finding the facts of this case atypical. Id.

The Court of Appeals did, however, reject the district court's view that it could depart downward because the defendants were prosecuted by an independent counsel rather than a United States Attorney's Office. Id. at 363-64. The court opined that the district court would have sentenced Hemmingson and Ferrouillet no differently absent reliance on this one factor, and did not reverse on this ground. Id. at 364.

On January 20, 2001, as one of his last official acts in office, President Clinton granted pardons to Alvarez T. Ferrouillet and John J. Hemmingson for these offenses.

e.   The Charges - Northern District of Mississippi

Counts 1 through 6 of the superseding indictment proceeded in Mississippi following the transfer. Count 1 charged Henry Espy, Ferrouillet, F&F and MHC with violating 18 U.S.C. § 371 by conspiring (1) to make false statements to the First National Bank of Clarksdale, Mississippi (FNB Clarksdale) in order to obtain a $75,000 loan and then defer its repayment, and (2) to defraud the United States by impairing and impeding the lawful governmental functions of the Federal Election Commission (FEC) by engaging in financial transactions designed to circumvent federal campaign-contribution reporting requirements. Hemmingson was not charged with conspiracy but was named an unindicted co-conspirator.

Counts 2 through 6 of the superseding indictment charged Henry Espy, Ferrouillet, F&F and MHC with violating 18 U.S.C. § 1014 by making false statements to FNB Clarksdale in furtherance of obtaining the $75,000 loan and deferring its repayment. These counts charged as false the following statements that defendants made at the following times: (1) that on or about April 28, 1993, Henry Espy was due $75,000 in commissions for services performed on behalf of MHC since July 1992, and that Ferrouillet had been in contact with the FEC and had been told that the proposed lending agreement between Henry Espy and FNB Clarksdale was the recommended manner for settling the campaign debt; (2) that on or about May 3, 1993, the loan would be repaid from $75,000 already earned and coming from F&F; (3) that on or about July 9, 1993, MHC had received and escrowed the $75,000 due Henry Espy; (4) that on or about November 16, 1993, $75,000 was being held in trust by F&F for the benefit of Henry Espy; and (5) that on or about May 17, 1994, the guaranteed funds were in escrow.

f.   Plea Agreements - Northern District of Mississippi

On February 24, 1997, the day of trial, Ferrouillet and MHC pleaded guilty to five counts of false statements to a federally-insured bank and one count of conspiracy to make false statements to a federally-insured bank and to defraud the FEC. Pursuant to a plea agreement with OIC, F&F pleaded guilty to Count 1 (conspiracy); the other counts were dismissed pursuant to the plea agreement.

g.   The Trial - Northern District of Mississippi

The trial proceeded against Henry Espy on all six counts. Henry Espy waived trial by jury, and the district court heard the case without a jury.

At trial, OIC argued that, following his failed bid for Congress, Henry Espy was left with nearly $150,000 in campaign-related debts. Under pressure from creditors, OIC asserted, he and Ferrouillet decided to take out a bank loan, but Henry Espy would not qualify for a loan because of his personal financial situation. Consequently, OIC argued, Henry Espy and Ferrouillet falsely told the bank that he had been working for one of Ferrouillet's companies and was due $75,000. Then, OIC asserted, as the loan became past-due and the bank pressed for payment, Henry Espy and Ferrouillet stalled the bank's collection efforts by submitting additional false statements.

The defense argued that Henry Espy was ignorant of the false information provided to the bank. Specifically, the defense asserted that Henry Espy relied on Ferrouillet, that Ferrouillet handled all arrangements with the bank, and that Henry Espy had no knowledge that Ferrouillet provided the bank with false information. The defense relied heavily on a bank employee who testified that Henry Espy signed the loan application containing the initial false representations without reading it.

The court entered a judgment of acquittal in Henry Espy's favor on all counts.

h.   Sentencing - Northern District of Mississippi

In the Northern District of Mississippi, MHC was sentenced to a five-year term of inactive probation. F&F was sentenced to a $10,000 fine.

Ferrouillet's conviction pursuant to a plea agreement in the Northern District of Mississippi was returned to the Eastern District of Louisiana for sentencing in conjunction with his conviction there. On all counts of conviction, Ferrouillet was sentenced to 12 months' imprisonment.

On January 20, 2001, as one of his last official acts in office, President Clinton granted a pardon to Alvarez T. Ferrouillet for these offenses.

D.   Prosecutions Regarding Conflicts of Interest within the Department

1.   The Case Against Secretary Espy's Chief of Staff - United States v. Ronald H. Blackley

a.   The Charges

On April 22, 1997, a federal grand jury in Washington, D.C. indicted Ronald H. Blackley, Secretary Espy's former chief of staff, on three counts of making false statements to government agencies in violation of 18 U.S.C. § 1001. Count 1 of the indictment charged Blackley with failing to report 11 checks received during calendar year 1993 on his Public Financial Disclosure Report (SF-278), filed June 28, 1994. Count 2 charged Blackley with making false statements to special agents of the USDA's Office of Inspector General (OIG) regarding the same checks. Count 3 charged Blackley with making false statements to special agents of the Office of Inspector General of the United States Agency for International Development about the checks on August 15, 1996. The district court rejected Blackley's pre-trial claims that he was a victim of selective prosecution and that the Independent Counsel lacked jurisdiction to prosecute him for the offenses charged. United States v. Blackley, 986 F.Supp. 616 (D.D.C. 1997); United States v. Blackley, 986 F.Supp. 607 (D.D.C. 1997).

b.   The Trial

Trial commenced on November 19, 1997. At trial, OIC argued that Blackley, beginning in 1983, engaged in a pattern of receiving two streams of revenue - one from his government salary and the other from his private business. At a minimum, this resulted in the appearance of a conflict of interest. The government asserted that Blackley's dual revenue continued after he became USDA Chief of Staff, as he received checks, totaling $22,025, from individuals and entities with business before USDA. In order to conceal the receipt of these payments, OIC argued, Blackley lied to federal agents on three different occasions: on his SF-278 Public Financial Disclosure Report, to special agents of USDA's OIG when they interviewed him about allegations of conflicts of interest, and to special agents of the Office of Inspector General of US AID when again questioned about these same conflicts.

The defense asserted multiple defenses for Blackley's receipt of the checks and for his acts of concealment. With respect to the SF-278 report, it argued that the complicated instructions and requirements of the form confused Blackley, and that had he understood the requirements or received additional advice from others, he would have known that he was required to report the receipt of more than $22,000 in 1993. The defense also asserted that Blackley was not legally required to report on his SF-278 report for calendar year 1993 the checks he had received, because he allegedly had reported all of the checks he received from Mississippi Rice Services on the 1992 SF-278, on which he had "estimated" his future earned income for 1993. The defense also argued that Blackley did not have to report a $2,500 check from Buck Brush, Inc., because the check was an "owner withdrawal" that occurred prior to the time that Blackley became Espy's Chief of Staff.

The defense also posited that certain checks "could have been" checks given to Blackley for non-illicit purposes. The $10,000 check from the Fullers, the defense argued, could have been a personal loan that would not need to be reported, and the $275 check could have been reimbursement for expenses or any "number of things." Finally, the $1,000 check from the Cochrans was portrayed as a graduation gift to Blackley's son. The defense supported this claim with the testimony of Blackley's son, who said that he may have received the check but did not recall, and that his lack of recollection likely resulted from an auto accident in which he had been involved years earlier.

The defense also attempted to downplay Blackley's power and responsibility at USDA. For example, referring to the fact that Blackley received money from "prohibited sources" with business before USDA, the defense contended that virtually every farmer has business pending before USDA. On the issue that Blackley had taken the unusual step of ordering subordinates to re-evaluate the USDA's denial of a subsidy application filed by the Cochrans, the defense argued that Blackley was merely allowing subordinates in his office to review the previous denials on their merits and that, since the appeal was allegedly reviewed in such a benign manner, there was nothing improper about Blackley's conduct.

Finally, with respect to the false statements to USDA and the US AID charged in counts 2 and 3, the defense argued that Blackley had cooperated with the investigations and consistently provided information and records voluntarily, and had not concealed information from the agents. The defense also claimed that there was misunderstanding and confusion on the part of the agents, and argued that the key word "remuneration" in both of Blackley's sworn statements could have meant many different things. The trial lasted seven days, and Blackley did not testify.

The jury returned a verdict of guilty on all three counts.

The trial of Blackley was potentially impacted by public reports that the Attorney General and other senior Department of Justice officials had made statements critical of the conduct of the various Independent Counsels. While trial was ongoing, on November 26, 1997, DOJ lawyers were quoted in the press disparaging the work of the OIC and suggesting that DOJ viewed the Independent Counsel (and other Independent Counsel) as "overzealous amateurs." Equally disturbing was DOJ's public criticism of the Judges of the Special Division, whom the article characterized as "derisively dismiss[ive]." OIC's complaints about these public comments were referred by Attorney General Reno to the Office of Professional Responsibility. After a 7-month investigation, the Office of Professional Responsibility concluded that the public criticisms did not violate any ethical rule because the ethical rules applied only to lawyers handling a "pending case" and DOJ lawyers were not responsible for the Blackley matter. Without explanation, the Office of Professional Responsibility inquiry did not examine whether the disclosures violated any broader prohibitions, including, for example, DOJ policies and regulations relating to the media. (The correspondence relating to this investigation by DOJ is contained in Appendix C to this Report.)

c.   Sentencing

On March 18, 1998, the Court sentenced Blackley to 27 months' imprisonment, ordered three years' supervised release following imprisonment, imposed no fine, and imposed a $200 special assessment. This sentence included a two-level upward enhancement because Blackley had committed a crime that involved more than minimal planning and an upward departure of eight levels because of the high-level position at USDA that Blackley had occupied.

d.   The Appeal

Blackley appealed on the following issues: (1) OIC's jurisdiction to prosecute him for these crimes; (2) OIC's use of "other acts" evidence during trial; (3) OIC's purported failure to state an offense in the indictment; (4) the court's instructions to the jury; (5) the district court's denial of his motion for judgment of acquittal; and (6) the upward departure in sentencing.

The Court of Appeals affirmed the trial court on all points. United States v. Blackley, 167 F.3d 543 (D.C. Cir. 1999). Rejecting Blackley's jurisdiction argument, the court held that OIC's authority to investigate matters "related to" the core areas of the initial inquiry allowed OIC "to pursue crimes by the original target's close associates in the field of activity under investigation, including crimes that either are of the same sort as the originally specified set of crimes or are ancillary to the commission or concealment of such crimes." Id. at 548. The court then determined, on the basis of Blackley's position, his duties, his alleged offenses, and the connection of each to the allegations against Secretary Espy, that Blackley's prosecution was sufficiently "related to" OIC's original mandate that OIC had jurisdiction to prosecute him. Id.

The court rejected Blackley's challenge to the indictment, which, it held, adequately spelled out the charged offenses. Id. at 549-550. Nor did the court accept Blackley's argument that the jury should have been instructed that they could not convict him for concealing information without first finding he owed a duty to disclose that information. It noted that some courts had held that a duty to disclose must be proven even though this duty is not expressly required by statute, but it questioned whether this was an issue for the jury. Id. at 550. The court, however, did not reach this issue. Instead, it concluded that if any error occurred, the error was harmless because the jury could not have reached the conclusion it did without also finding a duty to disclose or finding that defendant made affirmative false statements. Id. at 550-551.

The Court of Appeals also rejected Blackley's appeal of his sentence and concluded that the district court acted well within its discretion in departing upward from the sentencing guidelines. The court explained that "the departure made Blackley's sentence more closely approximate what would follow for kindred crimes committed by high government officials under provisions such as [the sentencing guideline for gratuities]." Id. at 552. Finally, the court considered Blackley's arguments regarding judgment of acquittal and "other acts" evidence challenges "too weak to merit discussion." Id.

Blackley subsequently petitioned for Supreme Court review, which was denied. United States v. Blackley, 120 S. Ct. 167 (1999).

On January 20, 2001, as one of his last official acts in office, President Clinton commuted Ronald H. Blackley's sentence.

2.   The "Mississippi Christmas Tree" Cases

a.   United States v. Five M Farming Enterprises, Inc., Brook Keith Mitchell, Sr., and Brook Keith Mitchell, Jr.

(1)   The Charges

On May 22, 1996, a federal grand jury in the District of Columbia returned a four-count indictment charging Five M Farming Enterprises, Inc. (Five M), Brook Keith Mitchell, Sr. (Mitchell) and Brook Keith Mitchell, Jr. (Mitchell Jr.) with conspiracy, and with false statements to the United States government. The conspiracy charge (count 1), which was predicated on 15 U.S.C. § 714m, alleged that the defendants had conspired among themselves and with other unindicted co-conspirators, including Ronald Blackley, Secretary Espy's former Chief of Staff, to submit false information and records to USDA. Counts 2 and 3 each alleged false statements to USDA in violation of 15 U.S.C. § 714m(a). Count 4 alleged the submission to USDA of false entries in reports and statements in violation of 15 U.S.C. § 714m(b)(ii).

The indictment alleged that the defendants submitted all of this false information in an ultimately successful effort to obtain a reversal of USDA's decision denying Five M substantial amounts in deficiency payments (a form of farm commodity price support), and to obtain additional unwarranted deficiency payments from 1992 to 1995.

(2)   Plea Agreement

Immediately before trial, after the district court had rejected their motion to dismiss on jurisdictional grounds, Five M, Mitchell, and Mitchell, Jr. brought an interlocutory appeal seeking review of the refusal to dismiss. The Court of Appeals for the D.C. Circuit dismissed the appeal as premature. United States v. Five M Farming Enterprises, 1996 WL 655796 (D.C. Cir. 1996).

On November 13, 1996, the day of trial, Five M and Mitchell, pursuant to a plea agreement with OIC, pleaded guilty to one count of conspiracy to violate 15 U.S.C. § 714m and three counts of false statements and false entries in violation of 15 U.S.C. §§ 714m(a) and 714m(b)(ii). Mitchell Jr. was placed on one-year pre-trial diversion pursuant to the plea agreement.

(3)   Sentencing

One requirement of the plea agreement was that Mitchell would cooperate with OIC's ongoing investigation. Sentencing was deferred until July 1998. Following several additional continuations of the sentencing date at defendants' request, Five M and Mitchell were sentenced on March 8, 1999 to pay full restitution in the amount of $776,860 to USDA and to serve three years' probation.

(4)   The Appeal

Five M and Mitchell appealed their conviction pursuant to the plea agreement, alleging that the prosecution exceeded the Independent Counsel's jurisdiction. The Court of Appeals for the District of Columbia Circuit dismissed the appeal, on OIC's motion, finding that the defendants had waived their claim by entering an unconditional guilty plea. United States v. Five M Farming Enterprises and Mitchell, 1999 WL 728369 (D.C. Cir. 1999).

On January 20, 2001, as one of his last official acts in office, President Clinton granted a pardon to Brook Keith Mitchell, Sr.

(5)   Administrative Action

After the criminal prosecution of Five M and Mitchell was completed, OIC referred the case to USDA for whatever administrative action the department felt appropriate. On January 31, 2000, USDA issued a preliminary administrative determination, concluding that the Mitchells and Five M Farming had defrauded the payment limitation program for the years 1992-1998. Pursuant to a settlement agreement proposed by USDA, the Mitchells agreed to their joint and several liability for refunding payments received during 1992-1996 totaling $977,635.90, paid by an offset of funds USDA had withheld for later years.

b.   United States v. Norris J. Faust, Jr.

(1)   The Charges

On November 11, 1996, Norris J. Faust, Jr., Secretary Espy's hand-picked state Executive Director of USDA's Agricultural Stabilization and Conservation Service (ASCS) for Mississippi, was indicted in Jackson, Mississippi on three counts of perjury in violation of 18 U.S.C. § 1623. Each of the three counts stemmed from alleged false statements Faust made on August 28 and 29, 1995 while testifying before a federal grand jury that was investigating Espy and others.

The grand jury before which Faust had testified had been inquiring into the circumstances surrounding Faust's rescission, within hours of his taking office, of a Mississippi ASCS regulation that had prevented Brook Keith Mitchell from receiving substantial federal subsidies. The indictment charged that Faust had intentionally provided the grand jury with false testimony when he asserted (1) that he had consulted with ASCS program specialists Robert Williams and Tom Breland the day before he decided to rescind the Mississippi regulation (Count 1); (2) that Breland had participated in drafting the notice to rescind the regulation and had told Faust on the morning of Faust's grand jury appearance that John Tanner helped draft the notice (Count 2); and (3) that he did not see, participate in, or direct the drafting of the rescission notice but left that task to the specialists to do what they thought was right (Count 3).

(2)   The Trial

Trial commenced on February 12, 1997. OIC argued at trial that Faust sought and obtained Mitchell's assistance in being appointed ASCS Executive Director for the State of Mississippi. The afternoon Faust was sworn in, he participated in a meeting with Mitchell and several other Espy supporters from Mississippi. During the meeting, Mitchell requested that Faust rescind the Mississippi ASCS regulation that had prevented him from fraudulently obtaining hundreds of thousands of dollars in government subsidies. After being told by Blackley that Faust had the power to make such a change, Faust agreed to rescind the regulation without consulting any ASCS program specialists. Tom Breland was not consulted before Faust made his decision and did not participate in drafting the notice; John Tanner was out of town and learned about the decision only upon his return the following week. When questioned by the grand jury about the very unconventional circumstances surrounding his rescission of the regulation, Faust lied in an attempt to make his decision appear to be an impartial agency action based upon the advice of knowledgeable program specialists. In truth, the government argued, he rescinded the regulation to assist Mitchell's then-pending and future claims for additional subsidies.

Faust took the stand in his own defense and testified regarding both his actions in rescinding the Mississippi regulation and his statements to the grand jury. Faust asserted that he rescinded the regulation because he viewed it as unnecessary and he wanted to eliminate the bureaucratic red tape with which farmers seeking subsidies had to contend. As to his grand jury testimony, Faust asserted that he did not attempt to mislead the grand jury and that he simply misunderstood certain questions or was misunderstood by the prosecutor. Specifically, as to Count 1, Faust explained that he did not intend to suggest that he consulted with Williams or Breland about whether to rescind the Mississippi regulation; instead, he intended to indicate that he consulted with them about how to effect the rescission. As to Count 2, Faust asserted that Breland informed him that Tanner had drafted a subsequent notice reinstating part of the requirements of the Mississippi regulation, and that Faust's statements regarding Tanner were meant to inform the grand jury of Tanner's drafting of that subsequent notice. As to Count 3, Faust claimed that he only meant to say that he had no role in typing the final rescission notice which, he asserted, was a true statement.

The jury returned a not guilty verdict on all counts.

E.   Civil Actions

The Independent Counsel brought civil actions against two companies that had given gifts to Secretary Espy. These appear to be the first instances in which an Independent Counsel resolved charges through civil litigation. In the two cases, the nature of the offense, the state of the evidence, and the degree of cooperation exhibited by the offenders combined, in the view of OIC, to make a civil resolution more appropriate than a criminal one.

1.   United States v. Smith Barney, Inc.

a.   The Complaint

On July 29, 1997, OIC filed a civil complaint against Smith Barney, Inc. ⁽⁸³⁾ The factual recitation detailed how Smith Barney, on behalf of its client Oglethorpe Power Corporation, arranged to give Espy a National Football League Super Bowl ticket at a time when Oglethorpe sought and received Espy's support in its attempt to have the federal government forgive prepayment penalties Oglethorpe would have had to pay if it retired a multibillion-dollar loan the company had received from a federal agency.

The complaint stated two civil causes of action. The first alleged that Smith Barney tortiously sought and participated in Espy's breach of fiduciary duty and tortiously interfered with Espy's agency relationship with the federal government. The fiduciary duties alleged to have been breached included: (1) the duty to place loyalty to the United States and its laws and principles above private gain (5 C.F.R. § 2635.101(a)); (2) the duty to refrain from accepting gifts given by a person or entity who does business with or is regulated by the government employee's agency or who may be affected by the government employee's official actions (5 C.F.R. § 2635.202 and 5 U.S.C. § 7353(a)); and (3) the duty to refrain from accepting gratuities given for or because of official acts (18 U.S.C. § 201(c)). The second cause of action alleged that Smith Barney had supplemented Espy's salary in violation of 18 U.S.C. §§ 209. The complaint asked for $1,000,000 in damages on the first cause of action and $50,000 in civil penalties (the maximum) on the second.

b.   The Settlement Agreement

Smith Barney and OIC executed and filed a civil settlement agreement simultaneously with the filing of the complaint. In the agreement, Smith Barney generally admitted to the facts stated in the complaint but denied liability and denied that the acts were known to or approved by management. Nevertheless, in the agreement, Smith Barney accepted responsibility for the alleged acts of its employees. Smith Barney agreed to pay the United States $1,050,000 in exchange for dismissal of the complaint with prejudice. Smith Barney also agreed to detailed requirements for improving its internal auditing procedures, personnel training, and compliance monitoring to prevent such offenses in the future.

Smith Barney paid the agreed amount, and OIC dismissed the complaint with prejudice.

2.   United States v. Robert Mondavi Corp.

a.   The Complaint

On July 21, 1998, OIC filed a civil complaint against the Robert Mondavi Corporation. The factual recitation detailed how Mondavi had given several bottles of wine to Secretary Espy when he visited its winery in October 1993 and had hosted Espy and his girlfriend at a dinner in Washington, D.C. in March 1994. On both occasions, according to the complaint, Mondavi representatives had discussed with Espy matters of interest pending before the federal government.

The complaint stated two civil causes of action. The first alleged that Mondavi tortiously sought and participated in Espy's breach of fiduciary duty and tortiously interfered with Espy's agency relationship with the federal government. The fiduciary duties alleged to have been breached included: (1) the duty to place loyalty to the United States and its laws and principles above private gain (5 C.F.R. § 2635.101(a)); (2) the duty to refrain from accepting gifts given by a person or entity who does business with or is regulated by the government employee's agency or who may be affected by the government employee's official actions (5 C.F.R. § 2635.202 and 5 U.S.C. § 7353(a)); and (3) the duty to refrain from accepting gratuities given for or because of official acts (18 U.S.C. § 201(c)). The second cause of action alleged that Mondavi had supplemented Espy's salary in violation of 18 U.S.C. § 209. The complaint asked for $50,000 in damages on the first cause of action and $50,000 in civil penalties (the maximum) on the second.

b.   The Settlement Agreement

Mondavi and OIC executed and filed a civil settlement agreement simultaneously with the filing of the complaint. In the agreement, Mondavi admitted the allegations of the complaint and accepted responsibility for the acts of its employees. Mondavi agreed to pay the United States $100,000 in damages and civil penalties in exchange for dismissal of the complaint with prejudice. Mondavi also agreed to spend at least $30,000 in a public-education program, including a seminar series at a California university, distribution of a monograph to vintners and wine-making businesses regarding bribery and gratuities offenses, and sponsorship and publication of three articles addressing legal compliance in dealings with public officials. Mondavi also agreed to establish a permanent internal compliance program to prevent such offenses in the future.

Mondavi paid the agreed amount, and OIC dismissed the complaint with prejudice.

F.   Referred Cases

On several occasions during its investigation, OIC uncovered evidence of criminal conduct that did not relate to OIC's jurisdictional mandate. OIC referred these matters to the Department of Justice or other appropriate federal enforcement agencies for resolution. Four referrals resulted in public dispositions.

1.   United States v. Sun-Land Products

OIC referred to the Department of Justice (DOJ) the information it had developed about a scheme by Sun-Land Products, a wholly-owned subsidiary of Sun-Diamond Growers of California, to reimburse its directors for campaign contributions through stipends. In August 1998, DOJ filed a criminal information against Sun-Land in the Northern District of California alleging the illegal reimbursement scheme. Later the same month, Sun-Land and DOJ entered into a plea agreement, under which Sun-Land pleaded guilty to the charges in the information, agreed to pay a $400,000 fine, and agreed to enter into a conciliation agreement with the Federal Election Commission, pursuant to which Sun-Land would pay an $80,000 civil penalty.

Sun-Land entered into a conciliation agreement with the Federal Election Commission and paid the fine and civil penalty.

2.   AFLAC (Federal Election Commission)

On November 17, 1997, pursuant to an agreement between OIC and AFLAC, OIC referred AFLAC's corporate and conduit contributions to the Henry Espy campaign to the Federal Election Commission (FEC). The agreement also provided that AFLAC would enter into a conciliation agreement with the FEC and pay an $80,000 civil fine.

Subsequently, in December 1997, the FEC and AFLAC entered into a conciliation agreement, in which AFLAC admitted that it knowingly and willfully violated the corporate contribution (2 U.S.C. § 441b(a)) and conduit contribution (2 U.S.C. § 441f) provisions of the Federal Election Campaign Act. After the referral, the FEC collected an $80,000 civil penalty from AFLAC.

3.   United States v. Richard E. Blackmore

OIC conferred with DOJ's Fraud Section about evidence it had developed regarding Richard Blackmore's loan from the USDA's Alternative Agricultural Research and Commercialization Center. This matter was referred to the Department of Justice, which ultimately prosecuted Blackmore for certain acts of bank fraud. DOJ obtained a conviction against Blackmore for these offenses, and he was sentenced to 51 months in prison, 5 years of supervised release, and ordered to pay $842,621 in restitution.

4.   United States v. Rodalton Hart

On March 10, 1998, OIC referred to USDA's Office of Inspector General the evidence it had developed of Hart Farms' fraud on the USDA Price Support and Production Adjustment Program. By the time of the referral, OIG was investigating Hart for similar offenses, which OIG eventually referred to the United States Attorney for the Southern District of Mississippi.

On November 17, 1999, a grand jury empaneled by the United States Attorney for the Southern District of Mississippi returned a 13-count indictment charging Rodalton Hart, Cleveland Hart, Larry Hart and Harrell B. Neal with the offenses uncovered by OIG. Specifically, the indictment charged the defendants with conspiracy, in violation of 18 U.S.C. § 371, false statements to the Farm Service Agency (formerly the Agricultural Stabilization and Conservation Service) in violation of 18 U.S.C. § 1014, fraudulent conversion of crops pledged to USDA, in violation of 18 U.S.C. § 658, and bribery of a public official, in violation of 18 U.S.C. § 201(b).

The indictment alleged that, beginning in January 1997, the defendants conspired to obtain Farm Service Agency (FSA) loans by submitting false information to FSA, and to bribe defendant Neal, an FSA employee responsible for approving the FSA loans to the other defendants. According to the indictment, the Hart defendants sold cattle and hid these sales from FSA; grew additional crops and farmed additional lands, which they concealed from FSA; concealed debts incurred by the defendants and their farms; secured a loan for Neal; and then assisted Neal in paying down that loan. During this time, Neal approved FSA loans for the other defendants, in the amount of approximately $600,000.

Neal pleaded guilty to accepting bribes for approving fraudulent loans. On October 30, 2000, Rodalton Hart was convicted on five of the eight counts charged against him in the Indictment. His brothers were acquitted on all counts.

IV.   THE EVOLVING LAW OF GRATUITIES

At the heart of the Espy investigation and prosecution, and of all the related matters into which OIC delved, was the prohibition against a government official's receipt of gratuities that stop short of a bribe but nevertheless are held to be illegal because they undermine the functions of government. The law governing gratuities given to public officials thus shaped the Espy investigation, but the investigation also helped shape the law. The difficult problem of differentiating gifts to public officials that will be tolerated from those that will not ended up in the Supreme Court, where the Sun-Diamond decision narrowed the circumstances in which a gratuity will be held to be a criminal offense. Since Sun-Diamond was handed down, gifts given to influence governmental functions continue to be illegal. They are criminal acts for the giver and recipient in many circumstances, and often subject the recipient to administrative sanctions. The need for such restrictions has been recognized for millennia and remains undiminished today.

A.   Varying Interpretations of the Gratuity Statute Before Supreme Court Review

The core conduct that gave rise to the appointment of an Independent Counsel in the Espy matter concerned Espy's alleged acceptance of gifts from entities that stood to profit from favorable treatment by USDA. Consequently, the principal federal gratuities statute, 18 U.S.C. § 201(c)(1), was a major focus of OIC's investigatory efforts. Ultimately, in its prosecution of Sun-Diamond Growers of California, OIC took the question of how the statute should be interpreted to the Supreme Court.

The precise meaning of § 201(c)(1) had long been problematic. Section 201 prohibits both bribes and gratuities given to or received by federal officers and employees. The two offenses are distinguished by the statutory intent requirement. Bribes, prohibited by subsection (b), are things of value given "to influence any official act." This means that there must be a quid pro quo between the giver and the public official. In contrast, gratuities, forbidden by subsection (c), are things of value given or received "for or because of any official act performed or to be performed." That is to say, the gratuities statute applies even if the recipient does not perform or promise a favor for the giver. Section 201(c)(1) has always posed a problem in specifying the circumstances in which a gift is "for or because of any official act."

The difficulties the statute presents to anyone attempting to parse its intent requirement were well illustrated in the D.C. Circuit's decision United States v. Brewster, 506 F.2d 62 (D.C. Cir. 1974). In Brewster, the district court had attempted to present jury instructions distinguishing between bribery and an illegal gratuity, which had been charged as a lesser included offense to bribery. The problem was further compounded by the fact that the alleged bribe or gratuity took the form of a campaign contribution to an elected official. The appellate court found that the trial court had failed to draw the necessary distinctions but sympathetically indicated that the task was nearly impossible. After graphically analyzing the two separate parts of the statute, the Court of Appeals announced that "one conclusion of which we are certain is that it is quite a task for the trial judge to explain to the jury the differences between the greater and lesser offense on which conviction or acquittal turns." 506 F.2d at 67.

In analyzing the jury instructions given, the Brewster appeals court showed frustration with the wording of the statute:

[W]e do not cite [the illegal gratuity statute] as a model of clarity and nicely drawn distinctions. . . .

. . . The trial judge strove manfully - and judicially - to make these fine distinctions for the jury. Yet we have found it difficult ourselves, with adequate time to reflect and ponder, to understand the subtle distinctions made in the written text of the instructions. . . .

We do not fault the District Judge here for his failure to illuminate the obscure . . . although we think it is clearly possible to draw instructions making sufficiently clear the line between guilt and innocence under each subsection of section 201 taken separately. Here the real problem for the trial judge came when he had to explain the differences between receipt of a bribe, an illegal gratuity, or an innocent contribution. . . .

We think the whole of [the instruction] was indigestible, and we do not purport to prescribe for this case or in the abstract for all cases a complete recipe or formula to enable the jury to make an intelligent determination of guilt when both offenses [bribery and gratuities] are charged. . . .

506 F.2d at 78-82.

Nationwide, the imprecise formulation "for or because of an official act" led to disparate interpretations of the statute. A sizeable number of appellate courts held that the statute was violated when a donor gave a government official a gift in recognition of his or her official position. United States v. Evans, 572 F.2d 455, 480 (5th Cir. 1978); United States v. Standefer, 610 F.2d 1076, 1080 (3d Cir.1979) (en banc); United States v. Umans, 368 F.2d 725, 730 (2d Cir. 1966); United States v. Bustamante, 45 F.3d 933, 940 (5th Cir.1995); United States v. Alessio, 528 F.2d 1079, 1082 (9th Cir. 1976)). Other circuits more rigidly required proof of official acts that motivated the gift. United States v. Muldoon, 931 F.2d 282 (4th Cir. 1991); United States v. Sawyer, 85 F.3d 713 (1st Cir. 1996).

Just where the D.C. Circuit fit within this spectrum was never entirely clear. The Brewster decision did address the question that ultimately came before the Supreme Court in Sun-Diamond - i.e., whether it is necessary to identify with specificity the official act for which the gratuity was given - but the context suggested that such identification was required in the narrow situation where the gift was a campaign contribution. Brewster, therefore, did not afford the court an opportunity to explain the more general situation of appointed officials receiving gifts that were not campaign contributions. The Brewster court observed, however, that in United States v. Umans, the Second Circuit had suggested that no intent whatever was required under the gratuity statute. 506 F.2d at 72, n.26. The D.C. Circuit stated:

We do not necessarily disagree with the analysis of the Second Circuit in Umans with regard to the requisite degree of intent or lack of intent when the recipient is an . . . appointed official; we do say that where an elected public official is concerned, there is a requirement of criminal intent under [the gratuity statute] . . . , and that the requisite criminal intent . . . is found in the words "otherwise than as provided by law for the proper discharge of official duty, . . . for or because of any official act performed or to be performed by him."

Id. In conclusion, the court reiterated its concerns about campaign contributions running afoul of the gratuities statute, stating:

No politician who knows the identity and business interests of his campaign contributors is ever completely devoid of knowledge as to the inspiration behind the donation. There must be more specific knowledge of a definite official act for which the contributor intends to compensate before an official's action crosses the line between guilt and innocence.

Id. at 81.

The D.C. Circuit's other major post-Brewster, pre-Sun-Diamond decision interpreting § 201(c), United States v. Campbell, 684 F.2d 141 (D.C. Cir. 1982), did little to clear the confusion sown by Brewster. In Campbell, where the gift recipient was an appointed official, the court held that "[i]t was more than sufficient in this case for the trial court to require that the alleged gratuities be given and received 'knowingly and willingly,' and 'for of because of an official act.'" Id. at 150. Campbell interpreted Brewster as suggesting that "the requisite intent must be more clearly shown when the case involves a campaign contribution to 'an elected public official' than 'when the recipient is an . . . appointed official.'" Id. at 150 n.16.

A subsequent Department of Justice publication entitled Prosecution of Public Corruption Cases discussed the bribery and gratuity statute and noted the questions surrounding the interpretation of the statute:

The intent requirement under the gratuity statute has been interpreted not to require proof of a quid pro quo as for the bribery statute, but rather of a lesser connection between the payment and an official act. United States v. Niederberger, 580 F.2d 63 (3d Cir.), cert. denied, 439 U.S. 980 (1978); United States v. Allessio, 528 F.2d 1079 (9th Cir.), cert. denied, 426 U.S. 948 (1976); United States v. Brewster, 506 F.2d 62 (D.C. Cir. 1974). Indeed, under the most liberal interpretation of the gratuity statute, the link is really between the payment and the official position of the recipient. United States v. Evans, 572 F.2d 455 (5th Cir.), cert. denied, 439 U.S. 870 (1978). Under this interpretation, it is unnecessary to show that the payments were 'earmarked for a particular matter then pending' before the public official and over which the public official had authority. Id. at 481. Thus, if the motivating factor for the payment is even 'to keep [the public official] 'happy,' id., or to 'create a better working atmosphere' with a public official, the payment can form the basis of a gratuity charge. United States v. Standefer, 452 F. Supp. 1178, 1183 (W.D. Pa. 1978), aff'd, 610 F.2d 1076 (3d Cir. 1979), aff'd, 447 U.S. 10 (1980); United States v. Niederberger; United States v. Barash, 412 F.2d 26 (2d Cir.), cert. denied, 396 U.S. 832 (1969).

Note, however, that there must be some connection between the receipt of the thing of value and the official position of the public official.

The D.C. District Court was faced with making sense of this body of law in a prosecution brought by an earlier Independent Counsel, United States v. Secord, 776 F. Supp. 845 (D.D.C. 1989). In resolving a pre-trial discovery dispute, the court held:

The Government need not prove that the gratuity was given in exchange for any specific official act. . . . Rather, for the counts charging the actual giving of a gratuity, the Government must show that Defendant acted simply because of [the recipient's] official position, in appreciation for their relationship, or in anticipation of its continuation.

Id. at 847.

B.   OIC's Prosecution of Sun-Diamond

At the time OIC commenced its investigation, the Courts of Appeals were in disagreement over whether a link from the gift to the official act could be shown though a link to the official's position, and the D.C. Circuit's position on this point was not clearly established. This was the state of the law when OIC brought United States v. Sun-Diamond Growers of California, its first prosecution under § 201(c)(1). Defendant Sun-Diamond immediately attacked the indictment on the ground that it did not identify the specific official act for which the gratuities were given, but the trial court rejected this effort, citing the Secord decision. United States v. Sun-Diamond Growers of California, 941 F.Supp. 1262 (D.D.C. 1996). At trial, the court delivered relatively far-reaching jury instructions that included at various points the suggestion that the jury could convict if it found that the gifts were motivated by Espy's official position. Following its conviction, Sun-Diamond appealed, challenging both the trial court's failure to dismiss the indictment and the jury instructions.

In its Sun-Diamond decision, the D.C. Circuit upheld the district court's refusal to dismiss the indictment but reversed because of improper jury instructions. United States v. Sun-Diamond Growers of California, 136 F.3d 961 (D.C. Cir. 1998). The decision reflects the continuing uncertainty over how to interpret the statute. While the Court of Appeals was quite clear that gifts given simply because of "official position" were not actionable under the statute, its articulation of the degree to which the official acts for which the gifts must be specified reflected the ambiguity of its earlier decisions.

In reversing Sun-Diamond's conviction on the basis of the jury instructions given, the D.C. Circuit repeatedly suggested that OIC was required to identify specific official acts for which the gifts were given. The court held that "[t]o satisfy the criminal intent requirement embodied in the phrase 'for or because of any official act,' the giver must intend either to reward some past concrete official act or to enhance the likelihood of some future act or acts." 138 F.3d at 966. Similarly, it held that "a gift looking to future acts can be an unlawful gratuity where the giver is motivated simply by the desire to increase the likelihood of one or more specific, favorable acts." Id.

At the same time, however, the D.C. Circuit rejected Sun-Diamond's challenge to the indictment, which urged that OIC was required to allege "a nexus between each unauthorized gift and some specifically identified official act . . . for which the gift was given." 138 F.3d at 965. Instead, the court observed, "[t]hat an official has an abundance of relevant matters on his plate should not insulate him or his benefactors from the gratuity statute - as long as the jury is required to find the requisite intent to reward past favorable acts or to make future ones more likely." Id. at 969. Therefore, the appellate court affirmed the trial court's decision not to dismiss the indictment.

C.   The Sun-Diamond Supreme Court Decision

OIC petitioned the Supreme Court for a writ of certiorari on the gratuities jury instruction issue. One purpose, of course, was to reinstate Sun-Diamond's conviction, but OIC's overarching purpose was to bring some consistency and clarity to the interpretation of § 201(c)(1) for its remaining prosecutions and for future application of the law. It seemed particularly anomalous that, following the Sun-Diamond decision, the law against federal officials accepting gratuities would be interpreted significantly more leniently in the District of Columbia, the seat of government, than it would in most other places in the country.

The Supreme Court granted certiorari, limiting its consideration to the following question: "Is the requirement in 18 U.S.C. Sec. 201(c)(1)(A) that a thing of value be given 'for or because of any official act' satisfied by a showing that the giving of a thing of value was motivated by the recipient's official position?" United States v. Sun-Diamond Growers of California, 119 S.Ct. 402 (1998). The Supreme Court, in other words, chose to review the accuracy of the jury instructions given for § 201(c) in the Sun-Diamond Growers of California trial - that Sun-Diamond could be convicted for giving Espy gifts "simply because he held public office."

In its decision, the Supreme Court chose to limit the enforcement of § 201(c)(1) by reading into it a requirement that the official act for which the gifts were given must be identified with specificity. United States v. Sun-Diamond Growers of California, 119 S.Ct. 1402, 1407 (1999). The Court noted that the term "official act" receives a very elaborate definition in the statutory language. ⁽⁸⁴⁾ Id. Thus, although the specificity requirement is not directly stated in the statute, the Court found that "[t]he insistence upon an 'official act,' carefully defined, seems pregnant with the requirement that some particular official act be identified and proved." Id. Without addressing the concerns of the Courts of Appeals that had held otherwise, the Court found a specificity requirement to be "the more natural meaning" of the phase "for or because of any official act performed or to be performed," particularly given the complex nature of the statutory provision. Id.

The Supreme Court thus chose a narrow interpretation of § 201(c)(1), limiting it to instances in which the government can identify the particular official act for which a gift is given. The Court identified two alternatives for dealing with the broader problem of gifts given to public officials to garner general goodwill. The first is the body of criminal statutes tailored to gifts given for certain narrow ranges of official acts, such as representing the giver in a matter in which the government has an interest or compromising indebtedness to the government. Id. at 1408-1409. The second alternative is the broad spectrum of administrative regulations that address various forms of gratuities to government officials. Id. at 1409-1410.

Given that the Supreme Court interpreted § 201(c)(1) narrowly, the question remains as to what effect the decision will have on the prosecution of gratuities offenses in the future, both under § 201(c)(1) and under other similar statutes. OIC's experience indicates that the decision will narrow the sweep of § 201(c)(1) but not eliminate the prosecution of gratuities offenses.

D.   Sun-Diamond Revisited - United States v. Schaffer

The D.C. Circuit revisited § 201(c)(1) after the Supreme Court's Sun-Diamond decision, in United States v. Schaffer, 183 F.3d 833 (D.C. Cir. 1999). OIC had prosecuted Archibald Schaffer for giving gifts to Espy on behalf of his employer, Tyson Foods, Inc. The indictment charged offenses under both § 201(c)(1) and the Federal Meat Inspection Act, 21 U.S.C. § 622, which forbids giving gifts to any official with responsibilities under the act, with an "intent to influence the discharge of any duty under [the Act]." The jury convicted Schaffer on both counts. Notwithstanding the jury verdict, the trial court entered judgments of acquittal on both counts, holding that the evidence was insufficient to establish the requisite nexus between the gifts and specific official acts. United States v. Williams, 29 F.Supp.2d 1 (D.D.C. 1998).

The Court of Appeals in Schaffer therefore had occasion to review the intent requirement of both § 201(c)(1) and the Meat Inspection Act after the Supreme Court's Sun-Diamond decision. With regard to § 201(c)(1), the court noted that, even after the Supreme Court decision, "the magnitude of the necessary link [between the gift and the official act], and its proper translation into a concrete rule of decision, remains in some doubt." 183 F.3d at 840. Since under the facts of Sun-Diamond the Supreme Court was not in a position to articulate the "amount and kind of evidence necessary to establish a nexus with an official act," the Court of Appeals looked to the statutory language for guidance. Id. at 841.

The court first analyzed the possible forms the relationship between the gift and the official act might take. It found that an unlawful gratuity under the statute can take one of three possible forms: a reward for past action; a gift intended to entice a public official who has already staked out a favorable position to maintain that position; or a gift given with the intent to induce a public official to propose, take or shy away from some future official act. Id. at 841-842.

As to proving the nexus, the court then noted that the gift giver would rarely have a single purpose and that intent can be inferred from circumstantial as well as direct evidence. Id. at 843. Nevertheless, it agreed with the district court that there was an insufficient nexus shown under the gratuity statute between the gift alleged, tickets to an inaugural dinner, and the official acts alleged, in that USDA's heightened interest in the issues to be addressed came after Schaffer agreed to give Espy the tickets.

With regard to the Meat Inspection Act, the D.C. Circuit found that the applicable intent standard is not so stringent as under § 201(c)(1). In particular, the court found that the Act has a narrow focus and lacks the detailed definition of an official act found in § 201(c)(1). While the Supreme Court in Sun-Diamond had limited § 201(c)(1) to gifts given for specifically identified official acts because of both the statute's broad sweep and its detailed definition of "official act," the language of the Meat Inspection Act suggests that it is not so limited. Id. at 845-846. Thus, Sun-Diamond appears unlikely to limit the sweep of other, more narrowly drawn anti-corruption statutes. ⁽⁸⁵⁾

However, the jury instructions in Schaffer had required the same nexus between gift and act for the Meat Inspection count as it had for the gratuities count. Consequently, even though it found the Meat Inspection Act's requirements less stringent than those of the gratuities statute, the Court of Appeals actually reviewed the sufficiency of the evidence behind Schaffer's Meat Inspection Act conviction under the gratuities standards of § 201(c)(1). 183 F.3d at 847. Consequently, the court drew a road map for a gratuities prosecution:

At a minimum, the independent counsel's case: (i) identified specific policies of concern to the defendant and his employer; (ii) that were pending, rather than merely inchoate, at the time of the gratuities; (iii) about which the defendant and/or his employer had timely communications with the recipient public official; (iv) through which it made known its concerns, recommendations, and the likely costs of compliance with the policy in its then current form; (v) and that the official in question was, at the time he received the gratuity, in a position to influence the trajectory of the policies in question. . . . Generally speaking, when a gratuity prosecution has established each of these elements, the jury can rationally decide the intent question either way.

Id. at 850.

It would thus appear that the D.C. Circuit, at least, has not read the Supreme Court's decision in Sun-Diamond as effectively writing § 201(c)(1) off the books. While a gratuity merely given because of an official's position or to garner the official's generalized sympathy is not enough to transgress the statute, a jury is still entitled to find the required nexus between a gratuity and a specific official act on the basis of circumstantial evidence indicating the donor's intent. Therefore, although the Supreme Court has resolved the conflicting interpretations of the statute predating the Sun-Diamond decision, it has not eliminated § 201(c)(1) (or other more specific statutes restricting gifts to government officials) as restraints on governmental corruption.

E.   The Continuing Importance of the Gratuities Laws

Notwithstanding the Sun-Diamond decision, the gratuities laws continue to have a vital function in protecting the processes of government. The Espy investigation and the prosecutions that followed from the investigation illustrate the continuing value of these laws in restraining the temptation to buy the favor of government officials facing those subject to governmental regulation.

The prosecutor's function is to investigate possible violations of law and to prosecute when appropriate. In the view of this Office the principal value of an independent counsel's investigation lies in the clear message it sends that a vital law enforcement interest will not be ignored. This investigation, like others before it, reaffirmed that public officials owe a duty of absolute loyalty to the United States citizenry and must place this duty above private gain. An official's receipt of unlawful gifts is pernicious behavior that creates a potential conflict of interest, erodes the credibility of a department's decision-making process and ultimately undermines public trust in government. This is why federal criminal and civil laws have long prohibited regulated persons and entities from buying the favoritism of the public officials who regulate them, and why the Independent Counsel's prosecutions advanced important federal interests.

The origins of the prohibition against government officials accepting gifts from those they regulate are unknown, but they can be traced back at least to Plato, who asserted, "The servants of the nation are to render their services without any taking of presents." Plato, Laws (as quoted in U.S. Office of Government Ethics, Public Financial Disclosure: A Reviewer's Reference (1994) at 9-1). The earliest bribery prohibitions at common law provided that judges "shall take no Gift nor Reward by themselves, nor by other, privily nor apertly, of any Man that hath to do before them by any Way, except meat and drink, and that of small value." 20 Edwardi, III. c.1 (1346) reprinted in STATUTES OF THE REALM, Vol. 1, pp. 303-04 (William S. Hein & Co., Inc. 1993).

Centuries later, the demand that public officials refrain from receiving gifts from private interests for official action is a still a matter of significant public concern.

In 1962 Congress passed, and President Kennedy signed into law, the conflict of interest legislation that created the present-day bribery and unlawful gratuity statutes. The gratuity statute, which became a focus of this investigation, provides generally that no public official shall seek or accept "anything of value personally for or because of any official act performed or to be performed by such an official or person."

Congress has also passed gift-related laws specifically targeted at the United States Department of Agriculture to protect the public from official misconduct and to promote public confidence in the safety of the nation's meat supply. Upton Sinclair's 1906 book The Jungle publicized the corruption of meat inspectors and the unsanitary conditions of the meat packing industry. In response, Congress passed the Federal Meat Inspection Act, which established a system of federal inspection of meat products and barred any officer or employee of the United States government with responsibilities under the Act from accepting anything of value from any person or corporation regulated under the Act. 21 U.S.C. § 622. As one federal court of appeals later explained, this strict prohibition of gifts was necessary "lest [the official's] corruption - or the appearance of it - undermine the quality of meat or the public's trust in their supervision of meat quality." United States v. Seuss, 474 F.2d 385, 388 (1^st Cir. 1973).

While the grant of jurisdiction to the Independent Counsel in the Espy matter specifically referred to Espy's receipt of gifts, it was not confined to the gratuities statutes, but instead encompassed "violation[s] of any federal criminal law." It thus embraced a larger set of conflict-of-interest statutes, as well as administrative regulations to the extent they are vindicated by such statutes.

The core of the federal conflict-of-interest statutes is found in Chapter 11, Title 18 of the United States Code, entitled Bribery, Graft, and Conflicts of Interest. The relevant statutes in that title include not only proscriptions against bribes and gratuities (Section 201 of Title 18), but also prohibitions on the illegal receipt of unauthorized compensation (Section 208) and the illegal receipt of salary supplementations (Section 209).

F.   Conflict-of-Interest Regulations

Senior government employees are also subject to the conflict-of-interest rules and detailed standards of conduct which have the force of law. Only three years after the enactment of the gratuities statute, President Lyndon B. Johnson promulgated the "Standards of Ethical Conduct for Government Officers and Employees." Explaining the policy behind these ethical standards, he reiterated the importance of absolute loyalty to the public:

Where government is based on the consent of the governed, every citizen is entitled to have complete confidence in the integrity of his government. Each individual officer, employee, or adviser of government must help to earn and must honor that trust by his own integrity and conduct in all official actions.

Executive Order 11222 (May 8, 1965). The Standards do not prescribe criminal sanctions; however, repeated violations can support fraud violations under the "honest services" doctrine. The very first Standard of Conduct prohibited all Executive Branch employees from soliciting or accepting any gift or entertainment from a person or company doing business with or regulated by the employee's agency or with interests that may be substantially affected by the performance or non-performance of the employee's official duty.

Today these standards are found at 5 C.F.R., Part 2635, et seq. They declare that public service "is a public trust" and require the federal employee to conform his conduct to the standards "to ensure that every citizen can have complete confidence in the integrity of the Federal government . . . ." § 2635.101(a). Their proscriptions forbid the employee from soliciting or accepting (subject to certain exceptions) any gift or other item of monetary value from a prohibited source, defined as any person or entity seeking official action from, doing business with, or conducting activities regulated by the employee's agency. Id. and § 2635.203(d).

A "gift" in this context includes any "gratuity, favor, discount, entertainment, hospitality, loan, forbearance, or other item having monetary value" and includes "transportation, local travel, lodging, and meals, whether provided in kind by purchasing of a ticket, payment in advance, or reimbursement after the expense has been incurred." § 2635.203(b).

The regulations permit acceptance of gifts of $20.00 or less (the "$20.00 exception"), and gifts based on a personal relationship (the "friendship exception"). For the friendship exception to apply, the gift must be "given under circumstances which make it clear that the gift is motivated by a family relationship or personal friendship rather than the position of the employee." Relevant factors in making such a determination include the history of the relationship, the reason for the gift, reputation for exchanging gifts, and whether the family member or friend personally pays for the gift. § 2635.204(b).

Notwithstanding the $20.00 exception and friendship exception, an employee is precluded from accepting any gifts in return for official acts, from soliciting or coercing the gift, and from "accepting gifts from the same or different sources . . . so frequent[ly] that a reasonable person would be led to believe the employee is using his public office for private gain." § 2635.202. The Standards further proscribe a government employee from accepting not only a gift from a prohibited source, but also any gift "given because of the employee's official position." "A gift is solicited or accepted because of the employee's official position if it . . . would not have been offered or given had the employee not held his Federal position . . . ." § 2635.203(e). The regulations also prohibit the employee from using his public office for the private gain of any friends, relatives, or persons with whom the employee is affiliated in a non-governmental capacity. § 2635.702. It was this section that applied to gifts given to Dempsey from prohibited sources and entities regulated by Secretary Espy.

The Ethics in Government Act of 1978 also requires senior officials in the executive, legislative, and judicial branches to file public reports of their finances as well as other interests outside the government. The statute and the Office of Government Ethics (OGE) regulations specify that all Cabinet officers and certain other senior officials must file, prior to their confirmation hearings and annually thereafter, a Standard Form 278 (SF-278) on which they disclose detailed information concerning their property, assets, income, gifts, reimbursements, and travel expenses. The officer must sign a certification that the information contained on the form is true, complete, and correct, and is on notice that he is subject to criminal prosecution for a knowing and willful falsification of the information. Designated officials within each agency review the reports, which are available to the public, and determine whether based upon the disclosed information, any conflicts of interest exist.

If a potential conflict of interest is revealed, several remedies are available to avoid an actual or apparent violation of federal ethics laws and regulations, including divestiture, recusal, reassignment, and resignation by the official. The theory of public financial disclosure is rooted in post-Watergate concepts of "government in the sunshine." The aim is to avoid conflicts of interest through review and analysis of disclosures, and to ensure public confidence in government through disclosure.

One of the categories of information required by the form is the executive's reporting of gifts and reimbursements he, his spouse, and dependent children receive aggregating $250.00 or more, or aggregating more than $100.00 from a single source. When Congress passed the provisions requiring public disclosure of gifts in 1978, the Senate Report specifically noted:

The primary purpose for reporting gifts received is to disclose any gift that might have been given to influence the official performance of a government employee's responsibilities [Senate Report No. 95-170 (1978) U.S. Cong. & Admin. News 4216, 4333].

G.   The Public Servant as Trustee

Upon his selection as Secretary of Agriculture, Espy assumed fiduciary obligations to the United States, its citizens, the President, and USDA. As Secretary, Espy wielded a great deal of discretionary power over those persons, firms, and entities doing business with or regulated by USDA. In the two years he served as Secretary of Agriculture, Espy administered a budget of $65.5 billion, or 4.3% of the total federal budget, and was ninth in line for succession to the Presidency of the United States. These obligations imposed upon Espy the duty to perform his job free from deceit, fraud, dishonesty, and self-enrichment, the duty to obey criminal and civil laws and regulations, the duty to neither solicit nor accept things of value from persons or entities with business pending before or regulated by the USDA, and the duty to disclose to the government and the public material information as required.

Public officials act as "'trustee[s] for the citizens and the State . . . and thus owe[] the normal fiduciary duties of a trustee, e.g., honesty and loyalty' to them." United States v. Silvano, 812 F.2d 754, 759 (1^st Cir. 1987) (quoting United States v. Mandel, 591 F.2d 1347, 1363 (4^th Cir.), aff'd in relevant part, 602 F.2d 653 (1979)(en banc). Out of this fiduciary relationship flows an affirmative duty on the part of government officials to disclose material information of which they have knowledge, a duty that can be vindicated through the mail and wire fraud statutes. Id. Not every breach of fiduciary duty or every instance of dishonest or disloyal conduct by a government official violates the mail and wire fraud statutes, but an official's breach of a fiduciary duty is actionable under these statutes when it encompasses an intentional breach of a duty to disclose material information and results in gain to the official. Id. In practice, an official who unlawfully receives things of value from a regulated entity and does not disclose this fact when required breaches his fiduciary duties to his employers - the government and the people of the United States - and can be prosecuted for mail or wire fraud. United States v. Woodward, 149 F.3d 46, 62-63 (1^st Cir. 1998), cert. denied, 525 U.S. 1138 (1999).

This office examined Espy's conduct and his girlfriend and family members' receipt of gifts within the totality of this legal framework. Accordingly, the inquiry neither began nor ended with whether Espy or his girlfriend or family members received gratuities "for or because of an official act" (18 U.S.C. § 201(c)); it necessarily extended to the question of whether Espy was obligated to report what he or they received and what he truthfully disclosed - or did not disclose - to investigators.

As the foregoing indicates, a public official's acceptance of gifts presents a serious problem. It calls into question the impartiality of the official's judgment in exercising the powers of his office and in deciding matters of policy that affect both the gift giver individually and the public as a whole. Such gift-giving ultimately results in a lack of public confidence in the official. As the Supreme Court observed in upholding an application of conflict of interest legislation,

a democracy is effective only if the people have faith in those who govern, and that faith is bound to be shattered where high officials and their appointees engage in activities which arouse suspicion of malfeasance and corruption.

Crandon v. United States, 494 U.S. 152, 165 n.20 (1990).

It is difficult, if not impossible, for the public to know why a public official decides a matter one way or the other. This is especially true where the official in question is charged with advancing conflicting goals - here, promoting agribusinesses while at the same time protecting the consumers of agricultural products. Consequently, acceptance of gifts from a regulated or subsidized business by a Secretary of Agriculture or any other federal official often will - as it should - compel a thorough investigation to ensure that the official has not compromised his office and to reassure the public that political corruption will not be tolerated. Ultimately, the Independent Counsel's investigation and prosecutions in the Espy matter reaffirmed the principle that our government represents the public as a whole - not the privileged few who would buy their way into regulatory grace by unlawful means, or the public officials who would flout the public's trust and enrich themselves by accepting illegal gratuities from those they regulate.

V.   FINANCIAL ANALYSIS

The costs of independent-counsel investigations have frequently been a source of public discussion but seldom the subject of close inspection. The media, administration officials, members of Congress, and the general public have tended to view the investigations as too expensive, suggesting that money is somehow wasted by spendthrift Independent Counsels. The following section, besides outlining the costs of the investigation of Secretary Espy and related matters, seeks to lift the veil from Independent Counsel (OIC) finances by analyzing the unique nature of an Independent Counsel's work, some of the unusual and uncontrollable factors that together drive up expenses, and the sizable offsetting revenues collected as a result of an Independent Counsel's prosecutorial efforts.

A.   Financial Statement

From its inception on September 9, 1994 through September 30, 2000, OIC incurred expenses of approximately $23.7 million. Of this total, about $3.5 million represents indirect expenses - i.e., the cost of federal employees, principally investigators, assigned to OIC and paid by their respective agencies. Expenses for the six-month period ending March 31, 2001 are projected to be $592,000. A detailed summary of OIC's finances can be found in the Statement of Expenses appended to this section.

Beyond these expenses, additional costs have been and will be incurred after September 30, 2000. The amount will depend largely on the time it will take OIC to complete its remaining tasks. Even after the writing of this Final Report is completed, the law specifies several further tasks the Independent Counsel must perform before his office may be closed. ⁽⁸⁶⁾ Thus, from the time the Final Report is finished, it may take six months or more for OIC to complete its remaining statutory duties. The financial data presented in this section therefore do not represent OIC's final accounting. That will be provided by the U.S. General Accounting Office (GAO) in its final audit after OIC ceases operation.

The following bar chart depicts total OIC costs incurred in each of the six-month periods from the end of September 1994 through the end of March 2001, corresponding to GAO's audit intervals. OIC's costs rose steadily from its inception through the six months ending March 31, 1997, as the Independent Counsel's investigations, indictments and prosecutions escalated. As these activities subsided, costs declined. Beneath the chart can be found a list of key OIC activities associated with each of the six-month periods.

The majority of OIC's expenses were related to personnel costs. Through September 2000, direct salaries and benefits were approximately $10.8 million; indirect salaries and benefits (unreimbursed expenses incurred by other federal agencies) for personnel assigned to OIC amounted to about $3.5 million. Additionally, OIC used contractual services to handle such matters as investigation, trial preparation, accounting, and other professional tasks when specific employee expertise was not available or when engaging contractors was more economical than adding full-time staff. Through September 2000, the cost of contractual services totaled $2.3 million. Thus personnel-related direct and indirect costs totaled about $16.6 million, or 70% of OIC's total costs. The pie chart below displays these personnel-related costs and other major expenses through September 2000 as percentages of total OIC costs.

Offsetting a significant portion of these expenses were moneys collected as a result of OIC's activities. OIC's convictions and referrals led to the imposition of $11,803,082 in criminal fines, civil penalties, damages and reimbursement of costs through September 2000. This figure was equivalent to more than 49% of total OIC costs of $23,668,248 through the end of September 2000. Approximately $10.9 million of the amount due had been received and deposited into the U.S. Treasury as of September 2000. These offsetting funds effectively reduced OIC's total costs by approximately one-third, resulting in net expenses through September 2000 of $12,762,762.

B.   Analysis

Independent Counsels have been roundly criticized for the expense and length of their investigations, and this Office has been no exception. Most white-collar criminal cases, however, are costly and time-consuming, no matter who handles them. In the case of the Department of Justice (DOJ), for example, "it takes more than 10 months for a white collar criminal case to be filed in court from the time it is referred to the federal prosecutor's office." ⁽⁸⁷⁾ The experiences of seasoned prosecutors in this field suggest that from the time an investigation commences until an indictment is returned, a typical white-collar case runs a minimum of about 12 months to upwards of 48 months, with an average of around 42 months, or three and a half years.

Still, the questions remain: Why do independent-counsel investigations, especially, seem to have cost so much and taken so long? And, were the time and expense justified? Although the independent-counsel statute has lapsed, these questions and their answers are pertinent to any future effort to create a mechanism for dealing with high-level government corruption.

Two factors in particular have increased the cost of Independent Counsel investigations: (1) Each Independent Counsel has been required to create an office from scratch to perform criminal investigations and prosecutions, without a base of personnel, infrastructure or institutional memory; and (2) The nature of the Independent Counsel's task has prolonged the duration of all phases of his work.

1.   Startup Costs

Since passage of the original Special Prosecutor Act in 1978, every Special Prosecutor and Independent Counsel faced the same formidable first hurdle - starting from nothing - no office, no staff, no attorneys, no agents, no equipment, no books, not even a telephone. All any Independent Counsel possessed was a piece of paper, evidencing his appointment and jurisdiction. In making his administrative decisions, an Independent Counsel was required to comply with numerous, and frequently unfamiliar, federal regulations and procedures.

Before he could commence any meaningful probe, an Independent Counsel first had to locate and lease appropriate office space. While the 1994 amendments to the Independent Counsel Act obligated the General Services Administration to "promptly provide appropriate office space for each Independent Counsel," 28 U.S.C. § 594(1)(3), the task was easier said than done. Typically, the newly appointed Independent Counsel was provided, at best, temporary space - most likely little more than a closet in the basement of a federal office building - from which to commence recruiting qualified staff. As staff and workloads increased, the need for more suitable quarters would quickly become apparent.

Leasing adequate space and equipment for an office that was, by definition, temporary, for activities that were, by nature, indeterminate in length, was difficult at best. Generally speaking, longer leases are more cost-effective than shorter ones, but a better deal on a longer lease might be negated if early termination triggers substantial penalties. Without any conceivable way of knowing in advance how long his investigation and possible trials might last, an Independent Counsel was unable to choose the most cost-effective term for the leases he signed. The impermanent nature of an Independent Counsel's operations thus tended to increase leasing costs for office space, as well as equipment. Then, too, because an Independent Counsel's investigation usually reached beyond Washington, D.C., satellite offices in different parts of the country were often needed, multiplying the problems of leasing office space several-fold.

Office security was an obvious concern, so site selection necessarily took into account safeguards against tampering, eavesdropping, and theft. This Office chose to locate just outside Washington, D.C. - in Alexandria, Virginia - where rents were lower and the modicum of distance from the District was more conducive to an effective high-level public-corruption probe.

After office space had been secured, finding staff was the next big hurdle. Independent Counsels primarily used lawyers from DOJ and the United States Attorneys' Offices and agents from the federal investigative services - the same resources employed in other federal prosecutions. Yet here, too, OIC's transient nature presented unique difficulties. An Independent Counsel could offer potential staff no definitive guidance as to the length of an assignment, other than to say the job would not last for very long. For professional prosecutors, concerned about how many cases they would try, little helpful information could be provided - especially at the outset of an investigation, when it was not clear there would be any indictments at all, let alone trials. Despite these unknowns, independent-counsel investigations successfully attracted tremendously able, talented, and experienced staff, agents, and lawyers.

No other prosecutor confronts so many administrative demands at the time of his appointment. Not surprisingly, it took upward of 12 months for an Independent Counsel's office to become fully integrated and adequately equipped to function efficiently. The effect on the Independent Counsel's bottom line was direct and immediate.

2.   Duration of Activities

An Independent Counsel was under statutory command to complete his investigation and any prosecutions promptly. He could, to a certain extent, control the size of his investigative staff, but to fulfill his obligation to pursue his assigned task wherever it might lead, he did not and could not control how long the assignment would take to complete. That depended on the Independent Counsel's ability to obtain the relevant documents and the testimony of witnesses, which turned in substantial part on witness cooperation. Ultimately, how long any trials and appeals take is a function of defense strategy and its reception in the courts. Therefore, if the Independent Counsel's investigation confronted obstructive challenges, the investigative process was lengthened further and operating expenses necessarily increased. Indeed, to counter such obstructive tactics, an Independent Counsel frequently had to increase his staff, which meant added costs.

Delays peculiar to the office arose for Independent Counsels in all three phases of operation: (a) investigation, which included the collection and analysis of relevant documents, questioning witnesses, and taking witnesses to a grand jury; (b) indictment and trial, which entailed extended staff time in trial preparation and at trial, and required the opening of field offices near trial locations distant from Washington, D.C.; and (c) post-trial, which included the appellate process and the completion of a Final Report.

a.   Investigative Phase

An Independent Counsel's statutory mandate was to investigate fully the matters referred by the Attorney General, as well as all other relevant matters and individuals whose acts may have been related to the initial subject matters. In the case of this Office, investigative costs were not inordinate, given the breadth and depth of the Espy investigation. OIC conducted 1,622 interviews, with approximately 1,250 persons. It issued 1,500 grand jury subpoenas. Witnesses appearing before grand juries numbered 304 in Washington, D.C., 48 in Mississippi, 19 in Louisiana, and two in California. Grand jury days came to 207 in Washington, D.C., 19 in Mississippi, 11 in Louisiana, and three in California. In addition, OIC spent 39 days taking the depositions of 33 witnesses.

More generally, the length and cost of independent-counsel investigations were directly affected by the unintended yet detrimental consequences of the initial probe conducted by the Attorney General prior to referral. The Independent Counsel Act provided that when the Attorney General received information sufficient to constitute grounds to investigate allegations of federal criminal conduct by a "covered person," she had to conduct a "preliminary" investigation within 90 days. 28 U.S.C. § 592(a)(1). In determining whether to seek appointment of an Independent Counsel, the Attorney General was limited to questioning witnesses who voluntarily agreed to be interviewed and to reviewing documents voluntarily produced. Missing from the Act's provisions for preliminary probes by the Attorney General were any of the basic prosecutorial tools so necessary for thorough investigation. Time-honored instruments for rooting out public corruption include wiretaps, covert video surveillance, search warrants, cooperating witnesses, and undercover agents. The Attorney General was not only denied most of these tools, but she also was forbidden "to convene Grand Juries, plea bargain, grant immunity, or issue subpoenas." 28 U.S.C. § 592(a)(2).

While the Attorney General could not, under the terms of the independent-counsel statute, meaningfully develop accusations against a "covered person," her limited preliminary investigation did walk all over the suspected crime scene, leaving indelible footprints. These earlier efforts often came back to vex an Independent Counsel. The preliminary investigation alerted subjects about the investigation itself, telling them where it was coming from, what it was about, and whom it was heading toward. These warnings caused subjects of investigation and others to "lawyer up," with an inevitable exchange of information among lawyers and their clients concerning who would and who would not remember who did what. Moreover, the preliminary probe facilitated efforts by subjects' attorneys to pre-try the case in the court of public and media opinion by launching preemptive public-relations campaigns.

Under normal circumstances, few white-collar criminal cases assume a public persona in the investigative stage. Rarely did an Independent Counsel, escape media curiosity or avoid almost instant transformation from a professional prosecutor into a political figure. The Independent Counsel investigation itself could then come to be viewed, by some, as a political exercise - perhaps even a vendetta - against the subject of the probe, rather than as a bona fide investigation and prosecution of criminal misconduct. Astute defense lawyers know that investigations suffering public disapproval are less likely to obtain evidence from reluctant or neutral witnesses. Thus, while the intent behind the Independent Counsel Act's provision for a limited preliminary investigation by the Attorney General was understandable, the effect was to interject myriad problems that delayed and impeded an Independent Counsel's work.

Other factors that contributed to the length of independent-counsel investigations - not apparently encountered to the same extent by DOJ - were lying, perjury and other forms of obstruction of justice. Independent Counsels encountered these offenses with uncommon regularity and frequency. More than one-third of all Independent Counsel prosecutions concerned these crimes.

The career prosecutors and agents in this Office, including those acting in an advisory capacity, were uniformly of the belief that there was more lying, perjury, and obstructive behavior in the investigative stage of independent-counsel cases than in typical white-collar cases. One can only speculate as to the reasons. One explanation may be that in independent-counsel investigations, witnesses often were individuals whose lives revolved around politics and who were used to answering questions in a glib, self-serving manner, often dealing with "shades" of truth. Another explanation may stem from the very nature of the crimes investigated by Independent Counsels. Public corruption is, after all, the elevation of self-interest over the common good, and the common good is nowhere better embodied than in the law itself. That high-ranking officials would put their own interests ahead of the public's by engaging in corrupt activities reveals an inherent disdain for the law. It should come as no surprise, then, if such self-centered disregard for societal strictures prompted lying to or otherwise obstructing an Independent Counsel whose principal job was to uphold the law to maintain the public's trust in its government.

In the Espy matter, witness lying not only misled investigators but also impeded and delayed the Independent Counsel's investigation as a whole. For example, when Alvarez Ferrouillet, the Louisiana lawyer who headed the effort to retire Henry Espy's campaign debt, was questioned about contributions that later proved to have come illegally from a single source, he gave the investigating agents a false list of 46 contributors. At that time, agents had no reason to doubt Ferrouillet or his documentation so they turned to other issues. It was not until eight months later that documents that OIC subpoenaed from Crop Growers revealed that the true source of the contributions was Crop Growers.

The penchant for making false statements in independent-counsel cases also may have spoken to the success of defense efforts to politicize the office and thus undermine its standing as a bona fide law-enforcement agency. As a consequence of these tactics, Independent Counsels could become delegitimized, and such a loss of legitimacy might have suggested to some that they could lie to an Independent Counsel with impunity. Such a dismissive view of the office might have been reinforced by the Independent Counsel's unusual status within the federal framework. As an executive office outside the established executive branch, the Independent Counsel was considered by many to be an extra-constitutional "fourth branch" of government. Whatever the reason, false statements and other efforts to obstruct independent-counsel investigations produced considerable delays and raised costs.

Yet another cause of delay was the propensity of persons resisting an investigation to question the Independent Counsel's jurisdiction. As the Special Division of the U.S. Court of Appeals for the D.C. Circuit noted in its published decision In re Espy, 80 F.3d 501 (D.C. Cir. 1996), this Office's jurisdiction in grand-jury matters was tested by 43 motions within a span of about 14 months (from January 1995 to February 1996). Such challenges continued unabated throughout OIC's investigations, prosecutions and appeals. ⁽⁸⁸⁾

When the jurisdictional challenge was to the Independent Counsel's grand-jury subpoena duces tecum, the documents were not produced until the challenge was resolved. When the ruling on that challenge was not made promptly but took weeks or months (as was often the case), the ability to conduct a rapid, orderly and deliberate investigation was damaged. Without the subpoenaed documents, witness interviews were delayed. Agents and lawyers assigned to review the subpoenaed material had to turn their attention and efforts elsewhere. The problem was compounded when, after court order, the documents were obtained but the responsible agents and attorneys were no longer available because of reassignment. In that event, new agents and lawyers had to take over and get up to speed to take over that particular area of the investigation. Worse, when a jurisdictional dispute arose between the Independent Counsel and DOJ and the disagreement became public, subjects of investigation were emboldened to press jurisdictional challenges, and the problem of delay was exacerbated.

These problems were compounded in the Espy investigation when the White House, instead of cooperating with the investigation, resisted subpoenas issued by OIC. On October 15, 1994, five weeks after its inception, OIC served a grand-jury subpoena duces tecum on the White House for documents it obtained and considered in the internal Espy inquiry it conducted in August and September 1994. The White House issued a press release representing that it would produce all documents identified by the subpoena, and stating, "We will cooperate." Despite the White House's assurances, it refused to produce many of the subpoenaed documents, claiming executive privilege. On June 7, 1995, after six months of negotiations proved futile, OIC filed a motion in the district court to compel production of these documents. The court denied that motion on September 30, 1996 - over a year after the parties argued the cause - and OIC appealed. The D.C. Circuit reversed, articulated a new standard for review of claims of executive privilege, and remanded the case to the district court for it to determine what documents OIC was entitled to receive under this new standard. ⁽⁸⁹⁾ The D.C. Circuit also expressly concluded that OIC had met its burden and was entitled to some of the withheld documents.

Nevertheless, following remand to the district court, the White House continued to oppose production of the documents. It now argued that, because former Secretary Espy had been indicted, OIC's investigation had concluded so it no longer needed the documents. The district court rejected this argument and determined the contents of the documents to which OIC was entitled. The White House then opposed production on the ground that, since the district court presiding over the Espy trial had dismissed the count charging Espy with making false statements to the White House, the documents at issue, which contained statements by Espy to the White House, could not advance OIC's investigation. The court again rejected the White House's argument, and on February 17, 1998 ordered the White House to produce the redacted documents to OIC. On March 25, 1998 - over 41 months after the White House received the grand jury's subpoena - the White House produced several of the documents covered by that subpoena.

b.   Indictment and Trial Phase

Some of the delays faced by the Independent Counsels were endemic to the judicial system. Once an indictment is returned, for example, there is little any government attorney can do to hasten the trial process, beyond requesting as early a trial date as a court's calendar permits. Rare is the white-collar case that fulfills the Speedy Trial Act's command for a trial commencing within 70 days of arraignment. 18 U.S.C. § 3161. A prosecutor is therefore captive to the court's calendar, and courts usually defer to defense-counsel requests for time to file motions to have the case dismissed. The court then needs time to consider and decide these matters. The result is delay - often ascribed, somehow, to the Independent Counsel. In 12 cases brought by this Office, the time between indictment and trial averaged nearly 33 weeks, with a median of 28 weeks.

Delays in trial exacted special tolls on Independent Counsels that other prosecutorial offices normally do not have to pay. Because an Independent Counsel was assigned a particular investigation, he often could not simply reallocate personnel to perform other duties during trial postponements. Moreover, since the office was a temporary one, its personnel were temporary, also. Employees came from the federal service or from private practice, and in almost every case the attorneys and investigators had plans to return to their former offices sooner -- they and their offices hoped -- rather than later. Consequently, if a case was not tried expeditiously, maintaining trial-team stability was almost impossible, and expenses escalated as replacements took time to move along the learning curve. On occasion, a lengthy postponement resulted in the disbandment of an Independent Counsel's trial team, with the subsequent need to recast the group. In the Espy case, postponements lasted so long that the trial team had to be recast twice.

c.   Post-trial Phase

Once a trial is concluded or a plea is entered, the date of sentencing is in the court's hands. In eleven cases involving this Office, delays between the time of conviction or plea and the time of sentencing reached as high as two and one-third years, the median being four and one-half months.

Moreover, just as a prosecutor is unable to control a trial's length and the time of sentencing, he is similarly unable to control the appellate process. Whether the prosecutor is DOJ or an Independent Counsel, the number of appeals defendants file and the time it takes to resolve them are beyond a prosecutor's control. In the seven cases resulting in appellate decisions, the time between the filing of the appeal and the Court of Appeals' decision ranged from 5 to 16 months, and averaged 9 months.

Although investigation and trial consume most of the person-hours of a prosecutor's office, a case is not completed until any appeals are decided and the defendant is finally sentenced. Therefore, an Independent Counsel could not complete and release his Final Report and go out of business until all appeals and sentencing matters were resolved. The duration of the appellate and sentencing phases can extend to several years and is almost entirely beyond the prosecutor's control. For example, OIC obtained a conviction of Archibald Schaffer in June of 1998, and then asked for the subsequent appeals to be expedited. As of December 2000, there were still two appeals pending that, but for the issuance of a Presidential pardon, would not have been decided until sometime in 2001, at the earliest.

d.   Final Report and Office Closing

Preparation and publication of a Final Report added eight months to two years to an Independent Counsel's tenure, because he was under statutory obligation to prepare a report that set forth a full and complete description of his office's work, including the disposition of all cases brought. 28 U.S.C. § 594(h)(1)(b). Moreover, the Final Report was not truly "final"- at least not before it was reviewed by the Special Division and by the named individuals, who were then afforded the opportunity to submit their comments for publication in the Report. 28 U.S.C. § 594(h)(2).

Even with the Final Report's publication, the Independent Counsel's job still was not finished, because he and the Attorney General were required separately to review all applications for reimbursement of attorneys' fees and return their respective findings to the court within 90 days. 28 U.S.C. § 594(f)(1). The issue of attorney fees was then resolved. 28 U.S.C. § 594(f)(2). Finally, all financial matters and reports had to be completed, any remaining equipment had to be transferred and all records had to be archived. 28 U.S.C. § 594(k). Only then could the office finally be closed.

C.   Conclusion

The Special Division, which selects Independent Counsels and to which Independent Counsels report, looked at the investigation costs of Independent Counsels versus DOJ and observed that the former

may be more costly to the government because of its 'start-up cost.' At the outset, he must rent private office space, acquire extensive equipment and capital assets, contract for and use private facilities and outside lawyers, and when finished make a complete final report. And during the progress of the case, he must maintain a staff to deal with one investigation. ⁽⁹⁰⁾

All things considered, however, investigations by independent counsels took no longer and were no less efficient than those of DOJ. Indeed, allowing for their lengthy startup phase and other unique burdens, independent-counsel investigations actually may have been more efficient and less time-consuming than those of DOJ - in part because an Independent Counsel could muster concentrated investigative and prosecutorial firepower to a degree that the Justice Department and others ordinarily do not. No firm conclusion can be reached, however, because DOJ does not report the costs of its investigations.

Nonetheless, for comparative purposes, consider two recent high-profile investigations. When Robert Fiske was appointed a regulatory Independent Counsel in 1994 to look into Whitewater (an Arkansas land deal involving the Clintons), he worked within DOJ as a special employee. His approximately eight-month operation cost $6 million, averaging about $750,000 a month while active. ⁽⁹¹⁾ Before Senator Fred Thompson started his 1998 investigation of illegal campaign contributions to the Democratic National Committee and Republican National Committee, it was reported his committee would spend approximately $4.35 million in a nine-month period, or slightly more than $480,000 per month. ⁽⁹²⁾ These were just investigative costs, however, and did not include office-space charges or, apparently, prosecution expenses. In contrast, this Office's investigation and prosecution costs amounted to $23,668,248 for the 67 months through September 2000, or about $353,257 per month. At the peak of activity, in the six months ended March 1997, total costs for this office ran about $560,235 per month.

The ultimate question, though, is not whether independent-counsel investigations cost more than DOJ investigations. The question is whether they are the most cost-effective means of addressing the daunting problem of how the highest level of the Executive Branch can investigate and prosecute itself. Given the apparent necessity of separating such anticorruption efforts from the structure already in place for general law enforcement, a certain level of inefficiency would appear to be inevitable. The policy issue yet to be resolved is how much such extra expense is warranted to assure the public that the highest level of government cannot violate the law with impunity.

INDEPENDENT COUNSEL
DONALD C. SMALTZ

Statement of Expenses

(The accompanying Notes are an integral part of this Statement)

Notes to the Statement of Expenses

Note 1 - Accounting Policies and Reporting Requirements

Independent Counsels are required by statute to submit a Statement of Expenditures every six months. 28 U.S.C. § 596. The reporting periods coincided with the federal government's fiscal year (October 1-September 30). GAO audited and published the statements, including its own opinions and discussions, in a publication entitled Financial Audit: Independent Counsel Expenditures for the Six Months Ended. . . . The most recent audit report, GAO's fifteenth, covered the period October 1, 1999 through March 31, 2000 and was published September 30, 2000. These audit reports are available to the public from GAO.

Independent Counsels were also required to report their expenses every six months. 28 U.S.C. § 594(h)(1)(a). Expenses differ from expenditures in that expenses include all costs incurred whether the goods or services have been paid for or not (accrual basis of accounting), whereas expenditures include only cash or equivalent payments that have been made and recorded in the period reported (cash basis of accounting).

Note 2 - Salaries & Benefits

Of the $10,848,653 in personnel compensation (salaries) and benefits, $1,487,688 (13.7%) were reimbursements to DOJ for attorneys assigned or detailed to this Office. In the course of the investigation, a total of 12 DOJ attorneys were detailed to this Office for periods ranging from one month to three and one-half years.

Note 3 - Travel

Travel generally included expenditures for investigation-related transportation and lodging incurred by personnel employed by this Office, personnel from other federal agencies on assignment to this Office, and witnesses appearing before grand juries and at trials.

Note 4 - Rent, Communications and Utilities

In addition to office-space rent, telephone charges, and utility bills, this category also included printing costs. Of the $2,542,975 expended through September 30, 2000, office-space rental costs totaled $1,428,429, or 56% of the total expenses in this category. Most of the rent amount ($1,271,481) represented lease payments for the Office's primary office at 103 Oronoco Street, Alexandria, Virginia. The space consisted of 8,900 square feet, leased since January 1995 at a cost of $25.40 per square foot per year. The occupied space was greatly reduced in mid-2000, and the office moved to smaller quarters in January 2001. For local investigations and prosecutions, this Office opened four temporary offices for various periods of time. The following table lists all offices opened for this investigation:

Note 5 - Contractual Services

Contracted services included the costs of investigative services, trial preparation services, and other legal, accounting and professional services.

Note 6 - Capital Equipment

Capital equipment included copying, facsimile and computing equipment, furniture, and other assets purchased by this Office. All equipment assets were inventoried and sight-audited every six months. At the conclusion of the investigation, these assets will be transferred to the Department of Justice or another federal government agency.

The amount shown, $480,712, represents the actual amount paid for major equipment acquisitions. It does not represent the actual value of equipment inventory held by this Office. A significant amount of furniture and equipment originally purchased by another Independent Counsel was transferred to this office from storage. As this Office began to wind down its operations, it transferred excess items to other Independent Counsels or government agencies.

Note 7 - Administrative Services

The Administrative Office of the United States Courts (AOUSC) charged an administrative fee of 3% of all expenditures for performing disbursement, personnel, payroll and accounting functions. Payment of the fee was automatically recorded in the month following the posting of the expenditures. From inception through September 2000, these fees amounted to $561,085.

In addition, AOUSC incurred expenditures on behalf of all Independent Counsels that were not directly attributable to any one office. For each six-month reporting period, GAO allotted a percentage of these general AOUSC costs to each Independent Counsel, based on the average number of personnel on each office's payroll. For this Office, GAO allotted $712,356 as OIC's share of AOUSC's unallocated independent-counsel costs.

Note 8 - Indirect (Unreimbursed) Costs

Indirect costs included the payroll (salary and benefits) costs of federal employees, mostly investigators, assigned to this Office by various government agencies. These costs were paid by the employees' respective agencies. The cumulative amounts (unaudited) provided by each agency through September 2000 were as follows:

FBI	$1,961,510
Department of Agriculture	1,223,641
U.S. Customs Service	196,964
Department of Justice	63,572
U.S. Postal Service	60,000
Internal Revenue Service	39,000
Total	$3,544,687

VI.   CONCLUSION

The investigation and prosecution of Secretary Espy assumed a scope that no one could have anticipated when it began. Upon his appointment, the Independent Counsel, with what proved to be unwarranted optimism, expressed the hope that the project could be completed within 6 months. Six years later, as this Report is being written, the final court case has just been concluded with the issuance of a Presidential pardon.

Almost all of the avenues explored by OIC were anticipated in the stories carried in the news media at the time the initial accusations against Espy surfaced. The initial March 17, 1994 Wall Street Journal article reported that Espy had received gifts from Tyson Foods, including the Dallas Cowboys football game, and had championed Tyson's position in the fresh-frozen controversy and zero-tolerance initiative. In August and September of the same year, newspaper articles brought to light Espy soliciting a basketball ticket from Quaker Oats, Espy receiving entertainment from Sun-Diamond, Espy using Super Bowl tickets given by the Fernbank Museum, Espy taking advantage of government travel and vehicles, and Espy's girlfriend finding employment with EOP. Contemporaneous press reports also alluded to agribusiness's interest in the Henry Espy campaign and Blackley's actions as Espy's Chief of Staff on behalf of his former clients.

In the end, every one of these subjects, and others, required thorough investigation against stiff resistance and, in many cases, hotly contested litigation. The instances in which businesses interested in the actions of the Department of Agriculture took advantage of the willingness Espy and those close to him to accept things of value without regard to appearances proved to be numerous and widespread.

There was never any real question that Espy accepted numerous things of value from agricultural interests, although there was vigorous opposition to OIC's efforts to uncover the scope and extent of the gifts given. Acceptance of these things of value was prohibited by the agency's ethics regulations. The regulations also obligated Espy to report his receipt of the things of value, but, in most cases, he did not do so. When it came to prosecuting these activities as violations of criminal law, the real battlefield was proof of the intent of the donor or of the recipient, an essential component of the Government's case in any gratuities prosecution. The fact that Espy himself was found not guilty of receiving the very gratuities that others were convicted of or pleaded guilty to giving him highlights the difficulties of convincing a jury to convict under the gratuities statute. The Sun-Diamond Supreme Court decision substituted a single and possibly more easily understood standard for the numerous conflicting standards in place when the investigation began, but at the same time sacrificed much of the protection the gratuities statute had seemingly provided against private influence over public acts. The decision did not, however, take out of the jury's hands the task of passing judgment over the private motivations of the givers and recipients of gifts to federal officials.

The Henry Espy campaign offenses, which were the second major focus of the investigation (after the gratuities offenses), presented more objective questions of whether the law had been broken. In reality, though, the pervasiveness of the campaign offenses allowed OIC to prosecute the offenders under laws other than the gratuity statute, such as the election laws, without having to confront directly the motive behind the offenses - which in most cases was, obviously, the desire to influence Secretary Espy in the performance of his official duties. Because companies like Sun-Diamond and Crop Growers blatantly violated the election laws and related statutes in getting their corporate funds into Henry Espy's campaign coffers, a jury never had to answer the more difficult question of why they did so. This problem is not confined to the Espy investigation. Where to draw the line between a gratuity meant to influence a politician and a campaign donation expressing one's support of the policies of a candidate is a pervasive question at the forefront of all efforts to reform campaign financing. As Senator Daniel Inouye once remarked, quoting Senator Russell Long, "[t]he distinction between a campaign contribution and bribe is almost a hairline's difference." 120 Cong. Rec. 10351 (1974).

Additionally, the Espy investigation demonstrated, as other independent counsel investigations have in the past, that lying to government agencies and officers to conceal wrongdoing continues to be a profound and corrosive problem. It is surprising the extent to which persons - both within and outside government employment - whose livelihood depends upon the government, seem to have few qualms about concealing or affirmatively falsifying facts in the face of official inquiry. The irony is that lying to the government can convert a subjective and difficult-to-prove offense like illegal gratuities into an objective and comparatively easy-to-prove offense like false statements.

In the final analysis, the Espy story illustrates the destructive consequences of placing private gain before the public interest. Espy could not resist the multitude of benefits available from the persons and entities he was trusted to regulate. These benefits, while of significant value to him as an individual, were trivial in comparison to the public programs for which he was responsible - which is precisely why it made good business sense for the donors to offer them (setting aside the consequences of the illegality of such acts). The donors found they had a significant business interest in keeping the Secretary happy. Unfortunately, this convergence put the American public in second place and violated the trust it places in its public officials.

OIC took seriously its responsibility to provide an independent agency through which these matters could be thoroughly reviewed and acted upon. Numerous violators were brought to justice, and the public fisc achieved some measure of restitution. Even where, for whatever reason, juries or courts declined to convict those the Government charged, there has been a thorough airing of the facts, both through trial and through this Report. The investigation required more time and resources than anyone could have predicted at the outset, but OIC's charge was to perform a thorough investigation without the taint of politics and without yielding to the predictable roadblocks and obstacles thrown up by those under investigation, and that is what it did.

It is unfortunate that such an investigation was necessary in the first place. But, given the fact that the acts of Espy and those around him undermined the public confidence in how government business was being transacted, and given the recurring nature of the offenses committed, it seems inevitable that, in one form or another, such an investigation had to be undertaken if the public were to be assured that its interests are being guarded. With the expiration of the Independent Counsel Statute, the mechanism by which this can be achieved in the future will change, but the need for such a mechanism will remain.

Respectfully submitted,

___________________________
Donald C. Smaltz
Independent Counsel

Date: January 25, 2001

VII.   CHRONOLOGY

The following table chronicles the significant events in OIC's investigation, including jurisdiction referrals and indictments, verdicts, and court decisions in the prosecutions brought by the office.

1994

1995

1996

1997

1998

1999

2000

2001

APPENDICES

TO

FINAL REPORT
of
INDEPENDENT COUNSEL DONALD C. SMALTZ

In re Former Secretary of Agriculture
Alphonso Michael Espy

Appendix A

Appendix B

Appendix C

COMMENT LETTERS

TO

FINAL REPORT
of
INDEPENDENT COUNSEL DONALD C. SMALTZ

In re Former Secretary of Agriculture
Alphonso Michael Espy

Index to Comment Letters

¹ Staff of Subcommittee No. 5 of the House Committee on the Judiciary, 85^th Cong., 2d Sess., Federal Conflict of Interest Legislation (Comm. Print Dec. 30, 1958).

² The thirteen individuals charged were: Gary A. Black, Ronald H. Blackley, Richard Douglas, Alphonso Michael Espy, Henry William Espy, Jr., Norris J. Faust, Jr., Alvarez T. Ferrouillet, Jr., John J. Hemmingson, James H. Lake, Brook K. Mitchell, Jr., Brook K. Mitchell, Sr., Archibald R. Schaffer, and Jack L. Williams. The six businesses charged were: Crop Growers Corporation, Ferrouillet & Ferrouillet, Five M Farming Enterprises, Inc., Municipal Healthcare Cooperative, Inc., Sun-Diamond Growers of California, and Tyson Foods, Inc.

³ The fourteen entities and individuals who pleaded guilty or were convicted were: Ronald H. Blackley, Crop Growers Corporation, Richard Douglas, Ferrouillet & Ferrouillet, Alvarez T. Ferrouillet, Jr., Five M Farming Enterprises, Inc., John J. Hemmingson, James A. Lake, Brook K. Mitchell, Sr., Municipal Healthcare Cooperative, Inc., Archibald R. Schaffer, Sun-Diamond Growers of California, Tyson Foods, Inc., and Jack L. Williams

⁴ The four individuals acquitted of all charges were: Gary A. Black, Alphonso Michael Espy, Henry William Espy, Jr., and Norris J. Faust, Jr.

⁵ Brook K. Mitchell, Jr. was placed into a pre-trial diversion program.

⁶ Smith Barney, Inc. and Robert Mondavi Corp. (See Section III.E. for discussion and disposition of these civil actions.)

⁷ The matter of a scheme by Sun-Land Products (a wholly-owned subsidiary of Sun-Diamond Growers of California) to reimburse its directors for campaign contributions through stipends was referred to the Department of Justice; the matter of AFLAC's corporate and conduit contributions to the Henry Espy campaign was referred to the Federal Election Commission; the bank-fraud matter regarding Richard Blackmore's loan from the USDA's Alternative Agricultural Research and Commercialization Center was referred to the Department of Justice's Fraud Section; and the matter of Hart Farms' fraud involving the USDA Price Support and Production Adjustment Program was referred to the USDA's Office of Inspector General. (See Section III.F for the ultimate dispositions of these referred cases.)

⁸ These departments and agencies included: Agricultural Stabilization and Conservation Service; Foreign Agricultural Service; Office of International Cooperation and Development; Farmers Home Administration; Rural Electrification Administration; Federal Crop Insurance Corporation; Rural Development Administration; Food and Nutrition Service; Human Nutrition Information Service; Office of Consumer Advisor; Agricultural Cooperative Service; Agricultural Marketing Service; Animal and Plant Health Inspection Service; Federal Grain Inspection Service; Food Safety and Inspection Service; Packers and Stockyards Administration; Agricultural Research Service; Cooperative State Research Service; Extension Service; National Agricultural Library; Forest Service; Soil Conservation Service; Economics Analysis Staff; Economics Management Staff; Economic Research Service; Office of Energy; National Agricultural Statistics Service; World Agricultural Outlook Board; Office of Congressional Relations; Board of Contract Appeals; Office of Administrative Law Judges; Office of Advocacy and Enterprise; Office of Finance and Management; Office of Information Resources Management; Office of Operations; Office of Personnel; Office of Budget and Program Analysis; Office of the General Counsel; Office of Inspector General; Office of Public Affairs; Office of the Executive Secretariat; Judicial Officer, and Alternative Agricultural Research and Commercialization Center.

⁹ The Wall Street Journal, March 17, 1994, p. A18.

¹⁰ This statement formed the basis for a false statement charge against Williams, of which he was found guilty. See Section III.B.1.b.

¹¹ For particulars on the nature of Espy's misrepresentations to OIG Special Agents, see Section II.B.1.a.

¹² For details concerning the nature and extent of the redactions, see Section II.B.1.a.

¹³ The Independent Counsel Statute, 28 U.S.C. § 591 et seq., had lapsed due to its sunset provision. It was reenacted on June 30, 1994. When in effect, the Statute limited the Attorney General in conducting preliminary investigations of persons covered by the Act, denying her the authority to convene grand juries, plea bargain, grant immunity, or issue subpoenas. 28 U.S.C. § 592(a)(2)(A).

¹⁴ On June 9, 1994, a New York Times article, entitled "FBI Examines Espy's Travels as Tyson Guest," and an Associated Press story each suggested that DOJ lawyers were trying to wrap up the investigation before the enactment of the Independent Counsel Reauthorization Act, while FBI agents believed more investigation was warranted. The Los Angeles Times reported on June 10, in an article titled "FBI, Justice Dept. Clash Over Espy Probe," that the FBI believed other avenues of inquiry remained, but that high-level Justice Department officials sought to close the case. Citing "sources familiar with the probe," the article stated that "Justice and FBI officials had a 'heated meeting' on Tuesday [June 7, 1994] in which investigators strongly objected to the department's desire to curtail the probe."

¹⁵ Espy's alleged misconduct occurred at a time when no Independent Counsel Statute was in effect. His alleged actions therefore were arguably not covered by the reauthorization statute that was awaiting the President's signature. In 1979, Attorney General Griffin Bell concluded that misconduct that occurred prior to the passage of the Independent Counsel Statute did not fall within the provisions of the statute and declined to appoint an Independent Counsel to investigate allegations that funds from the Carter Peanuts Warehouse business had been funneled into the 1976 Carter Presidential Campaign. Katy J. Harriger, Independent Justice: The Federal Special Prosecutor in American Politics (Lawrence: University Press of Kansas, 1992), pp. 124-25.

¹⁶ The Special Division is a division of the United States Court of Appeals for the District of Columbia Circuit. 28 U.S.C. § 49. It consists of three circuit court judges or justices appointed by the Chief Justice of the Supreme Court for two-year terms. Id. One of the judges must be a judge of the United States Court of Appeals for the District of Columbia, and no two of the judges may be named to the Special Division from the same circuit. Id.

¹⁷ The Meat Inspection Act provides in pertinent part that "[a]ny person, firm, or corporation . . . who shall give, pay, or offer, directly or indirectly, to any . . . officer or employee of the United States authorized to perform any of the duties prescribed by [the Meat Inspection Act] . . . any money or other thing of value, with intent to influence said . . . officer or employee . . . in the discharge of any duty provided for in [the Meat Inspection Act], shall be deemed guilty of a felony . . . ; and any . . . [such] officer or employee . . . who shall accept any money, gift, or other thing of value from any person, firm, or corporation . . . given with intent to influence his official action, or who shall receive or accept from any person, firm, or corporation engaged in commerce any gift, money, or other thing of value, given with any purpose or intent whatsoever, shall be deemed guilty of a felony." 21 U.S.C. § 622.

¹⁸ The gratuities statute provides in pertinent part that "[w]hoever, otherwise than as provided by law for the proper discharge of official duty, directly or indirectly gives, offers, or promises anything of value to any public official . . . or person selected to be a public official . . . for or because of any official act performed or to be performed by such public official . . . ; or being a public official . . . , otherwise than as provided by law for the proper discharge of official duty, directly or indirectly demands, seeks, receives, [or] accepts . . . anything of value personally for or because of any official act performed or to be performed by such official" shall be deemed guilty of a felony. 18 U.S.C. § 201(c). The statute defines "official act" as "any decision or action on any question, matter, cause, suit, proceeding or controversy, which may at any time be pending, or which may by law be brought before any public official, in such official's official capacity, or in such official's place of trust or profit." 18 U.S.C. § 201(a).

¹⁹ The Attorney General's application must contain "sufficient information to assist the division of the court . . . in defining that independent counsel's prosecutorial jurisdiction so that the independent counsel has adequate authority to fully investigate and prosecute the subject matter and all matters related to that subject matter." 28 U.S.C. § 593(b)(3).

²⁰ In selecting the person who is to be the Independent Counsel for a particular matter, the Special Division is required to appoint a person who "has appropriate experience and who will conduct the investigation and any prosecution in a prompt, responsible, and cost-effective manner . . . [and] who will serve to the extent necessary to complete the investigation and prosecution without undue delay." The court may not appoint a federal employee or officer. 28 U.S.C. § 593(b)(2).

²¹ Statement by Agriculture Secretary Espy, USDA, Washington, D.C., September 16, 1994.

²² The statute authorized granting an Independent Counsel "full power and independent authority to exercise all investigative and prosecutorial functions and powers of the Department of Justice, the Attorney General, and any other officer and employee of the Department of Justice for all matters within his jurisdiction," except that the Attorney General retains direction or control for wiretap authorizations. 28 U.S.C. § 594(a).

²³ Congress' directive that the Special Division ensure an Independent Counsel has jurisdiction to investigate fully not only the core matter that gave rise to the appointment of an Independent Counsel but all related matters reflects congressional concerns that an informed decision to indict or decline to prosecute be based on all ascertainable facts.

²⁴ "Policy Change Expected on Issue of Dirty Poultry," The Des Moines Register, 3/10/93, A3.

²⁵ "Administration is Beefing Up Meat Safety Standards," Roll Call (V), June 23, 1994.

²⁶ Ibid.

²⁷ The proposal provided, in part, that no visible fecal contamination could remain on poultry carcasses entering the cold water bath called the "chiller," that any finding of fecal contamination would require the reprocessing of the contaminated carcass and reinspection, and that every bird must be subject to a bacteria cleansing rinse (antimicrobial treatments or interventions) before it was placed in the "chiller."

²⁸ Schaffer is Senator Bumpers's nephew.

²⁹ The court found that USDA did not comply with the Administrative Procedures Act in not allowing the required notice and comment period before promulgating the rules.

³⁰ Jean Geralds responded before the Grand Jury as follows:

Q: "You still have no memory whatsoever as to how you got to the door?"

A: "No, I do not."

Q: "You certainly didn't crash the party, did you?"

A: "I don't think so, I don't know."

Q: "In other words, you had a right to be there and somebody approved you being there, is that right?"

A: "To the best of my knowledge I guess so, I don't know."

Q: "After the inaugural ball, did you thank anyone for being permitted to be there?"

A: "No."

Q: "During the dinner did you go up to anyone and thank him or her for the privilege of being there?"

A: "To the best of my knowledge, I did not."

Q: "Did you ever thank your brother Mike for being able to be there?"

A: "To the best of my knowledge, no."

Q: "Who would you say you were the guest of at the dinner?"

A: "I don't know, I really don't."

Laverne Espy similarly claimed inability to recall any of the particulars of the gala. Before the grand jury she responded:

Q: "Did you go to any of the inaugural balls at the Kennedy Center or the Sheraton Hotel, or the Hilton Hotel?"

A: "I'm not familiar with these hotels."

Q: "Did you go to any of the dinners on the 18^th at those places that are listed at the top of the list?"

A: "I'm not familiar with the hotels and the dates, so I can't verify that I was there."

Q: "Isn't it true that you attended at least one of the dinners?"

A: "I don't remember eating dinner, but I attended one function."

Q: "Which function do you remember, ma'am?"

A: "It was the night before the inauguration, I can't tell you which one of these."

Q: "Who did you attend with?"

A: "My sister and I came together."

Q: "How were you transported to the event?"

A: "I don't recall."

Q: "Who do you remember thanking for the privilege of being present at this dinner?"

A: "I don't know that I did."

Q: "Did you thank Mike?"

A: "No."

Q: "How did you get in?"

A: "I don't know, I just got in. I don't remember, sir . . ."

Q: "This was a $1,500 a person dinner party that night."

A: "Is that right?"

Q: "But you didn't pay $1,500, did you?"

A: "No."

Q: "You were somebody's guest, right?"

A: "I am assuming. Now that you say so, I must have been."

Q: "It seems among other things this [ticket] talks about presidential inaugural dinner at the Sheraton, June 18^th, that apparently a ticket was required, it says, admit one, that evening. You're not able to tell us, though, how you got into the event that evening, is that right?"

A: "I really can't, sir."

³¹ Stern stated that if she had known that Dempsey was traveling to Arkansas, she would have questioned the USDA chief of staff about the official nature of the trip.

³² E.g., Robert L. Jackson and Sara Fritz, "Wider Espy Inquiry Reportedly Denied," Los Angeles Times at A7 (March 29, 1995). OIC's complaint about this leak was referred to the Office of Professional Responsibility which, after a 35-month investigation, determined that it could not identify the source of the leak.

³³ OIG agents have authority to place witnesses under oath. The FBI does not have the same authority.

³⁴ Phone records from Dempsey's place of employment show four short telephone calls to Don Tyson's direct phone line, but the first did not occur until January 11, 1994 - after Espy was already scheduled to attend the Dallas game.

³⁵ See discussion Section II.A.2.b.(6).

³⁶ Ethics Reform Act of 1989 effective January 1, 1991 (Public Law No. 101-194).

³⁷ Lake's lobbying firm Robinson Lake Sawyer and Miller is described in Section II.E.1.d.(1).

³⁸ Under the rules in effect in 1992, members of Congress were generally not allowed to receive honoraria.

³⁹ Espy told Douglas, who was in Atlanta with Espy in January 1994, that he was leaving a Super Bowl party to attend a meeting at Oglethorpe that "had something to do with an REA loan and O'Bannon's client."

⁴⁰ When OIC interviewed him, Vice President Gore did not specifically remember discussing Oglethorpe with Espy. However, in the context of questioning about Oglethorpe, Gore said that Espy had informed him about some problem he was having with another Cabinet official and had asked for Gore's help.

⁴¹ In her February notebook, on February 17, 1994, Espy's Counselor, Kim Schnoor, wrote that Espy was reviewing the Oglethorpe issue and spoke with the Vice President about it. Her notebooks for March, April and May 1994 contain additional entries reflecting discussions with Espy concerning the Oglethorpe refinancing and appeal.

⁴² The opinion of Espy's friend Richard Douglas of Sun-Diamond was that O'Bannon hired Dempsey to "grease the skids."

⁴³ Dempsey contacted USDA regarding Oglethorpe's desire that Espy send a letter to Treasury Secretary Bentsen. Additionally, in September of 1993, Dempsey sent a fax to another of EOP's clients stating that she would raise an issue of concern to the client with Espy so that Espy could address it in a meeting with EPA Administrator Browner that evening.

⁴⁴ When OIC interviewed Oglethorpe's assistant general counsel, who had attended the January 12 meeting, he first stated that O'Bannon had said at the time that Espy needed tickets to the Super Bowl. After conferring with his attorney, who also represented Oglethorpe, this witness stated that O'Bannon had said that Espy or a member of Espy's party needed the tickets. Following another conference with his attorney, the witness claimed that O'Bannon had simply stated that someone in Espy's party needed the ticket, and he stayed with this last version in his subsequent grand jury testimony. O'Bannon, however, stated unequivocally before the grand jury and to OIC agents that he had told Oglethorpe and Smith Barney representatives the ticket was for Espy.

⁴⁵ According to O'Bannon, he gave the ticket to Espy at a hotel. He pulled him aside, "handed him the ticket . . . and said in case you need it. . . . [Espy] just kind of put the ticket in his pocket."

⁴⁶ The federal and state income tax benefit to Smith Barney of incorrectly recording the transaction as a printing expense was $2,725.

⁴⁷ Because of a possible conflict of interest, the Independent Counsel recused himself from any involvement in the investigation or prosecution of Smith Barney or any of the officers, employees, or agents, and decisions concerning this matter were made by the Deputy Independent Counsel.

⁴⁸ The Wine Institute was a nonprofit trade association for the California wine industry that supervised and administered the Market Promotion Program for wine exports.

⁴⁹ CBCF literature describes the organization as a nonprofit public policy research and educational institute, whose mission is: (1) to increase the participation and elevate the influence of black Americans in public policy development at the local, state and federal levels; (2) to ensure the formulation of effective public policies that are responsive to the compelling needs and critical concerns of the African-American community; and (3) to empower African Americans currently serving in critical legislative and policy development roles and groom the next generation of black policymakers for the purpose of insuring a better future for all Americans.

⁵⁰ The financial-disclosure laws required Secretary Espy to report only gifts that he received, not those received by Dempsey or his brothers or sisters. Consequently, the monetary values indicated include only that amount personally received by Espy.

⁵¹ The questions included:

• On what date was the Secretary given the tickets?
• Specifically, what individual of Fernbank Museum gave him the tickets?
• Does the Secretary know from whom Fernbank Museum received the tickets?
• Why was the Secretary given the tickets? This may be pertinent if the gift was based on a personal relationship rather than the Secretary's position. In such a case an exception to the ethics rule may apply.
• How many tickets were given to the Secretary? What was the face value of each?
• What was the date of the game?
• Did the Secretary utilize all the tickets for his personal use?

⁵² As a result, starting in November of 1993, Ms. Stern included this amount of money on the periodic lists she provided to Espy indicating debts that Espy had to repay. (See Section II.E.2.a.) Despite these regular notices that he should make this reimbursement, Espy did not pay it.

⁵³ OIG's record logs reveal that OIG agents also used the Explorer on five occasions during the 10 months Espy had it.

⁵⁴ Although Espy apparently made numerous trips to Mississippi for personal business,

⁵⁵ This matter is discussed at Section II.G.5.

⁵⁶ In the previous five years, Hemmingson had only made three political contributions, for $200 and $500 to federal candidates, and for $1,500 to a gubernatorial candidate in Montana.

⁵⁷ Federal law provided a $1,000 limit for individual campaign contributions and forbade corporate contributions in a federal election.

⁵⁸ In August of 1993, Secretary Espy received word from the White House Office of Communications, advising that "it is legally proper for [Espy] to be involved in political fundraising," as he was not covered by the Hatch Act. (The Hatch Act prohibited certain federal officials from engaging in some forms of political activity, such as soliciting contributions for political campaigns.) However, the memorandum also advised Secretary Espy that he must be careful . . . to avoid mixing official and political activities with regard to this [fundraising] event. In particular, he may not use appropriated funds (including his staff's time) to prepare speeches or any other matters for this event. Also, because his staff is [covered by the Hatch Act], they cannot assist in purely political matters even during off-duty hours.

The memorandum additionally advised that Secretary Espy should seek specific guidance from the USDA ethics officer. Espy did not seek advice or guidance from a USDA ethics officer.

⁵⁹ Coelho later served as a member of the board of directors of Crop Growers Corporation.

⁶⁰ AFLAC is an international holding company, based in Georgia. Its principal subsidiary is American Family Life Assurance Company of Columbus, which is a provider of supplemental health insurance sold to individuals at the workplace in the U.S. and is the largest foreign insurer in Japan. The $75,000 represented an advance on commissions to Ferrouillet. OIC's investigation of AFLAC is discussed in Section II.E.3.

⁶¹ At the same time, Steele, Dan Amos and his wife, Shannon Amos, also each made $1,000 contributions to Henry Espy's campaign but were not reimbursed by AFLAC.

⁶² "The Standards of Ethical Conduct for Employees of the Executive Branch," which governs executive branch employees such as Blackley, defines a "prohibited source" as anyone who (1) is seeking official action by an employee's agency, (2) is doing business or seeking to do business with the employee's agency, (3) is conducting activities regulated by the employee's agency, or (4) has interests that may be substantially affected by the performance or non-performance of the employee's official duties.

⁶³ Among other things, Douglas represented that he used one of the supposedly rented houses during the previous four years because he worked for President Bush on a volunteer basis, and that when he "moved back to California full-time, I signed a rental agreement to lease the house out because with the Democrates (sic) in the White House there is no need for me to be in Washington during the next four years." In fact, he continued to live and work in Washington, and to live in the house he claimed to be renting out.

⁶⁴ OIC granted Matlock immunity from prosecution on February 3, 1998. She testified before the grand jury on that date and met with agents of OIC thereafter. Her testimony demonstrated that she did not possess criminal intent but instead was duped in the events uncovered.

⁶⁵ When asked during an interview by the FBI on December 9, 1992, why he did not just designate Thomas Espy as the authorized treasurer, then-Congressman Espy responded that it was because of Thomas Espy's prior "problems," indicating that Thomas Espy had previously filed for bankruptcy and had some "other legal problems," about which Espy did not wish to elaborate. In 1984, Thomas Espy had pleaded guilty to two counts of bank fraud.

⁶⁶ The following 12 FEC reports each concealed the money missing during the reporting periods by overstating the campaign's cash on hand: 1992 April Quarterly Report (filed 4/15/92); 1992 July Quarterly Report (filed 7/15/92); 1992 July Quarterly Report amended (filed 9/21/92); 1992 October Quarterly Report (filed 10/15/92); 1992 Twelfth Day Pre-general Report (filed 10/20/92); 1992 Thirtieth Day Post-general Report (filed 12/92); 1992 Year End Report (filed 2/1/93); 1992 October Quarterly Report amended (filed 4/22/93); 1992 October Quarterly Report amended (filed 6/19/93); 1992 Twelfth Day Pre-general Report amended (filed 6/19/93); 1992 Thirtieth Day Post-general Report amended (filed 6/19/93); and 1992 Year End Report amended (filed 6/19/93).

⁶⁷ Thomas Espy claimed that many of the campaign's records were stolen during burglaries of his and the campaign's office space.

⁶⁸ Individuals involved in the transition process for the Clinton administration have said that the discovery of substantial money missing from Espy's campaign accounts would have been harmful to his nomination as Secretary of Agriculture. One of these persons, the individual who ran the confirmation process for President-elect Clinton, told OIC that if he had known money was missing from the account, it would have made it very difficult to allow Espy to go to his confirmation hearing.

⁶⁹ In 1991, with Stephen Edds's assistance, Thomas Espy had purchased 29.24 acres of land in Madison County, Mississippi from his wife's elderly and physically incapacitated aunt in exchange for an unsecured promissory note in the amount of $98,000, and $10 cash. The aunt later stated that she was apprehensive about the transaction but trusted Thomas Espy and his wife because they were family. Thomas Espy, also with Edds's assistance, then used approximately one-third of the land to secure a $100,000 loan from Gulf National Insurance company, on whose Board of Directors Thomas Espy sat. Thomas Espy gave Edds $10,000 of the proceeds of this loan. (Although the parties suggested that this payment was a loan, no paperwork existed, and Edds paid only a small portion of the money back to Thomas Espy over the next seven years, before he repaid Thomas Espy the entire balance two weeks after testifying in the grand jury.) Thomas Espy made no payments to his wife's aunt until after OIC began looking at this transaction, and, according to the aunt, he ceased making payments after the investigation concluded.

⁷⁰ Impending expiration of the statute of limitations jeopardized prosecution for the remainder of the above described events. Although the events transpired in 1992 and 1993, OIC uncovered them only at the end of 1997 and the beginning of 1998. Consequently, the five-year statute of limitations that governs many federal offenses precluded prosecution of some acts and threatened prosecution of others. The statute of limitations required that the last four offenses of making false statements to FEC be indicted by June 19, 1998.

⁷¹ The crime-fraud exception overcomes the attorney-client privilege and work-product protection when a client makes or receives an otherwise privileged or protected communication with the intent to further a criminal act and then carries out the crime.

⁷² Department of Justice regulations require Attorney General approval for the issuance of subpoenas against news-gathering organizations, but in an independent counsel investigation, the independent counsel stands in the shoes of the Attorney General.

⁷³ These persons received  only travel expenses and per diem, when they traveled for these conferences, and no compensation for their time.

⁷⁴ After Tyson Foods entered its guilty plea to violating 18 U.S.C. § 201(c)(1)(A), USDA had cause to withdraw from or deny to Tyson Foods federal meat and poultry inspection and grading services pursuant to the Federal Meat Inspection Act, 21 U.S.C. § 671, the Poultry Products Inspection Act, 21 U.S.C. § 467(a), and the Agricultural Marketing Act of 1946, 7 U.S.C. §§ 1621-1627.

⁷⁵ OIC attorneys did not search, and had no duty to search, testifying agents' personnel files until the defendant made a formal request and the court so ordered. When such an order was issued, the OIC attorneys acted promptly. Williams moved for an examination of the testifying agents' files on March 12, 1997. OIC received the trial court's written order to examine testifying agents' personnel files and produce any exculpatory or impeachment material for in camera review at 5:18 p.m. on Friday, March 14. OIC presented the order to the FBI's legal division on Monday, March 17, and the FBI provided the results of its search on Thursday evening, March 20. OIC informed the trial court of the FBI's findings at 8:20 a.m. the following morning.

⁷⁶ Before Williams's first indictment, OIC advised Williams's counsel that its investigation of Tyson Foods and Williams was continuing and that other, gratuities-related charges would be brought at the conclusion of its investigation.

⁷⁷ The gift of the inaugural-dinner tickets was not charged under the Meat Inspection Act because that statute, unlike the gratuities statute, does not cover gifts given before the recipient assumes public office.

⁷⁸ A protective cross-appeal is an appeal of an order that would become operative only if the Court of Appeals first reversed the underlying judgement.

⁷⁹ The Supreme Court issued its decision in Sun-Diamond Growers after briefing in Schaffer but before oral argument. After oral argument, both sides filed supplemental briefs addressing the effect of the Sun-Diamond decision on the Schaffer verdict.

⁸⁰ OIC contended that venue for the gratuities offenses lay in the Northern District of California, where Douglas had applied for and received reimbursement from Sun-Diamond for the gratuities given on its behalf, and that Douglas had waived any venue objection by repeatedly complaining about the venue in public forums but not moving the court before trial for a change of venue or for dismissal on the basis of improper venue.

⁸¹ Espy's counsel asserted that Espy had been told by the President at the time of his selection as Agricultural Secretary that his appointment "would bring some criticism" - that "[s]ome people would say he was from the wrong state and other people would say from the wrong race." Moreover, Espy's counsel asserted:

[H]e was going to try to put more minorities in top-level jobs, try to help minorities at the bottom, because USDA did not have that good a record.
. . .

You will learn from the evidence, it created all sorts of tensions. People don't like reorganization in the first place. . . . Then he's trying to integrate the place.

In the same vein, Espy's counsel cross-examined Richard Douglas as follows:

Q: And during [a post-1992 election] conversation, you and Mr. Espy discussed the historic nature of his [Agriculture Department] appointment, correct?

A: Yes.

Q: You discussed that it was historic because he would be the first African-American Secretary of Agriculture?

A: That's correct.

Q: You also discussed the fact that the Department of Agriculture had historically been one of the most racist cabinet offices in the federal government; is that right?

A: Yes.

Q: And you discussed the fact that Secretary Espy, because of his race, would probably be subjected to various attacks by people who were upset that a black person had been appointed to be the Secretary of Agriculture, right?
. . .

A: . . . The fact that Mike changed the complexion of the Secretary's office, all the top people at the department, really rubbed a lot of people the wrong way.

Q: But going back to that conversation you had in December, what you and Mr. Espy discussed in part was the fact that he was going to have a number of attackers because of the historic nature of his appointment, especially because he was black, right?

A: Yes.

Q: And, in fact, the two of you discussed how the attack on the policy issues would really be a pretext for the real underlying attack, which was going to be one based on his race, correct?
. . .

Q: And [Secretary Espy] told you that in terms of trying to deal with the reorganization issues at the Department of Agriculture, that he wanted a minority perspective, right?

A: Maybe not in those words exactly.

⁸² Count 34, concerning false statements in violation of 18 U.S.C. § 1001, identified two separate categories of false statements. The first category, dismissed by the court, appeared at paragraph 28.a of the indictment and concerned the circumstances under which Espy decided to fly from Arkansas to Washington, D.C. on a Tyson Foods corporate jet on May 16, 1993, following the birthday party given by Don Tyson in Russellville, Arkansas.

⁸³ Because of a possible conflict of interest, the Independent Counsel recused himself from any involvement in the investigation or prosecution of Smith Barney or any of its officers, employees, or agents, and decisions concerning this matter were made by the Deputy Independent Counsel.

⁸⁴ "Why go through the trouble of requiring that the gift be made 'for or because of any official act performed or to be performed by such public official,' and then defining 'official act' (in § 201(a)(3)) to mean 'any decision or action on any question, matter, cause, suit, proceeding or controversy, which may at any time be pending, or which may by law be brought before any public official, in such official's official capacity,' when, if the Government's interpretation were correct, it would have sufficed to say 'for or because of such official's ability to favor the donor in executing the functions of his office'?" Id.

⁸⁵ See also, United States v. Martin, 195 F.3d 961, 967 (7^th Cir. 1999) ("The textual arguments deployed in Sun-Diamond Growers to cabin the gratuities statute may point the way to narrowing interpretation of the mail fraud statute - or may not, for it can be argued that the considerations deployed in that opinion are not available in interpreting the mail fraud statute, with its sparse text."); United States v. Anderson, 85 F.Supp.2d 1047, 1075 n.25 (D.Kan. 1999) ("The court believes the Anti-Kickback Act is not a statute like the one in . . . Sun-Diamond Growers . . . that can 'linguistically be interpreted to be either a meat axe or a scalpel.' The statute is simply a meat axe."), rev'd on other grounds sub nom. United States v. McClatchey, 217 F.3d 823 (10^th Cir. 2000).

⁸⁶ These tasks include submission of the Final Report to the Special Division of the U.S. Court of Appeals for the D.C. Circuit (Special Division) for review; identification of individuals named in the report who should have an opportunity to comment; provision of relevant portions of the report to those named individuals; receipt of comments from those individuals to be included in the Report as appropriate; provision for printing and shipping of the Report; review of attorney-fee applications filed with the Special Division; completion of all financial records and reports; and shipment of all Independent Counsel's records to the National Archives and Records Administration.

⁸⁷ "The Bad Guys Are Winning," The Wall Street Journal, May 12, 1995.

⁸⁸ See, for example, United States v. Hemmingson, 157 F.3d 347 (5^th Cir. 1998), United States v. Blackley, 167 F.3d 543 (D.C. Cir. 1999), and United States v. Five M Farming Enterprises, 1999 WL 728369 (D.C. Cir. 1999).

⁸⁹ See Section II.H.3.

⁹⁰ In re Nofziger, 925 F.2d 428, 442 (D.C. Cir. 1991).

⁹¹ See Toni Locy, "Independent Counsels Have Spent $17 Million Probing Clinton, Aides; GAO Report Comes Amid Growing Concern About Reining in Investigators," The Washington Post, April 2, 1996, p. A4.

⁹² Elaine Sciolino, Hard-Nosed Congressman Ready to Roar, Austin Am.-Statesman, Sept. 28, 1997, at A21.