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Scam Could Total $31 Million

Assistant U.S. Attorney Timothy Lynch, left, and defense attorney Peter R. Zeidenberg flank defendant Harriette Walters. (Sketch By William J Hennessy Jr. For The Washington Post)

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By Dan Keating and Carol D. Leonnig
Washington Post Staff Writers
Wednesday, November 14, 2007

A Washington Post analysis of city records has found a total of $31.7 million in questionable property tax refunds dating back seven years -- including $346,700 to one fictitious company named "Bilkemor LLC."

The Post identified 92 payments to companies that prosecutors have identified as dummy corporations, for properties that have no connection to the firms receiving the checks. The analysis comes as federal prosecutors do their own review in the biggest corruption case in local government history.

Federal authorities initially said the D.C. Office of Tax and Revenue had lost more than $16 million in a brazen refund scam orchestrated by a mid-level manager. They later upped the figure to $20 million and warned that the damage could be even higher as their investigation continues. Yesterday, law enforcement sources confirmed that taxpayer losses could reach $30 million or more.

The Post's analysis showed that the volume and pace of suspicious activity at the D.C. Office of Tax and Revenue reached its peak in the past three years. Of all real estate tax refunds issued in that span, about half appeared suspicious.

And of the $37 million refunded from the start of 2005 to July 2007, the dubious checks total more than $19 million.

Harriette Walters, the former manager in charge of property tax refunds, was arrested Nov. 7 and is charged with signing off on payments to sham companies controlled by family members and others who were in on the scheme. Six people have been charged, including tax employee Diane Gustus, one of several city workers who prepared or handled paperwork leading to the checks.

So far, prosecutors have publicly accused Walters and others of conspiring to fabricate 58 fraudulent refund checks, amounting to $20 million, and then using the sham companies to steer money to themselves. In court papers yesterday, prosecutors said that Walters has "confessed" to the activities and that she "approved each and every fraudulent voucher."

Prosecutors made the assertions at a hearing in U.S. District Court as they argued that Walters, 51, should remain jailed without bond. They stressed that they have been able to track down only $6.5 million in bank accounts, cars and homes, and said that Walters has refused to help them locate any more stolen funds.

Fleeing "would be almost irresistible for her not to try under the circumstances here," Assistant U.S. Attorney Timothy Lynch argued. He cited the amount of money still unaccounted for, Walters's beachside property in St. Thomas, and the lengthy prison sentence she faces if convicted.

Walters watched as her attorney, Peter R. Zeidenberg, scoffed at suggestions that she may have millions at her disposal. All her assets have been frozen by authorities, Zeidenberg said.

Magistrate Judge Alan Kay ordered that Walters remain in jail.

Federal authorities have said that the illegal refund checks approved by Walters averaged about $380,000, and The Post's examination of D.C. tax records uncovered numerous examples of additional payments in that range.


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