Contract Procurement Corruption: Minority and Women-Owned Business Fraud and Pass-Through Schemes 1996-2010
By: Paris Tsangaris
Edited and published within the University of Illinois-Chicago Anti-Corruption Report entitled "Patronage, Cronyism and Criminality within Chicago Government Agencies" on February 14, 2011. The entire 82 page report can be found using the link below.
Since 1985 the city of Chicago has maintained an affirmative action construction program dedicated to Minority-owned Businesses Enterprises (MBE) and Woman-owned Businesses Enterprises (WBE) with a stated mission to “remedy ongoing discrimination and the effects of past discrimination against women and minority groups, so as not to be a passive participant in such discrimination"[1] The program’s goal is to set aside roughly 24% of city’s construction contracts for MBEs and another 4% for WBEs. Unfortunately, the 28% of Chicago’s roughly $1.4B construction budget has become a target for corrupt and fraudulent contractors eager to qualify for the set-aside contracts.
Contract procurement corruption was uncovered during Operation Silver Shovel, one of the deepest and most extensive corruption investigations in Chicago’s history. Upon the completion of the operation, 18 individuals were convicted on corruption charges, including six former aldermen, the former Chicago Water Commissioner, the former President of the Metropolitan Water Reclamation district, and two city inspectors.[2] The investigation exposed a scheme perpetrated by a city commissioner to place a sham MBE on the city’s snow removal work list in exchange for cash bribes. It also exposed an alderman’s acceptance of $10,000 in campaign contributions from deceased persons in exchange for fictitious MBE snow removal contractor status for an undercover agent’s business. The undercover agent also received by way of bribes Woman-Owned status for his businessl. Operation Silver Shovel successfully revealed a plethora of corruption; including labor union corruption, drug trafficking and organized crime activity within Chicago city government.
Chicagoans essentially pay a “contract corruption tax” as a direct result of the lack of competition and misallocation of city resources. The costs of fraud and inefficiency are passed on to the taxpayers. A large source of contract fraud was perpetrated by a single family- the Duffs. The Duff family and their employees defrauded the Chicago City Government to qualify for over one hundred million dollars in MBE and WBE set-aside business.[3] The head of the Duff family, James M. Duff, used his elderly mother Patricia Green Duff to create a sham WBE front by claiming that his mother owned and controlled at least 51% of Windy City Maintenance. He also convinced an African American employee to pose as the majority owner and controller of Remedial Environment Manpower. His indictment brought 33 charges against him and he plead guilty to each count earning him a ten year prison sentence and the obligation to repay $22 million in fines and restitution for defrauding Chicago by illegally taking contracts meant for minorities and women.[4]
Evidence shows that the Duff family members have monetarily supported the campaigns of Richard M. Daley. Duff family members, family businesses, and the union which the family controls contributed roughly $32,000 to Daley's campaigns.[5] It has also been alleged that once elected to office in 1989 Mayor Richard M. Daley instructed a top aide to ensure the Duffs receive a city contract. Shortly after winning the election the Mayor’s Office of Special Events awarded Windy City Maintenance a no-bid contract to clean up after the Taste of Chicago, a duty which earns the firm an additional $500K of revenue.[6] Additional evidence of Daley-Duff collusion was brought forward by Bruce DuMont, president of the Museum of Broadcast Communications, who told the Tribune that Daley personally instructed DuMont's wife, then a top City Hall staffer, to make sure that the Duffs received a share of city work.[7]
The profit potential of MBE/WBE set-aside business is so lucrative that even Ronald Harper former Chicago Bear fullback and President of Rohar Trucking could not resist the temptation of free money to run a front business. Harper’s MBE trucking firm was used by Aidan Monahan the President of Castle Construction to fraudulently obtain and sub-contract MBE contracts. Monahan used Harper’s firm to obtain MBE Chicago Public school landscape contracts, then instructed his firm to entirely and independently perform the work, rather than sub-contracting a minimum of 50% of the work to Harper’s MBE Rohar Trucking to satisfy the conditions of the contract. Both Harper and Monahan plead guilty to mail fraud. Collins Maintenance allegedly owned and operated by Monahan’s girlfriend voluntarily disbarred itself from participating in CPS contract bidding for 20 months.
The most recent major investigation involving federal authorities and corruption within Chicago’s MBE/WBE set-aside program involves Azteca Supply Co the largest female-owned WBE subcontractor on Mayor Daley’s multibillion-dollar O’Hare Modernization Project. Federal authorities claim that Aurora Venegas, President of Azteca Supply falsely represented to the City of Chicago that she performed a commercially useful function with regard to contracted work. It is alleged that Azteca Supply Co, a certified minority- and woman-owned business hired to preform contracting work on runway and restroom projects at O’Hare, operated empty warehouses and illegally subcontracted to firms owned by white men. Gery Chico played a key role in perpetuating the city’s certification of Azteca as an MBE, WBE, as well as a DBE (Disadvantaged Business Enterprise). Chico’s involvement is ironic due to the fact that while Gery served as former CPS School Board President, he was credited with blowing the whistle on Tru-Lite Windows for setting up a sham MBE by the name of Quality Windows to obtain school maintenance contracts[8]. According to lobbyist reports Chico filed, his firm received $10,000 from Azteca Supply Co, to continually urge city officials to renew all three MBE, WBE, and DBE certifications; qualities which make Azteca a very popular contractor and sub-contractor.
[2]USA. FBI.Operation Silver Shovel.FBI.Web. Jan. 2010. <http://chicago.fbi.gov/silvershovel/silvershovel.htm>;.
[3]O'Connor, Matt, and Ray GIbson. "Duff Pleads Guilty--for 3 Hours." Chicago Tribune 11 Jan. 2005. Print.
[4]Korecki, Natasha. "Duff Gets Nearly 10 Years in Prison Minority-contract Scam Based on 'pure Greed': Judge." Chicago Sun-Times 19 May 2005. Print.
[5]O'Connor, Matt, Ray Gibson, and Laurie Cohen. "Duff Told Mom to Lie, U.S. Says." Chicago Tribune 23 Nov. 2004. Print.
[6]Tuohy, John W. "Cleaning Up With The Duffs." American Mafia. Sept. 2001. Web.<http://www.americanmafia.com/Feature_Articles_157.html>;.
[8]Hepp, Rick. "Chico Accuses Alsip Company Of Fraud In Minority Schools Contract." Tribune [Chicago] 25 Apr. 2000. Print.
