Seized Property Costs U.S., Panel Told
The U.S. Customs Service is losing an average of $204 on each automobile seized from drug smugglers and later sold at auction, and it has been paying $360 a month to keep a seized boat worth $1,000 in storage for almost a year, federal investigators told a House hearing Tuesday.
Customs officials “seize hundreds of millions of dollars in assets every year but end up with nothing to show for it,” said Rep. J. J. Pickle (D-Tex.), chairman of the House Ways and Means Committee’s oversight subcommittee, which is investigating the losses of the seized property division.
The government is losing money at the rate of $52,000 a month on the sale of seized property. However, the contractor running the program, Northrop Worldwide Aircraft Services, was awarded more than $3 million in bonus money for good performance, Rep. E. Clay Shaw Jr.(R-Fla.) disclosed at the hearing. The U.S. Attorney in Beaumont, Tex., is conducting an investigation of the contractor, which is a subsidiary of Los Angeles-based Northrop Corp.
Cost-Plus Contract
“The federal government is paying them $3 million in award fees at the same time it is losing its backside on this program,” said an incredulous Shaw. Northrop has a cost-plus contract, receiving the costs of running the program and a fee of 2%. It also has been receiving another 8% of the estimated costs as an award for good performance.
Subcommittee members found it hard to understand how the government could lose money on the program, which covers cars, boats, planes, jewelry, real estate and other property seized from drug dealers and other criminals.
“Some of the examples we have been given are absolutely obscene,” Shaw told Michael Lane, acting commissioner of the Customs Service. The committee earlier was told of a vessel appraised at $170,000 and sold for $13,500, and another boat worth $75,000 sold for $17,500.
Pickle selected some cases for committee investigation from an auction in Brownsville, Tex., of seized automobiles. A 1981 Oldsmobile Delta 88 was kept in storage for two years and four months, at a cost of $1,660, before it was sold at auction for $500.
Why would you hold a car for more than two years? Pickle wondered.
Apparently, the “case got lost,” Customs Commissioner Lane said.
A 1976 Ford, stored for five months at a cost of $324, fetched $85 for the government at the same auction.
“I agree, we have a problem there,” Lane told the subcommittee.
In Los Angeles, a boat appraised at $1,000 had been in storage for 10 months, running up a storage tab of $3,600, when the General Accounting Office conducted an investigation of the Customs Service program in July. “It could still be in storage,” James R. Black, GAO case supervisor, said in an interview after testifying.
Lane, also questioned after the hearing said, “I don’t know about that boat.” Another official accompanying Lane said the Customs Service cannot readily determine whether the government is still paying $360 a month in storage fees in Los Angeles without knowing the case number for the boat. “Give me the seizure number and I’ll find out,” the official told a reporter. “There are thousands of boats out there.”
The General Accounting Office, surveying the program for the 25 months ending June 30, estimated that the government had gained $9.8 million, about 2 cents on the dollar, for seized property valued at $439 million.
The financial health of the program is steadily worsening. In fiscal 1988, there was an average net gain of $117,000 a month. But this became a loss of $52,000 a month in the first nine months of fiscal 1989.
Customs seizes and sells lots of cars. But they are often old, commanding low auction prices, resulting in a net loss after storage costs are included. Customs lost an average of $204 on the 2,068 vehicles sold in the first nine months of fiscal 1989. “Drug traffickers increasingly use low-value vehicles to smuggle drugs in an effort to hold down . . . ‘overhead’ caused by Customs seizure and forfeiture,” said Richard L. Vogel, assistant comptroller general told the subcommittee.
While praising the GAO for its investigation, several subcommittee members said the probe did not go far enough because inquiries were restricted to Customs Service records and did not include inspection of Northrop files.
“You went right up to the point where a fraud was committed,” said Rep. Charles B. Rangel (D-N.Y.). “Either a crime was committed, or there was gross negligence.”
The GAO officials said they did not question Northrop Worldwide Aircraft Services because an investigation of the contract for possible criminal misconduct is under way by the U.S. attorney’s office in Beaumont. The subcommittee also decided not to call Northrop officials as witnesses to avoid possible interference with the investigation.
“We can’t comment on the investigation,” Tony Cantafio, a spokesman for Northrop Corp., said Tuesday. Northrop, which has held the contract with the Customs Service since 1985, will not seek an extension. “We’re not going to rebid the contract because it’s not in the mainstream of our business,” Cantafio said.
The parent firm, better known for its MX missile guidance system, the B-2 Stealth bomber and a variety of other jet planes, has been trying to sell the Northrop Worldwide Aircraft Services subsidiary.
