Mellon Bank & IRS Settle for 2001 Crime
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In addition to the agreement with the U.S. Attorney for the Western District of Pennsylvania, Mellon Bank, a unit of Mellon Financial Corp., also agreed to third party oversight in order to monitor compliance. There will be no fines and if the Bank complied with the agreement, the U.S Attorney agreed not to prosecute, according to Reuters.
In spring 2001, when numerous regional taxpayers reported that their tax payment checks had not cleared to their banks, postal and Treasury officials began investigating the situation. Their investigation lead to Mellon’s Downtown processing center.
Mellon had been processing returns at the facility since 1993, but it was closed after the scandal was exposed. Mellon was paid $7 million between 1998 and the closure of the Downtown Center. The year 2001 was “a contract renewal year" for Mellon, Assistant U.S. Attorney Margaret Picking, told the Pittsburgh Tribune-Review. The Pittsburgh Tribune-Review quotes Pickering as saying “(Workers) were under pressure to meet the deadline or they would lose their jobs...and that’s what ultimately led to the crime, in our eyes."
A former supervisor of the IRS processing unit, Brian Metzer, pled guilty to theft of government property in January 2006, according the Pittsburgh Tribune-Review. Two other charges were dropped in exchange for Metzer’s cooperation with probe investigators.
The crime occurred on April 26, 2001, when workers began moving trays containing 700 to 900 unopened tax returns to a storage vault on a lower floor from their processing center on the sixth floor. The Pittsburgh Tribune-Review reports that when they ran out of room to hide these tax returns, Lynn Kling, a manager, directed tax returns and checks to be stuffed into black bags and moved to the building loading dock for disposal.
Another manager, Denise Philpot, directed workers to go to a local grocery store to buy more black bags, according to the Pittsburgh Tribune-Review. Usually some 200 temporary workers were employed at the processing center, but the bank only deployed 60 to 70 workers, following a corporate efficiency initiative.
Defense attorney Jim Ross told the Pittsburgh Tribune-Review, “it was directed by his supervisor,” referring to Metzer. Six other former Mellon employees are awaiting trial for conspiracy to commit fraud.
Ken Herz, Mellon spokesman, told the Pittsburgh Tribune-Review, that this was “a regrettable event caused by a few former employees who blatantly violated Mellon’s long-established, clearly stated policies. No taxpayers were harmed.” Herz added there was no “evidence of check fraud or identification theft.”
The initial IRS response to taxpayers was to impose interest penalties for paying late, even though some payments were sent registered mail. The penalties were later removed. Initially, the number of tax returns reported destroyed were at least 40,000 and payments totaling some $810 million, according to the Pittsburgh Post-Gazette.