Top Ten Union Corruption Stories of 2008

Obama Election, Mob Prosecutions, Tougher Rules Led Way

The year 2008 will be remembered most of all for the $7 trillion in stock market assets that evaporated.  The losses were a consequence of the widespread attitude among Wall Street money managers that debt-fueled growth has no limits or negative consequences.  The equivalent view among union leaders is that institutional growth must come at any cost, whether to the unions themselves, employers or the country as a whole.  Only 7.5 percent of the nation’s private-sector work force now belongs to a union.  Labor officials are convinced that with the right laws and programs in place, that figure could double, even triple. Everyone supposedly would win, save for certain “greedy” employers and ideologues hostile to the interests of working families.

 

The unions made a huge down payment on their planned expansion:  helping to elect a Left-progressive Democrat as our nation’s next president and to give Democrats even larger majorities in the House and Senate.  Union chieftains can be counted on to push extra hard for passage of the Employee Free Choice Act (“card-check”), the Independent Contractor Proper Classification Act, the Public-Safety Employer-Employee Cooperation Act, the Arbitration Fairness Act and more than a dozen other bills whose effect, directly or indirectly, would be to boost union membership, dues collections and bargaining power. 

 

Having contributed close to a half-billion dollars to candidates during the most recent election cycle, unions want payback soon.  If an Obama presidency and a compliant Congress facilitate the addition of millions of members, the windfall of dues and other revenues would mean more opportunities for corruption.  The good news is that corruption still is caught and punished, given the right tools and the willingness to use them.  And 2008 was no exception.  Federal agents made two separate and highly-publicized mass arrests of Gambino family mobsters and associates who controlled a sizable portion of the New York City-area construction industry.  They also broke up an intimidation ring that effectively ran a Buffalo Operating Engineers local, coaxed a guilty plea from a crooked Atlanta hedge fund manager who mismanaged about $150 million, and provided evidence that led to the indictments of four members of Amalgamated Transit Union Local 1181 in Queens, N.Y.     

 

Corruption and mismanagement of a vast and different sort may be on the horizon.  The scheduled transfer of tens of billions in General Motors, Chrysler and Ford benefit funds will give the United Auto Workers unprecedented opportunities to enrich themselves and their friends.  Additionally, American union leaders are redefining themselves as players in a global economy, an economy that has proven less than immune to labor corruption – witness scandals uncovered or publicized last year in Mexico, Japan, Israel and Germany.  The planned merger between the United Steelworkers of America and the British union UNITE further underscores the importance of viewing corruption from an international standpoint.  Unions have invested huge sums of pension money in politically-driven investments on a supposedly higher moral plane. 

 

The Department of Labor (DOL) during the last eight years has tried to stay one step ahead of all this.  Under the leadership of Secretary Elaine Chao, the department put into place its long-awaited T-1 annual financial reporting form for union-sponsored trusts.  The new rule, patterned after the revamped LM-2 standard form for large unions, should make detection of embezzlement from pension and other funds easier.  Additionally, the DOL has proposed upgrading Form LM-30, which requires union officials and certain employees to spell out potential conflicts of interests, a rule change that the AFL-CIO is challenging in court.  The incoming Obama administration, regrettably, has signaled its intention to give fighting corruption a low priority, a policy shift which, if nothing else, might provide added material for this publication. The resulting scandals might be as intriguing as the following top ten labor corruption stories for 2008, listed in reverse order:     

 

10) Senate appointment scandal in Illinois has union connections.  Federal prosecutors arrested Democratic Governor Rod Blagojevich and chief of staff, John Harris, after recording solicitation of bribes for Barack Obama’s newly vacated Senate seat.  Blago isn’t likely to be around much longer; his eventual nominee, former state Attorney General Roland Burris, is.  The attempted sale to the highest bidder had two strong union angles:  the Illinois Teachers Retirement System and the Service Employees International Union.  Jobs for sale – it’s a Chicago political tradition.                  

 

9) ACORN is knee-deep in voter-registration and internal fraud.  Since its founding nearly 40 years ago, the Association of Community Organizations for Reform Now, or ACORN, has been busy transforming urban America into bastions of grass-roots socialist activism, one neighborhood at a time.  The spotlight shined brightly on the New Orleans-based nonprofit network in 2008, as investigations in several states uncovered evidence of ACORN activists generating phony and duplicate voter-registration cards.  The fraud was even more flagrant than during the 2004 and 2006 cycles.  The member-supported group long has been closely allied with unions, especially SEIU Locals 100 and 880, the former of which had been created by ACORN founder and chief organizer Wade Rathke.  Rathke has a problem of his own right now.  This June he was forced out in the wake of revelations that nearly a decade ago he covered for his brother, Dale Rathke, who as ACORN chief financial officer, made unauthorized transfers of nearly $950,000 in association funds to a political consulting firm.     

 

8) Los Angeles Service Employees chieftain is exposed, dismissed.  A few years ago, SEIU Local 6434 President Tyrone Freeman was the toast of his union and the Southern California organized labor scene.  Now he’s toast.  This past fall he was given the boot by his former ally, Service Employees President Andrew Stern, following Los Angeles Times revelations of his diversion of hundreds of thousands of dollars to himself, family and friends.  The parent union also imposed a trusteeship upon the 160,000-member local whose members consist heavily of domestic workers for firms contracted with Los Angeles County.     

 

7) Law enforcement agents arrest Operating Engineers local thugs in Buffalo, N.Y.  This past April, federal and state officers made predawn arrests of a dozen leaders and members of International Union of Operating Engineers Local 17 in Buffalo.  Based on a decade’s worth of evidence, the local bad boys were the equal of Laborers Local 91 (Niagara Falls) and Local 210 (Buffalo) during those unions’ respective heydays, allegedly sabotaging projects and terrorizing anyone who got in their way.  Their lawyer is convinced they’re just a bunch of all-American guys being railroaded.  They seem to grow these types in Western New York State.        

 

6) Union investments fuel progressive activism.  Labor pension funds increasingly are an investment conduit for Left-leaning money managers.  But such investments, Hudson Institute Senior Fellow Diana Furchtgott-Roth has concluded, deliver smaller returns than do employer-sponsored funds.  Union fund trustees and managers are bound by ERISA to strike a balance between high returns and prudence, and without regard to favored causes.  Many union members might not be enamored of their organizations basing investment decisions on political more than economic criteria, especially as most benefit plans had been underfunded even before the stock market crash last fall. 

 

5) Mexican unions are bastions of government favoritism and corruption.  Our unions have nothing on those in Mexico when it comes to corruption.  Their oil workers and teachers unions, as recent investigations showed, operate as slush funds that have provided hundreds of millions, if not billions, of dollars for their leaders and cronies.  The result has been prolonged Mexican poverty and more emigration to the U.S.  Union reform in Mexico may happen, but not before its government ceases to be a kleptocracy.  Count on a long wait.  

 

4) Labor Department puts more teeth into financial reporting rules.  After several years of court resistance by organized labor, the U.S. Department of Labor put into operation its new T-1 financial reporting form.  The rule change should enable DOL investigators to better track irregularities in the management of union-sponsored pension, health care and other benefits plans.  Given pension scandals this decade involving locals of the Longshoremen, Carpenters and other unions, the change was long overdue.  Additionally, the DOL has proposed a more detailed LM-30 form, which requires union officials and allied employees to indicate payments that might pose conflicts of interest.   

 

3) Federal prosecutors expose New Jersey construction locals.  Laborers Local 1153 and Operating Engineers Local 825 in Northern New Jersey engaged in a pattern of pay-for-play construction contracts in New Jersey, taking under-the-table payments from union bosses and contractors to hire nonunion workers.  IUOE Local 825 in particular has been a hobby horse of the Gambino crime family, especially family soldier Andrew Merola.  Several persons pleaded guilty last year to creating no-show jobs, accepting bribes and diverting funds for personal use. 

 

2) Five dozen Gambino family mobsters and associates are arrested, plead guilty.  February 2008 may have been the beginning of the end for the feared Gambino crime family.  Federal agents arrested roughly 60 family members and associates throughout the New York City area.  Many had been involved in a “mob tax” scheme involving construction projects, especially in Staten Island.  Virtually all persons arrested, union-related or not, have pleaded guilty.  The takedown was part of the FBI’s Operation Old Bridge, which worked with Italian authorities to arrest dozens of mobsters in Sicily.  

 

1) Barack Obama is elected president.  It’s not a union corruption story per se, but over the long run – think many years, if not decades – nothing will add to the likelihood of corruption more than the fact of a palpably Leftist presidential administration.  Since his Chicago shoe-leather community-activist days, President-Elect Barack Obama has been a union partisan.  And he has every intention of putting words into action.  His choice for labor secretary, Rep. Hilda Solis, D-Calif., is indicative of where he wants to take labor relations.  As a member of Congress, Solis voted with the AFL-CIO almost 100 percent of the time.  The new administration also could be a boon to the Teamsters:  During the campaign Sen. Obama signaled to General President James P. Hoffa that he favors lifting the federal supervision of the union in effect since 1989.  

 

(Dis)honorable mention.  National Labor Relations Board issues “RJ Petition” proposal to allow quickie union elections in organizing drives; dissenting members of Teamsters Local 804 in Queens, N.Y. allege mismanagement of $18 million of health fund; the battle between Sal Rosselli and Andrew Stern for SEIU leadership sharpens; United Food & Commercial Workers signs pact with Smithfield Foods, ends corporate campaign; Steelworkers, British union (“UNITE”) tentatively agree to a merger; Long Island court case reveals Teamsters Local 282 as shakedown racket while small mom-and-pop trucking firm takes the fall; German union officials are part of Volkswagen, Siemens scandals; head of New York Central Labor Council pleads guilty to $2 million-plus in thefts; court upholds reporting requirements for union lawyers; Atlanta hedge fund manager pleads guilty to mismanaging about $150 million, including $20 million belonging to retired NFL Players Association members, then commits suicide; Japanese school director charged with looting more than $3 million from union; famed New York City union negotiator Theodore Kheel revealed as benefactor of ethically-challenged House Ways and Means Chairman Charles Rangel; John DaBronzo, Trenton, N.J. Asbestos Workers business agent, steals $829,000 to cover gambling losses; Betty Illig, Ohio Graphics Communications local secretary, pleads guilty to embezzling nearly $150,000; Philadelphia construction contractors plead guilty to bribery; members of Amalgamated Transit Workers Local 1181 in Queens, N.Y. indicted for bribery and extortion of at least $1 million; Puerto Rican sugar workers union boss with nonexistent employers charged with defrauding his union out of $400,000.