Airlie Foundation Director Murdock Head ordered his employes to set up a secret system of phony expense vouchers, backdated leases and other falsified financial records as part of an alleged bribery and tax-evasion scheme, a former Airlie accountant testified yesterday.
The alleged financial manipulations -- including tens of thousands of dollars of "double billing," "fictitious travel vouchers" and other improper maneuvers -- were described by the accountant, Norvel James, on the opening day of Head's trial.
Prosecutors allege that part of the cash yielded by this financial juggling was used to pay bribes to members of Congress and others.
Dr. Head, 55, on trial before a federal jury in U.S. District Court in Alexandria, is charged with conspiring to arrange bribes to Rep. Daniel J. Flood (D-Pa.), former Flood aide Stephen B. Elko, former representative Otto E. Passman and a now-retired Internal Revenue Service agent.
The payments allegedly were in exchange for their help in securing federal grants, contracts and favorable tax treatment for his Warrenton, Va., foundation and other ventures.
James, who said he was hired by Head in 1969 and worked for the foundation and its film-making operations for eight years, was among the first witnesses called by the prosecution. James testified that he had been told by another high-ranking associate of Head that he should never tell anyone -- "not even my wife," he said -- about the existence of the alleged slush fund.
The secret fund was created, James testified, mainly by preparing duplicate or phony expense vouchers, drafted to resemble payments owed to motion picture film crews. The film crews, however, had already been fully reimbursed for their expenses, James said, and the duplicate vouchers were used to provide a cash fund for Head.
"My personal knowledge is that the money went to Dr. Head because (Charles E.) Francis told me it did," James said.
Francis is the former president of Raven's Hollow, a film-making company linked with Airlie Foundation. Airlie is a tax-exempt institution, but Raven's Hollow is not.
Although Francis has not yet appeared as a witness at Head's trial, he testified during the first bribery trial of Rep. Flood last February that he had turned over to Head about $60,000 in cash from the alleged phony voucher system. Flood's trial ended in a hung jury and his second trial has not yet begun.
James, dressed in a blue short-sleeved shirt, and testifying in a calm, matter-of-fact voice, recounted a wide array of allegedly improper financial practices that he said took place at Raven's Hollow as well as at Airlie's own film production subsidiary, Airlie Productions.
At one point, James said, Head gave him a Christmas bonus that entailed a kickback. The bonus was charged to Raven's Hollow as a $3,375 expense for tax purposes, he said. Of this amount, however, James said he only received $500 in cash and an agreement that Head would pay James' additional personal income taxes incurred because of the bonus. The remainder, James said, was kicked back to Head.
This and many other financial maneuvers -- ranging from backdating leases for land and airplanes to listing other employes' Christmas bonuses in improper fiscal years -- were designed, according to James' testimony, to offset Raven's Hollow's profits and to reduce or eliminate its tax liabilities.
Under occasionally harsh cross-examination by Brian P. Gettings, one of Head's lawyers, James acknowledged that he never witnessed any cash being turned over to Head, although he said he once left some money on Head's desk. Francis told him "never to do it again," James noted.
At one point, Gettings bluntly accused James of having stolen some of the money obtained through financial manipulations and having put it "into your pocket." James sat bolt upright, blurted out "absolutely not," and offered to take a polygraph test to prove his truthfulness.
As had been expected, Judge Oren R. Lewis, a controversial, colorful and often cantankerous 76-year-old jurist, is presiding over the trial. Prosecutors had previously urged an appellate court to remove Lewis as the presiding judge, contending that he had displayed apparent bias against the prosecution. But the appeals court rebuffed their move.
Lewis frequently interrupted and reprimanded both the prosecutors and Head's lawyers throughout the day. "Let's quit this foolishness. I have ruled. "Let's quit this filibustering," he told one prosecutor pointedly.
A jury of seven men and five women was quickly selected during the morning. Two of the jurors, both men, are black and 10 are white. Most of the jurors are middle-aged, with all but one over 35, the 12th is 28.
A number of the jurors appear to hold highly skilled and responsible jobs, including an electronics engineer, sales manager, computer system administrator and a Xerox Corp. administrator.
About 15 of the 40 prospective panelists -- the group from which the jury was selected -- told Judge Lewis that they had read or heard something about the case. Nevertheless, only one prospective juror was excused by Lewis. That juror expressed the belief that he could not remain impartial because of what he knew from news accounts about the trial. One of Head's lawyers later expressed concern about the possible impact of news reports on the jurors.
In their opening statements, the prosecution acknowledged that much of the government's evidence against Head was "circumstantial." Head's lawyers indicated that they would level their main attack against Elko, the former Flood aide expected to be a key prosecution witness.
Elko has previously recounted a series of incidents in which Head allegedly passed on bribes for Flood and Passman.
Mr. Elko is what this case is all about," Gettings, Head's lawyer, told the jury. He said Head had gradually come to regard Elko as either crazy or dangerous. "If you believe Stephen Elko, convict my client," Gettings told the jury. "If you disbelieve him, acquit him."