By Carol D. Leonnig and Allan Lengel
Washington Post Staff Writers
Thursday, November 22, 2007

Harriette Walters, the former city worker accused of masterminding the largest theft in the D.C. government's history, is seeking to negotiate a guilty plea over the next 30 days, according to statements in court and sources close to the case.

Walters's attorney told a judge yesterday that his client needed time to have "ongoing discussions" with prosecutors about her alleged role in the theft of $20 million or more from city coffers. The government had faced a Dec. 8 court-imposed deadline to bring an indictment against Walters, a required step if prosecutors take the case to trial. But Walters agreed to let them postpone a decision until Dec. 20, and sources said they will discuss the possibility of a plea agreement in the meantime.

Terms of such a deal remain unclear, according to the sources, who spoke on the condition of anonymity because of the sensitivity of the investigation. For Walters, a guilty plea could mean a reduced prison term. For prosecutors, it could speed their search for the missing taxpayer money.

Hoping to track some of those proceeds, the FBI raided two homes in the U.S. Virgin Islands yesterday that authorities said are owned by Walters's relatives. Both are on St. Thomas. One is owned by Walters's brother Richard Walters, who is among those facing criminal charges, and the other by her sister Cecilia Walters Smith, authorities said.

Richard Walters, whose principal residence is in Bowie, declined to comment last night. His St. Thomas property is on the northwestern side of the island near Caret Bay, an area popular with vacationers for its scenic views. Cecilia Walters Smith, who is not charged in the case, could not be located for comment.

Six people have been arrested in a scam that prosecutors say relied on illegal property tax refunds. Harriette Walters, 51, a mid-level manager in the city's Office of Tax and Revenue, is accused of signing off on six-figure refund checks to sham companies and then using the proceeds to enrich herself and others. Authorities have said the scam began at least seven years ago.

Walters has been jailed since her arrest Nov. 7. In court papers, prosecutors described her as a flight risk and noted that she has "strong ties" to the Virgin Islands. They also said that she "used her vast supply of illicit resources" to enlist the support of family, friends and co-workers who might want to help her flee.

Under federal sentencing guidelines, Walters could face 12 to 17 years in prison if convicted of fraud, theft and conspiracy charges. Soon after her arrest, authorities said, she provided a handwritten statement to the FBI that prosecutors have described as a confession.

The FBI raided Walters's Northwest Washington home on the day of her arrest, along with her brother's residence in Bowie and other properties tied to the suspects. Agents said they found jewelry, designer handbags, high-fashion clothing and other items at Walters's house, including a mink coat.

Investigators are trying to recover money in the United States and in several Caribbean communities. Authorities are concerned that they have been able to trace only $4.5 million of the stolen funds to bank accounts so far, and yesterday Assistant U.S. Attorney Timothy Lynch reiterated the government's belief that Walters and her accused conspirators might have parked some of the stolen funds in offshore accounts or used it to buy property abroad.

Authorities also have expressed concern that Walters, who made trips to casinos in Las Vegas and Atlantic City, might have gambled away a share of the money.

Walters's defense attorney, Steven Tabackman, and Lynch appeared at a brief hearing yesterday in U.S. District Court. Tabackman told the court that the government had proposed a longer period to discuss his client's position, but Walters was willing at this point to consider negotiations with the prosecutors only over the next month. Afterward, they declined to comment on possible plea negotiations.

Prosecutors have said in court papers that the evidence against Walters is "overwhelming." If so, some veteran defense lawyers said it might be advisable for Walters to consider pleading guilty sooner rather than later.

An FBI affidavit shows that each of the 42 fraudulent tax refunds examined by investigators was approved by Walters, who was head of the assessment adjustment unit in the D.C. Office of Tax and Revenue. She oversaw the other D.C. government employee charged in the case, tax specialist Diane Gustus.

Several checks were held for pickup by Walters, and nearly all ended up being deposited in bank accounts of sham companies controlled by Walters's relatives, authorities have said. The FBI also has said that agents found paperwork in Walters's home and D.C. office that linked her to the scam, including checks for one of the sham companies.

Authorities have detailed bank and department store records showing how Walters's spending far outpaced what she could have earned legitimately. She had an annual salary of $81,000, and from 2001 to 2007, she deposited $8 million in her checking account and spent $1.4 million at Neiman Marcus.

"When a case against a defendant is very strong, it's a good idea for someone to plead early and take responsibility, and that will be looked upon favorably by the judge at sentencing," said Randall Eliason, a former chief overseeing public corruption prosecutions in the U.S. attorney's office. "It makes more sense to come in early if the case against you is really compelling."

Staff writer Yolanda Woodlee and staff researchers Meg Smith and Madonna Lebling contributed to this report.