How Politicians Lie, Steal, Cheat & Play Games with Policy & Finances

Criminal Congress: How Politicians Lie, Steal, Cheat & Play Games with Policy & Finances (1992)






  The House banking scandal broke in early 1992, when it was revealed that the United States House of Representatives allowed members to overdraw their House checking accounts without risk of being penalized by the House bank (actually a clearinghouse).
This is also sometimes known as Rubbergate (from the expressions "rubber check" (bounced check) and "Watergate)". The term is misleading because House checks did not bounce; they were honored because the House Bank provided overdraft protection to its account holders, the Office of the Sergeant at Arms covered the House Bank with no penalties. It was also sometimes known as the "congressional check-kiting scandal".

The scandal contributed to a perception of corruption and malfeasance and was a contributing factor to major changes in the House, in which 77 Representatives resigned or were ousted in the 1994 election. Four ex-Congressmen, a Delegate, and the former House Sergeant at Arms were convicted of wrongdoing as a result of the investigation that followed. Among these, former Rep. Buz Lukens (R-OH) was convicted on bribery and conspiracy charges. Former Rep. Carl C. Perkins (D-KY) pled guilty to various charges including a check kiting scheme involving several financial institutions including the House Bank. Former Rep. Carroll Hubbard (D-KY) pled guilty to three felonies. Former Rep. Mary Rose Oakar (D-OH) was charged with seven felonies, but she ended up pleading guilty only to a misdemeanor campaign finance charge not related to the House Bank. The House Bank investigation also led to Delegate Walter E. Fauntroy (D-DC) pleading guilty to an unrelated charge of a making a false statement relating to a charitable contribution to his church. The former Sergeant at Arms, Jack Russ, pled guilty to three felonies.

The House Bank functioned according to rules different from the laws governing deposit institutions. The facility was operated under very loose rules at the time, using a pencil and ledger system rather than a computerized accounting system, and the bank manager did not provide regular account statements to House members, nor were notifications sent to House members in the event they had overdrawn their accounts. Further contributing to the problem was the fact that the House Bank didn't post deposits in a timely manner, often as much as seven weeks after the fact. Thus, while some knowingly took advantage of the system (and were ultimately convicted of wrongdoing) many members of the House who wrote overdrafts were not actually at fault, as it was the House Bank's responsibility to post deposits in a timely manner.

Another practice which contributed to the scandal was that House members were allowed to overdraw their accounts, provided that the overdraft did not exceed the member's next paycheck. Many House members used this practice to take unauthorized advances on their paychecks which they would repay in the future. In a corporate context the practice of drawing money out of the corporation's accounts for personal use is a violation of fiduciary duty to the corporation's shareholders.
Many U.S. banks, like the House Bank, offered overdraft protection to checking account holders. However, the overdrafts in a regular bank's overdraft protection program are always secured by either a line of credit with the bank extended under standard lending protocols (including interest charges, if any), linkage of the protected checking account to another account with the necessary funds to pay the overdraft, such as a savings account, or charges made to a credit card held by the depositor.[7]
Prior to and during the House Bank overdraft scandal, the security for the overdrafts in the House Bank was the Member of Congress' next paycheck, as posted to his or her checking account in a pencil ledger system. In the aftermath of the House Bank overdraft scandal, two Federal credit unions, one for the House and one for the Senate now provide banking services to Members of Congress and the general public, with no special treatment for Members of Congress.
These credit unions existed long before the scandal. However, the Office of the House Sergeant-at-Arms had offered a much more convenient clearing house for Members of Congress' checks, and overdraft protection was managed in a much more lenient (and less expensive) manner than through the credit unions or, for that matter, any chartered bank.

http://en.wikipedia.org/wiki/House_ba...