Organized crime figures are collecting millions of dollars a year from corrupt and fraudulent operations of union pension and benefit funds, according to testimony yesterday before the Senate permanent subcommittee on investigations.
The subcommittee has been involved in a long-term investigation of the Hotel and Restaurant Employes and Bartenders International Union, particularly the dental plan for the union's locals in Las Vegas and Atlantic City.
But law enforcement officials and subcommittee investigators testified yesterday that the problem extends to other unions and that they believe it involves medical, dental, legal and other prepaid benefit plans.
Dennis G. Cook, who works in Las Vegas for the Labor Department's Organized Crime and Racketeering Section, has been involved since December, 1981, in an investigation of union dental plans in the western United States.
Cook testified that he has found a "widespread pattern of fraudulently operated prepaid dental plans established by a relatively small number of individuals operating through numerous corporate names. Many of these individuals . . . have documented associations with recognized organized crime figures across the nation."
He said it would be wrong to assume that all prepaid union benefit plans are "corrupt," but added, "The potential to corrupt these prepaid plans is limited only by the imagination and innovation of the criminal mind. And the evidence is that these limits have been widely and extensively stretched."
Cook said a scheme generally works through rigged bids and that the money is diverted to organized crime in several ways, ranging from kickbacks and false contracts to exhorbitant administrative charges for work never performed.
In addition, Cook said that corrupt union officials often keep union members "unaware of changes in their benefits" so that they do not take advantage of them.
Howard Shapiro, a subcommittee investigator, said that overhead costs for the Hotel and Restaurant Workers Atlantic City Local 54 plan in 1982 amounted to 45 percent of the fund's $1.5 million, compared with normal administrative costs of no more than 10 percent.
"It is very clear this plan is tailor made to generate funds for organized crime," he testified.
Barbara Cart, another subcommittee investigator, discussed the union's Las Vegas Local 226 and the administrator of its plan, Nevada Health Services Inc.
She said that dentists received only 57 percent of the money contributed by employers on behalf of the local's 26,000 members. Nevada Health Services, which "has no employes," received a fee of $228,000 a month but spent only 3 percent of it for administrative costs, she testified.
Las Vegas police detective Bill Wilson said that "There is no doubt that Local 226 . . . has been highly influenced by organized criminal activity."
He said that Tony Spilotro, currently under federal indictment for murder, was sent to Las Vegas in 1971 to "oversee Chicago organized crime interests" and is "closely linked" to Local 226.
Ben Schmoutey, a former president and secretary-treasurer of the local and trustee of the dental fund, testified yesterday after the subcommittee produced a court order promising that his testimony could not be used against him.
He said he is acquainted with Spilotro; but Schmoutey denied that anyone from outside the union had given him orders or tried to control his operations in the local.