Holder's Next Headache

Still reeling from the about-face on terror trials, Attorney General Eric Holder is now facing internal fire for failing to tackle public corruption.

Still reeling from the about-face on terror trials, Attorney General Eric Holder is now facing internal fire for failing to tackle public corruption—officials tell Philip Shenon that important cases have completely stalled during his debacle-filled tenure.

Corrupt politicians in Washington, take heart.

The headlines are full of stories alleging criminal wrongdoing by members of Congress and other high-profile federal officials—Senator John Ensign of Nevada, Representative Charles Rangel of New York, most prominently.

But there’s no indication the Justice Department is doing much to put any of them behind bars anytime soon.

“Public Integrity is in total disarray,” said Melanie Sloan, a former Justice Department prosecutor.

In fact, current and former department officials fear the department under Attorney General Eric Holder is mostly out of the business—at least for now—of bringing criminal charges against corrupt federal lawmakers and other powerful government officials in Washington.

These officials tell The Daily Beast that several important cases before the department’s 30-lawyer Public Integrity section have stalled, if not died outright, in part as a result of last year’s debacle in the corruption case against former Republican Senator Ted Stevens of Alaska.

His conviction—for violating ethics laws by failing to report expensive gifts from friends—was overturned last April amid allegations of misconduct by Public Integrity lawyers during the Bush administration. The prosecutors have denied wrongdoing but remain under investigation over charges that they withheld evidence from the senator’s lawyers and lied to a judge.

“Public Integrity is in total disarray,” said Melanie Sloan, a former career prosecutor at the Justice Department who now runs Citizens for Responsibility and Ethics in Washington, a corruption-watchdog group. “The section is rudderless. There are a couple of good people left, but they don’t have any guidance.”

Barbara Van Gelder, a prominent white-collar defense lawyer who has repeatedly gone up against the Public Integrity section, said the Stevens case was a “Chilean-like seismic event” for the anti-corruption unit.

“The aftershocks are still being felt,” said Van Gelder, another former career federal prosecutor. “That may be why we haven’t seen any big indictments for a while.”

In the 11 months since the Stevens case collapsed, the Public Integrity section has not brought a single corruption indictment against a nationally known politician or prominent federal official.

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And while the unit’s prosecutors have pursued criminal investigations in several state and local cases, department officials acknowledge that no high-profile indictment of any official in Washington is imminent.

The situation is yet another public-relations headache for Holder, who is already under fire from Democrats and Republicans alike for his apparent flip-flopping on where to try terror suspects—in civilian courts or military tribunals. The White House appears on the verge of overruling Holder’s original plan to try a group of alleged 9/11 plotters in a civilian court in Manhattan.

The attorney general came under fresh attack from G.O.P. lawmakers last week with the disclosure that he did not provide senators who voted on his confirmation last year with several legal briefs that he signed in contentious cases before the Supreme Court, including a landmark terrorism case.

Holder began his career at the Justice Department in the 1970’s as a prosecutor in the Public Integrity section. On becoming attorney general, Holder pledged to make a priority of public corruption cases; that may help explain why his aides are pushing back hard against any suggestion of turmoil among the department’s corruption prosecutors.

In an interview with The Daily Beast, Assistant Attorney General Lanny Breuer, who leads the department’s criminal division, said that Public Integrity lawyers were deep into several important corruption investigations that cannot now be discussed publicly.

The unit is “working on a lot of cases and they are using aggressive techniques,” he said. “Pound for pound, these lawyers are terrific. They aren’t reeling. Not at all. If this was a section in turmoil, people wouldn’t be fighting to get in to work there.”

He acknowledged the Stevens case was “a galvanizing experience, a learning experience” for the department. But he denied that it had hindered the Public Integrity unit in pursuing new investigations—probes that in the past have often have taken years to bear fruit in the form of indictments.

“I’m exceedingly proud of what we’ve accomplished,” he said. “There’s no doom and gloom.”

Breuer and his colleagues are up against the perception in the criminal defense bar and among a number of federal judges that the Stevens case proved there was disarray—and even dishonesty—among the department’s top corruption prosecutors.

In January, the department quietly dropped what had been one of its most high-profile corruption investigations—a four-year criminal probe of a powerful member of the House Appropriations Committee, Representative Alan B. Mollohan.

The West Virginia Democrat had been under investigation over the propriety of hundreds of millions of dollars in federal earmarks funneled to organizations run by friends who were his business partners and campaign contributors. Mollohan portrayed the end of the inquiry as an exoneration and is seeking his 15th term in the House in the November elections.

Last Thursday, a federal magistrate in Arizona dealt a serious blow to Public Integrity’s two-year-old corruption case against a former House Republican, Rick Renzi.

The magistrate ruled that the department had illegally recorded phone calls between Renzi and his lawyers and recommended that the recordings be barred from use as trial evidence.

The section is reportedly involved in the criminal investigation of Senator John Ensign over allegations that he steered lobbying work to an embittered former aide who happened to be the husband of the senator’s one-time mistress. But legal watchdog groups say the department has been painfully slow to catch up with months-old news reports on the Ensign scandal. (The Justice Department will not confirm that it is investigating Ensign).

There appeared to be some rare good news for the Public Integrity section last week with the announcement of its new permanent director, Jack Smith, a respected federal prosecutor from New York who had recently worked on war-crimes cases at the International Criminal Court in The Hague.

The section has been without a permanent leader since last fall, when William Welch II stepped down in the wake of the Stevens mess. Welch was among the lawyers facing a court-ordered investigation of the bungling of the senator’s trial. Department officials would not say at the time if Welch’s departure was directly related to the Stevens case. Welch has said he observed “the department’s highest ethical standards” in his work on the trial.

Several Washington lawyers who are veterans of the Public Integrity section said the unit retained a number of talented prosecutors and that there was optimism within the department that the unit would overcome the taint created by the Stevens case.

“I talk to a few people over there, and people are upset about what’s happened in Stevens,” said Andrew C. Lourie, a former chief of the section. “Do people wish it hadn’t happened? Yes. But on a day to day basis, morale is not so bad.”

The challenges keep coming, though. The work of Public Integrity prosecutors is expected to be hindered, possibly severely, when the Supreme Court rules this year on the constitutionality of an anti-corruption law that has long been a favorite tool for federal prosecutors.

In oral arguments, the justices strongly suggested they would overturn the law, which makes it a crime for an official to deprive the public of “honest services,” even if there is no proof of a bribe or other payoff.

Peter Zeidenberg, a former Public Integrity trial lawyer, said he thought the Justice Department would need to rethink the way it prosecutes public officials if the law is overturned, as expected.

He said the Public Integrity section had relied on the law in obtaining many of its most important convictions. “If you look through Public Integrity indictments, honest-services fraud is part and parcel of most cases,” he said.

Another veteran of the Public Integrity section, speaking on condition that he not be identified because he has several cases pending before the Justice Department, put it bluntly.

“If that law is overturned, half of the investigations at Public Integrity evaporate overnight,” he said. “Forget the Ted Stevens nightmare. It’s the United States Supreme Court that could put Public Integrity out of business.”

Philip Shenon, a former investigative reporter at The New York Times, is the author of The Commission: The Uncensored History of the 9/11 Investigation.