NYC Contractor, Consultant Sentenced for Scams; Contractor V.P. Pleads Guilty

New York city constructionAFC Enterprises, Inc. had a lot of construction contracts with the City of New York over the years. Little did anyone know that company management was taking people to the cleaners – or that they’d gotten help from two union locals. In the end, crime didn’t pay. On July 14, Andrew Catapano, the firm’s president, was sentenced in Brooklyn federal court to 10 months in jail for conspiracy to commit fraud in connection with several area construction projects. A business partner, engineer-consultant John Mikuszewski, received a five-month sentence. Three weeks later in the same court, on August 4, AFC Vice President John Ruggiero pleaded guilty. He’s set for sentencing in December. Thus far, the defendants have been ordered to pay $1.2 million in asset forfeiture, plus hundreds of thousands more in restitution, back taxes and fines. That’s actually small change compared to the estimated $10 million in illegal proceeds they had received over the years.

AFC Enterprises, located in the Glendale section of Queens, was a contractor in a wide range of New York City-area public works projects that included highways, bridges, schools and sewers. For at least a dozen years starting in 1990, it also was a vehicle for graft. According to the Justice Department indictment, dated April 13, 2006, the defendants – Catapano, Ruggiero, Mikuszewski, and former Con Edison employee Alexander Urban – participated in a series of schemes to defraud members of International Union of Operating Engineers Locals 14 and 15, various utility companies (including Con Edison), and the City of New York. Prosecutors alleged five distinct criminal activities.

First, from 1990 to 2001 Catapano and Mikuszewski, the latter a consultant to Rosewood Contracting Corporation, bribed certain officers of IUOE Locals 14 and 15 who in turn agreed to allow AFC and related firms to hire fewer union employees than specified in the collective bargaining agreement. That way, the firms could hire nonunion workers to do those extra jobs, in the process saving millions of dollars in wage and benefit costs.

Second, beginning in the late Nineties and continuing through 2001 Catapano and Mikuszewski paid bribes to representatives of various utility companies, including Urban, for “interference” work (i.e., movement of utility lines in preparation for a larger project) on contracts worth a combined sum in excess of $11 million. By law, utility companies, in exchange for permission from the City of New York to run service lines under public roadways, must reimburse contractors for the costs of labor and materials. The defendants took advantage of this law by paying bribes to Urban and other utility company representatives to inflate the true cost of the work. In this way, Catapano and Mikuszewski could receive excessive reimbursements from the unsuspecting utility firms.

Third, between 1993 and 2002 Mikuszewski and Ruggiero conspired to circumvent the City of New York’s affirmative action requirements. The defendants falsely claimed that a minority-owned and operated firm was doing subcontracting on construction contracts when in fact AFC and its related firms were doing all the work.

Fourth, between 1990 and 2001 Catapano, Mikuszewski and Ruggiero engaged in a money-laundering scheme to hide the proceeds of their bribery schemes. Through a series of highly complex transactions, the defendants were able to conceal cash they subsequently used to continue to bribe union officials and utility company representatives.

Fifth, for the years 1998, 1999 and 2000, Mikuszewski knowingly underreported about $400,000 in income on tax returns he’d submitted on behalf of himself, Alpine Contracting Corporation, and an Alpine shareholder.

Initially, the defendants pleaded not guilty. A few weeks into their criminal trial, however, Catapano and Mikuszewski on December 5, 2008 agreed to plead guilty to a single count of conspiracy, and pay asset forfeiture of $1.2 million and a fine of $120,000. They admitted as part of their plea agreement that they had bribed union officials and utility company reps on roadway reconstruction projects awarded by U.S. Department of Transportation grantees throughout the New York metropolitan area during 1998-2001. Prior to the July 14 sentencing of a month ago, the pair had paid their full forfeiture to the U.S. government. In addition, Catapano and Mikuszewski were ordered at sentencing to pay the IRS back taxes in respective amounts of $60,000 and $139,880. Each also will have to pay a $25,000 fine. As for Ruggiero, he will have to forfeit $120,000 and pay $70,000 in restitution to the City, independent of any jail time or fines.

The indictment and guilty pleas were the result of a lengthy probe by several federal agencies that included the Department of Justice, the Department of Labor, the Department of Transportation, the IRS, and the U.S. Postal Service, plus New York City’s Department of Investigation. The IRS’ criminal investigations unit proved particularly useful to cracking the case. At the 2006 press conference announcing the indictments, IRS Special Agent-in-Charge Michael J. Thomas stated: “Uncovering the trail of money was a key aspect in taking down this alleged crime ring. People think they can hide in a sea of complex financial transactions to escape from their law-abiding obligations.”

While the breakup of this criminal enterprise is gratifying, it’s worth adding that much of the illegal activity was made possible by misguided government-created incentives. For example, if New York were a Right to Work state, the Operating Engineers would have had less ability to coerce contractor employees into a choice between paying union dues and leaving their jobs. And if the City of New York did not have a Minority Business Enterprise program (which promotes racial favoritism in small business contract certification and procurement), the need for a minority “front” for a white-owned firm would have been nonexistent. Diligent investigation is one way to break up an illegal financial scheme; more liberty for employers and employees is another.