POHNPEI, Federated States of Micronesia - Attorney General Marstella Jack, on the first business day after new FSM President Manny Mori was selected by Congress, on May 14 filed with the FSM Supreme Court, formal charges against former FSM Ambassador to the U.S. Mr. Jesse B. Marehalau of Yap and FSM Embassy employee Enrico Calderon of the Philippines.
The 13 charges look like a laundry list for white collar criminals including two counts of Bribery in Official and Political Matters, one count of Criminal Conspiracy, four counts of Over-Obligation of Government Funds, two counts of Tampering with Public Records and Information, and four counts of Theft Against the Government. The two named defendants face a total of $800,000 in fines and 170 years in prison if they are convicted of the charges. If they are convicted of the Charge of Tampering with Public Records and Information they also will be “disqualified from holding any position in National Government”.
Under the heading “Basis to Issue Penal Summons”, Fletcher Poll, Certified Fraud Examiner, who has been an investigator of the Office of the FSM National Public Auditor for seven years said, “there is a basis to ‘strongly suspect’ that the defendants Jesse B. Marehalau and Enrico Calderon committed the offenses charged in the Criminal Information filed in this matter.” The filing documents filed with the Supreme Court listing charges and background span 52 pages of detailed information regarding the charges and relate to activities between October 1, 2001 and September 30, 2006.
Poll’s “Affidavit in Support of Application for Issuance of Penal Summons and Arrest Warrant” requested that an arrest warrant be filed for the arrest of Enrico Calderon because “…there is a substantial likelihood that defendant Enrico Calderon will fail to appear before this Court in response to a penal summons.” Calderon is serving time in a Federal Institution in New Jersey following his confession to U.S. law enforcement officials in August 2006 that he had obtained and altered sample FSM passports in order to illegally smuggle more than 50 Filipino citizens into the United States from December 2004 until early January 2006 for payments up to and over $10,000 per smuggled person.
Calderon, during his interview with US law enforcement officials said that Marehalau allowed him to take sample FSM passports from a box kept in Marehalau’s office at the FSM Embassy in Washington D.C. He said that Marehalau not only knew of the scheme but he approved of it and offered his assistance. Further, Calderon said that he understated to Marehalau the number of smuggled persons so that he could keep more of the proceeds for himself since he had agreed to give Marehalau $1000 per smuggled person. He said that he gave Marehalau $20,000 to $30,000 of the proceeds form the FSM passport fraud scheme.
Auditors reviewed Marehalau’s personal bank records from a Virginia bank and found a “large number of cash deposits, amounting to over $25,000, from December 2004 to December 2005” that were neither from Marehalau’s paycheck, nor from reimbursements by the FSM Government that he received for representation and other expenses. The deposits stopped a few weeks before Calderon was arrested for Conspiracy and five counts of felony alien smuggling.
During an interview with Poll, defendant Marehalau denied all knowledge of the FSM passport fraud scheme. However, he “could not account for the numerous cash deposits in his personal bank account.”
Although Marehalau initially stated that he kept the sample FSM passports obtained from American Banknote who prints the passports locked in his desk he later recanted that statement and said that the sample FSM passports were kept on a table in his office.
According to the charges and other information received over time including the audit of the Embassy there had long been an inappropriate relationship between Marehalau and Calderon. The audit of 2006 recommended that the Embassy personnel structure should be revised to ensure separation of financial duties and adequate oversight of the finances. Enrico Calderon had been hired as the Embassy driver but Marehalau also gave him responsibility for the books which were generally stacked in boxes with no organization.
Under the charges filed on May 14 the situation resulted in fraud and theft and complicity between Marehalau and Calderon to defraud the government of movable property and cash. According to the charges, Marehalau and Calderon “kept FSM Embassy financial matters almost entirely between themselves, and did not share these matters in any detail with other FSM Embassy staff or FSM Government officials.”
Embassy personnel said that they were often told that “the home office wasn’t sending payroll money,” and so payroll was often late. Bills were delinquent including housing allowances for staff members. Landlords often called employees homes to tell them that rent was late.
The allegations state that between October 1, 2001 and continuing until his repatriation to Yap State in September 2006 Marehalau repeatedly created unauthorized obligations for the FSM Embassy’s Operating Fund and Imprest Fund Accounts with a number of financial transactions with vendors which are unlawful expenditures under FSM laws and regulations.
The allegations indicate that the transactions were not merely a matter of bad management or poor bookkeeping but were instead criminal in nature and intent and resulted in the defendants’ personal gain. These matters were not merely a lack of sufficient document but an actual alteration of books and record keeping documents to cover up criminal offenses.
Allegations include, inter alia (among other things) double-invoiced or double-billed expenses that resulted in Marehalau’s receiving an amount greater than the expenses that he actually incurred. He is alleged to have received reimbursements for expenses he did not actually incur.
On other occasions Marehalau was reimbursed for expenses that should have been covered by the use of per diem and expense funds that he had been advanced under his FSM Travel Authorizations (TA’s). On at least one occasion, Marehalau neither submitted documentation of the expenditure of advanced TA funds nor did he reimburse over $3200 advanced to him.
Poll said in her affidavit that Marehalau was able to obtain the reimbursements without detection by the FSM Government because he signed both the FSM Government Miscellaneous Payment – Request Transmittal Form and the FSM Embassy check. During the time covered by the 2006 audit Marehalau is accused of unlawfully collecting more than $70,000 in expenses. According to records the unlawful expenses include, “but are not limited to,” clothing, appliances, electronic equipment, restaurant meals, groceries, liquor, fuel, lawn services, personal telephone calls, cable television services, medical bills, hotels, car rentals, beauty products, DVD’s and a public storage facility.
According to witnesses Marehalau kept either at his home or at a public storage facility items unlawfully purchased with the assistance of Calderon. Since his removal as the FSM Ambassador Marehalau did not return any of the movable property nor did he account for the disposition of those items.
In the August 2006 interview with Calderon he admitted that he routinely prepared Miscellaneous Payment – Request Transmittal Forms and cut extra payroll and other FSM Embassy checks in his own name for services that were either never rendered to the FSM Government or for payments over and above what he was allowed under his employment contract.
He said that he often hired personal friends or associates to provide contractual services for the FSM Embassy. Those friends then kicked back a portion of their earnings to Calderon. He cut and cashed approximately $90,000 in unlawful checks for himself or for his personal friends or associates.
He went on to say that Marehalau knew about the illegal transactions and that he kicked back up to 50% of the illegal gains to Marehalau on a quid pro quo (you scratch my back I’ll scratch yours, literally, “something for something”) arrangement. Calderon was allegedly allowed to continue writing illegal payments for himself in exchange for Marehalau’s doing the same.
During the period of time in question Marehalau obtained at least four unauthorized loans from U.S. Banks ranging from approximately $68,000 to approximately $190,000 on behalf of the FSM Embassy. According to Poll’s research none of the loans were authorized by the FSM Government nor did Marehalau inform the Government that he had obtained the loans.
In his fiscal year 2003 and 2004 budgets Marehalau indicated that the FSM Embassy required $12,000 for a “lease for the Embassy vehicles. His written budget requests made no mention or reference of any kind to a loan from Riggs Bank for $68,322,27 at 6.7% interest per annum for the purchase of two vehicles from Ford Motor Company.
Other overdraft loans were obtained by Marehalau who wrote a letter to the Vice President of the Embassy Banking Division at Riggs Bank fraudulently claiming authorization to incur debt on behalf of the FSM Embassy.
Other FSM employees said that they had no knowledge of the loans but some suspected that Marehalau was engaging in the activities when they saw loan statements from U.S. Banks in the FSM Embassy mail.
Marehalau is alleged to have used the money he obtained from the overdraft loans to “cover funding shortfalls caused in large part by his unlawful expense reimbursements, the unlawful FSM Embassy checks cut by defendant Calderon, his misuse of Imprest Fund and Operating Fund Accounts, and other expenditures.
Marehalau is additionally alleged to have chosen “Brotherhood and Sons” a Virginia-based contractor owned by Domingo Alim, an acquaintance of Calderon, for renovation work on the Embassy without a competitive bid process. Calderon admitted that Alim paid him and Marehalau kickbacks in order to secure the renovation contract. A review of Calderon’s personal bank records revealed the deposit of a personal check from Alim in the amount of $3000 on October 7, 2005.
Poll’s affidavit made mention of expenses paid from Imprest Funds for hotel bills and other expenses for FSM Officials traveling under FSM TA’s that should have been covered by those officials’ per diem allocations. It is unclear at this time whether subsidiary charges will be filed and no mention was made in the affidavit of the names of those officials.