Tax Evasion Exposed

AP Photo/Evan Vucci

A lot of what we know about tax avoidance and evasion is courtesy of Senator Carl Levin's work as chairman of the Permanent Subcommittee on Investigations. 

Financial Exposure: Carl Levin's Senate Investigations into Finance and Tax Abuse
By Elise J. Bean
Palgrave Macmillan

This article appears in the Fall 2018 issue of The American Prospect. Subscribe here

Senator Carl Levin of Michigan, who retired in 2015, was one of the Senate’s legendary workhorse progressives. He used his chairmanship of the Permanent Subcommittee on Investigations to probe the corruption of American capitalism as enabled by feeble or complicit government policies. One of his prime subjects was tax evasion. Indeed, a lot of what we know about techniques of tax avoidance and evasion is courtesy of Levin’s work and that of his staff.

For 15 years, Elise Bean, a lawyer educated at the University of Michigan, worked as an investigator and then staff director and chief counsel for Levin’s subcommittee. Bean passes on in plain English what she learned about the secretive schemes of people who owe their fortunes to the American system, but lack the character to behave with integrity. Individual dishonesty—mere venality—is not her focus. Rather, she looks at the system and at how weak government rules, insufficient to nonexistent oversight, and abuse of power by corporate interests, especially at some of the “too big to fail” banks and the Big Four accounting firms, promote and protect white-collar criminality.

With candor and humility, Bean tells how she came to work for Levin and how wide her eyes were opened to the pervasiveness of immorality at the top of our corporate culture, where success is measured in how many commas show up on a profit and net worth statement, not in whether that money was earned honestly. And she manages this without a hint of rancor.

Bean tells us about the foundation laid by subcommittee precursors, including the World War II Truman committee that exposed war profiteers who put their fortunes first, delivering sometimes shoddy weapons for pilots flying through German flak or GIs assaulting Pacific Island beaches.

After a quick history, Bean turns to how the subcommittee staff did its work and how Levin cajoled fellow senators into letting him take aim at corruption in Big Business. She writes so smoothly that this reader kept turning pages well past bedtime.

Bean distills Levin’s directives into 12 principles that can be applied to many other areas of government oversight and management. These include going after big targets, conducting original research, working relentlessly to build bipartisan agreement among staff and senators, and eventually using public hearings to wring change from the system. “Enabling investigators to build sufficient bipartisan trust to come to agreement on a complex set of facts typically took a year,” Bean writes.

Bean subtly reveals her personal views on the competence and quality of senators. Some are described either in positive terms or without even damning faint praise. Thad Cochran of Mississippi is “an active, intelligent Republican senator with a courteous staff.” Fred Thompson, the lobbyist and actor turned lawmaker, is merely named. She describes Levin as “one of the little-known giants” in the Senate, with a knack for asking tough questions and yet not coming off prosecutorial. She admires Levin’s skill at capturing public attention by marshaling powerful facts dug up by the subcommittee staff.

The work Bean describes lacks glamour. The Permanent Subcommittee on Investigations (PSI) staff worked out of a basement in the Russell building, where Bean scrounged for furniture and file cabinets discarded by senators who moved from their offices.

One crucial lesson she learned: It’s not just crooks, businesses, and their agents who want to hide the facts. Sometimes, the law enforcers want to go through the motions and then file away the awful truths they uncover.

When subcommittee staff learned in 1999 that the Federal Reserve Bank of New York had conducted reviews of anti–money laundering at 40 big banks and found problems aplenty, they asked for the reports. In time, the staff focused on one American institution, Citibank, only to be told that the Fed bank would not provide the underlying documents, known as work papers. Here, bipartisanship was crucial. Levin sought help from the PSIchair, Susan Collins, and the Maine Republican agreed. Only then did the bank agree to let PSIstaff read, but not copy, what turned out to be devastating documents establishing how deeply Citibank was involved in helping drug lords and their friends in high places move millions illicitly, notably Raul Salinas, whose brother was the president of Mexico. (Bean recounts how she spent two weeks in a Federal Reserve office in Washington, giving advice on how to organize such files before digging into them so that they make sense—another reason this book is invaluable as a guide for investigators.)

The audit of “Citigroup’s private bank contained harsh assessments of what the bank examiners had found. Memos noted that the private bank’s Swiss headquarters received the ‘worst possible audit rating’ from Citigroup’s” internal watchdogs, whom Federal Reserve examiners concluded “were not taken seriously” by Citibank.

Bean shorts deserved credit for journalists who exposed Citibank’s corrupt role two years before subcommittee investigators got onto the case, but she generously credits a convicted Citibanker, Carlos Gomez, who, during a three-hour prison interview, drew a detailed roadmap for subcommittee staff. Gomez explained how Citibank’s private bank operation in Switzerland was organized, who worked there, and what they did. “That one interview equipped us with detailed, inside information about both the private bank and Salinas account,” Bean writes. “It was a lesson in how prisoners, when treated with courtesy and asked wide-ranging questions, can help advance an investigation.”

Here again Bean provides valuable information on the art of good government. Interviewers who listen sympathetically get cooperation and informing disclosure, in contrast to the popular, and wrong, idea that browbeating and even torture are necessary to get people to spill the beans on their confederates. Gomez also got a benefit from talking: He was supposed to be held in a federal prison near his family in Florida, but the Bureau of Prisons had lost track of that and held him in New York state until the PSI staff came along.

Bean’s account of how some Citibank executives were arrogant and withholding contrasts with the day-long interview of John Reed, the bank’s chief executive, who she reports was deeply informed, precise, and made no attempt to lie or deny. Not explained is why Reed did not order changes when the internal audits and the Federal Reserve examinations revealed rampant corruption, not to mention when The New York Times ran front-page exposés in 1997 that won a Pulitzer Prize for international reporting.

Extraordinary care with facts, and sharing with Republican staff and senators, was crucial when the digging was done. “[W]e had the low down on money laundering problems at private banks generally as well as what happened” with four major accounts at Citigroup, but “the facts were so sprawling and complex that we had to write them up. Otherwise, much of what we’d learned would be lost,” wrote Bean, who was assigned to prepare the initial draft.

“Our Republican colleagues reviewed the revised text and made still more changes. We didn’t complain. The high stakes meant we had to get the law and the facts right; no errors allowed,” she continues. Here, Bean evokes an era when bipartisan cooperation was still possible—and illustrates the virtues of patience.

In November 1999, two days of public hearings were held. What Bean calls “the Levin report” then became public. “Senators Collins and Levin knew the facts cold and were ready to disclose them to the public. A powerful tag team, they delivered a one-two punch that prevented the witnesses from dodging the issues” about corrupt banking.

A crucial lesson is that Levin did not stop at exposing wrongdoing. His staff followed up to make sure Citibank cleaned house. Levin also introduced legislation intended to reduce illicit money transfers, at least when the digital dollars flowed through American banks. (Levin’s legislation died in Senate Banking Committee. Its chairman at the time was Phil Gramm, the Texas Republican who later became a senior foreign bank executive.)

When the PSI staff dug into Enron, they came up with more evidence of how easy it is for the unscrupulous to manipulate the financial system for their gain at the expense of everyone else. Again, structural reform proved elusive despite damning facts. Congress did pass the Sarbanes-Oxley Act to require honest accounting, which became law in 2002, only to have it reviled as interference with legitimate business and a drag on the economy, as if corruption is a free lunch. It also contained a big loophole in Section 201: Auditors paid to examine the books could not also be consultants—unless the client’s board of directors approved.

Financial Exposure is expensive, priced like a college textbook. I nonetheless hope Bean’s book is universally adopted by professors of political science, public administration, public finance, and related disciplines. Anyone who cares about how Congress functions—and how it could function—will find in this book an easy primer well worth the price. It’s the kind of book that should be read decades from now, too, as a guide to the congressional oversight we could have if we just demanded it. 

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