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Federal Investigation Targets on U.S. Customs Auctions

June 20, 1989

BEAUMONT, Texas (AP) _ The federal government is losing millions of dollars in auctioning drug planes, speedboats and other seized property that it got for free, apparently because of fraud and waste, according to several reports.

The probe centers on allegations that Northrop Worldwide Aircraft Services Inc. ripped off auction profits through bill padding and fraud, NBC News reported Monday evening.

The Crescent City, Calif.-based company has a contract with the U.S. Customs Service to recover, maintain and sell seized or forfeited personal property, usually through auctions.

U.S. Attorney Bob Wortham is presenting his findings to a federal grand jury here, the Beaumont Enterprise reported.

Wortham said the Department of Justice prohibited him from discussing any investigation.

Northrop spokesman Tony Canpafio said the company is working with the government in the investigation.

″We’ve been subpoenaed and we’ve provided documents,″ Canpafio said.

First word on the investigation came out in April at hearing before a U.S. House Ways and Means Committee subcommittee chaired by Rep. J.J. Pickle, D- Texas.

Pickle said lax accounting controls account for the loss of millions of dollars at Customs auctions. In fiscal 1988, Customs agents made more than 53,000 property seizures with a domestic value of about $1.1 billion.

The investigation began after area banker George Talbert complained of fees charged by Northrop to sell a vehicle seized in a drug-related arrest in Lumberton, Texas, in 1987.

The bank had a lien of $4,700 to $5,000 on the Chevrolet Suburban, Talbert said. Talbert said Customs offered to buy the car for $4,500, but later told him it would be auctioned and that any money left after expenses would go to the bank.

Customs estimated the vehicle’s value at about $8,500. Northrop auctioned it in Houston for $4,300, and charged $700 to tow the vehicle 90 miles to the auction and a $1,400 commission. The bank was left with about $1,900.

″I was mad,″ Talbert said. ″I wrote to the company, asking for a detailed statement of their expenses. I anticipated that it should cost about $500. But since it was the government, I figured it would probably cost about $1,000. When I found out it was over $2,000, I was livid.″

Talbert also wrote Wortham. After Wortham’s office investigated the sale, the company sent the bank an additional $1,000, he said.

″I was startled to see it set off something big like this,″ Talbert said.

The investigation widened in January when Wortham served a search warrant on Northrop offices at its Lawton, Okla., offices to obtain transcripts on all Customs auctions for the past three years.

In affidavits, Customs agents said Northrop employees contended the company had a practice of billing Customs for maintaining and storing seized property for as long as three months after Northrop had disposed of the property.

Agents also reported Northrop withheld information stored in a computer when agents served a subpoena requesting all records concerning the company’s Customs contract.

Customs Commissioner William von Raab, however, said Customs loses money on its auctions because Customs warehouses store a lot more than just fancy cars and boats.

″When you lump all of our forfeitures together including ... fruit that doesn’t meet FDA (Food and Drug Administration) rules or blue jeans that violate a quota or mismark, then we don’t make a profit,″ he said.

But some in Congress say there is no excuse for Customs to lose money on its auctions, especially when the seized property is acquired at no cost.

″Either the auctions are rigged or else they’re being very poorly run,″ said Rep. Richard Schulze, R-Pa.

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