The Inspector General — Rooting Out Fraud and Abuse in the State Department
With thousands of employees from dozens of countries spread across the globe, the U.S. Department of State sometimes falls victim to various forms of fraud and abuse at the hands of the locally employed staff (LES, formerly called Foreign Service Nationals, FSNs) who help run the day-to-day operations of embassies and consulates, and who were often aided by less than observant Foreign Service Officers. While abuse by LES and especially FSOs is relatively rare, it can be an issue from time to time. One State employee at Embassy London was sentenced to 57 months in prison in March 2016 in an extensive computer hacking, cyberstalking and “sextortion” scheme.
The responsibility of rooting out these crimes falls to the Office of the Inspector General (OIG), which performs the vital, and often thankless, task of ensuring that the Department is functioning efficiently and maintaining its integrity at every one of its posts.
Sherman Funk served as Inspector General from 1987 to 1994. During his tenure, Funk helped expose a variety of intricate scams, ranging from a 16-year operation that stole oil from the U.S. embassy in Tokyo to an illegal visa ring in Korea that ended in a massive bust in Charleston, South Carolina. He also describes his frustration with the Africa Affairs (AF) Bureau, which actually criticized an ambassador who had dramatically improved embassy operations and morale among FSN staff. Funk was interviewed by Charles Stuart Kennedy beginning in July 1994.
Read about tracking U.S. aid to the Contras in the 1980s and the clash of personalities in the Foreign Buildings Operations (FBO) office. Go here to read other Moments on administration and consular matters.
The Embassy Tokyo Oil Scam — “’You guys are so stupid’”
FUNK: Congress had virtually no confidence in the ability of State to manage its affairs…. (Photo of Embassy Tokyo: Jacob Levine)
In Rome, which has a magnificent embassy and residence, everybody was delighted with the quality of service. If you wanted that corner painted, you would call in one of the senior GSO-FSNs [General Services Officer – Foreign Service Nationals] and describe what you wanted painted. That day, people would be in there painting. If you wanted faster service in the motor pool, they’d rent a car to get it beyond there.
What nobody realizes is that the senior GSO-FSN or GSO was building a villa outside of Rome that cost over a million dollars, and that many of the other FSNs were putting their kids in schools in the United States. And they were talking about this, nobody thought to ask why. That was the price we paid for that kind of service. It was millions that we wasted.
There’s a story which nobody believes that is absolutely true and people are still in jail as a result of it [as of 1994] — the Japanese. This story sounds incredible, but it is absolutely true.
When they built the new embassy in Tokyo, and a compound, the specifications called for two manholes on access points in the rear courtyard where the oil tank was buried. Nobody thought of asking why you needed two. And the embassy opened and shortly after it opened, the truck appeared, a big oil tank truck, guys wearing uniforms driving it. And the night before, the security called in and said that they were getting oil, and they went through and opened up one of the manholes, put a hose down and they filled the tank.
A couple days later, another truck appeared in the morning, also a call to come through saying we were getting a delivery. Nobody thought of asking why deliveries were so close. The truck came in, opened up the other manhole and put a thing down and it was true — half of the oil had been pumped in a couple days before.
This went on for sixteen years, and in the sixteen years only one person, a young assistant GSO, ever inquired why we were buying so much oil. One person. And the admin counselor called in the senior FSN, the GSO type, and said, “Make a study of why we’re spending so much money.”
The guy came back with the report that the weather is so volatile here, we have equipment which needs the oil. The person who did that report was the guy in charge of the scam.
Toward the end, one of the workers got disgruntled that he wasn’t getting enough money on the scam, and went to the Assistant Regional Security Officer [A/RSO], and said … , “You’re being robbed.” The assistant Legal Security Officer went to the same FSN and asked him to look at it. The guy came back and said no problem. That went on for another year.
Now, people who listen to that story say it’s not possible. Sixteen years we used enormous volumes of oil. In fact, we prosecuted. One of my lawyers and two of my investigators went out, we went to Tokyo, worked with the courts. It was hideously embarrassing for the Japanese, by the way, and they were very tough on these people involved.
We’re getting back most of the money, we’re suing the companies because they should have had controls to prevent that. But one of their biggest arguments — and if that were argued in the States, they would win – was, “You guys are so stupid. Why didn’t you guys know something was wrong? We just deliver for your requirements.”
To me, I find that so incredible, and it went on for sixteen damn years, but we’re getting millions of dollars back now. But we had to sue for it.
What kind of naïveté́ is it to ask somebody who would benefit from it? And if the thing was going on, he would certainly know what was going on. How much management moxie does it take? How much common sense does it take? Twice they went back to the same person who was the contact point in the embassy, who would make the telephone calls to have the deliveries come in the next morning. Incredible.
“They didn’t ask any questions. They were given a piece of paper, and it was signed.”
Another case in Colombia, in the warehouse in Bogotá where we were being robbed blind. We were sending equipment into the embassy to be distributed to the Colombia National Guard, the Colombia police, for the drug program.
The stuff was coming in and the next day it would go out. And the FSNs in the warehouse were running the thing. They had their own computer program, none of the American staff had access to that computer program. None of them had expressed any interest in it. And then somebody asked me why on earth I wanted them penalized, the FS-01 [senior level Foreign Service Officer] who was in charge of that warehouse. He swore he didn’t do anything wrong….
We have many warehouses around the world. It’s a basic element to look for the stuff coming in, going out, what the controls are, what the shelf life is, is it stored properly, is the inventory checked periodically. Every year every embassy is required by FAM [Foreign Service Manual] to complete a certification of personal property.
I sent out cable after cable saying that the ambassador will sign that, and if you have reason to know that that inventory was not done property, you’re at risk. And two ambassadors got chastised — civilian appointees — and both are leaving the Service because there were huge gaps in their inventory, and they signed the certification that came in over their signature that everything is fine. They didn’t ask any questions. They were given a piece of paper, and it was signed.
In Manila we built hotels, we built tennis courts, we built sports buildings with phony money. With money that was given to them for something else….They couldn’t justify it, so they spent the money. The guy got an award as the best administrative officer of the year at the time. (Photo: Jens Raak)
They went to the FBO [Foreign Buildings Operations] and said they wanted to build this, that, and the other thing. FBO said no, your higher priority requirements, and they turned them down.
So they took money … from another thing and built it. We found out about it and I sent somebody to look at it, and they whited-out papers and made all kinds of changes. At that point it’s fraud. We had a hell of a time getting it through that the person should be punished for it. I don’t mean sent to jail or hung by their thumbs or anything, but there should be some reasonable punishment.
We got worse than that. We got somebody in Panama who went ahead and negotiated on his own for the lease of whole buildings, expensive buildings, that we didn’t need and nobody wanted. We had the buildings and nobody was put in them. They were empty buildings, we were paying for them. Well over two million dollars we paid for that. And the Panamanian said, “I negotiated with somebody from the embassy in good faith, it’s not my fault if…we had to pay.”
“If they had done half of what we’d asked, there would be controls in place to have prevented that”
We’re putting the wrong people in the jobs. It’s that easy. It’s that simple. We put the wrong people in the jobs who are not trained for it, have no motivation to do it properly.
Have you been to Paris? There’s a very nice little, like a commissary downstairs in the embassy. You can get wine, you get gifts and stuff, Congressmen use it, everybody comes. It’s very simple if you’re in a hurry you can go to shop there and get some good stuff.
My auditors were doing an audit of another aspect of the embassy and somebody told them this thing doesn’t seem to be run well. So, they weren’t looking for fraud, they just went down and did a study on it. And they presented a whole series of recommendations which everybody agreed to.
Two years later the person in charge of the operation of the commissary, a woman, disappeared. She stopped coming in. It turned out there was a quarter million dollars that was stolen. She took off, went to the States, and they haven’t found her yet. She was convicted in absentia in France.
If they had done half of what we’d asked, and what they’d agreed to do, there would be controls in place to have prevented that. Simple controls — don’t have the same person go buy something and swear to it afterwards. It wasn’t done.
And nobody could ever satisfactorily explain why it wasn’t done when they said they would do it. The embassy said in writing, “Yes, it’s a good idea. We’ll do all these things.” None of it was done. And a quarter million bucks disappeared.
These things are very upsetting. Now, are they decisive in terms of foreign policy? Hell, no. But are they important to giving a picture of the State Department as a bunch of technical incompetents? Yes….
Better controls, improved morale – and criticism from the Department
I’d always found it strange, that if you’re in the admin field, the chances are good you’ll get your first few assignments in AF [Bureau of African Affairs.]
But what happens is, as you go up the line and you become more and more competent, more and more knowledgeable, your goals are not Africa. You want to be in Paris, or London, or Bonn, or Tokyo, where we need very good people even less because there we usually have very good FSNs. We have a huge network of vendors that are very competent, and the prices are fairly well established.
So we put our new people in Africa supervising poor FSNs, with inadequate training, and the better they get themselves, the less they stay in Africa. I can never understand this. It goes contrary to common sense, and that’s part of the problem, a staffing problem. You’re dealing also in governments that tend to be quite corrupt where payoffs are a way of life, and where they expect to be asked to be paid off, and they do it. So the FSNs, of course, are happy to oblige them.
In all my seven years at State, I have met very few corrupt Foreign Service officers. I met a few, but very few. Corruption is not an aspect of the Foreign Service, it really is not. So I’m not saying that fraud is the driving ingredient here. But the lack of sensitivity to this, the lack of awareness, the lack of recognition that a place like the sub-Sahara in Africa, and many times in Saharan Africa as well, you’re going to find situations where your staff is damn well going to be bored….
Ed Dejarnette, when he was ambassador in Dar es Salaam, did something that no other ambassador had the fortitude to do. He fired about half of his FSNs, just about half, he doubled the pay of the ones that were left, on top of which he also had a very aggressive post language program [for FSOs to learn the local language], taking the money out of other things that other people didn’t want to give up, but he had a very aggressive post language program.
We saw the difference by two inspections before and after this had happened. When the team went there for the last inspection after Dejarnette had arrived, they had the previous inspection, of course, to look at and the interviews with people who had been there. They were shocked when they got to the post. They couldn’t believe there had been that much of a turnaround.
The FSNs were motivated, they were getting higher pay with the clear understanding their ass would be fired if they don’t perform well. They were not asked for anything unusual, they were not asked to have perfection, recognizing they were not Swiss craftsmen, but they were expected to do a good job. And their morale was sky high, the work they were turning out was better than normal.
And what was the reaction of the Department, what was the reaction of the bureau? Ed was criticized, severe criticism by his peers, the other ambassadors in Africa and by people in the AF bureau. Because he was rocking the boat. First of all, numbers of reports. He only had half the FSNs that the other posts had or that he had had in Dar himself. And no one likes to see these numbers when congressmen come on a visit or something.
But what was interesting to me was not only what he did and accomplished, but the fact that the rest of the bureau was opposed to it, because he was setting a standard they were going to find hard to meet with the quality of FSNs that they have.
“The goddamned person was chained to the wall”
Q: One of the things people say is that in order to get something done, everybody pays somebody off, and that’s just a way of life. How did you deal with this attitude?
FUNK: Nobody put a gun to anybody’s back and said you must work for the American embassy. They came to the embassy because initially in those days — not any longer — we were paying better salaries than most, and to be sure, there was some training that was available. Now, dollars are preventing it, but they were getting travel. For an FSN coming out of a village in Uganda, outside of Kampala, all of a sudden he would be flown to Paris for a training session, and that was heady things for an FSN.
There was no reason that part of that training could not include the tacit understanding by them and by us that, by God, I’m going to be honest, and that if they were not honest, we were going to crack down hard. Don’t say it can’t be done because it can be done….
In Mali we had an FSN that stole $12,000, a cashier. It was so bad that nobody knew what was going on until … a junior consular officer started asking questions, and it turned out that $12,000 was gone.
So I got a frantic call to send somebody out, and two of my investigators went out and found out in one day who it was and told the police in Bamako, the capital, and the person was arrested.
The next day they went to visit the jail and the goddamned person was chained to the wall, arms and legs chained to the wall.
So my investigators had a fit. This is something you can’t do, this person was an American employee still. And they remonstrated with the police, and they put the person back in a regular cell.
But they also made it very plain that unless the money was returned, this person was going to jail. The only jail in Mali is a salt mine below Timbuktu, which is notoriously harsh and bad. The next morning the $12,000 was returned to the embassy…..
What I tried to do was say that we stand for something. The goddamned flag outside your embassy or consulate stands for something, and one of the things it stands for is honesty. And that once we let this thing go, and our people are corrupt, the line between FSN and FSO [Foreign Service officer] is going to be more and more abridged. We don’t want that to happen.
“We had pictures of the guy looking around, taking a passport out of his pants, stamp it, and put it back in his pants”
Q: Could you talk about fraud and corruption in consular operations?
FUNK: Ironically, the largest amount of money that we were aware of was not coming in Africa. It was coming in the Near East, and in the Far East, to a lesser extent Latin America.
In Tel Aviv, by the way, we got tipped off by the Israelis about a major ring that was giving visas. In some cases passports, a few cases, but mostly visas. So I sent two people over to investigate it, and as covers had them working in the embassy. I didn’t want it to get out that they were working for the consular people. We said we were looking at warehouse fraud. And we put cameras in the ceiling over the consular FSN section. The ambassador, of course, knew about it, and the security officer, but nobody else.
We put cameras in there, we tapped the phones, and this is very sensitive because tapping a phone on an outgoing line gets extremely sensitive. So we worked out a deal that one of the political officers would review the telephone conversations before we would. We don’t want to get involved in some matters of policy, they are not on the secure lines, of course, but the other regular lines. And we had two Israeli detectives fluent in Hebrew to work with us….
We found seven FSNs in Tel Aviv who were on the take — seven. One Christian, one Arab, and the rest Israelis, I guess. We took pictures, we had pictures of the guy looking around, taking a passport out of his pants, stamp it, and put it back in his pants, this kind of thing.
I recommended disciplinary action against the consular officers, particularly the ones who were literally outside this room and would give a stamping machine to the FSNs whenever they asked for it. Never made any cross-check.
There are some basic checks you can make on a visa machine stamp. And the Consular Affairs [CA] bureau had a fit when we did that, because the person otherwise had a good record, although the Consul General came down and agreed with us completely….
In Manila we felt it was like putting a finger in a dike. The numbers were so overwhelming, and the graft was extremely high. We found that there were — I forget the exact number, hair-raising — there were over 300 people who, according to the record, were in excess of 110 years of age, getting Social Security. And we put in a special program and made everybody come to Manila to pick up their check, or if they couldn’t they had to send a written explanation why they couldn’t.
And about three-quarters of the people who were getting checks stopped immediately, rather than come in, they just stopped it. This went on, by the way, for years. Again, nobody questioned it.….
“We arranged to bug the place. We had carpenters, we had everything. We did it beautifully.”
In Korea we had the case of the largest ring we’d ever come across in the States. A former fraud investigator from the consular FSN, another consular FSN, came to the States, and they worked as runners for a ring which charged $5,000 a visa, and it was paid in advance to somebody in the States. The money would go back to the people running it…. Somebody would get $500 out of the $1,000, sometimes they’d get $1,000. We never found a case more egregious than that.
The money would be brought back personally by guys who traveled back to Seoul and the States. We got tipped off about it, where we find most of our stuff, by an angry native. They complained to the embassy, and the embassy told us, and we found one of the individuals, led us to other individuals.
I had, oh God, a huge amount of my investigative staff working on this thing. And we finally, by judicious overhearing of conversations, we found out where they were having a meeting to get a whole bunch of money from people, Koreans, outside Charleston, South Carolina.
We arranged to bug the place. We had carpenters, we had everything. We did it beautifully. They came in with a big pile of money from a lot of applicant visa families, usually relatives in the States, of course, and we got the whole thing on tape. We busted them, the cooperative informants were there. We made believe this person was not an informant so they wouldn’t be suspicious. We broke the ring, including a number of American lawyers involved who handled the legal work for them, travel agents. It was a big operation….
Q: How did you find consular affairs attitude towards fraud, and management?
FUNK: It varied. I have to tell you that most of the consular officers that we work with are: 1) overburdened; 2) a little bitter — that comes back against the State Department; 3) they were envious of some of the other people in the mission; and 4) totally honest. Hardworking.
To me, it’s a never-ending miracle that so many people are honest, and we basically make good decisions under the gun. It’s an obsolete system hammered by the Immigration Nationality Act of 1990, which is flawed in many ways. INS [Immigration and Naturalization Service, now Immigration and Customs Enforcement, ICE] is probably the most inept agency in the federal government, and the fact that we are so totally dependent upon INS in many ways is a major problem. That’s at a higher level than most people experience in the field.