Financial Affairs of International Brotherhood of Teamsters

The subcommittee met, pursuant to notice, at 10:03 a.m., in Room 2175, Rayburn House Office Building, Hon. Pete Hoekstra [chairman of the subcommittee] presiding.

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.

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

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 reelection 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

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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.

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

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

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