This is the third and final part of our series on the successes, failures and questions that surround the integrity monitoring industry in New York.
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Since the mob scandals of the 1980s, many New York City construction sites—especially public works—have had integrity monitors on hand to police corruption, ensure quality and maintain safety. Some have succeeded at preventing wrongdoing. Others raised an alarm that appears to have been ignored.
Brian Aryai, a former IRS special agent who went on to the Customs Service and then finished out his federal law enforcement career as a special agent with the U.S. Treasury, says major fraud and corruption are still alive and well in New York City’s building industry. He says integrity monitors are too often acting “as expeditors” helping construction companies find a way to settle up with prosecutors while continuing to operate, albeit with a commitment for more integrity monitoring.
Aryai says the construction companies involved may not be owned by “made men”—whose bloody exploits are followed by the tabloids—but legitimate corporations. “It is more sanitized,” says Aryai. “It looks better. It comes across aesthetically as a legitimate business more so than ever before which makes the job of compliance and law enforcement all that more difficult.” Aryai is also in the integrity monitoring sector and a few years back went into business with former Governor David Paterson. The partnership broke up and is currently in litigation.
He says in the age of deferred prosecutions the largest New York construction companies have a trump card to play with prosecutors. “I call it too big to jail,” says Aryai.
The 51-year-old Aryai should know. After his career in federal law enforcement Aryai worked for several international conglomerates. In 2008 he became CFO for the New York office of what was then called the Bovis Lend Lease Corporation where he oversaw $3 billion in public and private sector construction work.
In the wake of the Deutche Bank fire, District Attorney Robert Morgenthau said he’d decided not to indict Bovis because doing so may have been devastating to the city’s economy. After all, Bovis built Bloomberg LP’s world headquarters, the Time Warner Building, Citifield, and they were selected by Columbia University to do their multi-million dollar expansion in West Harlem. Their public sector projects include the U.S. Post Office-Bankruptcy Court complex in Brooklyn, the Bronx Criminal Courthouse, the renovation of Grand Central Terminal, and the National September 11th Memorial and Museum.
Aryai had only been on the job with Bovis for a few month when the CPA and certified fraud examiner noticed a breathtaking “systemic fraud” on Bovis’s books. “I discovered a practice which was called 8 and 2. It had another name, gratis pay,” recalls Aryai who says foremen and other favored employees were billed out for two additional hours of overtime every day even though they were not on the job.
“You had construction workers en masse getting paid two extra hours of overtime, at very high rates to essentially sit at home and watch TV and that expense is billed back by Bovis” to the government and ultimately to taxpayers. He says it just wasn’t public works but non-profit institutions and private sector commercial customers that were victimized by the scam.
When Aryai asked his colleagues about 8 and 2 he was told it was an industry-wide practice that kept the unions happy. He wrote a letter to the global conglomerate’s top leadership in Australia with his findings. From what Aryai discovered the practice went back 25 years and started originally to retain highly valued foremen and other key players in the construction trade.
Aryai was laid off by Bovis in January of 2009. Aryai went to the Department of Justice with what he had documented while working for Bovis as their chief financial officer. He also filed a qui tam case in Federal court.
Qui tam is the legal abbreviation for a Latin phrase meaning “he who sues in this matter for the king as well as for himself.” Anyone can bring a qui tam case under the terms of the 1863 False Claims Act which was enacted to reward the public for turning in government suppliers who defrauded Uncle Sam or deliberately sold substandard military issue to the government. If successful the whistleblower can get their legal costs paid for and get between 15 to 25 percent of the damages.
In April of 2012 Loretta Lynch, US Attorney for the Eastern District, and now President Obama’s pick for Attorney General, announced that Bovis had entered into a deferred prosecution agreement agreeing to pay $56 million in penalties and restitution for defrauding their government and private sector going as far back as 1999.
“The message should be clear to all who are engaged in similar contract billing fraud: You are in our sights,” Lynch told reporters. “And the defense that ‘everyone does it’ will not be a shield against law enforcement.”
Bovis admitted it defrauded the Dormitory Authority of the State of New York and the New Jersey Schools Development Authority by feigning to employ Minority Business Enterprises as sub-contractors as they had committed to do as a condition for getting the contracts.
James Abadie, in charge of Bovis’s New York operations from 2002 through 2009, pled guilty for his role in facilitating the 8 and 2 scheme. He faced up to 20 years in jail he was sentenced to 750 hours of community service and fined $175,000.
Abadie has since started his own construction consulting business.
In March of 2013 Aryai reached a deal with Preet Bharara, the US Attorney for the Southern District. Aryai was paid an undisclosed sum to satisfy his qui tam claim against Bovis. Aryai himself has a compliance company and he is actively pursuing integrity monitor work.
As for Bovis, now re-incarnated as Lend Lease, after their second near indictment experience, it was all eyes forward. “We accept responsibility for what happened in the past and have agreed to continue to make restitution to the affected clients,”said Robert McNamara CEO of Lend Lease America in a prepared statement after the fraudulent billing settlement was announced. “We are satisfied that the investigation is now resolved and we are looking forward to continuing our commitment to projects in New York City.”
Who monitors the monitors?
In the 21st century New York City is now dominated by huge multinational construction conglomerates and integrity monitors who act act as a bulwark against the sector slipping back into the bad old days of fraud and corruption. But as the record has shown their presence doesn’t mean things still can’t go terribly wrong with catastrophic consequences.
Massive cost overruns continue and there are multiple ongoing criminal investigations into the industry for everything from minority business enterprise corruption to systematic overbilling fraud.
Back in the summer of 2012 Federal prosecutors in the Eastern District were investigating the billing practices of Turner, Plaza, Skanska and Tishman construction companies, the big players in the City’s construction industry. Investigators were looking for evidence that they had also engaged in the 8 plus 2 payroll padding scheme. The Eastern District’s press office recently said they had no comment on the status of the investigation thats now well over two years old. None of the companies returned a call for comment.
The contracts under review are in the billions of dollars and the contractors under scrutiny are responsible for major projects like the Croton Filtration Plant, which has come in nearly four times its original estimate of under $1 billion. The Croton Plant has also been under an integrity monitorship contracted out by the DOI. Thacher Associates is credited with flagging irregularities with $200 million in electrical contracts held by Schlesinger-Siemens for the Croton and other DEP sites. Last year the contractor entered into a deferred prosecution deal and paid $10 million to resolve the case which involved an elaborate fraud to qualify for the city contracts as a minority business.
Boosters of the integrity monitors say these very cases are proof positive the concept works. But there other compliance experts in that same line of work that disagree.
“Some integrity monitors succumb to becoming captive to the industry they oversee. It is just human nature,” says Walter Mack, a former assistant US Attorney who was in charge of the NYPD’s internal Affairs for two years in the 1990s. “How far do you go? If you are making $30,000, $50,000, or a $100,000 a month as a monitor do you want to put that at risk” by making waves. “You have to monitor the monitors” says Mack who served as a military police commander and rifle company commander in Vietnam. Mack also is a registered integrity monitor with the DOI.
Ronald Goldstock, the Waterfront Commissioner who works as a private inspector general for corporate clients, says the American Bar Association is in the final stages of developing the “aspirational standards” for the quickly growing industry which will offer guidance on potential conflicts of interests, grounds for possible disqualification and ways to insure a broader pool of qualified talent.
There is an International Association of Private Sector Inspector Generals (IAPSIP). Goldstock is an ex-officio member of the trade group’s board of directors and chairs the trade group’s ethics committee. Thacher and Stier also sit on the IAPSIP board. Goldstock says the group has a code of ethics but that professionals in the field can’t be compelled to abide by that code because that would have anti-trust implications.
Nick Casale is a former gold shield NYPD detective who served as the MTA Counter-terrorism chief who also monitored $591 million in MTA counter-terrorism contractors possible corruption. He says monitors, particular on public jobs should be publicly rated for their effectiveness so that there is a transparent record of what they caught and what they missed and why. “Integrity monitors are a great thing but who monitors the monitors?,” Casale asks.
“They must have the integrity, fortitude to retain their independence,” Casale says. “If the monitor believes he is going to upset the apple cart too often he might be more worried about his ability to get work in that sector again.”