Firm fined $100K as example against illegal gifts
Thermal Engineering admitted to tax fraud as part of a scheme to buy political influence
A local engineering firm has been fined $100,000 for filing false tax returns involving nearly $59,000 in illegal campaign contributions made to local political candidates in the late 1990s.
Kalihi-based Thermal Engineering Corp. pleaded guilty in U.S. District Court in May to four counts of filing false corporate income tax returns as part of a scheme to violate the state's campaign financing laws. The company was also placed on three years' probation yesterday by U.S. District Judge David Ezra.
In imposing the sentence, Ezra said that because of the seriousness of the offense, those who engage in the practice of making illegal contributions to obtain state contracts "must get the message that this practice is not tolerable, and that it must stop."
While Thermal Engineering was not charged with making illegal contributions or campaign violations, the scheme it engaged in involved illegal campaign contributions, Ezra said.
What's referred to as the "pay to play" system has turned otherwise legitimate businessmen and women and their companies into criminals, he said. "That's what's so corrosive about the system."
Stephen Pingree, attorney for Thermal Engineering, who had argued for no probation and a lesser fine, said his client was "definitely used as a target example" for other companies who violate campaign financing laws.
Sentences for tax cases are supposed to correspond to the revenue loss to the government -- an amount Thermal contends is closer to $23,000, not $59,000 as alleged, he said.
Instead, "the sentence reflected a message about the political corruption in the state of Hawaii, and the government's position and feeling that the authorities in Hawaii are not taking political corruption seriously," he said.
Assistant U.S. Attorney Michael Purpura said the government is satisfied that the sentence imposed by Ezra sends the message that Thermal Engineering's conduct will not be tolerated.
The corporation lied about the illegal contributions on its income taxes, which caught the attention of the state Campaign Spending Commission and the federal government, he said.
In an eight-count indictment filed in September 2004, a federal grand jury alleged Thermal Engineering and its president, Ken Mashima, reimbursed its officers for making $59,000 in campaign contributions to local candidates between 1997 to 2000.
The corporation deducted the contributions as officer compensation, which reduced Thermal Engineering's taxable income, the indictment said. Corporate political contributions are nondeductible.
In pleading guilty, Thermal Engineering admitted that it had made a corporate-wide decision, through its officers and directors, to contribute on at least 40 occasions amounts exceeding the limits set by law.
Under an agreement, prosecutors agreed to drop the remaining tax charges against Mashima.
In opposing probation and a large fine, Pingree noted that Thermal Engineering had previously paid a $3,000 fine in state District Court and a $31,000 fine to the Campaign Spending Commission.
The company is already on probationary status with the Army Corps of Engineers for the next three years and is required to institute internal programs relating to ethics, contracting procedures and handling of monies, he said.
In July, after conducting an investigation of the company, the Army found no reason to bar Thermal Engineering from obtaining federal contracts or subcontracts, Pingree said.
In December 2003, Thermal Engineering's board of directors passed a resolution forbidding the corporation, its officers and employees from making contributions in the company's name, Pingree said.
Bob Watada, outgoing executive director of the Campaign Spending Commission, agreed with Ezra that the system of political corruption involving illegal contributions has to end.
The commission, under incoming executive director and former Assistant Police Chief Barbara Wong, will continue to monitor Thermal Engineering and other companies that have come under their purview, he said.
Wong said she believes the fine imposed by Ezra is fair and will deter other companies from similar conduct. "It's a lot of money," she noted.
Under the sentencing guidelines, Thermal Engineering faced between $60,000 and $120,000 in fines.
Since 2002, when the company pleaded no-contest to a misdemeanor charge of making a contribution under a false name and agreed to a $31,000 fine by the Campaign Spending Commission, the company has not made any political contributions.
"It saved the company and lots of other companies lots of money, because now politicians looking for handouts won't get anything," Pingree said.