Appearance of Federal Crime in CNMI ARRA Contract Scheme

July 25, 2011

In researching ARRA regulations and guidelines, it appears that federal law was violated in the ARRA contract scheme in which CNMI Governor Fitial awarded Michael Ada's Integrated Professional Services, LLC a controversial $392,406 sole source contract to oversee the CNMI's ARRA funds.

I am basing that conclusion on information from a few sources. It appears that "recipients of American Recovery and Reinvestment Act (ARRA) funds must comply with applicable state and federal contracting laws and regulations." The investigation conducted by the the Department of the Interior Office of the Inspector General and the CNMI Office of the Public Auditor found clear evidence that CNMI ethics and procurement laws were violated:

Our investigation collected evidence suggesting that the contract to IPS violated multiple CNMI ethics rules, including 1 Commonwealth Code (CMC) § 8543: Post-Employment Restrictions; 1 CMC § 8531: Use of Office, Staff or Employees of Public Office; and 1 CMC § 8532: Restraint on Use of Public Position to Obtain Private Benefit; and 1 CMC § 8544: Negotiating for Nongovernment Employment. In addition, we found that the contract may have violated CNMI Procurement and Supply Regulations, Part 700, “Ethics in Public Contracting.” Under the terms and conditions, the contract is null and void if the procurement processes or execution fails to comply with CNMI Procurement and Supply Regulations. 
The U.S. Attorney’s Office for the District of Guam and the Northern Mariana Islands declined prosecution of this investigation. We conducted this investigation jointly with the CNMI Office of Public Auditor (OPA). OPA will provide its opinion separately to the CNMI Government.
The Recovery Oversight Office states that ARRA fraud criminal violations include: forgery, mail fraud, conspiracy, false claim, embezzlement, false statement, theft and bribery, conflict of interest, obstruction of federal audit, fraud by wire, radio, or television, major fraud against the United States.

I would say (from a non-attorney perspective) that conflict of interest was clearly revealed by the DOI Inspector General's report. Perhaps also conspiracy in the way the contract was awarded to Michael Ada before he even had a company formed.  Multiple meetings between Fitial and Ada were conducted to come up with the scheme and create the contract to ease Ada from the position of Secretary of Commerce, the agency that oversaw ARRA funds, to ISP, the company that Ada formed so that he could personally benefit by securing the ARRA contract.  The transaction that was approved by Attorney General Buckingham who acknowledge knowing that CNMI laws were violated.

As revealed in an October 26, 2010 post, Ada's IPS business partner is Jose Padilla who is a former executive at Red Rock LLC.  Red Rock was awarded an $50,000 ARRA contract by Ada.  Padilla also was awarded a contract for energy saving lights at the library, the CHC, and legislative buildings. The partnership with Padilla adds to the mix of alleged violations including violations of the Government Ethics Act of 1992.

The Recovery Oversight Office guidelines further state:
ARRA expands protection to non-federal employees who reasonably believe there is reasonable evidence of:
• Gross mismanagement of contract or grant
• Gross waste of ARRA funds
• Substantial danger to health and safety
• Abuse of authority
Violation of law, rule or regulation regarding contract or grant
Another question is whether the contract is now considered valid. The report states:
Under the terms and conditions, the contract is null and void if the procurement processes or execution fails to comply with CNMI Procurement and Supply Regulations.
Will the ARRA oversight office declare this grant null and void? Will the ARRA funds have to be returned?  Will the three conspirators be held accountable?

The U.S. Department of Justice should issue a statement informing the public and federal tax payers why this investigation will not be prosecuted by the U.S. Attorney's Office for the District of Guam and the Northern Mariana Islands.

See these previous posts for background information:
Crossing the Line, July 24, 2011
More CNMI Corruption From the Ethically Challenged Fitial Administration, July 21, 2011
CNMI Abuses, October 26, 2010
Office of the Public Auditor Dropping the Ball? October 22, 2010
Contract Concerns Continue, October 21, 2010
OIA: "We don't want people messing with our money." October 19, 2010
Just as Suspected, October 18, 2010
Ada Steps Down as Commerce Secretary and Lands Contract From Governor, October 16, 2010

Read the DOI Report on the Investigation:


Anonymous said...

Since it seems that the local Fed office (Guam) will not prosecute. (as stated)
In lieu of an explanation from the Feds as to the reason why no prosecution, (if indeed any Fed laws were broken) maybe if you know anybody in Wash. that can get something moving by looking into this situation and put some pressure on Guam or the Fed.prosecutor in the NMI. Something may get done.
What about any of these "watch dog groups"? This is a waste of taxpayers money to say the least.

Years ago in Guam, there was a problem about a project in the port using Fed funds that did not go out for bid.
The Gov's man just gave out the contract. If I remember correctly the owner of the company was an in-law or other relative of somebody high in the Govt.(maybe the guy that gave out the contract, (can't remember)
But Govguam had to pay back the money and other things to the Feds. plus the work done by the contractor. There was more than one company involved and connected by relations(Can't remember the details)
This NMI Admin. is getting bolder everyday.

Anonymous said...

I do not think the U.S. Attorney needs to explain itself. There are a many instances where a crime was committed but a prosecutor decides the likely outcome is not worth time and resources put into extracting a conviction. Explaining itself now would require the DOJ to explain itself in all those other cases.

If I were a U.S. Attorney, I would not prosecute this case.
First, although ARRA was violated, the violations present are almost entirely based on CNMI territorial law. If local case law is not well developed (it isn't), the grounds for a case could be undermined by local court jurisprudence or clarification later given by a seemingly corrupt local legislature. Remember that federal courts often request clarification from local appellate courts when a portion of local law is not settled. A good recent example of this is the 9th Circuit asking the California Supreme Court in the Prop 8 (gay marriage) case to answer whether ballot proposition sponsors can stand in the shoes of the defendant state when the law passed by referendum has been challenged.
Second, there likely are higher priority prosecutions.
Third, if I am to use this instance of corruption it would be to help build a larger case against Gov. Fitial and his political allies to show broader conspiracies and corrupt practices that clearly violate federal law. I would definitely not waste time on prosecuting this single instance if I am already building a case against Fitial et al.
And lastly, there are other ways to punish CNMI for the wrong doings of its elected officials. The contract can be voided, Ada could be required to pay back all money paid by CNMI under the contract, CNMI could be required to pay back any of the funds used to pay Ada or return all ARRA funds, and more.

btw: the statute of limitations is 5 years under local conflict of interest laws. The DOJ has time on its side.

Anonymous said...

Ah, just the flavor of the day. Somebody was going to get the contract and it would have probably been Ada, but as usual the local folks don't think it's necessary to go through the proper steps. Lazy would not be the correct word, neither would corrupt exactly. Arrogant would be closer to the correct term. "Just give us the money and don't worry about what we do with it", would be the mantra of this and all other administrations. A dangerous ploy when the only thing keeping this island afloat is federal money. My theroy is that the leaders are trying to rake in as much for themselves (even more than usual, and faster) for themselves, their families, and friends ( or as they will be referred to later, unindicted co-conspirators).
The people of the CNMI don't really deserve what they get. It's just they have such poor choices to choose from.

Anonymous said...