HEARING ON FINANCIAL AFFAIRS OF

INTERNATIONAL BROTHERHOOD OF TEAMSTERS

Thursday, March 26, 1998

House of Representatives,

Subcommittee on Oversight

and Investigations,

Committee on Education

and the Workforce,

Washington, D.C.

STATEMENT OF THE HON. PETE HOEKSTRA, CONGRESSMAN FROM THE STATE OF MICHIGAN *

STATEMENT OF THE HON. PATSY MINK, CONGRESSWOMAN FROM THE STATE OF HAWAII *

TESTIMONY OF SAM THEODUS, FORMER VICE PRESIDENT, INTERNATIONAL BROTHERHOOD OF TEAMSTERS *

TESTIMONY OF ROBERT G. DERUSHA, FORMER INTERNATIONAL TRUSTEE, INTERNATIONAL BROTHERHOOD OF TEAMSTERS *

TESTIMONY OF ROBERT SIMPSON, FORMER INTERNATIONAL TRUSTEE, INTERNATIONAL BROTHERHOOD OF TEAMSTERS *

TESTIMONY OF JOEL LEFEVRE, SECRETARY-TREASURER/PRINCIPAL OFFICER, INTERNATIONAL BROTHERHOOD OF TEAMSTERS, LOCAL 840 *

TESTIMONY OF FREDERICK W. SMOLEN, CHIEF FORENSIC AUDITOR, FINANCIAL INVESTIGATIONS & SERVICES, INC. *

APPENDIX A - WRITTEN STATEMENT OF THE HON. PETE HOEKSTRA, CONGRESSMAN FROM MICHIGAN *

APPENDIX B - WRITTEN STATEMENT OF SAM THEODUS, FORMER VICE PRESIDENT, INTERNATIONAL BROTHERHOOD OF TEAMSTERS *

APPENDIX C - WRITTEN STATEMENT OF ROBERT G. DERUSHA, FORMER INTERNATIONAL TRUSTEE, INTERNATIONAL BROTHERHOOD OF TEAMSTERS *

APPENDIX D - WRITTEN STATEMENT OF ROBERT SIMPSON, FORMER INTERNATIONAL TRUSTEE, INTERNATIONAL BROTHERHOOD OF TEAMSTERS *

Present: Representatives Hoekstra, Norwood, Ballenger, Hilleary, Schaffer, Mink, Scott, and Kind.

Also present: Representatives Clay, and Owens.

Staff present: Robert Borden, Professional Staff Member; Jay Diskey, Communications Director; Patrick Lyden, Staff Assistant; Bill McCarthy, Press Secretary; Mark Rodgers, Workforce Policy Coordinator; Kevin Talley, Staff Director; Cindy Von Gogh, Calendar Clerk/Advance; August Stofferahn; Mike Reynard; Mike Quickel; Joe di Genova; Victoria Toensing; John Loesch; Brian Connelly; Philip Smith; Fred Smolen; Lisa Rich; Bill Outhier; Gail Weiss, Staff Director; Mark Zuckerman, Deputy Counsel/Press; Brian Compagnone, Staff Assistant; Jim Jordan, Special Counsel; Cassandra Lentchner, Special Counsel; Michael Berlin, Counsel; John W. Lee, Senior Investigator; and Lisa Lotkin, Executive Assistant.

Chairman Hoekstra. [presiding] The subcommittee will come to order. The subject of today's hearing is the financial affairs of the International Brotherhood of Teamsters.

Part of this unfortunate story we already know. Through this subcommittee's hearings last October, through articles in the press, and through findings of the election officers and the proceedings of the court in the Southern District of New York, we know that despite seven years of Federal supervision and $20 million of taxpayer's money, the IBT election of 1996 was fatally flawed. It failed and must be redone sometime this year.

We now know, in at least some detail, that President Ron Carey's effort to re-election was marred by illegal financial dealings and that the IBT's own funds secretly funneled into the Carey campaign through various laundering schemes. And we know that Carey's campaign consultant wrote a memo to Mr. Carey, naming dozens of people at the IBT headquarters who worked full time on getting Carey reelected while they were on the International's payroll. That too was illegal.

The 1996 election, however, is not the focus of this subcommittee's investigation. Our focus is larger in scope, as we have made clear to those we have been force to subpoena for documents. This is a permanent standing subcommittee of the House with broad oversights powers and responsibilities. Over the next months we will be looking at three money trails: the finances of the IBT, which is our focus today; the $20 million spent by the Federal Government to finance the cost of the 1996 election; and the illegal swap schemes used to finance the Carey campaign for reelection.

We start this morning by looking at the finances of the Teamsters. The fail election of the Teamsters was not an isolated event. Rather, it was the culmination of at least four years of Ron Carey's arrogance and abuse of power, his total disregard for the rank and file members, and his lack of respect for legal safeguards intended to reform the union as a democratic institution for the rank and file.

We will see today that irregularities in IBT finances did not begin with the 1996 election. Rather, certain Teamster officials became alarmed as early as 1993 that the IBT treasury was in steep decline and that Carey refused to take the necessary steps to fix it. We will get beneath the surface of the facts that I've mentioned and I think gain a much deeper understanding of life inside the IBT, from the time Ron Carey was first elected in 1991 until the illegal activities that led to the 1996 election being overturned and Mr. Carey being barred from running again for office.

From the testimony of four veteran Teamster’s officials this morning, we will see how promises to the union's rank and file were broken and their trust violated by Ron Carey and his top lieutenants. These witnesses held senior positions in the union hierarchy with important fiduciary and other responsibilities. Yet when they suspected wrongdoing and asked questions and sought documents in the spring of 1993, they were stonewalled, kicked out of meetings where they had previously been included, and retaliated against for trying to do their duty. Today they will be heard as they describe their futile attempts to get information and the retaliation they endured for trying to protect the rank and file. I admire their perseverance and I look forward to hearing their testimony.

We will also hear this morning from Mr. Fred Smolen, an experienced forensic auditor hired by this subcommittee, who will lay out for us the shocking decline in this union's financial health. Mr. Smolen will show us a pattern of financial improprieties fraud in dishonesty, of ineffective government oversight, and of irregularities in accounting, and illegal acts by Ron Carey's IBT.

I want to stress that, in the end, our investigation is not only about financial wrongdoing or Ron Carey personally. The true issue is democracy and whether the Federal Government has kept faith with the Teamsters rank and file and moved the IBT closer to being a free, fair, and democratic union whose leaders are accountable, not to the Federal Government, but to their own membership.

The news is not encouraging based on the testimony we will be hearing this morning. As a result of this and other work that we have done, I know that this subcommittee has to devote further hearings to the role played by the independent review board, the Labor Department, the Justice Department, and the Federal election officers in overseeing the Teamsters in recent years. Today's testimony will help this subcommittee understand what tools may be needed by union members to better hold their leaders accountable, to assure themselves that their assets are being managed wisely, and that the interest of the rank and file are first on the union's agenda.

WRITTEN STATEMENT OF THE HON. PETE HOEKSTRA, CONGRESSMAN FROM MICHIGAN – SEE APPENDIX A

I understand the chairman of the full committee is joining us, Mr. Goodling.

Chairman Goodling. I'm on my way over the floor. Of course, we have some interesting legislation on the floor. But I wanted to stop by to make sure that the subcommittee understands that this is a very, very important investigation that we're doing. It's important for many reasons. First of all, it's important because it cost the taxpayer $20 million for something that was failed. Even more importantly, it cost the employees $166 million, with the way their funds were misused, and puts the union on the verge of bankruptcy.

Now there will be a lot of distractions, because whenever you want to take someone away from the focus that they have, you come up with all sort of distractions and sometime the press helps with those distractions--pulling things out of the air, I'm not sure what air they breath, but it must be different air than I breath because all of those things that I read about have nothing to do with reality.

I just want to encourage the committee to stay tough. I realize they're many reasons why people want to move you away from your focus, but you can't allow that to happen. There's too much as stake. I'm just here to reinforce the fact that we have a big job to do and it's a top priority for this committee. Thank you.

Chairman Hoekstra. Thank you, Chairman. Ms. Mink.

Mrs. Mink. Thank you, Mr. Chairman. I want to assure the majority, and in particular the chair of the subcommittee, that the minority is equally concerned about the way in which the elections of the Teamsters were conducted and of the abuses that occurred which have come to light. And we are anxious to participate in that aspect of our authority to provide oversight and investigative inspiration into fact finding about that election.

But I was unaware until this moment that we have now extended the jurisdiction of this subcommittee to investigate the ways in which monies collected by the International have been spent for purposes that it deemed were appropriate by vote of the conventions held by the Teamsters, and I'm somewhat taken aback at the enlarged jurisdictional oversight that you have laid out this morning.

With respect to this hearing, we on the minority side are very much interested to see what information and what insights these witnesses can provide as we examine the conduct of the Teamster’s officials with respect to the elections that have now been set aside. That, to me, is a germane inquiry of this subcommittee and in that pursuit we are anxious to hear the testimony that these witnesses can provide.

We are at a great disadvantage, Mr. Chairman, because as you know, we were not provided with much more than the names and the cities from which these witnesses were coming and that information was not provided us until yesterday at 11:37 a.m. We have not received prior to coming to the committee room this morning at 10:00, copies of their testimony. So I apologize if the minority appears somewhat unprepared to deal with the substance of the testimony, which I'm sure has been thoughtfully prepared and will be very, very interesting to receive. I might suggest, Mr. Chairman, that, if the witnesses will agree, that perhaps the minority can propound some questions to them after the hearing today when we have had time to review the testimony. But given the circumstances and the great detail that we have been provided by each of the witnesses, it will take us time to look them over.

I feel that the inquiry as to how Federal dollars were spent for the supervision of the election is an appropriate inquiry of this committee. In that context, we have had the election officials come to testify as to their jurisdiction and their inquiry. But at no time in that testimony did any of the election officials indicate that they had the power or authority to examine how the funds of the union were being spent with respect to the organizing of their union to acquire new members, nor how they spent the money with respect to the support and sustenance of their membership who were on strike.

So, I think we are going far afield of the purpose of the inquiry and that is, to see to what extent the Federal Government's authority which was given under the Consent Decree has been explicitly adhered to, and to what extent this committee can recommend additional legislation to perhaps remedy the complaints and other criticisms that will be brought forth to this committee today.

In that context, I shall be very interested to hear the witnesses and their suggestions as to how the Congress can enact legislation in their view, which will give the Federal Government greater powers of oversight in the management and conduct of the internal affairs of this union and every other union. Thank you very much.

Chairman Hoekstra. Thank you. I think as the ranking member knows, this is a permanent subcommittee. We're well within our jurisdiction. In fact, if we felt it necessary, the investigation could be much broader.

Without objection, the opening statements of any other member of the subcommittee will be included in the record.

Chairman Hoekstra. I'm now pleased to introduce our first panel of witnesses. The members of this panel are prominent current and former officials of the IBT. Each of these witnesses became alarmed about the financial condition of the union, tried to get information from the Carey administration about the Teamsters deteriorating finances, and will testify that they were retaliated against for their inquiries. This morning we will hear from Mr. Sam Theodus who is from Cleveland, Ohio, who served as an IBT International Vice President from 1992 to 1997; we will also hear from Mr. Joel LeFevre from New York City, who is currently Treasurer of the Teamster’s Local 840 and has served in that position since 1986; we will also hear from Mr. Robert Simpson from Chicago, Illinois, who served as an IBT International Trustee from 1991 to 1994; and we will also from Mr. Bob DeRusha from East Hampstead, New Hampshire, who served as an IBT International Trustee from 1989 to 1996. And especially to you, Mr. DeRusha, after having gone significant surgery a couple times in the last six months, as recently as three weeks ago, thank you very much for being here this morning.

Welcome to all of you. I'll ask you to summarize your testimony and without objection, your full testimony will be included in the hearing record. Before receiving the testimony of these witnesses, the Chair will ask each of the witnesses--or the witnesses--to take an oath. The witness should also be aware that making a false statement to Congress while under oath may be prosecuted under law. In light of this, will the witnesses please rise and raise your right hands.

[Witnesses sworn.]

Chairman Hoekstra. Let the record reflect that each of the witnesses has answered in the affirmative. Please be seated.

Mr. Theodus.

Mr. Theodus. My name is Sam Theodus. I have been a member of truck drivers' union local 407 in Cleveland, Ohio, for a period in excess of 45 years. My history in the Teamsters has brought me here today to summarize, after many years of efforts, on behalf of reforming the union.

I ran against Jackie Presser for the office of international president during the 1986 convention. Later I joined the Ron Carey slate at his request as a candidate for international vice president at large in the 1991 election for international officers. Our promises of reform, including fiscal responsibility, were then swept away by the Carey administration through high-handed tactics and abuses of power. This forced my separation from the Carey regime for many reasons, a number of which are set forth below.

Our pledge to the membership during the 1991 campaign was thereafter violated in every way, reducing the once the most powerful of earth to an organization of the verge of bankruptcy and totally divided in it's efforts.

I believe that it is fair to state that my efforts on behalf of reforming the Teamsters date back to the 1970's and I have long been an advocate of the right of the rank and file members to directly elect all of their officials at all levels of the union structure.

At the outset of this testimony I want to make it clear that despite the events of the past six years, I continue to believe in this great union. However, I must admit that I fear for the future of this union and am totally disillusioned, disappointed, disgusted, and dismayed with the events of the past six years that have brought this union to the brink of destruction. Today our union is virtually bankrupt and totally divided.

A fairly stated history of this union for the past six years and any complete and objective investigation will show clearly that the sad state of affairs presently existing can be traced to one basic problem--the instruments of reform were unfortunately placed in the hands of the wrong people. It is often said in our business that hindsight is 20-20. However, the record of this matter will show that these concerns and objections, the actions of the Carey administration, were voiced widely within the union itself and publicly as the events transpired.

It was in 1986 that I believe I first gained a reputation throughout the Teamsters nationally, as a supporter of reform when I ran against the incumbent Jackie Presser, a fellow Clevelander, for the office of international president. I sincerely hope that my efforts in 1986 gave some impetus to the reform movement within the Teamsters, which would grow dramatically in the years to follow.

Along with the other supposedly reform minded Teamsters, I was swept into office in 1991, as international vice president at large on Ron Carey's reform slate. I'd worked very hard for Ron Carey during that campaign and honestly believe that our election was the dawning of a new a day for the Teamsters and that better times lay ahead.

I had high hopes that with the help of the court under Judge Edelstein, the IRB under Judge Lacy, and because of the members' right to elect their officials, we would be able to clean out those individuals that were tied to organized crime and restore the Teamster’s union members pride. However, after eight years of government supervision, we find that what looked like a solution to the many problems of troubled Teamsters passed, turn out to be a vehicle that brought about a new era of corruption and greed, allowing the Carey administration to conduct a reign of terror by malicious prosecution of it's detractors while they themselves engaged in various acts of corruption.

When the Carey administration took office in February of 1992, it promised to be fiscally responsible and to conduct an open administration about the union's actions and policies. We were to discover sadly that virtually the exact opposite occurred. When morning merges from the rubble of this administration, we find the union virtually broke and divided. It is extremely difficult to comprehend how we got to this point from the hope and promise of 1991.

In order to even begin to understand this, one must recognize what the personality of the Carey administration became. It became an administration that was singularly and compulsively obsessed with the perpetuation of it's own power. Internal union politics played a part in virtually every decision made by the majority of the general executive board. It became an administration that abused all the powers of the general president and the general executive board in the areas of union disciplinary procedures, the implementation of trusteeships, the merging of local unions, and the manipulation of joint council jurisdictions, to punish it's enemies and reward it's supporters in virtually every opportunity that was presented.

Abuses of power ran rampant under the guise of reform. The administration engaged in systematic character assassination using the IBT communications department and malicious prosecution of it's opponents within the union, using the IBT legal department. If one became a Carey supporter, they were anointed with a title of new reform Teamsters, regardless of their past history. Opponents of the administration, regardless of their past history, were vilified as old guard Teamsters, which equated in the public relations barrage of the international for being corrupt or soft on corruption. The frequent cynical use of mob references became an essential part of the Carey rhetoric.

It became an administration totally devoted to the centralization of power at the international in Washington to the sacrifice of local union autonomy and consequently to the rights of local union members. It became an administration that was subverted by the arrogance of power and became an administration that truly believed it was above the rules. At it's core, this administration was rotted by hypocrisy.

Having said all of this, I cannot help but be reminded and yet puzzled by how all of these transgressions occurred on the watch of the Justice Department and the Consent Decree appointees. Consider the fact that the FBI and Justice Department were aware of many of signals of possible corruption by Ron Carey before he took office in 1992. Why did they ignore the smoke surrounding Carey until a fire broke out after the 1996 election. Were they so busy helping and supporting Carey's every move, including the unbridled spending of approximately $700 million of members' dues money and his continued malicious of his enemies that they missed the real problem?

It would lead one to conclude that the government has yet to prove it is equipped to run or guide a labor union. The first indication of serious trouble came with the persistence of the International in refusing to call a special convention of the elected delegates to deal with the union's deteriorating financial condition, while the International at the same time was recklessly spending money. I understand currently the union's reserve have dropped to $700,000.

Commencing in July of 1992, the General Secretary-Treasurer of the union in a series of letters expressed his growing concern with regard to the deterioration of the union's finances and soon thereafter the situation started being referred to as critical. During 1992 and 1993 Carey openly recognized that the problem would have to be addressed by a special convention of the International. During this period, 1993 and 1994, International Vice President, Giacumbo, and I called for a special convention on numerous occasions to address the financial condition of the International. These requests were met by vicious and, at times, profane responses from the majority members of the general executive board. It may seem incredible that in the face of the deteriorating financial condition of the International, the supposed reformers would not be in favor of holding a special convention to permit the delegates elected by the membership to address the problem.

This entire notion of keeping vital business away from the directly elected delegates was totally obnoxious to concept of reform and democracy within the union. Certainly the entire notion of elected convention delegates was one of the centerpieces of the reform movement.

After the referendum vote count on the dues increase had commenced and it became apparent that Carey's dues increase proposal was going down, Carey recommended abolishing the four United States area conferences, thus eliminating the offices held by the four conference chairman, who had opposed his dues initiative. This action by Carey and his supporters on the general executive board was so obviously political and retaliatory so as to defy explanation.

Even though problems had been festering, this issue forced my open and public split from the Carey appointed general executive board. In all the action against the conferences and their elimination was a complete fiasco for the union. It was not at all productive, but only served to split and divide the union. I spoke openly against the abolishment of the area conferences within the International and publicly. In a meeting in Chicago I described Carey's actions as "a power grab to take complete control"' of the IBT. I further stated that "we are witnessing the destruction of the Teamster’s union as we know it." In a statement to the Cleveland Plain Dealer Newspaper, I said, "this move does nothing to bring Teamsters together, just further divides us". We spent 10 or 11 days on this issue like it was the most important thing that had to be done, and in the meantime the international union is going broke and the financial crisis hasn't been resolved.

Total abolition was an absolutely vindictive act designed to eliminate his most vocal and effective critics. The political dealings and manipulations of the Carey administration were manifested in virtually every aspect of the union structure.

One action that hit close to home was Carey's splitting of Joint Council 41. A leadership of Joint Council 41 had widely been known as being anti-Carey. Members of local unions who had lost in a Joint Council 41 election of officers held in December 1994, petitioned the International for the establishment of a new separate Joint Council of their own that was to be, in effect, pieced out of joint council 41. It's creation represented political gerrymandering of the worst kind while providing Carey with a base of power in Ohio.

In terms of union democracy, the International convention chaired by General President Carey in Philadelphia, Pennsylvania, July 1996, was an absolute atrocity. Even a casual half interested observer of the convention would have recognized the high-handed tactics of Carey in chairing of the convention, his quick gavel, forcing the seating of his hand picked appointed delegates and then his subsequent filibustering of his own convention. However, we cannot overlook and certainly cannot over emphasize the truly unconscionable and reprehensible action of the chair during that convention. It involved a calculated and orchestrated effort to deny the rights again of the elected delegates to address union problems and issues. As a result, the convention was never allowed the opportunity to address the financial crisis, the lack of a strike fund, or any of the other important issues of concern for the membership.

As I mentioned earlier, the election of delegates by the membership for the purpose of conducting convention business was, and will continue to be, an important element of the entire reform process. How Carey could have gotten away with this under the very noses of the Justice Department and the appointed Consent Decree officials continues to bewilder me to this day. I cannot and will not believe that intelligent and supposedly well intentioned people could have been so totally duped by a mere smokescreen of reform.

Due to the totally discriminatory and retaliatory application of internal union discipline by the Carey regime, I resigned from the IBT ethical practices committee, effective March of 1996. I set forth in a letter March 14th, my letter of resignation from the ethical practices committee, specific reasons, and case results for my decision.

Two staunch Carey supporters and members of the international executive board, Tom Gilmartin and Diana Kilmury, had been found by decisions of the IBT elections officer and by the elections appeals master to have committed acts of improper surveillance, coercion, and intimidation of other members and opposition candidates. Particularly offensive was the fact that Vice President Gilmartin held the position of chairman of the ethical practices committee. Although similar actions of surveillance, coercion, and intimidation had led to the suspension of other Teamster officers and members, the actions of Gilmartin and Kilmury went virtually unpunished.

By this time, for the reasons briefly set forth above and for many, many other reasons, based on totality of the conduct of the Carey administration, I'd become totally and absolutely distanced from Carey group. I believe my feelings in this regard were amply set forth in my March 14th letter of resignation from the ethical practice committee. I stated, "Ron, in the beginning I had faith and trust in you and a reform movement. I had hoped that the reform we'd campaign so hard for would certainly include justice and fairness for all Teamsters, regardless of political affiliation. However, unfortunately just the opposite has happened. Ron, I have not fought for reform in the Teamster’s union for over 30 years to now subvert or prostitute the principals I believe in. My ideals, my morals, and my reputation will not allow me to look the other way, as you and others in your administration have."

I have for some time been an open critic of the actions of the Teamsters Independent Review Board. I believe the IRB to have exercised preferential and disparate treatment to critics and opponents of Carey were targeted for investigation and punishment. The mission of the Consent Decree was designed to attack organized crime, not to undermine internal union democracy or to provide any union administration with the power to pursue malicious prosecution of it's enemies and become immune to any of it's own wrongdoing.

I sincerely believe that my outspoken criticism of the IRB had made me a target. In a letter dated December 11, 1996, I was advised by Charles Carberry, Chief Investigator for the Independent Review Board, that a sworn in-person examination would be taken of me December 23, 1996, pursuant to the authority set forth in the Consent Decree.

The sole purpose of the examination on the basis of questions that were asked, was to probe deeply into my association with Gene Giacumbo, a former International vice president and an extremely outspoken critic of the Carey administration and the IRB. Although Mr. Giacumbo had been previously suspended, I knew of no decision or finding that held Mr. Giacumbo to be a member of any organized crime family or any decision that barred Mr. Giacumbo for associating with Teamster members. More importantly, I could not think of any conceivable reason why I shouldn't be able to associate with Gene, a person whom I respected and whom I had befriended from our services together on the general executive board. Gene had a long and respected history of reform within the union.

I have to admit to you that I sit here today with a great deal of discomfort and concern. To me, the government should never run a union. Government intervention in the affairs of the union does not ever, in the long run, work to the benefit of the membership in my opinion. Further, as a lifelong democrat and also a person who is devoted a better part of his life to this union, I must confess that I am uneasy about appearing in front of a Congressional committee, chaired by a Republican no less, and give testimony that may cause this committee to delve even more deeply into the affairs of my union. However, from what I have seen, I wish to come forward and state my endorsement of these hearings.

Too much has gone on in the past six years and too many truly terrible things have happened to this union and it's outspoken leaders, for any of us to now stand silent. Although I have long been an advocate of reforming the Teamsters, I know also that this great union has too often been unfairly characterized.

Recently, we have suffered the worst humiliations, where the anointed reformers of the union have devastated the union's treasury and seriously fractured it's cohesiveness. Accordingly, hearings of this nature taking place today are absolutely necessary for a complete and total catharsis to take place. The membership must fully know what happened to it's money, who is responsible for the losses, and why the government monitors failed to take corrective action. Hopefully the misdeeds of this regime will never, never be repeated.

In addition to the actions of the International officers themselves, it is clear that many mistakes and miscalculations were made by people supposedly overseeing the administration of this union's affairs and purportedly acting for the good of the membership. Most certainly the intrusion of the government in the affairs of this union has been a dismal failure. I would hope that this committee can focus on and perhaps find answers to the following questions.

What happened to the $20 million that was spent by the government to provide Teamster members with a clean and fair election and how did it fail with all of the resources of the Federal Government? What happened to approximately $80 million of Teamster’s dues money that was spent on maintaining and enforcing the Consent Decree? What happened to the approximately $700 million of Teamster’s dues money that was dissipated during the Carey administration?

Finally, my purpose for coming here today lies with my hope that this process can somehow lead to the rightful return of this union to it's membership. We need to get back to the fact that labor unions are organizations that belong to their members, that they should be independent of employers, independent of organized crime, independent of political parties, and most certainly, must be independent of the government and be free to express their members interests through a democratic process. Union members must be free to determine the destiny of their union.

Thus far, I've seen both objectivity and honesty in this committee's investigation of the travesty that has taken place. I can only ask that these hearings and this process continue with the integrity necessary to permit the Teamster’s union to get back on the right course. This committee, Congressman Hoekstra, must leave no stone unturned in finding the truth and telling the American people and hardworking Teamster members what happened to their money. You, Mr. Chairman, are the last best hope in achieving those goals and I thank you for allowing me to be here today.

WRITTEN STATEMENT OF SAM THEODUS, FORMER VICE PRESIDENT, INTERNATIONAL BROTHERHOOD OF TEAMSTERS – SEE APPENDIX B

Chairman Hoekstra. Thank you. Mr. DeRusha.

Mr. DeRusha. Mr. Chairman, members of the committee, my name is Robert DeRusha. I thank you for the opportunity to testify and I thank you and the committee for trying to find out why the government failed to protect the Teamster’s union from corruption.

The Teamster’s union was important part of my life for almost 45 years. I was privileged to represent my brothers and sisters as a local union officer for 28 years, as an officer at Joint Council 10 in Boston for more than 20 years, and as an International Union Trustee for approximately 7 years.

I retired from the union at the end of 1995, largely because of my health. It was a difficult decision. Anyone that knows me will tell you that I'm stubborn. When I was in a fight I did not want to give up. The three International union trustees, Bob Simpson, who is here with me today, Ben Leal, and I were trying to determine how and why General President Carey and his administration were spending the union into bankruptcy.

The three of us were trustees prior to 1991, when General President Carey and his slate were elected under the Consent Decree. Unlike the other officers who are elected by the membership, we were elected by the delegates at the 1991 IBT convention and by a substantial margin.

As an International trustee, our specific responsibility as assigned by the IBT constitution is to review the union's books, once during every six-month period. When brother Carey took office, there was at least initially no change in the access and cooperation afforded the trustees in performing our duties. We were allowed to attend the meetings of the union's general executive board, we still got copies of all financial reports distributed to union officers. We were allowed to question those individuals without restriction. When we asked for documents, they were quickly provided.

This cooperation came to a grinding halt after the trustees sent the General President a letter in August 1993, outlining our concerns about the union's worsening financial condition and our suggestion for various changes that would help stop this decline.

We wrote the letter because we felt we had a duty to the membership. It was our fiduciary responsibility. Our repeated questions and suggestions had produced no change and no response. We finally decided it was time to put our fears and suggestions in writing. It took almost six weeks before we got a response from brother Carey.

I'd like to clarify one thing. We just didn't decide in 1993 to send that letter. From July-to-September of 1992--we see the worsening condition going on all the time, the finances dropping, the things that were taking place, the admittance by the administration there should be a convention to straighten out this mess, and nothing was being done. We had repeated meetings with--I hate to say brother--Mr. Carey, and we were advising him that we wished he'd have a meeting with the Joint Councils' heads in the United States and Canada, then with the conference heads. We felt that a compromise or some such for the type of convention--a limited convention--could be arranged ahead of time because they were very fearful of having an open convention, an emergency convention, and let everybody rehash everything.

Every time it would come up at the general executive board meeting, people like Kilmury, Gilmartin, and some others, John Morris, whatever--and I'm not afraid to name names--there's others--would jump and scream, "no", they outnumber says the delegates. But, what happened is we finally realized we had to reduce it to writing and said it to Carey in hopes that, in black and white, he would see it and really understand it. That we'd met with him individually and as a group, and so forth--numerous times.

So, we did. We did it reluctantly to begin with. And then as the reply came back, he rejected all our suggestions. He attacked us personally. He went so far as to allege that somehow the trustees were responsible for the union's worsening financial condition. As a result of our--I'd like to point out, I only come on as a trustee in January of 1989--the union had over $200 million dollars at that time in cash reserves. I think there were no red flags waving. Membership was dropping somewhat, but a lot of other things were happening to the union movement. When Carey took over he had about $154 million. By the time we wrote our letter it was down to about $75 million.

It was obvious where we were going--we were going down the tubes, and he knew it. He put in the magazine, he put in letters, we needed a convention, but nobody was going to do. Not him; nobody else.

As a result of our letter, the International union trustees suddenly went to the top of brother Carey's enemy list. And I think you really have to know some history of all the other people to know what happen, but immediately Ben Leal was suspended. They went into his local, they filed charges against his daughter who happened to be a business agent for the local, and they found an excuse to suspend him for a couple months--I think it was two months, it might have been three. But the result of the suspension was he could no longer run for office when a new convention come up. They eliminated him from that point. And they hoped to intimidate him by the simple fact that they had suspended him and kicked his daughter out of the union.

The next one was Bob Simpson. They went after Bob Simpson. As a result, Bob will explain his position and what happened to him, but he was kicked out of the union.

Then it was my turn. They weren't so fortunate with me. I'd been around a little longer than they had and it really comes to head when I was criticizing Tom Sever.

The first meeting or second meeting in 1992, it was--I believe his name was Nash--was there, and he was expounding how he was going to form a budget, which Judge Lacey and others said the International Teamsters should have a budget. We never operated with a budget. I agreed with that. I think we should have a budget. And he said at that meeting, it would be six months before he could get it together. He had to go back over the last few years of the books and everything and see what we had to have for a budget. So six months later I questioned Tom Sever, the General Secretary-Treasurer. Well, they're still working on it--it will be another six months.

So another six months later, it was on my calendar, I asked him again. Now, they hadn't done it quite, but they were working and it was pretty close. Six months later, there was another excuse. Six months later, when I brought him to talk to him, he started with the same bull. So I went after him. I told him I wanted--just because he wanted to act like a country pumpkin here, the rest of us weren't. I'm sick of his lies and so forth. He went out the door, and when he went out the door before he slammed it, and Bob was sitting there, "I'm going to have you investigated DeRusha," and he slammed the door.

Two weeks later, there was an International auditor sending me a letter that he was going to spend three weeks at my local, auditing the books of local 437. Local 437 is a small local and you'll see that Carey stresses that in his letters--500 members, 600 members, whatever it might have been at the time. Seems strange, when he mentions all three of us, he'll mention Simpson, but he never says after Simpson's name, he was the head of the largest single union in the whole union. I wasn't the head of the smallest one. There were 10 the same size in the eastern conference, roughly 350, 400, 500. There were 10 in the Canadian conference, and I didn't even bother to check the other conferences. Because this union's backbone is still, in spite of what a lot of people may think, the small unions--the craft unions, the individual one-on-one type locals.

So sure enough, this guy shows up--his name was Cox. Well Cox and the other International auditors were a weapon. This is how they started out putting the fear in people. They would go in and in many local this happened, you either shut or we're going to put you in trusteeship. And that was the message he carried. But when he come to my local, I knew what he'd done in other locals, and I met him at the door. I had the executive officer of my local there and I had an accountant there and I handed him a letter stating that he was only on a witch hunt and I was going to treat him just like we had been treated as trustees. He couldn't get to the phone fast enough to call Dick Bell at the International. He didn't know what to do and I kept it that way.

I did to him what they did to us. And when he went out of there, he told us what a good job we'd done; he'd only a found a couple little things. One of the things though he did try to pin on us--our bylaws were--carried a clause in it that we could assess a member a dollar if he was 10 days late on his dues. That was clause in there that has been in there for many, many years, back before I'd ever become the head of the local and that was 1968, which was done before we had dues checkoff payroll deduction. And that was the way to get the people to come into the office and pay their dues. It had become illegal. And at that point, when it become illegal, I stopped doing it. Cox says, we got you. You didn't collect all this money. So, needless to say, you can figure what I told him about his ignorance and whatever. This is exactly what it was. It was just a scam tried to put some fear into me. The only thing he didn't know, I knew as much about what was going on as far as the law went at that point, as he did. So when he got over embarrassment, he left.

Brother Carey and brother Sever did everything they could to obstruct our review and prevent us from performing our duties under the IBT constitution. We were barred from attending meeting of the general executive board, they refused to give us copies of the financial reports that were routinely given to all other officers, they refused to give us copies of documents we asked for, they refused to let us have the assistance of a certified accountant. And one time they did send one in, a fairly young kid, nice kid, he said I don't know nothing about unions; I don't know what I'm doing here. We talked to him, we replied to him, after a couple of hours, we said you could go. Because he knew nothing and he wasn't supposed to know anything. They even refused to give us copies of financial documents that were produced. As a result, anything that we wanted to study, we had to copy by hand. We couldn't make photocopies, we couldn't use a tape machine to read into to have notes produced.

Any labor lawyer will tell you that an union member asking to inspect the books, records, and accounts is entitled to have an accountant or attorney and have copies of records. We were elected union officers, and particularly we were elected as the financial watchdogs of the union. Yet, Carey and Sever denied us even the rights a member should have had.

On top of the law we were threatened. In February of 1995, that's when Sever threatened me. When Carey received the letter, I got a call from a Washington reporter. He says, "Carey says this is war on you three trustees." Well, he's made that statement again to several people--to "outright war," he's used in some cases.

It was after that the accountant showed up in my office. It seems impossible that any other union officer could do what Carey and Sever did and get away with it. Union are supposed to be democratic institutions and the Federal law is supposed to guarantee that elected officers get the information they need to carry out the fiduciary responsibilities to the membership.

We sought relief. The general executive board, which was and still is, and I stress that, still is controlled by brother Carey--that's written in here--I hate to use the word, brother--denied our appeals. We sent copies of our appeals and wrote letters to the United States Attorney, twice--never even got a reply from him, not once--and to the Independent Review Board. We never had any response from the United States Attorney. The Independent Review Board had a lawyer take our depositions. We also sent the IRB additional evidence concerning obstruction by brothers Carey and Sever, but the IRB refused to do anything. It had become a very futile situation for us.

I don't know that we would have been able to uncover any of the schemes that brother Carey used to embezzle funds from the International union. But I do know that we were able to uncover a number of highly questionable, if not flatly, illegal financial practices.

I don't know why the government, the United States Attorney, the IRB, and the court did nothing, while Carey, Sever, and the other members of the Carey slate were allowed to run the union into the ground.

The one thing that bothers me about what's happening now--Carey's been suspended. Many of the decisions that come from Carey or come from the IRB had the last sentence on it for who is penalized. If you knew or should have known, you're kicked out to or suspended. Here we got a whole slate of Carey people that gained all the use of that money that was funneled around, yet they were all sitting there running this union. It's unbelievable that those same people, who did this to other people, because they didn't know they should have known, are still able to sit there and run this union. I just don't know that it's exactly what they did, but it was nothing. They did nothing. The Carey--the government--nobody helped us. They ignored us and I think they really wanted us to go away.

It should never be allowed to happen again. Thank you for allowing me to testify and I look forward to answering any of your questions about the submitted testimony and letters that you have.

WRITTEN STATEMENT OF ROBERT G. DERUSHA, FORMER INTERNATIONAL TRUSTEE, INTERNATIONAL BROTHERHOOD OF TEAMSTERS – SEE APPENDIX C

Chairman Hoekstra. Thank you very much. Mr. Simpson.

Mr. Simpson. Good morning. My name is Robert Simpson. Thank you for the opportunity to share my case with the Oversight and Investigations Subcommittee of the House Committee on Education and the Workforce. I'm glad that you are looking into the mismanagement of Teamster’s finances by former President Ron Carey. I tried to investigate this with the other two trustees, Bob DeRusha and Ben Leal, in 1993, and my career was destroyed as a result.

More specifically, after 40 years of impeccable service to the International Brotherhood of Teamsters and local 743, the largest local in the IBT, I now come before you having been wrongfully found guilty of bringing reproach upon the one and only union I ever loved and still love, the International Brotherhood of Teamsters. To understand why I've pursued this case to the verge of personal bankruptcy, it is necessary for me to explain my distinguished history of service to the IBT.

I am a 63-year-old African American man who pulled myself up by my own bootstrap from being a Montgomery warehouse worker to becoming the president of local 743, the largest local in the IBT. I obtained this position by working 75 to 80 hours a week up to the time I was removed from office by then IBT President Ron Carey on August 22, 1994.

I have never been accused of having ties to any organized crime organization. I have never associated in any manner with any member of organized crime. Neither the chief investigator nor the Independent Review Board alleged or presented a single piece of evidence to the contrary. In fact, I have undergone and cleared two FBI investigations initiated by Arbitrator Lacey, the head of the IRB, in connection with my becoming an International trustee. I became and International trustee at the convention in 1991, when was I elected by the delegates to the convention with the highest vote total of any person running for any office at the convention.

Until I was charged and removed from office for those bogus charges, I had never been accused of any wrongdoing in connection with my service to the IBT to otherwise. The only time I have ever been charged with anything was when I was arrested on union picket lines fighting for the rights of my fellow Teamster members.

For almost four decades I have been, and still am, a well-respected labor leader, and was one of the highest-ranking African American labor leaders in the country. The former Attorney General of Illinois, Roland Burris, and the former Mayor of Chicago, Eugene Sawyer, testified at the IRB hearing that I am a man of impeccable character and honesty who has spent his entire adult life fighting for the rights of working men and women. I was chosen by the United States State Department to oversee the recent history making elections in South Africa. The City Council of Chicago unanimously passed a resolution that was sent to the IRB, demanding that I be given my job back. But most importantly, I am a man dedicated to serving the members of the IBT and local 743, who desperately wants and deserves my job back.

Essential to this committee's understanding of why I know the charges against me, the IRB's opinion and decision, and the district court's approval thereof were politically motivated, is an understanding of the history of the relationship between myself and Ron Carey. Prior to 1993, when I, in my capacity as an International Trustee with the two other trustees, wrote Carey a letter questioning his handling of the IBT's finances, I had the full uncompromised support of Carey, and my character and integrity was never questioned.

In June of 1993, my relationship with Carey changed forever. From June 15th to 17th, 1993, myself and the two other International trustees performed an audit of the International's finances and discovered that the union was in a negative financial condition that put it's financial stability in serious peril. Specifically, our audit showed, among other things, a significant increase in operating costs, low rates of return on our investments, and exorbitant per capita/affiliation fees.

On about September 17th, 1993, myself and the other trustees received a vicious self-serving letter from Carey regarding our questioning of his financial management of the IBT. In this letter Carey attacks me and the other trustees for questioning his handling of the IBT finances. In this letter Carey stated that, "if the tone of this letter seems sharp, it is meant to be."

Most telling, on June 30 of 1994, less than one year after I questioned Carey's handling of the IBT finances, bogus charges were brought against me and led to my removal from office and the destruction of my career.

Specifically, the charges brought against me alleged that I brought reproach upon the IBT and violated the IBT's constitution for allowing Peters to serve as a representative of local 743 after his mandatory retirement in 1989. On December 20th and 21st of 1994, the IRB held the hearings on the charges against me. At this hearing, the chief investigator did not present a single witness to testify in support of the charges. The only evidence the chief investigator offered was three volumes of exhibits relating to the charges. The chief investigator refused to even make a closing argument.

In response, through representation by Dan Webb and Sam Mendenhall, who is here with me, and the law firm of Winston and Strawn, I offered four volumes of exhibits in defense of my position that the proposed charges were unwarranted. In addition, I personally testified and presented 11 other witnesses who testified on my behalf also refuting the charges.

Nonetheless, on June 25th, 1995, the IRB issued it's opinion and decision, wherein they determined the proposed charges against me had been established. In summary, the IRB found that I brought reproach upon the union by allowing Peters to attend meetings, lunches, dinners, and fund meetings where local 743's affairs were discussed; to incur expenses that were paid by local 743; and to attend IBT functions.

However, the IRB failed to cite even one decision which Peters allegedly made as an agent or representative of local 743. Nor did the IRB cite one instance where Peters bound local 743 to some decision or agreement he made. This speaks volumes. The only thing Peters did was to provide background information and consultation on issues facing the local, of which he was one of the founding members.

More importantly, in 1991, I informed the chief investigator that the local was utilizing Peters' knowledge and paying for some of his expense. I also informed him that the local had a legal opinion from it's general counsel that this was proper. Additionally, Arbitrator Lacey himself personally approved expenses for Peters after his mandatory retirement. Peter's incurred these expenses representing the president of the IBT at an IBT sponsored function. For Lacey to find me guilty of bringing reproach for doing exactly the same thing he did showed the political nature of the charges against me. Amazingly, the IRB also implied that I embezzled money from the local by paying certain expenses for Peters and others in connection with union affairs. This is untrue. I have never been charged with embezzlement and deny even doing so.

In conclusion, as a result of challenging Ron Carey's financial mismanagement, I was and am "permanently barred from holding any position with the IBT, or any IBT-affiliated entity in the future," and from obtaining "employment, consulting, or other work with the IBT, or any IBT-affiliated entity." I have been forced to work odd construction jobs just to make ends meet.

As an International trustee I was cleared with the duty--charged with the duty--of annually auditing the financial records of the IBT and issuing of a report concerning the same. I saw Carey misusing union funds and had a fiduciary duty to speak out. My obligation to the membership to the IBT exceeded any friendship and relationship I had with President Carey. Doing so has destroyed my life. However, it was the right thing to do and I would do it all over again if the same situation presented itself. I love the union much too much not to. Thank you and God bless you.

WRITTEN STATEMENT OF ROBERT SIMPSON, FORMER INTERNATIONAL TRUSTEE, INTERNATIONAL BROTHERHOOD OF TEAMSTERS – SEE APPENDIX D

Chairman Hoekstra. Thank you, Mr. Simpson. Mr. LeFevre. Are you going to summarize?

Mr. LeFevre. Is that an order, sir? And that's exactly what I'll do.

Chairman Hoekstra. That's not an order. No orders. Actually, it's wonderful testimony to hear from your descriptions exactly what went on in the Teamsters from 1989 to 1997 or 1998, and you've got some really important stuff to talk about and I think we also are eager to have a dialogue. But make sure you cover what you need to cover. Thank you.

Mr. LeFevre. My name is Joel LeFevre. I want to thank you for giving me this time. I'm the elected principal officer, Secretary-Treasurer of Local 84 of the Technical Industrial Service Agency and Allied Workers. We're affiliated with the International Brotherhood of Teamsters. I'm also administrator of Local 840's pension and health funds and chairman of those boards of trustees, and I am a Trustee of Joint Council 16 Teamster’s Pension Fund.

I draw no salary from any of those positions. I am paid solely as Secretary-Treasurer. I've been with this Local Union since 1986. Prior to 1986, I served on the professional staff of two other local unions in other internationals since 1976.

I came to Local 840 as the organizer in 1986. Today Local 840 is just about 1,100 working people, two-thirds of us are in clerical and technical positions, 18 percent light manufacturing, 15 percent maintenance, and 5 percent in warehousing.

I have a deep loyalty to the moral principles of the labor movement. That's why I'm here. I'm honored to count myself amongst the thousands of men and women in the labor movement who have dedicated their lives to defending the right to have a good job; receive adequate medical care; achieve protection from dire poverty and old age during periods of sickness, accident, and unemployment; and defend the right of every child and worker to get a good education; and live free of fear and prejudice with our families in decent homes. Pursuing these goals with energy, courage, compassion, determination, and honesty is what being a Teamster is all about. However, my beliefs in free speech and do process and the basic tenets of trade unionism have landed me in a lot of hot water with the Carey administration and it's supporters.

To understand this story, I’ll talk a little bit about the structure of the union. That's a diagram of the structure of the Teamster’s union. That inverted triangle has the members on top, 1.4 million of them. Then the local unions are the next layer. They do the vast majority of negotiating, contract administration, and member services. Then we have a layer of joint councils, which comprise the local unions in a particular geographic area. In my area of metro New York, there are 45 locals in Joint Council 16. Formerly, we had a layer in there called conferences. Then, the international union, with it's trade divisions; the international officers on the general executive board; and at the tip of this structure, the general secretary-treasurer and the general president.

That structure was designed to exercise union power through the membership at a grass roots level. Local unions are not branch offices of the IBT. The IBT is not the place that a guy working on loading dock goes to get his pay or grievance settled. A member who's out on disability, has her medical insurance dropped after a month, doesn't call an international union representative. That member calls somebody that she or he has met, the local union business agent, whose job it is to go there and help solve the problem. Today, there are many fewer business agents than there were in the past. I'll explain that in a minute. They do the services for the members. There are a whole lot more staffers in the IBT, however, who don't.

The Teamster structure is intended to keep the members' money closest to the members in the local unions. That way the members can express their approval or disapproval of how money is being spent. Membership opinion can be expressed directly to those who are responsible for it's disbursement. Every member can offer a resolution at any membership meeting to change the way money is being spent.

That's not true for the international union. The members only direct input on how money is handled is in the local union. Therefore, the majority of dues money stays in local unions. This structure is designed to preserve the autonomy of local unions. The autonomy of local unions is on page one of the IBT's constitution as a declaration of principle.

The Teamster’s union was one of the world's long strongest unions because of it's structure of keeping the bulk of it's resources and control over them in close to the members in the local unions. It's key organizational principles were low per capita taxes and local autonomy. This is a decentralized model of a labor union.

In late 1993, the Carey administration prepared to change this union, fundamentally by seeking to impose a centralized structure through a mail ballot referendum amongst the members. The plan would increase international income by over $40 million, increase membership dues by 25 percent, and permanently change the economic relationship between local unions and the international union and the members. The top IBT officials spurned the process identified in the constitution to do this and the government simply approved.

The Carey dues increase referendum was the first step the incumbents took to guarantee their reelection in 1996. If each of you could have the budget to open a dozen community offices and have your last two primary opponents and general election opponent arrested, then the term incumbent advantage would really mean something. Well, that's exactly what Ron Carey did and with government approval.

The dues increase referendum was defeated by a three to one margin in March 1994, reflecting the membership's rejection of the concentration of power in Washington and undermining local unions. After being rebuffed my the members, they came up with another way to get the money they needed in order to get reelected, without either a vote of the members or delegates or anybody, and ignoring the IBT constitution. They set about to organize an intricate web of corruption, funded by a complex financial scheme.

The IBT constitution provides for a $1 per month per member assessment on the local unions and it is triggered by the general executive board finding that the net value of the union is under $20 million. The regular per capita payment that locals pay is $3.90 per member per month. The general executive board imposed this assessment on the local unions in May of 1994. That generated an additional $17 million per year for the IBT. The locals either paid or got trusteed--that is, taken over by the International union. Every local paid.

Two months after the dues referendum was defeated, Carey revoked the charters of the four American conferences. You've heard about that. Shutting the conferences also had a financial impact for the IBT. Twenty cents per member per month went from the IBT to the conferences. That was a net five percent income increase to the IBT. Together the $17 million from the assessment and the $3.4 million from closing the conferences meant a 30 percent more discretionary income to fund veiled campaign activity at the IBT.

On top of the $20 million unilaterally taken from the IBT locals, the Carey administration got another $11.5 million by freezing the pension plan for all local union employees. For a total of well over $30 million per year. The Teamster’s Affiliate Pension Fund is cosponsored by all 550 plus local unions. I refer to this plan by it's initials, TAPF.

The TAPF fund accounting in 1996 shows that the plan had $48 million more in assets than it needed to meet it's liabilities. Yet, the IBT lists the TAPF as a $28 million liability on it's books. On the books of the TAPF, there is no receivable for $28 million, however. This purposeful use of the TAPF is in violation of the legal requirement that it be solely operated for the benefit of it's participants and their beneficiaries. That's the exclusive benefit rule of ERISA; that is the heart of ERISA. It is being violated here in a very big way.

In 1995, we had $17.25 million coming in from an assessment, saving $3.4 million from the conferences, the TAPF saved $11.62 million, for a total of $32.31 million. The IBT did not get the $40 million dues increase it tried to get by a direct ballot referendum, but it did get 75 percent of the money through the back door, without any votes. At the beginning of 1995, IBT leaders had to keep the cash flow coming in to continue large numbers of people on the IBT payroll and prepared to hire more field operatives and PR staff, while simultaneously appearing to have deficit spending under control. It was absolutely essential to keep the staff huge and local unions financially hurting. Making local leaders insecure about their finances produces a conducive environment for pledges of political support in return for pledges of financial assistance.

There is pension fraud at the IBT in immense proportion.

On February 26, 1998, we filed charges with the Courts' Overseers. These are the charges. We filed them with the Independent Review Board, the financial monitor, the election officer, as well as the United States Attorney's Office, and the Pension and Welfare Department of the Department of Labor. We filed them against each Teamster affiliate's pension fund trustee; Ronald Carey, the IBT General President; Thomas Sever, the IBT General Secretary-Treasurer, who now also acts in the stead of the IBT president, who is on leave; Aaron Belk, IBT Vice President; and every general executive board vice president who is responsible for this fraud. We've charged them with violating ERISA pension laws, violations of their fiduciary duties under the LMRDA, and gross violations of the election rules and the IBT constitution. That analysis of the TAPF is long and complicated. I'm not going to try to explain it right now. I included it as part of my written testimony for the record.

The IBT leaders sought to guarantee their ability to carry increased staff in order to get reelected. This scheme bore fruit in 1996, the election year. In that year, the payroll numbers swelled to 536 people; 210 of those people are shown on the LM-2 as getting field work expenses for most of the year. That excludes 41 people with clerical type titles, which I assume were hired for the convention. That compares to 480 people in 1995 as total payroll; only 145 of them showing field work expenses, and 141 in the field in 1994, and 139 operatives in 1993, as you can see on the chart.

That's an increase of 44 percent of field staff for the 1996-election year from the year before. Forty-four percent more professional field operators, 65 professional persuaders is an enormous campaign asset. If they were deliberately added to the staff to assist the election campaign, then it is an illegal act.

As reported in the press the papers of Jere Nash, former campaign manager, contain a March 10th memo to Aaron Belk, suggesting that targeted budget increases and added personnel will help the campaign. These extra bodies could not be hired without the assessment. On March 11, 1998, at an IRB hearing on Mr. Carey, Mr. Nash testified under oath that he had let President Carey know in writing whom to thank for his campaign. That memorandum, dated January 27, 1997, from Nash to Carey states that it is the, "summary of who did what."

I am sure the committee will be looking into the details of that memorandum, so I'm going to move off the discussion of the memorandum, simply to say that almost the entire building, I conclude from studying the memorandum, was converted into a campaign apparatus. All of those persons in the memo had full time jobs at the IBT, yet they were all campaigning full time and all of that is illegal and all of it was funded by theft, the deceitful accounting of union dues, and pension money.

I'm here to respectfully request that you monitor this situation. If the inaction evidenced to date continues in the face of the charges filed on February 26th, then the federally appointed monitors will appear complicit in felonious acts. We have provided documentary evidence and written analysis to this committee and to the court appointed IRB, the Independent Review Board; the election officer; the financial monitor of a massive fraud involving the Teamster’s Affiliate Pension Fund. That this multimillion thievery started during the prior election, I have been informed, that it will not be considered seriously by today's election officer. So the illusion of reform under government supervision continues.

In order to pay for their huge campaigns the IBT's officers bamboozled the union's rank and file. The officers of the Federal court in the Southern District and the American public. They were only able to do this because everybody watching this election believed that the incumbent Carey Administration was honest. And at the outset, so did I. Capitalizing on this fact the incumbent's chief campaign strategy was to label their political opponents in the union "old guard, Mafia-connected, corrupt officials."

I have firsthand experience with this. In the interest of time, maybe I should skip most of it, except perhaps to say that during the convention, they put out a press release saying that those who supported local autonomy, were supporters of the Mafia. I wrote the amendment on local autonomy and tried to get the convention to expand on that concept. If Bill Neuchau were still alive, whose local I today head, who taught me what it meant to be locally autonomous, were here to say a few things, I'm afraid we would have to sensor what he would have to say.

I'm secure enough in my relationship--and I was threatened with death. I've got to throw that in there.

I'm secure of enough in my relationship with my local members that through of all that, we held ourselves together. We have negotiated every contract, we have improved our benefit plans. What I sought to do was simply exercise my opinion to freely associate. I wasn't interested in running for IBT office and I am not running for IBT office.

On October 15th, 1997, this committee took testimony about the Teamster’s union, including from persons whose purpose on the payroll was to get the incumbents reelected. That same day the General Secretary-Treasurer, Tom Sever, signed the TAPF IRS Form 5500 for 1996, proving that he's violated Federal law. That same day a White House press release was issues from Rio de Janeiro, Brazil, where the President was traveling, announcing that the former general counsel of the Teamster’s union and close advisor to the Teamster General President Ron Carey, had been appointed by the U.S. President to the Pension Benefit Guarantee Corporation's Advisory Board. That was a very busy day, but this is a different day.

When the membership of this union is told of the government's continued inaction in the face of knowing about these illegal acts, their confidence in the election process will utterly collapse. The popular imagery of corruption and Teamster pension funds will become the image of the government's oversight of the union. The reflected light from campaign finance embezzlement now illuminates the government's supervision of the union. In the coming weeks, add the tale of the reformers rigging pension funds, while the government's monitors sit by and do nothing. In this atmosphere, no free and fair election can occur unless the persons responsible for this are thoroughly and quickly investigated and punished. The linchpin of reform in the union is the practice of democracy, but the system is being strangled. My short history is one small window on the rape of a labor organization. That's what occurred in the last eight years.

Under the banner of eliminating corruption, some of the worst abuses of the right to freely choose representation have been tolerated. While rooting out corruption has been trumpeted by the incumbent IBT officers, the very abuses of power, they were elected to eliminate continued unabated.

We desperately need you intervention to focus the spotlight on the corruption and failures on the part of the International union's officers and the government's monitors to halt the wholesale violations of both members rights and pension laws. We want the restoration of democracy. Make no mistake, we are reformers, but we are strangled. We are desperate to breath the oxygen of reform that democracy is supposed to bring us. But we are running out of air.

This is just one window on the trashing of the IBT constitution and the wholesale violation of ERISA that have been rampant since 1994. It's time, we believe, for the government's investigators to permanently remove the rose colored tint from their magnifying glass.

Thank you for your time, Mr. Chairman.

WRITTEN STATEMENT OF JOEL LEFEVRE, SECRETARY-TREASURER/PRINCIPAL OFFICER, INTERNATIONAL BROTHERHOOD OF TEAMSTERS, LOCAL 840 – SEE APPENDIX E

Chairman Hoekstra. Thank you very much to the panel. I believe we're in the process, or the rose colored glasses have been removed. As we will see in the second panel, the numbers are staggering. Not only has the net worth of the Teamsters gone from $150 plus million to $700,000, but I think when you take the dues and all of those types of things that have come in, we're talking in the neighborhood of somewhere to $600 to $700 million of expenditures by the IBT during that time. And that doesn't even take into consideration, Mr. LeFevre, all the numbers that you're talking about with the pensions. My background has always said you go where the money is and I've got to believe there's a lot of money there, and if the behavior that we've seen in these other areas overlaps into pensions, who knows where we end up.

Mr. Simpson and Mr. DeRusha, you brought this concern about the finances to the General Executive Board in early 1993. Is that correct? Is this in full meetings? Are there minutes or records of these meetings that tell us what went on?

Mr. DeRusha. There certainly should be, but knowing how things were done there, they don't always reflect what happened. But there were General Executive Board meetings where both Mr. Simpson, Leal, myself, got up and spoke about the financial things we were seeing, recommending that a convention be held--trying to stop the hemorrhage, as we called it, of the funds. Most of the time we were ridiculed, laughed at and sneered at, or whatever, and a "Sit down, we don't want to hear it" type of thing.

Chairman Hoekstra. That would be recorded in? Did you ever get minutes of the meetings?

Mr. DeRusha. From after the letter of August 3, 1993, we got nothing out of that executive board meeting.

Chairman Hoekstra. Are there other ways that you could find out what went on in those meetings?

Mr. DeRusha. Much of them were taped.

Chairman Hoekstra. Excuse me?

Mr. DeRusha. Much of them were taped and then transcribed into a manuscript or minutes.

Chairman Hoekstra. The meetings were actually taped?

Mr. DeRusha. They were--by the International.

Chairman Hoekstra. So the executive board meetings are on tape? So--

Mr. DeRusha. Well, they were.

Chairman Hoekstra. They were, at least at one--those meetings are on tape.

Mr. DeRusha. In one phase or another, they were. Yes, that's correct.

Chairman Hoekstra. Interesting. Okay. You don't know what happens to these recordings.

Mr. DeRusha. I have no idea; I have no idea.

Chairman Hoekstra. Okay. What process--you were never given access to--as a trustee, what was your responsibility?

Mr. DeRusha. Well, to look at the books, the records of the financial--twice a year.

Chairman Hoekstra. You're elected?

Mr. DeRusha. I was elected as a trustee; I was appointed as a trustee in January of 1989, and then in the convention of 1991 I was elected.

Chairman Hoekstra. And I believe, Mr. Simpson, you were elected-

Mr. DeRusha. Same time.

Chairman Hoekstra. You had the largest majority or plurality of any person elected in that convention?

Mr. Simpson. Yes, I did. That was at the 1991 convention, but I was actually appointed to that position about six months before--December 1990, I think it was.

Chairman Hoekstra. Okay. The--

Mrs. Mink. Mr. Chairman?

Chairman Hoekstra. Yes.

Mrs. Mink. Are we under the five-minute rule?

Chairman Hoekstra. Oh, I'm sorry; yes. We haven't used it today, but now is a good time to start. Thank you.

And you both--I mean, you're elected as trustees with one of the primary responsibilities to review the books every six months, and roughly in 1993 you're denied access?

Mr. Simpson. Well, we had a fiduciary responsibility to check the books twice a year, and prior to this administration coming on, we could go in and basically ask for anything that we wanted and we would get it. We could review any department heads, directors of departments, and we could go over everything with a fine-toothed comb. But then once the money started leaving and we started questioning what was happening with the money, then suddenly this open thing of giving us the records and letting us have copies and talking to the various department heads and directors--it ceased. They wouldn't allow us to do it anymore. It was a constant fight trying to get--maybe if we would see something on a line item and we would ask for documentation to see what this money was being spent for, they wouldn't give it to us.

Chairman Hoekstra. And you knew there were problems?

Mr. Simpson. We knew there were problems, yes.

Chairman Hoekstra. And once there were problems, they said ``No more.''

Mr. Simpson. Yes, that's exactly true. And then we just felt that if we didn't send up a red flag--because we were constantly asking to see the General President every time we went in, but he refused to see us, and we felt that since he wouldn't see us, the only person that would come in and talk to us was the General Counsel, Judy Scott, or either the General Secretary-Treasurer, Tom Sever, and they couldn't answer the questions or couldn't tell us what we wanted to know; they played games with us.

So, we felt that we had to put what we had in writing and send it to him and send copies to the General Executive Board because we felt that if we didn't do something and the money continued to leave--and as the financial watchdogs of the organizations, if we didn't say something, then the fingers would be pointed at us saying that we didn't do our job.

Chairman Hoekstra. I mean, I think that's key. You, the three of you--or the two of you that are here--are elected by the membership. As Mr. LeFevre would say, the rank and file --

Mr. DeRusha. No--the delegates.

Chairman Hoekstra. By the delegates.

Mr. DeRusha. Delegates; that's correct.

Chairman Hoekstra. Okay; by the delegates--to be the financial watchdogs and represent the delegates at the IBT to ensure the integrity of the numbers--you're shut out. As a matter of fact, I think it goes beyond that.

Mr. Simpson, you were retaliated against by Mr. Carey, correct?

Mr. Simpson. I was retaliated and removed from office with these bogus charges without even having a hearing until about six months later.

Chairman Hoekstra. You were also denied to access to meetings, I think, specifically the General Executive Board in September?

Mr. Simpson. Right after we sent the letter in August.

Chairman Hoekstra. That's right.

Mr. Simpson. Then they started barring us from the meetings. First he said you can't sit it on the executive sessions, and then after that they sent letters and called us and told us we didn't need to come in at all.

Mr. DeRusha. I think, Mr. Chairman, to try to make it a little clearer, too, the position of trustee is also the position of international representative. Okay--so we had the--the president, that is, had the ability to assign us to do any work he wanted us to do, anywhere in the International Union. And at first we were given assignments, but after the letter, nothing. And it really started a little bit before that because the handwriting was on the wall; they didn't want to hear from us; they didn't want to see us, and they didn't want our input at all because it wasn't the input they wanted to hear.

So, in Carey's letters he'll say they only go to the International twice a year. That wasn't true. We went there several times a year because it took so long to get the records that we needed. We had to be persistent to the point it was unbelievable to drag these records out of them, and everything was done--cheap, little childish tricks--to delay us, to eat up our time. We'd go down there for a three-day thing and have to come back three times for three-day visits to get what we needed. So, we were there many more days than that. The fact that we were only there twice a year didn't mean we only did the books then.

Chairman Hoekstra. Mr. Simpson, can you describe a little bit more the retaliation that happened to you over a period of time? It was not just the once you were barred from the meetings. The end result is they removed you from office, correct-- from the Teamsters?

Mr. Simpson. Yes, after the letter went out--and I think you have to have a little bit of the history of that because prior to that I was constantly given assignments by General President Carey. When he first was elected I met with him and I told him that--I congratulated him--and I told him that I was willing to work with him to move this union forward. I had no problems at all with reform. I had no problems at all with clearing out the bad elements of the union. I thought that I had one of the most progressive unions in the country, so I had no problem with it and I told him I would work with him.

He was sworn in on February 2nd. Within two weeks he had called me to come into Washington to head up a committee for local 1714 that was under trusteeship, and after that I must have had four or five other assignments, even in Cleveland with 507, which was supposed to be a troubled local that was supposedly mobbed-up. I was called in to deal with that one. I was sent into Chicago; we removed a guy that had been an international vice president as a trustee, and he made me a trustee to take over that local that was supposed to be mobbed-up, to clean it up.

I was constantly given assignments until that letter went out. When that letter went out, then suddenly--in order to shut me up I guess--he came at me, and I guess since I had the largest local in the International, he wanted to make an example out of me.

Chairman Hoekstra. Well, maybe when we listen to the tapes of the executive board meetings, we'll find out exactly why they removed you and why they did those types of things. Ms. Mink?

Mrs. Mink. Thank you very much. I only have five minutes, and I know my colleagues have a number of questions they want to ask. But the most serious accusation I've heard today, which gives me a great deal of concern and trouble, is what you have said, Mr. LeFevre, in your testimony and that has to do with charges of pension fraud. Can you elaborate exactly what you meant by those charges?

Mr. LeFevre. Perhaps the easiest way to explain this is to start with an analogy. If I attempt to take a tax deduction for your kids, you are going to try and stop me and so is the IRS, I hope, eventually.

The Teamster affiliates' pension fund is funded by and is owned by the locals, 559 of them. Its benefits have been frozen since 1/1/95. The International Union used to act as agent for the locals in making contributions to the fund. It stopped doing that when it froze benefits. It said to the locals, if you want to continue funding benefits, here's a formula to do it by--and I think that was an arbitrary act when they came up with that number--but here's the formula to do it.

They go like this--we're not sponsors; we're not anything except administrators anymore. Yet they continue to take a deduction on their books for this plan. They say they owe $28.5 million. Each and every year an actuary would determine, what do you have to come up with to make the minimum funding contribution? The Carey administration never made that contribution. In 1992, 1993, and 1994, it simply added up what the actuary told it and put it on its books as a debt. When it terminated its sponsorship of the plan and turned it over to the locals, it no longer had responsibility for the debt; it no longer had ownership of the assets.

That plan is the collective property of 559 locals, from small ones like mine and the former one Mr. DeRusha was in and the big ones like Mr. Simpson used to head. That is our property. It is my mission to recover the property that belongs to my local union. I am supposed to do this by my bylaws. If I'm not--if I'm just letting somebody take property from my union, I'm not fulfilling my own fiduciary responsibility. I read the constitution and the bylaws, and I look at the magazine, and I say, "Wait a minute; a negative-negative is a positive. This plan is over-funded. What is going on here? Uh-oh." I now have a responsibility to tell somebody else about my thesis.

I put together six people--an accountant, an actuary, an economist, a lawyer, an MBA, and a labor historian--to read my thesis, to go through it, to check me, to see if I hadn't suddenly lost my senses, or was I correct. I am correct, they tell me. I've gone to source material, I've gone to the law, I've gone to how accounting should work, and I find that that organization is claiming a debt and assets--responsibility for assets--that do not belong to it. It belongs and is the responsibility of the local unions.

Why would it do such a thing, I asked myself. Well, the reason that it does such a thing is that it secures 25 percent additional revenue for that organization, rather than it appearing on my books as both an asset and a debt, and in the net effect it would be an asset of about $20 million split up 559 ways. It's a rather small line item in each and every local's books, but that is the proper way to do it. The accounting rules say you are to account for the interest of a curtailed or terminated plan according to the interest each employer has in the plan. The IBT has no interest in the plan. That's maintenance of a fraud.

Mrs. Mink. Is this a matter that you have raised as a official complaint from your local to the IBT? Is it a pending claim or pending complaint?

Mr. LeFevre. As well, yes.

Mrs. Mink. Included with other things.

Mr. LeFevre. Yes.

Mrs. Mink. But is this part of the complaint?

Mr. LeFevre. Yes.

Mrs. Mink. When did you file that complaint?

Mr. LeFevre. When it was finished on February 26.

Mrs. Mink. On February 26?

Mr. LeFevre. Yes.

Mrs. Mink. And when are you expecting to have this matter determined?

Mr. LeFevre. I have a partner in doing this, and he was told by the General Secretary-Treasurer that, "I'll see you in court. There will be no hearing in the IBT."

Mrs. Mink. So it's going to go to which court? You filed a judicial litigation as well--

Mr. LeFevre. I filed an advisory to the court. I have not received an acknowledgement, although Mr. Rumore has received an acknowledgement from the IRB thanking us for the information--it was basically a thank-you note--started an investigation there. As to when there's an actual hearing, ma'am, I can't--I'd like to answer your question directly, but I don't know the answer to it.

Mrs. Mink. Mr. Chairman, I ask unanimous consent that a letter from Grant Thornton, who is the accountant and official audit office for the IBT, in explanation of this issue with regard to the pension item in their report which is filed with the Labor Department. I have two letters here.

Mr. LeFevre. Would it be out of line that I get a copy?

Mrs. Mink. Oh, you may, certainly, if the chairman will accept it.

Chairman Hoekstra. It will be put in the public record. It will also be noted that Grant Thornton and the IBT have refused this subcommittee's request for information on the dealings of the pension and the IBT finances.

LETTER FROM GRANT THORNTON LLP AND LETTER FROM THE SEGAL COMPANY - SEE APPENDIX F

Chairman Hoekstra. Mr. Norwood.

Mr. Norwood. Thank you very much, Mr. Chairman, and let me say at the outset that I intend to get to the bottom of this. This is heavy stuff, and I intend to keep asking you to expand this investigation, as large as it must be, for us to get to justice.

And I have a couple of reasons for that. Number one, we have a moral obligation to the American taxpayer--that $22 million they've invested in this--and I, personally, feel a very strong obligation to the men and women--proud men and women--who are Teamsters in my district because they want some questions answered, one of which is, Why in the world, since Carey took over the Union, did their funds go from $155 million down to $700,000? They want to know why, and I don't blame them one bit. They want to know why they don't have a president.

I mean, after all, the Government was doing the oversight. They are asking this question of me: What's gone wrong up there? They want to know how in the world that their money--and it is their money--the rank and file member--it is their money. Why was their money embezzled from the IBT funds and then laundered through the Democratic National Committee and the AFL-CIO and the Democratically-aligned, non-profit organizations? Why was their money laundered into these organizations to help Ron Carey run his campaign?

Those are questions my folks in the 10th District of Georgia want answers, and I promise you I'm going to. They especially want answers to that, considering that the Union itself--and I'm not sure what the number is--but you guys have spent somewhere between $40 million to $80 million in this process. Why is the Union broke? Why do we not have a president? Why was there laundering going on? I mean, the IRB alone and its staff, they were paid almost $25 million from your treasury during the six years of the Carey administration. Why did they never investigate the finances of the International Union, and did nothing to stop the hemorrhaging of these assets? We deserve to get answers.

Mr. Theodus, I would like to spend my time just talking to you, and then I hope I can talk to each of you in turn as we go down the line. But I heard from your testimony, and probably you can just confirm this, that you, in fact, did see irregularities in the Teamster's finances and you did request documents and interviews with officers to find out what in the world was going on--why was the IBT in such poor financial shape? Is that correct?

Mr. Theodus. Yes, it is.

Mr. Norwood. I thought I understood you to say that. And you were, in fact, denied information and access?

Mr. Theodus. Continually. Every question that was asked was given an off-the-wall answer, and always with the end statement saying, "You don't understand."

Mr. Norwood. Now, were you personally retaliated against? I mean, I'm hearing lots of stories. Does that include you?

Mr. Theodus. I was never--they never attempted to take me out of office. They did, in my opinion, retaliate by having the IRB force me to give a deposition about why I continued to talk to former Vice President Gene Giacumbo.

Mr. Norwood. So the IRB actually, in many respects--and I certainly hear it on down the line--but in many respects the IRB attempted to protect Carey and actually was used to punish people like yourself?

Mr. Theodus. Yes, there are many instances on record. Unfortunately, we wouldn't have the opportunity today to go through all of these cases, but there's certainly one case here, the Simpson case. There's another case of Vice President Gene Giacumbo, who was removed from office for basically some picayune failures on his part.

Mr. Norwood. Let me move on; that five minutes flies. Why do you think the election officer or the IRB did not actually discover the embezzlement schemes?

Mr. Theodus. Well, I think there's no doubt that they did uncover some things, but were reluctant to bring them forward because, in my opinion, they had Carey in their back pocket or he had them in their back pocket.

Mr. Norwood. That's probably the latter. You know, why did Judge Lacey take no action regarding access to the Teamster’s financial records to the gentleman who was supposed to oversee that? Why didn't Judge Lacey do that? Do you have a thought?

Mr. Theodus. Well, it's clear in his letter to Mr. Boucielle, I believe, where he states that if they came forward with all of the documentation and evidence concerning Ron Carey that they would hurt the reform movement, and he was their guy, that he was a bum, but he was their bum.

Mr. Norwood. I sort of know--that's right; that's sort of what they're saying, but do you have a thought as to what else might have been going on here? Was there perhaps any other reason that the IRB, the election officer, the Labor Department, everybody, looked the other way concerning Mr. Carey's mismanagement of the IRB funds, including moving funds into his own campaign and including violating ERISA laws? I mean, why did they do this?

Mr. Theodus. It's hard to understand for myself, for anybody else involved with the Union, to fully understand why they wouldn't act. They knew in 1992 when Carey was sworn into office that there were some questions about his background. There was enough evidence with the FBI and the Justice Department to show that there was some link to the mob. They failed to act on that information. Why? I don't know. I think that we can take the Teamsters Union, the Laborers Union and where they put informants, and give them a clean bill of health to inform on other people in the Union and grant them immunity from any of their own wrongdoings. It's like our Government, in the past, that has been involved with every corrupt regime around this world under the guise of protecting the world from Communism. We supported the Shah of Iran; we supported the Marcoses in the Philippines, Noriego in Panama, the Duvaliers in Haiti--all knowing what they were, but they promised that they would keep Communism out.

In the Teamsters case, Ron Carey promised to keep the crooks out and to help the Government find out who they were.

Mr. Norwood. Mr. Chairman, I see that the red light is on. I've just got to say, if they've had to spend $80 million--pay half of their assets--hiring the Government to oversee this, it was a real bum wrap.

Chairman Hoekstra. I thank the gentleman for his editorial content.

What I'd also like, based on your comments, Mr. Theodus, is to submit for the record the letter to Mr. Puccio from Fred Lacey dated April 13, 1994.

APRIL 13, 1994, LETTER TO MR. PUCCIO - SEE APPENDIX G

Chairman Hoekstra. And I think the quote in the letter is, "During our conversation I told you that I thought you and Mr. Maroney ought to have in mind what would happen if you brought Carey down", and that there were, quote, "Old Guard Teamsters throughout the country that were hoping that Carey would be eliminated." That's in the letter, and I think a number of you have referenced that the term Old Guard ends up having a lot of negative overtones and connotations with it that may or may not be very appropriate, implying that just because you've been with the Union for a long time and you maybe didn't agree with Mr. Carey's position that you must be tainted in your association with, perhaps and probably with, the Mafia. So, thank you.

Mr. Kind?

Mr. Kind. Thank you, Mr. Chairman, and I want to thank the witnesses for taking time out and coming today. I know it must be difficult for you to be sitting there and offering the testimony that you are in regards to the IBT, and your questions deserve answers. You've got some serious allegations, some serious grievances, and also it seems that each of you have been personally affected by what's been going on within the IBT for the past few years.

But it extends beyond yourselves as you well know, and the 1.6 million members in the IBT also deserve answers, and I can't help but thinking of those members in western Wisconsin who are also asking questions as to what happened in this most recent election. Merle Strong, Lauren Moling, Ron Bushman, and Dale LaRenck back in western Wisconsin--members of the Teamsters, people who are close friends of mine who I grew up with--are asking these questions.

But I want to ask you whether or not you think that it's the proper function of this subcommittee to be delving into these matters of internal concern affecting the Teamsters Union, especially with the internal decision making that's been taking place within the union over the past seven, eight, nine years--the financial decisions that are being made--whether or not you have confidence that the Federal Government that you're appearing before today really has the professionalism or the credibility to conduct an investigation that you're asking us to conduct.

I mean, this is the same Federal Government that just got audited by our own General Accounting Office, and it still shows that we're spending $70 to $100 for a simple hammer, the same Federal Government that's racked up $5.5 trillion of national debt, most of which was accumulated during the 1980's and 1990's, and you're asking us to review your own financial decision making within the Teamsters organization.

This subcommittee--we're still asking questions about some of the financing going on in the subcommittee. We're paying a couple of consultants $25,000 a month for consulting fees, and many of us sitting on this committee are still asking what work they're doing. I mean, what is this money going to? Well, what are the taxpayers getting out of their consultation contract? We've been asking for timesheets to show the type of work that's being done, and we still don't know.

And so the question I have is whether or not you have any confidence that this is the proper forum, that this is really the proper vehicle to conduct the investigation into very, very sensitive matters involving the Teamsters, decisions that affect some of the most sensitive and internal concerns that the union might have in regards to organizing, in regards to strikes and strike strategies. I don't know--I'd be curious to hear from you whether or not you have confidence that we're up to the task that, it seems to me, I hear you asking us to perform today.

Mr. Theodus. I believe that we have no alternative. We have to put confidence in some form of Government to oversee this Union and to find out what happened to its finances. We cannot go to the General Executive Board because they are the perpetrators of embezzlement, and they still remain in office. We cannot go to the IRB because we know their slanted bias. Where do we go? Who do we turn to if we cannot turn to a body such as this to find out some of the basic answers, to be able to find out really what happened to the money of the Teamsters members?

Mr. Kind. There is an ongoing Department of Justice investigation. Do any of you here today have any complaints, any grievance in regards to how that investigation is being conducted?

Mr. Theodus. It's lousy. To put it plainly, those people--that there is enough evidence to take some people out of office that was discovered last year. Ron Carey still remains as president of the International Brotherhood of Teamsters. He is on an unpaid leave, but he is still the president of the Brotherhood of Teamsters. Why? Why is the secretary-treasurer of the International still in office, still signing checks, when there is enough evidence and proof to show that they filtered money through third parties to finance their campaign?

Mr. Kind. Now, annually, it is my understanding that there is an outside independent audit that is conducted on the finances involving the Teamsters. Apparently the consultant group, Grant Thornton, has been conducting that recently. I don't know how far back they go, but do any of you have any reason to believe that their investigation, the audit that they're conducting, is in some way questioned or suspect?

Mr. LeFevre. May I?

Mr. Kind. Sure.

Mr. LeFevre. I believe I will have to sue that organization in order to recover off its liability policies monies that are properly the property of my organization. No, I have--in response to your question--no, I don't have a lot of faith that what it is that they're doing is going to end up with an objective accounting for the members of what is going on with the IBT's finances. And with regard to the Teamster Affiliates Pension Fund, most especially so, I believe that they are a prime actor in accomplishing this fraud.

Mr. Kind. It seems to me, as a new Member in the second year of my first term, that all we seem to do around here is hold hearings, collect testimony, subpoena documents, then we issue worthless reports with inconclusive findings at great cost to the American taxpayer, and nothing ever comes from it. And after a while, sitting here, you've got to question whether or not this Congress or this subcommittee really has the credibility or the capability of being able to conduct something like this that you're asking us to.

Mr. LeFevre. The fact is that not only must reform in the Union result in the ascendancy to power of those who are willing to abide by the law, it's got to be shepherded there by an authority that's willing to afford equal protection and scrutiny to everybody who would hold themselves up for higher office, and that is just not happening.

Chairman Hoekstra. The gentleman's time has expired.

Mr. Kind. I thank the gentleman.

Chairman Hoekstra. I share the gentleman's concern for the role of the Federal Government, but if he can't be part of fixing the problem or thinks that it can't be fixed, I think it raises some questions that you ought to consider.

What are we doing? For people like this, this is the first time they've had the forum in probably the last four years to get their message out as to what is going on in the Teamsters. What we're going to hear later on will be--in complete--will be the first time on the public record where we get some indication of what has happened to over $700 million of rank and file Teamster money. That's what's going on in this subcommittee.

I can understand why the gentleman maybe wants to change the subject to--and I'll enter into the record the letter from Shirah Neiman, who works for the Deputy United States Attorney, and this is to the Independent Review Board on March 5, 1998.

And let me quote from that letter: ``In light of the Government's ongoing criminal investigation into conduct related to the 1996 Carey campaign, and given the more limited nature and scope of the charges filed by the IRB against Mr. Carey and Mr. Hamilton, the Government requests that the parties be prohibited from questioning Mr. Nash on the following subject matters. First, on any matters relating to or involving requests of the Democratic National Committee, the Clinton-Gore Re-election Committee, Unity '96, the Democratic Senatorial Campaign Committee, and the Democratic Congressional Campaign Committee, to raise money for the Carey campaign and related to any individuals affiliated with those entities.''--submitted for the record.

MARCH 5, 1998, LETTER TO THE INDEPENDENT REVIEW BOARD FROM SHIRAH NEIMAN – SEE APPENDIX H

Chairman Hoekstra. Mr. Ballenger.

Mr. Ballenger. Thank you, Mr. Chairman. Listening to this--and I think you, Mr. Theodus, made the statement, and it kind of reads that way, that the IRB appears to have been an ally of Mr. Carey all the way through it, that just, somehow, they were the people that were in authority, that your appeal should have caused somebody to at least investigate what was happening there. And I know several of the members of that IRB.

I just was curious. Was there no effort on the part of the IRB to back up anything that you four guys tried to get done? Has anybody seen anything positive that they did?

Mr. DeRusha. Nothing.

Mr. Theodus. I haven't seen anything.

Chairman Hoekstra. Stated for the record, we can't record "shook their head."

Mr. DeRusha. Sorry. I guess nothing that I can think of. We were just--anything we notified them of was just dismissed. It was not really, in our opinion, given any real consideration.

Mr. Simpson. I guess I could speak to that also. I never saw anything that they did that was fair, and it was my attorneys, I think, that first raised it that they should have been recused from my case because they were not impartial. And we used the Puccio letter and all in order to try to bring this out, but it fell on deaf ears. They did not bring any--one single shred of evidence at all in against me. It was just all hearsay stuff that they used, and I know in a case in a court of law that should not have stood up. But he's their man and they're going to protect him.

Mr. Ballenger. Mr. LeFevre?

Mr. LeFevre. I think at the outset most of us recognized that any Mafia influence that was in the Union had to be removed and should be removed, and if it was removed then that was the purpose of the Government's being here. And if that happened--and, well, I read things, and in the press it says that's what happened, then that's good. I also know things that were labeled that way. At least they were labeled that way to the members--you sitting there. I was labeled being a Mafioso. I know that money was spent to do that, and the IRB wasn't going to do anything about it. They were just going to sort of smile pretty and say, "Good luck to you."

Yes, we have to get rid of organized crime. Do we have to then have a structure that supports a political platform that is only, "We have to get rid of organized crime," and no other content? I think not. Yes, they did some good. I don't have--

Mr. Ballenger. Don't take too long; I only have five minutes.

Mr. LeFevre. Sorry.

Mr. Ballenger. And Mr. Theodus, would you go along with that--the inactivity of the IRB as far as your difficulties were there?

Mr. Theodus. Well, it's evident by the record and all of the cases that were presented to the IRB of what has taken place and what has not taken place. If you were a friend of Ron Carey's, there was action taken--there was no action taken. If you were an enemy of Ron Carey's, there was action taken against you. That's clear.

Mr. Ballenger. Let me ask you a question. It just appears to me that from reading the efforts of the Attorney General and then the trial in New York, that the only people that seem to be really straight up and down are the ones that admitted their guilt--Nash and the other two guys--and they're getting nailed. And yet you say Carey is still the president, although he is not drawing his salary, and that Sever actually is running the thing and that he's involved. Is Hamilton still there, too?

Mr. Theodus. No, he left the Teamsters and went to another Union, I understand.

Mr. Ballenger. Well, it just appears to me that the obvious people that were involved in these various and sundry things that went on there somehow seem to riding free, and I don't know how that happens, and I'm sure the question comes to your minds, too.

Let me ask you a question, especially Mr. Theodus. You were on Carey's side. You were trying to do the best for the Union at the time, and he was supposed to be Mr. Clean when he got elected, or at least that's what those of us that read the newspapers thought. And yet it appears about--what, 1993, I think, is the thing that I picked up here--when they thought they were going to have another election, he changed completely, or at least the operation of the Teamsters seemed to have changed in 1993 in anticipation of the election. Does that make sense to you?

Mr. Theodus. Well, not really, Congressman. The Carey administration really started to change in 1992 when they took over. They started a systematic purging of its enemies. They had at one meeting a list of those locals that were friendly to the Carey administration, those that were against Carey, and those that were questionable, and they were devising a plan at that time to have field representatives, or whoever, go to these locals friendly and make sure that they were still in place, try to get those that were in the middle locked in, and to forget completely and do whatever they could against those locals that were against him.

Mr. Ballenger. I was going to say, too, in this letter that we've got here to Mr. Peters, it appears somehow that Judge Lacey--am I mistaken that Judge Lacey seems to be somewhere--who is Mr. Peters?

Mr. Theodus. I think it's Puccio.

Mr. Ballenger. Puccio? Excuse me, okay? I can't even read my own writing here. Who is Mr. Puccio?

Mr. Theodus. He was appointed as a trustee of a local in New York, I believe.

Mr. Ballenger. For--that's the letter there, yes. In that particular--

Mr. Theodus. He was also a former prosecutor.

Mr. Ballenger. And yet they say that if he'd--that is a letter to Mr. Puccio?

Mr. Theodus. Yes, from Mr. Lacey.

Mr. Ballenger. Well, all I can say is it appears that Mr. Lacey doesn't really want to get involved too much in learning things that seem to be going against his own judgment there.

Mr. Chairman, I thank you. I see the red light now.

Chairman Hoekstra. Thank you. I'd like to yield to Ms. Mink.

Mrs. Mink. Yes, Mr. Chairman. I'd like to welcome my students from the State of Hawaii who are here on the Close-Up program. This is a committee meeting, and I want to apologize for not being able to meet with you earlier. And I welcome you here to a committee room, and I hope that you are enjoying your stay here in Washington, D.C. Thank you, Mr. Chairman.

I do have a request. Since so much of our testimony that we've heard here today deals with the IRB, I would like, on behalf of the minority, to ask that this hearing today be continued to allow the members of the IRB to come here and testify and respond to the items that have been raised at this panel.

Chairman Hoekstra. Our consultant attorneys have outlined future hearings, and the IRB is definitely on the list of people that we want to have participating in explaining their views of the world as they know it over the last seven or eight years. We are fascinated in--we fascinate at hearing their perspectives. We have been in contact with the IRB. We are in constant contact with the Teamsters, with the Southern District, and a number of people, as we search for what's going on. Thank you.

Mrs. Mink. Have you set a specific time when the IRB would be invited to a hearing?

Chairman Hoekstra. No, we do not have a specific date at this point.

Mr. Scott, I thought I would do subcommittee members first, and then we would go to members who are not part of the subcommittee.

Mr. Scott. I'd like to defer to the gentleman from New York, if possible.

Chairman Hoekstra. The gentleman from New York.

Mr. Owens. I thank you, Mr. Chairman. I have heard the name of Bill Neuchau evoked here, and I am sure that the gentlemen sitting here are having a very difficult time as reformers who are caught up in this kind of situation. I would like to ask, particularly Mr. DeRusha and Mr. Simpson, you are long-time members who have been in the union more than 25 years?

Mr. DeRusha. Yes, I've been a member for 45 years.

Mr. Owens. When the union was first put under receivership, I think, do you think that the Federal Government acted wisely or did you think that that was unnecessary and unjustified? Before Mr. Carey was elected I would think--it came after a long series of things that happened, and the union was under receivership at that time. Am I correct?

Mr. DeRusha. When I came aboard it was January 1989 as a trustee. That was when they were just signing the consent agreement and putting things in place.

Mr. Owens. So would you think that was justified because of things that happened before? Or do you think it was--

Mr. DeRusha. I think there was some justification prior to it.

Mr. Owens. Do you think the legendary crimes of Jimmy Hoffa, for which he went to prison, Dave Beck, who when I was a young man was a legendary figure in terms of the money being spent--do you think those things are true or were they wrongfully attributed to the Teamsters Union?

Mr. DeRusha. Well, we're looking at 1.5 million people, and I'm certain, like any large organization, that there are some bad apples in that barrel.

Mr. Owens. We're talking about the leadership, the old leadership versus Mr. Carey. Has Mr. Carey been accused of any racketeering enterprise similar to the racketeering that Jimmy Hoffa was accused and convicted of?

Mr. DeRusha. Well, it's my understanding that he was given immunity in a case before he ever came on as general president, and yet he was still supported by the Government and by IRB, and whoever.

Mr. Owens. But Mr. Hoffa was convicted of something on a massive scale related to the International Union. Am I correct?

Mr. DeRusha. No, he was convicted of--what was it?--jury tampering.

Mr. Owens. Let me just ask you about a question that Mr. Hoffa--Mr. Carey put in a letter to you in 1993, I think, about collecting multiple salaries from the International and other Teamster affiliates. Is that practice still going on, because at that time you pointed out that you, Mr. DeRusha, were collecting $56,003 in multiple salaries; Mr. Simpson was collecting $150,991 in multiple salaries. They said if you waived your salaries it would help the International situation owed. There's not a crime--your salaries--what you received is certainly not a crime, but we're talking about mismanagement and judgment and a whole lot of other things that are not criminal.

Are those kinds of things still going on--the collection of multiple salaries that drive up the cost of doing business?

Mr. DeRusha. Carey always accused me of having three salaries: one from the International that is set by the constitution, and the constitution, as far as elected officers are concerned, is our labor agreement. It outlines our salaries, it outlines our benefits and a lot of other things, and our authority as well. That was mid-$70,000 per year, but that was for two jobs, not just the two meetings a year--and it wasn't only two meetings--but not just for doing the trustee's job. It was for being an International rep., and if you were the chairman or president, it was your job to keep me busy, and he didn't.

Mr. Owens. If you're talking about--we're talking about mismanagement, I think, not criminal activity--

Mr. DeRusha. Well, I don't see any mismanagement. I don't think any of this is mismanagement.

Mr. Owens. You said you were worried about the fact that the Union's financial situation was deteriorating. Nobody said because somebody was siphoning off money illegally in a criminal manner--

Mr. DeRusha. I understand.

Mr. Owens. --But there are implications of some mismanagement, and this is a mismanagement question I am raising, a judgment question about the best way to spend money. Mr. Simpson, do you want to add?

Mr. Simpson. Yes, that's--I look at what you're saying, and you ask the question, were there other people that were getting duplicate salaries? Yes, there are, and there are still some on the General Executive Board that are doing it right now. Those people that are with Carey--there are some of them that are getting duplicate salaries right now, but he only pointed out about the ones that were not on his team, people that were not in tune with him. He pointed out myself.

Mr. Owens. So, it's true, but everybody was doing it, you're saying.

Mr. Simpson. Sure. They were getting paid for the jobs they were doing, if they were presidents of the joint councils, if they were International vice presidents, if they were presidents of their local.

Mr. Owens. But if the union is in dire straits, did anybody--

Mr. Simpson. But sir--

Mr. Owens. --take him up on the suggestion that they waive the multiple salaries?

Mr. Simpson. But sir, the point is that their salaries that they were getting from their joint councils or their local unions had no bearing on the salary that they were getting from the International Union. Those were separate funds.

Mr. Owens. It was contributing the deteriorating situation of the Union-

Mr. Simpson. No, it was not.

Mr. Owens. --for them to get International salaries, right?

Mr. Simpson. No, it was not.

Mr. Owens. It was not? That money was not coming out of the same treasury that was being depleted?

Mr. Simpson. No, it was not.

Chairman Hoekstra. The gentleman's time has expired.

Mr. Simpson. I was getting paid--

Mr. Owens. I thank you, Mr. Chairman.

Chairman Hoekstra. Thank you. Just one more question. Mr. Simpson, you testified that you were removed from the Union, and I believe it's for the very same conduct that Judge Lacey committed.

Mr. Simpson. Yes.

Chairman Hoekstra. Namely, approving an expense reimbursement for a person who was alleged to have organized crime connections?

Mr. Simpson. Yes.

Chairman Hoekstra. You were kicked out?

Mr. Owens. Yes. I was banned permanently by the IRB for approving some expenses that were paid to Donald Peters, who was one of the founders of the local union. He was there for about 54 years, and when he retired the executive board and the membership said we should make him president emeritus and use him as a consultant because of all of his experience and knowledge with the Union. And he incurred about $4,000 worth of expenses with our local, and we reimbursed him after a motion was made by the board and approved by the membership.

Chairman Hoekstra. And did Judge Lacey also reimburse him for expenses?

Mr. Simpson. Yes, he did, for certain--

Chairman Hoekstra. And where is Judge Lacey today?

Mr. Simpson. Judge Lacey is still collecting his $2 million or $3 million a year from the Teamsters.

Chairman Hoekstra. Okay. All right, thank you. Are there any other questions? Mr. Scott?

Mr. Scott. I just wanted to follow up very briefly. Mr. Simpson, when you were permanently barred and disagreed with the decision, did you have an opportunity to appeal that decision somewhere?

Mr. Simpson. Well, when they came into my local and put in under trusteeship and put me out of office, I had a hearing--that was in August--I had a hearing on December 21 by a kangaroo court that was sent in by Ron Carey.

Mr. Scott. And did you further appeal it from there?

Mr. Simpson. Yes, we did. In fact, I hired one of the best lawyers in the country, Dan Webb, to represent me, and I think I made a mistake by doing that because they wanted to show that they run the show and they didn't respect it.

Mr. Scott. And was there a court case, any litigation?

Mr. Simpson. After we went to the IRB, we appealed it to the Southern District Court of New York, which is Judge Edelstein, and you've got to understand that Judge Edelstein is the watchdog for the consent decree and he is the one who put Judge Lacey in there, and Judge Lacey is the one that picked Judge Webster, and Crandall is Ron Carey's guy.

Mr. Scott. And did you appeal that decision?

Mr. Simpson. Yes; we appealed that to the Second Circuit, and when we got to the Second Circuit--and I think it's very interesting, and I think you should probably read that decision because it so-happened that the senior judge of the Second Circuit, a Judge Oaks--he dissented against the opinions that were handed down by Judge Edelstein and the IRB.

Mr. Scott. Well, see, one of the problems we have is that we're only hearing one side, and others who have heard both sides have also ruled.

There have been allegations of money laundering. Are you aware of a Justice Department investigation of the money laundering allegations? Is that an ongoing investigation?

Mr. Simpson. I missed that.

Mr. Scott. The investigation on the money-laundering allegations--well, let me skip that. You've mentioned that there is a lot of money that's been missing, that a couple of years ago there was a lot of money in the treasury and now there is very little. How much of that is due to strike benefits being paid?

Mr. Theodus. $123 million.

Mr. Simpson. How much?

Mr. Theodus. About $123 million.

Mr. Simpson. About $123 million, the vice-president says.

Mr. Scott. Okay; and who should make the policy decision on whether or not those benefits would be made without raising dues--enough to pay it? Anybody can answer. I'm not aiming this anywhere.

Mr. Theodus. It was the duty of the convention in 1991. They failed to--when they raised the strike benefits from $55 a week to $200 a week--they failed to address the problem of how to finance that. And it was a case of one-upmanship at the convention, where the incumbent, R.B. Durham, had wanted to raise the weekly benefits to $100. The Carey faction wanted to raise it to $150, and the Walter Shay faction then went one better and said we should raise it to $200. And the General Secretary-Treasurer at that time, Weldon Mathis, told the body that you had better be careful of what you're doing; you need to find a way to finance that increase. It was never done.

Mr. Scott. And so the convention made that decision?

Mr. Theodus. The convention never acted on an increase in the per capita.

Mr. Scott. They voted to increase the strike benefits.

Mr. Theodus. Yes, they did.

Mr. Scott. And if--I mean if somebody objectively thinks that's a bad decision, whose decision should that be?

Mr. Theodus. Well, it was a good decision.

Mr. Scott. It was a good decision.

Mr. Theodus. It was a good decision. However, when Carey took office he knew that that would create a deficit in spending, and he did absolutely nothing to address that problem.

Mr. DeRusha. Could I address that a little bit?

Mr. Scott. Sure.

Mr. DeRusha. Very early on Carey recognized the fact that the strike benefit was going to be drained because of that increase, yet he did nothing. Though he said, "We need a convention." He said, "We've got to do something," but he did nothing. The problem at the convention, though Weldon--as the fellow down there has said--Weldon Mathis told everyone there publicly from the podium, "We're going to go bankrupt if you don't do something because you can't afford this." There had been a lot of research into how much it should be increased.

Mr. Scott. Well, one of the problems we've got up here is who ought to be making that decision, because a lot of unions borrow money to get through strikes. I mean, it's a policy decision that the union makes, that they've decided it's in the best interest of the union to pay strike benefits, and shouldn't that be left to the union to make? Shouldn't that decision be left to the union?

Mr. Theodus. It was left to the Union.

Mr. Scott. Well--

Mr. Theodus. However, what you're trying to imply is that the raise in the strike benefits was the sole cause of this administration spending almost $700 million of Teamster’s dues money, when in fact, in reality, only $120-some million of that money was for strike benefits. Where did the other $600 million go?

Mr. Scott. Thank you, Mr. Chairman.

Mr. Theodus. On organizing? I doubt it.

Chairman Hoekstra. The real question, I think, is, Should rank and file members have to file lawsuits to get financial data? Or should, perhaps, we consider some freedom of information-type legislation so that, you know, if you're a rank and file union member you can get access to financial data. I don't know if any of you have a thought on that.

Mr. Theodus. In local unions, the majority of local unions have specific duties of trustees, and it is spelled out in local union bylaws that they have access to all books, documents, and supporting evidence or supporting documents. At the International, they allowed the trustees to see the books but not the total supporting documents, and therein lies the key to finding out where your money went. When you're looking at audited books, they only state so much is spent on administration, but you need to look at the supporting documents to find out actually where it went.

Chairman Hoekstra. Don't feel bad; they're not giving us that data either. Did you have another question?

Mrs. Mink. No, I'd just like to make a closing statement, as we are about done. I thank the chairman for giving me this time to make a few closing comments.

I wish that the minority had had the opportunity to know something about the witnesses for today and copies in advance of your testimony so that we could be better prepared to understand what the issues were and what your concerns are. I think you have raised some very, very important questions, and matters relating to accusations of fraud are very serious. Accusations of mismanagement of the funds of the Union are serious, and so in that connection I've asked the Chair--since a lot of the points made go to the IRB--that we have a prompt opportunity to call the IRB here to answer specifically the charges and the points and the complaints that have been raised today. I think that that's important for this record to have.

I don't know how else to assure the four of you who are here that the minority is very much interested in finding out what the facts are, where the money went to, and to help assure the members of this Union that what the law is, is being adhered to.

Mr. Chairman, in that connection I have a copy here of the United States Court of Appeals for the Second District's decision in the Simpson matter, since that has been discussed today. I would ask that that be put in the record at this point.

Chairman Hoekstra. Without objection, so ordered.

SDNY DECISION ON THE SIMPSON MATTER – SEE APPENDIX I

Mrs. Mink. I think it's important for everyone here in the room here to know that the minority members of this subcommittee are very much interested in the hearings and in the discussions that are to take place. We are handicapped very seriously because we are not part of the team in deciding who, when, and why witnesses are being called, and so we are somewhat at a disadvantage.

But our disadvantage should not be misinterpreted as a lack of interest or any desire to in any way impede the legitimate progress of this subcommittee in investigating what happened at the elections of 1996, and if there is any misconduct on the part of the election officers or the IRB or any of the Federal officials who have responsibility for monitoring of the elections. And I want to assure the Chair of our interest and our willingness to participate in that regard.

Since you alluded to the fact that your consultants and other members of your staff have come up with a tentative outline of what further discussions we might have in this subcommittee on the Teamsters, I would like to respectfully request that this information at least, if only tentatively, be shared with us so that we can be part of the hearings and part of the deliberation and make a more demonstrative contribution to these hearings.

Today we are handicapped. We didn't have the testimony. We didn't really know who was coming until yesterday at noon, and I find that this makes it very, very difficult for us to prepare, to call other witnesses. Had I known that the principal individuals, or entity, that was going to be charged with misconduct and abuse of power was the IRB, I would have made every effort to add them to the panel today.

And so, again, Mr. Chairman, I ask that prompt attention be given to our request and the IRB be called promptly so that we may, while this matter is fresh at hand, that they be given an opportunity to answer the charges that have been made today and to respond to further questions and inquiry that we might have. Thank you, Mr. Chairman.

Chairman Hoekstra. Let me do it right now, all right? We welcome your participation in this process and moving beyond the procedural issues that have been focused on for the last couple of months, and so we welcome your participation.

Let me tell you who we want to have and who we believe are essential to testify as we get information from some or all of these groups: the Justice Department, the Labor Department, the IRB, the Election Officer, the Teamsters--that's five. And, you know, especially with the Teamsters, it would help if they did for us what they have not done for Mr. DeRusha or Mr. Simpson, to provide us with the information that we have requested for the subpoenas. But, remember where we're going. We're going to file the taxpayers money on the--for the--that we paid for the election. We're going to file the $600 million to $700 million in members' dues that were paid and that, in this period of time, resulted in the net worth going down to $700,000. We want to find out about the money swaps, the illegal campaign activities.

And I think with Mr. LeFevre's testimony today, it is obvious--and Ms. Mink, you mentioned it as well--that we have to take a look at the pension funds, which is where probably more money than anything else that we're talking about--and this gets to rank and file Teamsters because this is their future, their future retirements, and we want to take a look at pensions.

So, those are the areas specifically that we are working on gathering information, some of whom--some people who are complying and working with us effectively and efficiently, and others who are trying to do everything they can to obstruct and make sure that we don't get the numbers or the information that we need to be successful.

I'd like to thank this panel for your compelling testimony today, for being here, and helping us as a collective subcommittee perhaps now be focused on what we have been trying to get done for the last three months. This is a very difficult issue. I think you have laid out how difficult it is to work through this morass of people trying to obstruct, by people trying to change the subject and to destroy you personally.

And so it is indicative of the characteristics that the people who have been fighting against you have used in every effort, whether it's a congressional inquiry or whether it's the efforts that you have participated in. Thank you very much.

Mr. LeFevre. Thank you, sir.

Mr. DeRusha. Thank you.

Chairman Hoekstra. We are going to move directly to the second panel, so we'll take just one break, a minute to get Fred up here, and we will start.

We will begin our second panel today. The second panel is a presentation from Mr. Fred Smolen, who is a consultant to the subcommittee for the purposes of the Teamsters investigation. Mr. Smolen is a distinguished forensic auditor who is working with us to identify the current status of the Teamster’s finances and the causes for their deterioration.

Mr. Smolen today will testify as a witness to give us a report on initial questions identified by him and findings based solely on his review of the--and let me stress--the very limited--very limited financial information that is available from public disclosure forms filed with the Federal Government. The Chair will recognize Mr. Smolen for an adequate period of time to report thoroughly on his work, to be followed by questioning by the members. Mr. Smolen.

Mr. Smolen. Mr. Chairman, distinguished members of this House subcommittee, and guests at this hearing, thank you for--

Chairman Hoekstra. Excuse me, Mr. Smolen. Before we do that, we need to swear you in, and you should also be aware that making a false statement to Congress while under oath may be prosecuted under law. Would you please rise?

[Witness sworn.]

Chairman Hoekstra. Let the record reflect that the witness has answered in the affirmative. Mr. Smolen.

Mr. Smolen. Mr. Chairman, distinguished members of this House subcommittee, and guests at this hearing, thank you for this opportunity. To discuss the financial affairs of the International Brotherhood of Teamsters, I must cover not only the Union's finances, but also three key areas: accountability, reporting, and oversight, and whether the organization was effective or ineffective in each of these areas.

The Teamster’s Union is in crisis. It is both a financial and managerial crisis, financial crisis because the Teamster’s most recent internal accounting statements show it is nearly insolvent. Its net worth, which was more than $156 million on January 1, 1992, dropped to a mere $700,000 on September 30, 1997; managerial crisis because the general president was re-elected in 1996 under a Government-supervised election at a cost to the taxpayers of approximately $20 million. Ron Carey is now removed amid allegations of fraud and misuse of treasury funds related to his re-election. This has brought the Union into a leadership crisis, requiring a new election.

Between 1992 and 1997, the Teamster’s net worth declined by an average of $26 million per year, an estimated $100,000 every working day. This is more than rank and file workers receive in a year. Think of it as a loss of $12,500 for every working hour.

This horrendous loss begs answers for three questions. First, where did the money go? Second, where was the oversight by the Department of Justice, the Independent Review Board, and the regulators at the Department of Labor? And, third, are current Teamster officials covering up a systemic and wide-ranging series of fraudulent and illegal financial activities?

I am Frederick W. Smolen, chief forensic auditor of the subcommittee. I'm a certified public accountant and serve the business, financial, and legal community as an advisor, consultant, and expert witness. Based on my profession's standards, in addition to what has been already learned, there appears to be fraudulent financial activities at the Teamsters between 1992 and 1997.

This conclusion is because of domination without controls, of Teamster’s management by a small group of individuals, missing documents, refusal by the IBT to provide information, including financial books and records, and, finally, financial analyses reflecting unexpected and significant differences.

For the last 20 years I've investigated business and financial affairs of numerous publicly-held and privately-held entities, including not-for-profit organizations. Many were involved in fraudulent financial activities, faced bankruptcy, or went bankrupt. Since my hiring six weeks ago, I've worked to ensure that you, Mr. Chairman, and the members of this subcommittee, are presented with relevant information relating to the finances of the Teamsters, and especially those in 1996.

However, our staff has been obstructed in its efforts to provide a comprehensive financial picture to this subcommittee. Documents that would provide information on what has happened to the money are not being produced, and the information that is being produced includes missing documents and conflicting data.

To illustrate this point, in 1994 the Teamster Affiliates Pension Plan was terminated. The produced documents included the audited 1994 financial statements. Missing from these financial statements was the page relevant to the terminated pension plan.

I've provided with you a copy of exhibit number 7, and it comes from the annual reports that were produced. What I have over here is production number H00265 and H00266--

Mr. Scott. Mr. Chairman?

Chairman Hoekstra. Yes.

Mr. Scott. Do we have copies of that?

Chairman Hoekstra. Are there copies of the exhibit?

Go ahead.

Mr. Smolen. --sequential production numbers produced by the Teamsters. It's a narrative discussion in note (g) of the Teamsters Pension Fund on production number 00265, exhibit 7(a). It starts in note (g), the Teamster Affiliates Pension Fund, and it continues. The narrative discussion continues on production number 00266, and it talks about post-retirement benefits.

There's a natural flow of information in these two documents, but yet missing is page number 27, the page dealing with the termination of the pension plan. What you see before you are missing pages in an annual report for materials that were produced by the Teamsters Union.

EXHIBITS USED DURING THE TESTIMONY OF FRED SMOLEN – SEE APPENDIX J

Mr. Smolen. By another example, the staff was informed by a Teamsters employee that internal operating finance and administrative manuals exist. The IBT subpoena, approved by this subcommittee, was specifically drafted to include such language. The written response was, ``As the IBT has already informed the subcommittee, there are no such manuals.'' This does not seem credible in an organization with 1,400,000 members and a payroll in excess of $25 million a year. In fact, a 1997 memo evidences the existence of internal manuals.

By yet another example, Grant Thornton, IBT's independent auditors, initially agreed to a review of their working papers that would have provided information significant to this subcommittee. IBT attorneys instructed Grant Thornton not to produce the materials, even though these audit working papers are the property of the CPA's.

Just this morning I was handed a fax copy of a letter dated March 24, 1998, and it was addressed to the counsel of Grant Thornton, and it states the position of the IBT is as follows: Quote, "The request to Grant Thornton is over-broad and improper."

So my study of the IBT's finances is limited by the lack of cooperation of the present IBT hierarchy. But what I can determine from the available documents and information is a history of inadequate internal controls, absence of appropriate reviews and approvals, inadequate provisions for safeguarding assets, failure to safeguard assets from misappropriation and fraud, willful wrongdoing by senior officials, manipulation and falsification of accounting records, lack of management integrity, and refusal by senior officials to provide relevant records and information to those with delegated authority and responsibility--the Teamsters trustees.

The story of the International Brotherhood of Teamsters reflects the history of the labor movement, and the story dates back to 1903 when representatives of independent local unions formed a labor organization that pooled the resources of individual locals. Through this organization, a foundation was laid for the largest trade union in North America, which now has approximately 1.4 million members and cuts across a variety of trades and industries, including airlines, freight, motion pictures, dairy, construction, trucking, and port facilities.

The recent history of the Teamsters is marked by the 1989 consent decree, resulting from the Department of Justice bringing a civil RICO action. This consent decree related to charges stemming in part from the misuse of Teamster treasury assets. As a consequence of this consent decree, in 1992 new management and a new constitution were put into place. Notwithstanding these events, the financial affairs of the Teamsters have continued to catapult down hill, until they reached where they are today--an organization nearly insolvent. Between January 1, 1992 and September 30, 1997, the net worth of the Teamsters Union has been virtually wiped out. The financial reports that I examined show that in less than six years the Teamster’s net worth lost over $155 million.

Exhibit number 8 is a chart which reflects the decline in the net worth, and it shows the rapid decline over the six-year period.

Exhibit number 9 reflects also the decline in the assets of the Teamsters, which went from approximately $179 million at December 31, 1991 to $79 million at September 30, 1997, and it reflects an increase in the liabilities from $22.5 million in 1991 to $78.5 million. Interspersed between those two--the decrease in the assets and the increase in the liabilities--are the decline in the net worth, which is reflected on this red line.

Mr. Smolen. Yet that is only part of the story of the financial affairs, for during these years approximately one-half billion dollars in revenues and loans were received by the Union's treasury. So for all practical purposes, IBT's financial affairs deal with the accountability, reporting, and oversight of more than $650 million, monies parses among three Teamster funds--a general fund, a special organizing fund, and a defense fund.

Initially, concerns about the 1996 financial affairs dealt with matters related to the funding of Ron Carey's re-election campaign. In part, this was because a Teamster’s consultant pled guilty to a scheme involving a number of questionable financial practices used to fund Carey's re-election campaign. Funds were obtained under false pretenses from the Union's treasury and passed through conduits to finance his campaign. Such transactions are considered irregularities and illegal acts. The amount of funds identified with these activities is more than $700,000.

Yet, these were not the only 1996 transactions that added to the deteriorating financial condition of the Union. There is evidence of other questionable transactions because of unexpected and significant differences in the historical financial information. For example, even though IBT's financial downward slide continued, in 1996 there were significant dollar increases in non-officer wages and travel, certain professional fees, and civic betterment. When compared to the prior year, some categories of expenses went up by hundreds of percent. In absolute terms, these categories alone went up by more than $13 million when compared to the prior year.

I have three charts, which are exhibits 10, 11, and 12, which reflect certain of these expenditures. Exhibit 10 shows the salaries, reimbursed salaries, and travel. In exhibit 10 what we see is the salaries and wages have gone up by $2 million from 1995 through 1996. Reimbursed salaries have more than doubled, and travel has gone up by a little more than $2 million. In total, the increase from 1995 to 1996 was $6.4 million, or an increase of from $29 million to $35 million--greater than 20 percent.

Exhibit number 11 reflects legal fees, professional services, and publicity and advertising. The total for 1995 was $7.6 million. The total for 1996 was $14 million. Between 1995 and 1996, the amounts doubled. Professional services went up by $500,000. Publicity and advertising went from $800,000 to nearly $5 million, a more than 500 percent increase, and legal fees went from $4.2 million to just a little over $6 million.

Finally, civic betterment. In 1994 civic betterment or the costs associated with civic betterment were disclosed as being $15,000. In 1995, the amount was just a little over $100,000.

In 1996, civic betterment totaled nearly $1 million, or an increase of 900 percent. These expenses were incurred all at a time that this union was facing insolvency.

This $13 million in added 1996 expenses resulted in the 1996 general fund expenses exceeding the revenues. In other words, the union was losing money even as approximately $17 million per year was coming in from a previously imposed rank-and-file special assessment.

Exhibit 13 reflects the excess or deficiency in the general fund. As I mentioned earlier, there are three funds. The general fund is used, in general, for administrative and day-to-day expenses. And what this clearly shows is that from 1991 through 1993, the organization was losing money and then, in 1996, in the general fund again, the organization was losing money.

Contributing to this financial as well as obfuscating the picture were the pension costs. One pension plan was changed to make it more favorable to headquarters personnel by reducing the vesting period from five years to three years. As the plan covered only headquarters personnel, in substance it was a self-dealing transaction, the costs of which were charged to the union treasury, but borne by the rank-and-file workers.

Another pension, the Teamsters affiliates pension plan, obfuscated the amount of the loss by reporting a $2.6 million credit in 1996. This credit came from the same pension plan that had been terminated in 1994 and yet it had a continuing liability of approximately $28 million in 1996 appearing on the balance sheet.

This liability, which has ranged between $27 and $31 million since 1993, has appeared in the financial statements every year since 1993 even as though the plan is fully funded.

Despite requests for financial information, the staff has received no significant and substantive documentation for information from the Teamsters relating to these pension plans.

Exhibit 14 is the affiliates' pension costs and liability and how it reflects the increasing liability of the pension as well as what the costs were per year. It reflects no significant payments from 1992 forward and it also shows that there was a credit of $800,000 in 1994 and a credit of $2.6 million in 1996.

IBT's $28 million affiliates' pension plan liability is significant. Not only because the Teamster’s affiliates pension plan is a separate and distinct financial entity, but also because IBT never paid this pension plans the moneys that were due.

The pension plans' trustees were IBT's officers and included Ron Carey, then IBT's general president, and Tom Sever, IBT's general secretary-treasurer.

For financial reporting, something was out of place, because no funds were being paid to the affiliates' pension plan by the IBT. It's a liability with more form than substance.

In 1994, Carey was told by the consulting actuaries that, in a terminated plan, which the pension plan would soon be, any excess assets should be allocated back to the individual affiliates, the Teamster locals, and the rank-and-file workers.

At Teamster headquarters, the economic motivation was to keep the funds out of the pension plan that existed for the benefit of the rank-and-file workers.

Absent adequate documentation, there can be no assurance that similar self-dealing transactions involving Teamster assets are not taking place.

And then there are the 1996 costs of $5.2 million relating to the Independent Review Board or the IRB. These costs, as well as some of the underpinnings that brought about the financial and managerial crises, can be traced back to the June 1991 Teamsters convention and the adoption of a new constitution.

The International Brotherhood of Teamsters convention took place in June 1991 where the delegates voted to adopt a new constitution. Subsequent to the convention, Ron Carey was elected general president.

A new constitution was adopted by the Teamster delegates in 1991. Subsequently, the United States Government required this 1991 constitution to be amended, to include provisions the government believed were called for by the consent decree, but had been voted down by the membership.

Directly or indirectly, three articles of the constitution bear on the present Teamster’s financial crisis. Article 19 dealing with trials and appeals and establishing the Independent Review Board. Article 6 dealing with the duty and powers of the general president, and Article 8, dealing with the duties of the trustees.

One of the constitutional amendments required by the government established the Independent Review Board or IRB, a three-member quasi-governmental organization tasked to hear any union case referrals and investigate any allegations of corruption including for embezzlement, bribery, use of threats of force or violence against members, and other similar acts of misconduct.

Since 1991, the IRB and it's related expenditures have cost the Teamsters treasury more than $40 million.

Exhibit 15 reflects these costs. Exhibit 15 shows that in 1991 the civil RICO costs were $18.5 million. Over the years they ranged between, from $7.1 down to $3 million and in 1996, they were $5.2 million.

Although the 1991 convention delegates adopted an ethical practices committee to consider, quote, "any allegation of corruption made by a member against any officer, member, or union entity," end quote, the United States Government did not approve of it. Rather the United States Government required the constitution be amended to include the IRB.

The result of this action was that, first, the United States Government substantively took from the union a self-regulatory initiative, and second, union members began to look to the IRB for oversight and guidance relating to the efficacy of various policies and practices.

The 1991 international convention also adopted article 6 covering the duties and powers of the general president. Among the president's powers were judicial powers, giving him the authority to interpret the constitution and laws of the international union. Section 9 gave the president quote, "authority to make expenditures from the general fund in amounts to be determined by him in his sole discretion for lobbying and other political purposes, including contributions."

Exhibits 16A and 16B are the actual articles giving the duties and powers to the general president where it talks about his discretionary use of the funds and also article 8, exhibit 16B, discusses the trustees' duties, specifically it talks about the trustees' duties and the audit of the books and the review of the books to be conducted over, during each six-month period.

Additionally the general president has the right to appoint one member of the three-person IRB, subject to general executive board approval. In fact, the general president is given the power to place his personal representative on the board.

Article 8 of the constitution deals with the audit duties of the international trustees. The international trustees are required to review the books of the general secretary-treasurer once during each six-month period. The terms of the audit of review are defined in article 10, as including an examination of quote all books, bills, receipts, vouchers and records, bonds, securities, or other evidences to ownership to property or investments.

So at least on paper, in 1992, both the IRB and trustees had oversight responsibilities related to the Teamster’s financial affairs, safeguards over the general president and the general secretary-treasurer. This oversight was important in view of the blank-check provisions given for lobbying and other political purposes and the general president's direct authority over a number of critical departments, including communications, legal, legislative, and political action and organizing.

Exhibit 17 reflects the 1993 organization chart of the Teamster’s union. At the top are the IBT members. On the left, in the upper left-hand corner is general president Ron Carey. On equal status with him are the international trustees, the area conference, the internal review board, as it was called in this document, and the general executive board. In substance all of these entities or individuals reported directly to the IBT members.

Exhibit 18 reflects the offices of the general president. The general president was in control of the communications department, the legal department, the legislative and political action department, the office of corporate affairs, the office of strategic campaigns, the organizing department, and a research department.

Today, the correspondence and documents reviewed show that beginning as early as 1993 the international trustees' oversight was undermined by the actions of the senior Teamster officers.

This is confirmed by the testimony that has been heard today. The general secretary treasurer, Tom Sever, who under the constitution had quote primary responsibility for payments from the general fund for all financial obligations, commitments, and expenditures of the international union obstructed the international trustees through various tactics, some of which included first, the failure to provide requested documentation; second, the denial of access to personnel for interviews and underlying files; third, refusal to permit copies of relevant materials to be made; and fourth, selected use of other tactics such as the exclusion from board meetings.

These are the same tactics currently being used to obstruct the work of this subcommittee.

By 1994, the international trustees’ oversight would become ineffective. Notwithstanding the involvement with the Teamster’s affairs of the IRB and the Department of Justice. In 1995, the international trustees, lacking the authority they believed was provided to them under the constitution, approached the IRB for assistance. The resulting inaction set the stage for the lack of accountability, absence of reporting, and the improper use of union funds in 1996.

Materials examined also show that as early as 1994, concerned union members sought information from the LM-2's, the annual reports required to be filed with the Department of Labor. Financial information is supposed to be meaning and useful. These concerned individuals found the information not useful as it was inadequate to assess what moneys were being spent on various union activities.

Chairman Hoekstra. I appreciate if the minority would show a courtesy to the individual giving testimony. Thank you.

Mr. Smolen. For example, travel expenses were not reconcilable to the amounts reimbursed and disbursed to employees for travel. Corporate Teamster charge cards were being used for travel, although the expenses related to this travel were not attributable to Teamster officers and employees.

In 1996, more than $4 million was spent on travel.

From my own review, I have found the LM-2's to be neither comprehensive nor complete. For example, there is little, if any, information on the use of funds related to the general, special organizing, or defense funds, despite tens of millions of dollars that passed through these funds over the years. Other deficiencies exist.

The LM-2 dollar amount of expenditures related to the 1996 convention are inconsistent with other available information. The 1996 audited financial statements show convention expenses of $7.3 million, while the convention costs included in the LM-2 total only $3.5 million. An unexplained difference of $3.8 million.

Meaningful financial reporting also deals with timeliness of information. In March 1998, when I sought a copy of the most recent financial information available at the Department of Labor on the Teamster’s pension plan, I received, and was charged for, a copy of the most recent available report. A report containing financial information as of Dec. 31, 1994. Information over three years old.

The objectives of financial reporting by non-business organizations issued by the financial accounting standard board maintains that financial information is useful in making resource allocation decisions, assessing services and the ability to provide services, and assessing management, stewardship, and performance.

Inadequate and untimely information does not provide such information.

Since Jan. 1, 1992, the Teamsters Union has reached the brink of insolvency with a loss of over $155 million in net worth. Factors that contributed to this include inadequate and ineffective accountability, reporting and oversight. The financial accounting standards board used governing and oversight bodies at non-business organizations as being responsible for setting policies, overseeing, and appraising managers and reviewing the organization's conformance with various laws, restrictions, guidelines, or other items of a similar nature.

The United States Commission Guidelines Manual states that an effective program to prevent and detect violations of law means a program that has been reasonably designed, implemented, and enforced so that it generally will be effective in preventing and detecting criminal conduct.

To date I have learned of no evidence that the Teamsters had compliance standards and procedures or that any standards or procedures were communicated to union officers, employees, rank-and-file members and agents, or that any steps were taken to ensure compliance with any program.

The quick fix of the consent decree did not do the job. Between 1992 and 1996, Ron Carey was accountable to no one but himself for many expenditures. The result was that neither the union rank-and-file workers nor the American taxpayers were protected.

I've identified some of the 1996 costs which total more than $38 million. The components of this $38 million are union election at a taxpayer cost of approximately $20 million; unexplained increases totaling more than $13 million paid by the union treasury; and more than $5 million relating to the IRB, also paid with union funds.

It is likely that the financial and managerial crises could have been mitigated, if not averted, had proper safeguards been in place.

The cost of this failure is not only a monetary loss as a result of tens of millions of dollars that have been spent on ineffective efforts, but also a loss of the credibility of the government involving a process that should have worked, but did not.

Thank you, Mr. Chairman.

WRITTEN TESTIMONY OF FREDERICK W. SMOLEN, CHIEF FORENSIC AUDITOR, FINANCIAL INVESTIGATIONS & SERVICES, INC –

SEE APPENDIX K

Chairman Hoekstra. Just two quick questions, Mr. Smolen. In a press release issued during this hearing by the IBT, they attempt to explain the depletion of IBT funds by pointing to $125 million paid in strike benefits and $60 million for the IRB. Now is it true? That still leaves some $600 million in spending unaccounted for?

Mr. Smolen. Yes, that is true, and, in fact, I specifically avoided discussing the strike fund which was specifically set up and specifically funded. It was a distinct--

Chairman Hoekstra. Given the documents that we've received today from the Teamsters, can you either verify their numbers or accurately account for that $600 million?

Mr. Smolen. No, I cannot.

Chairman Hoekstra. Mrs. Mink.

Mrs. Mink. Yes, you are a staff consultant to the majority of this subcommittee, is that correct?

Mr. Smolen. I am on the payroll of the staff, yes, that's accurate.

Mrs. Mink. And you're payroll is $10,000 a month, is it?

Mr. Smolen. That's accurate.

Mrs. Mink. And do you have time sheets that you are required to fill our and submit to the chairman of this subcommittee or the full committee?

Mr. Smolen. I'm required to send a bill, an invoice, to the chairman of the full committee.

Mrs. Mink. But not a time sheet.

Mr. Smolen. There is a time allocation, yes.

Mrs. Mink. This time that you spent with us this afternoon is counted on that time sheet?

Mr. Smolen. Yes, it is.

Mrs. Mink. Were the rules of this committee made clear to you with respect to your obligation to provide a written copy of your testimony 48 hours before this hearing?

Chairman Hoekstra. That is not a requirement of the committee. The committee talks about where practicable.

Mrs. Mink. Well, could you explain why it was not practicable. When were you called to be a witness today?

Mr. Smolen. I wasn't--

Chairman Hoekstra. Mr. Smolen, you're not required to answer. We have set the requirements to distribute, it is our responsibility and not your responsibility.

Mrs. Mink. Mr. Chairman, we want to be participating members. He is a member of this committee staff. We were very disturbed that we didn't get the written testimony ahead of time of the other witnesses that we heard this morning, patiently allowing them full time to explain what they wanted to say because we didn't have the written testimony. But here we have a member of our staff, paid for by the government, and at the very minimum, we should have a copy of our own staff documents.

And we do not have it. We had to listen to it, and I'm really quite disturbed that the Chair would not protect the rights of the minority in this very, very limited situation of staff testimony.

I yield back the balance of my time.

Chairman Hoekstra. I thank the gentlewoman for her comments.

The subcommittee will be adjourned.

[Whereupon, at 1:15 p.m., the subcommittee adjourned subject to the call of the Chair.]