Ring of fire

By HARVEY SILVERGLATE  |  January 23, 2008

When EFF filed a class-action lawsuit against AT&T for violating its consumers’ privacy, the company claimed that complying with the government’s requests (or orders?) was its patriotic duty. But in a maneuver that gives new credence to Samuel Johnson’s quip that “patriotism is the last refuge of scoundrels,” the telecoms decided to stop performing that duty this month when the checks ceased to roll in. A recent audit of the FBI by inspector general Glenn A. Fine found that, of 990 bills for telecommunication surveillance in five unidentified FBI field offices, more than half were unpaid.

And just to show the true shallowness of the telecommunications giants’ patriotic ardor, one notes that the maximum unpaid bill for wiretaps came to roughly $60,000 per field office (needless to say, a minuscule fraction of AT&T’s multi-billion-dollar budget).

It remains to be seen if the telecoms will be reprimanded for their betrayal. Congress granted the companies amnesty from being sued civilly by the customers whose privacy was compromised by the Protect America Act of 2007 (incidentally, the best example of Orwellian doublespeak since the Patriot Act). But that amendment will be reconsidered in February at the close of the presidential-primary season. In a statement delivered on the Senate floor a few days before Christmas, Democratic senator Harry Reid of Nevada, perhaps spurred on by Democratic colleague Connecticut senator Chris Dodd’s eloquent defense of privacy rights, spoke out against retroactive amnesty. “I believe that it is more than appropriate to ask the courts to examine the telephone companies’ actions and to evaluate whether or not they acted properly,” he said. “Providing immunity without ever undertaking such an evaluation would send a dangerous signal that the requirements we enact prospectively may be ignored with impunity.”

Meanwhile, the FBI, as many have pointed out, does not come off looking much better. It is hard to say whether the agency’s failure to pay up is a result of disorganization or hubris, or a dangerous mixture of both. One also has to consider whether this program, which President Bush described in August 2007 as “an immediate tool [needed] to defeat the intentions of our enemies,” really was so necessary in the first place.

Let’s make a deal
But just as you think you’ve heard it all, another outrageous aspect of this story pops up. FBI Assistant Director John Miller, in a January 10 press release seeking to defend the integrity of the FBI’s financial books, claimed that “the FBI has consistently maintained unqualified financial-statement audit opinions issued by the accounting firm KPMG.” What he fails to mention is that the United States Attorney’s office in Manhattan not too long ago launched a criminal investigation against KPMG and several of its partners and employees for their promotion of a cutting-edge tax-shelter program.

Threatened with indictment in early 2004 for overlooking the allegedly fraudulent nature of the tax shelters and for profiting from the sale and use of those alleged tax-dodge devices by clients, the firm entered into a “deferred prosecution agreement.” That document — a kind of plea agreement in lieu of indictment — provided that KPMG would take certain steps to reform itself and to cooperate with the DOJ’s prosecution of certain former KPMG partners and others, in exchange for the accounting firm’s getting a prosecutorial pass. (I happen to view the criminal charges in the tax-shelter investigation to be bogus, as are so many federal prosecutions these days, but that’s another matter. KPMG obviously took the threat of indictment, and consequent corporate ruination, quite seriously, and it cut a deal to save itself by betraying its former partners and employees. That is because, once indicted, no national accounting firm that engages in audits of major corporations can survive.)

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