Inspector General Sees an Increase in Racketeering Case Activity

In a Mar. 21 interview with the Bureau of Nat’l Affairs’ Daily Labor Report, the Dep’t of Labor Inspector General Gordon S. Heddell said that recently released Office of the Inspector General statistics show an increase in labor racketeering case activity involving labor unions, with a specific focus on the four unions that have been identified as under the influence of organized crime — the Int’l Bhd. of Teamsters, the Laborers’ Int’l Union of N. Am., the Hotel Employees & Restaurant Employees’ Int’l Union, and the Int’l Longshoremen’s Ass’n.  Reportedly, there currently are 357 pending labor racketeering investigations under way at OIG, 39% of which involve organized crime. Of the 357 investigations, 44% involve pension and welfare benefit plans, according to the statistics.

In addition to labor racketeering, OIG is responsible for investigating organized crime’s influence or control in employee benefit plans, labor-management relations, or internal union affairs. Heddell defended the DOL’s Pension & Welfare Benefits Admin.’s enforcement strategy, saying the agency is directing its resources to areas in which the greatest potential for violations arises. Heddell said PWBA is following OIG’s 1998 recommendation, Heddell said, citing, for example, a focus of resources on pension plans involving the “largest number of participants and the greatest number of dollars.”

Heddell’s assessment of PWBA is a brighter one than that voiced by his agency in 1997, when the office of inspector general called upon PWBA to improve its oversight of annual pension plan information filed by large financial institutions that hold the assets of several pension plans.  More recently, the General Accounting Office agreed that PWBA has taken action to strengthen its enforcement activities, but concluded that further improvements are necessary.

Heddell predicted that, as part of the Enron fallout, issues such as the inadequacy of pension plan auditing are “going to surface.” OIG has long opposed a loophole in ERISA that exempts from audits by independent public accountants pension plan funds that have been invested in institutions such as savings and loans, banks, or insurance companies that are regulated by federal or state governments. Heddell also objected to the fact that independent public accountants are “not required to report ERISA violations” to DOL.

Referring to the “close relationship” OIG shares with PWBA, Heddell pointed out that his agency also is in the business of protecting pension plan assets. “Abuses by pension service providers are particularly egregious,” Heddell said, because the providers “typically service a multitude of plans” and the “amounts involved are significantly higher.”  Heddell cited as an example a recent case in which a Rhode Island union fund manager Todd LaScola was found guilty of misusing approximately $6 million of client’s money to cover an unauthorized investment of Int’l Bhd. of Elec. Workers Local 99’s pension fund assets.

According to OIG, investigations of this type involve plan assets of more than $1 billion that are at risk. DOL also was involved in a case in which trustees of the Nat’l Elec. Benefit Fund were ordered to pay $4.9 million to reimburse the fund to settle charges that they breached their fiduciary duties under ERISA by investing in a Florida real estate limited partnership, linked to Democratic Nat’l Committee chairman Terry McAuliffe. Heddell declined to comment on an ongoing investigation by his agency into the propriety of the United Ass’n of Plumbers & Pipe Fitters’ investment of hundreds of millions of pension funds in Fla.’s Diplomat Hotel. [BNA 3/25/02]

Additionally,  Heddell said DOL is eyeing highway construction projects for possible fraudulent use of federal funding following an infusion of hundreds of billions of dollars into the system under the 1998 Transportation Equity Act for the 21st Century. The 1998 law approved $ 400 billion for spending on highway projects, “whetting the appetites of people who see something in it for them that is not legal,” Heddell said The highway construction industry is “vulnerable,” Heddell said, citing “labor slowdowns, material and equipment breakdowns and shortages, and pressure on labor unions.” There is a possibility of “embezzlement and misuse of funds at all levels,” he cautioned. [BNA 3/27/02]