Below is a copy of my statement to the "Washington Whistleblower Week" conference in 2007, When I was almost done with my statement, in a House hearing room but not a formal House hearing, the chair of the session, Walter Fauntroy, co-founder of the Southern Christian Leadership Conference along with Martin Luther King, interrupted me and said to the crowd (a crowded House hearing room, but not a formal House hearing), "Mr. Bergman, I'll have you know that for six years I headed a subcommittee with oversight authority for the Federal Reserve. And America is very fortunate that I don't hold that position today. Because I speak two languages. One of them is English, and the other is profanity."
My 'testimony' is below.
Summary.
I did my best to serve the taxpayer and the public while working at the Federal Reserve Bank of Chicago for 14 years. I raised some good questions and got in trouble, losing my job after one incident. The questions I raised in that incident relate to the crimes of September 11, 2001. I believe these questions remain worthy of honest, aggressive investigation. My experience may help those interested in enhancing whistleblower protection law to help people like me and to promote better government performance.
After graduating from the University of Chicago with an M.B.A. as well as an M.A. in Public Policy Studies in 1990, I worked at the Federal Reserve Bank of Chicago from July 1990 until early 2004. I served as an economist for eight years, writing the Chicago Fed’s contribution to the Federal Reserve’s ‘beige book’ for five years, and earned a significant performance award (the “President’s Award for Excellence”) while working in that capacity. In 1998, I moved to a senior analyst position in a new department researching financial market and payment system risk policy issues.
In late 2003, I was asked to consider an assignment in the money laundering area. I accepted the assignment, underwent a background check, received credentials affording access to confidential banking information, and began working in the area. I was told that I was “part of the fight against terrorism,” and that I “had been asking good questions.” One aspect of the assignment was to develop a paper that, were it acceptable, could serve as a reference source for the Federal Reserve System.
One of the first things I did was to develop a 40 question Q&A in order to introduce myself and anyone else new to the area who might be interested in a primer. The primer dealt mainly with fundamentals, including some of the history of money laundering, recent legal developments in the area, and the roles of banking regulators. I received a thank-you on the Q&A, was told that it could be considered as a reference, and that I should go ahead and answer the only question I didn’t answer. I asked this question after noticing the Board of Governors of the Federal Reserve had issued supervisory letters to the 12 Reserve Banks in the weeks after September 11, 2001 urging scrutiny of suspicious activity reports in tracking terrorism activity and financing – and that the Board had issued a similar letter, albeit one that did not refer explicitly to terrorism, on August 2, 2001. Terrorism and terrorist financing were known to be part of the realm of ‘suspicious activity,’ however. The question on my Q&A asked why the Board had issued the August 2, 2001 letter. After being prompted by a supervisor to answer the question, I called Board staff in December 2003, and also asked if it was related to intelligence about heightened terrorist threats in mid-2001.
Roughly a week and a half later my assignment was abruptly terminated and my credentials cancelled. I was told I had committed an egregious breach of protocol in calling the Board staff and asking the question.
At the time I was also looking into and asking questions about currency flows. I thought these questions were worth pursuing, and was planning to raise them when I made the above-noted phone call to the Board of Governors. The currency component of M1 (Federal Reserve Notes circulating outside of banks) rose especially rapidly in July and August 2001. In fact, up to that time, August 2001 was one of the three fastest growing months for the currency component of M1 since 1947, on a seasonally adjusted basis, even on the heels of significantly above-average growth in July 2001. Much of the July-August surge (over $5 billion above-average) was in the $100 denomination. Among other explanations, persons aware of any imminent terrorist attacks and concerned about possible asset seizures such as those that arose after the 1979 Iranian hostage crisis and the 1998 embassy bombings could have been trying to liquidate their bank accounts in July and August 2001. The money trail could provide important clues about people aware of, if not responsible for, the attacks. I looked at some internal data bearing on this issue that was available to anyone within the Federal Reserve’s internal computer network; after going back to look at this important data again a week or two later, it was no longer freely available, but password protected. A banking crisis in Argentina may provide a relatively benign explanation for the surge in currency shipments in July and August 2001, but I think it likely gets more complicated than that, and in any event, we have yet to see evidence that this important issue has been investigated properly.
About a month after my money laundering work was terminated for my serious breach of protocol, my department was absorbed into another department, and my position was eliminated. I was told it had nothing to do with me personally – it was an organizational matter. I was offered, and accepted, a severance package, and left the Chicago Fed, sad and mad, in March 2004.
I should note I was already in a little hot water for at least one other research project. I had written a paper raising questions about the Federal Reserve’s compliance with cost-recovery requirements of the Monetary Control Act while providing payments services to depository institutions. I developed this paper in 1999-2000. It reviewed the pricing and risk management features of the Federal Reserve’s “Fedwire” wire transfer system, which moves over $1 trillion a day. I analyzed the Federal Reserve’s accounting estimates asserting cost recovery for Fedwire, and in light of Federal Reserve Board members’ frequent late-1990s testimony to Congress testimony asserting that access to Fedwire constituted a source of subsidy. The question arose in my head -- how can the Federal Reserve assert that access to Fedwire is not a source of subsidy because the Federal Reserve complies with statute directing it to fully recover the cost, yet also testify in support of their positions on other matters that access to Fedwire constitutes a source of subsidy? It does indeed look like a significant subsidy, one that is a consequence of Federal Reserve practices at odds with federal law. I was invited to present this paper in Washington at a significant public policy research organization, and took a lot of heat, including a threat that I should not accept the invitation to present the paper. I chose to decline the invitation.
One other research project I developed may be relevant here. In 2001, sensing the new Administration and its views about executive branch authority, I wrote a paper examining the ‘independence’ of the Federal Reserve in light of executive branch authority in a declared national emergency or a ‘time of war.’ I received some good feedback on this paper in August 2001, and presented the paper at the Congressional Reserve Service in November 2001.
Financially and otherwise, my experience leaving the Federal Reserve Bank of Chicago was difficult for my family, including my wife Margaret, and my three children Emma (9), Eileen (7), and Jack (5). Please work to improve the whistleblower protection framework to keep other people from going through what we had to go through, and to promote better public policy.
Bergman Speaks at WDT!
5 PM, Sunday, Sept. 13
As a part of our day-long focus on "Economics, Intelligence, and Transparency"
Full schedule here
