Scheme’s ringleader betrayed Wal-Mart

St. Louis Post-Dispatch (Missouri)
July 16, 2006 Sunday

By Peter Shinkle ST. LOUIS POST-DISPATCH

THE PLOT

Christopher Walters says the retail giant urged him to use shell
companies that hired illegal immigrants to clean stores.

THE FALLOUT

Walters and Wal-Mart agreed to pay millions in fines, but the feds
say Walters still hasn’t paid in full three years later.

—

A local businessman masterminded a scheme in the late 1990s to
bring illegal immigrants to clean floors at Wal-Mart stores across
the country.

Wal-Mart paid at least $82.2 million over three years to shell
companies set up by businessman Christopher Walters, federal agents
discovered. Walters’ companies in turn paid subcontractors who hired
illegal immigrants from countries stretching from Poland to Mongolia.

When investigators dug into the scheme, Walters cut a deal and became
a star cooperating witness in a criminal probe targeting Wal-Mart. He
told investigators that a Wal-Mart executive told him to set up
the shell companies, and he recorded conversations with scores of
Wal-Mart employees.

"Walters created these dummy corporations, but he did so at the
direction of Walters, 43, who lives in a mansion on a gated lane
in Chesterfield, declined to comment. Demerath said he expected the
companies to pay the $4 million.

Walters’ pivotal role in the probe has left him persona non grata at
Wal-Mart, which denies it knew of the illegal immigrants working for
Walters’ companies.

"We feel like we were hoodwinked," said John Simley, Wal-Mart
spokesman.

As for the claims Walters made about the conspiracy and Wal-Mart’s
role, Simley said: "It’s important to note that he was a cooperating
witness. It’s not like he volunteered to do this."

The St. Louis raid

The scheme began after federal immigration agents raided a Wal-Mart
in the St. Louis area in early 1997.

At that time, the cleaning company Walters inherited from his father,
Intensive Maintenance Care Inc., was cleaning about two-thirds of all
Wal-Mart stores in the country, according to an account by Walters
cited by immigration officials. As a result of the raid, Wal-Mart
fired Walters’ company, according to both Walters and Wal-Mart.

Walters said that Leroy Schuetz, then a vice president in the
operations branch at Wal-Mart headquarters in Bentonville, Ark.,
told him IMC had been fired because of its use of illegal workers.

But the Wal-Mart executive also gave him a very different message,
Walters told agents of U.S. Immigration and Customs Enforcement.
Schuetz "told him to create different companies" so that if one
company was fired for employing illegal immigrants, Walters could
still do business with Wal-Mart through the other companies, according
to Walters.

Wal-Mart denies it recommended setting up the companies.

"There’s nothing in the evidence to indicate that," said Simley.

What’s more, the employee Walters spoke with was Leroy Schuetts,
not Schuetz, and he was a regional manager, not a vice president,
Simley said. As for the claim that the Wal-Mart employee urged use
of multiple companies, "Schuetts has denied it," Simley said. He said
Wal-Mart would not make Schuetts available for an interview.

In July 1997, Walters established Express Corporate Services Inc.,
according to records filed with the Missouri Secretary of State. More
than a year later, he established IMC Associates Inc. And on Dec. 14,
1998, seven companies were established on a single day. They had
names such as Comet Floor Care Associates Inc., World Clean Associates
Inc. and Ironman Maintenance Associates. Walters had his employees’
names put on the public filings; his own name seldom appeared on them.

Walters then hired subcontractors, and it was those subcontractors
who hired the illegal workers, said Demerath, Walters’ attorney.

Soon, cash from the world’s largest retailer was gushing into Walters’
companies.

In 1999, Wal-Mart paid Intensive Maintenance Care and six other
Walters companies $18.3 million, agents said. By 2001, that number
had jumped to $37.8 million.

Wal-Mart paid those companies a total of $82.2 million from 1999
through 2001, but that might be only a fraction of the amount
Wal-Mart paid because the six companies do not include a key company,
Express Corporate Services, or several other of Walters’ cleaning
companies. Nor does it include the amounts paid to Walters’ brother,
who also had a company that provided cleaning services for Wal-Mart.

Walters bought a $2.4 million house in Ladue and an apartment complex
in Fenton, also for $2.4 million. Other expenditures agents found
included a $21,763 Rolex watch for Walters’ wife, Jamie.

By then, a Russian had tipped off the feds.

The tip-off

In November 1998, an immigration agent interviewed Vladimir Blinov,
a Russian who worked cleaning the Wal-Mart in Honesdale, Pa. He said
his employer was a man named Stanley Kostek.

Blinov was in the country illegally because he had entered on a tourist
visa and then had overstayed the term of that visa. Blinov had been
told before he left Russia about the job he would get at Wal-Mart,
Blinov told the agent, Julio Santana of the Philadelphia office of
Immigration and Customs Enforcement.

This was the start of what would be a seven-year probe by Santana
and other immigration agents of Wal-Mart’s use of illegal immigrants.
They called it Operation Rollback, a play on the retailer’s ads for
lowering prices.

In early 2000, agent Santana discovered information that quickly
expanded the probe to Wal-Mart operations nationwide.

A probation officer told Santana that the Honesdale Wal-Mart’s
manager identified the company that cleaned the store as Comet Floor
Care and said that he believed the cleaning crew members were all
illegal immigrants, Santana said in an affidavit filed in court in
Pennsylvania. Immigration officials subpoenaed documents from Wal-Mart,
and those documents revealed that Wal-Mart had paid Comet $8 million
in 1999 to clean 82 stores throughout the United States, Santana said.

Santana also got information from a confidential informer, who set
up recorded phone calls with Kostek. The informer worked for Kostek
at the Honesdale Wal-Mart and lived in a trailer with cleaning crew
members from the former Soviet republic of Georgia.

Armed with this information, immigration agents raided Wal-Mart
stores in Honesdale, Harrisburg and two other cities in Pennsylvania
on March 20, 2001. They arrested 27 illegal immigrants from countries
including Georgia, Russia, Hungary and Ukraine.

They also searched the trailer in Honesdale where the informant said
Kostek housed illegal workers who cleaned the local Wal-Mart.

"The aliens slept on the floor in sleeping bags, and the bathroom
was abnormally dirty," Santana wrote.

Two days after the raids, the informer called immigration officers
to tell them that Kostek, who owned a company called CMS based in
Queensbury, N.Y., had moved him to Salem, N.H., to clean a different
Wal-Mart, and from there to New Jersey.

Soon, the informer himself was in trouble. By April 2001, other workers
had threatened him physically and suspected him of cooperating with
immigration officials. Also, back in his home country of Georgia,
family members of deported Georgians had threatened his family. He
was taken out of the investigation, Santana said.

Violence reared its head when another man working with Kostek,
Myroslav Dryjak, brought in some Armenians to replace the crew at the
Honesdale store. When one of the Armenians, a man about 60 years old,
complained that he wanted to work in New York, Dryjak and another
man took him outside the trailer and assaulted him, the informant
told immigration officials.

In fall 2001, immigration agents raided Wal-Marts in Pennsylvania, New
York, Ohio and Missouri, arresting 68 illegal workers from countries
including Poland, Lithuania and Mongolia.

At stores in St. Ann and O’Fallon, the agents arrested six Czechs and
a Pole, all employed by a company called National Floor Management.
Illegals at other stores worked for a string of other companies:
Ironman Maintenance Inc., IMC, Comet, Champion, Precision Cleaning
Inc. and Pinnacle Management Inc.

Santana began to scrutinize the companies. The public documents they
filed offered limited information, but they kept leading back to St.
Louis County. Investigators also discovered a pattern: Many of the
companies had the same agent at the same address on South Florissant
Road in Ferguson.

Immigration agents also obtained records from Wal-Mart revealing the
$82.2 million that Wal-Mart paid the seven Walters companies. And from
Normandy Bank in St. Louis County, Santana obtained records showing
a web of payments linking the Walters companies to each other and
to subcontractors.

On April 10, 2002, agents raided the offices of Intensive Maintenance
Care in Ferguson, CMS in Queensbury and one other subcontractor. The
agents seized financial accounts holding $3 million in cash. They also
filed forfeiture cases in federal court in Pennsylvania seeking to take
control of the Walters’ Ladue home and the Fenton apartment complex,
claiming both had been bought with the proceeds of an illicit scheme
to launder money and employ illegal immigrants.

Walters maintained that he never knew the subcontractors were hiring
illegal immigrants, said Demerath, his attorney. But making that case
stand up in court might be tough, Demerath acknowledged.

"We knew it was dangerous to go to trial on that because he probably
did look the other way," Demerath said.

The deal

In July 2002, three months after his office was raided, Walters
agreed to talk with the federal investigators — with his attorney
present. It was then that Walters acknowledged that he had first
learned of illegal workers used by his subcontractors as early as
1994, Santana said in his affidavit. He also told the story of how
the 1997 raid led him to set up multiple companies.

But Walters did more than recount history to help the agents —
much more. After the April 2002 raids, he had two of his employees
call Wal-Mart stores and inform them that he was shutting down and
going out of business. The employees recorded the calls. In July,
Walters turned over the recordings to Immigration.

Demerath and prosecutors negotiated an agreement in which Walters’
12 companies would plead guilty to conspiracy to transport illegal
workers into the country and would forfeit $4 million. In return,
U.S. attorney Thomas Marino of Harrisburg, Pa., agreed not to pursue
any charges against Walters, his wife, his father or his employees.

"It was a good deal for him," Demerath said.

Walters signed the agreement in January 2003, but it would remain
secret for more than two years. In that period, Walters cooperated
with the federal probe extensively, recording more than 100 phone
calls and arranging secretly recorded meetings with Wal-Mart employees.

On April 23, 2003, Walters wore a wire to a meeting with Steve
Bertschy, whom immigration agents identified as a Wal-Mart vice
president over store maintenance.

Walters said he wanted to help Wal-Mart replace illegal immigrants in
its stores with legal workers, but Bertschy did not accept the offer,
Santana said in an affidavit later filed in federal court in Arkansas.

Walters told Bertschy that he knew of as many as 1,000 illegal
immigrants working at Wal-Mart stores.

"We’re trying to address that issue because people don’t know exactly
if there are illegal workers in our stores," Bertschy responded.

At another point, Walters said, "I know of at least 400 stores that
had illegal aliens in them." Santana said Bertschy replied: "Don’t
repeat that."

Wal-Mart spokesman Simley acknowledged that Bertschy had made the
comments attributed to him, but he said they were "out of context."
Simley also denied that Bertschy was a vice president. His title was
"manager, floor maintenance program," Simley said.

Later in 2003, Walters made recorded phone calls to 118 Wal-Mart stores
to discover whether they employed contractors for cleaning services.

Armed with the recordings and other information provided by Walters,
immigration agents obtained search warrants. On Oct. 23, 2003,
agents raided the offices of Bertschy and other employees at Wal-Mart
headquarters, taking away computer and e-mail data and 13 boxes of
files and other papers. On the same day, agents arrested about 245
illegal immigrants employed at 61 stores in 21 states from New York
to Arizona.

The settlement

On March 18, 2005, Wal-Mart agreed to pay $11 million to settle
allegations of hiring illegal immigrants, but the company denied
any wrongdoing.

Walters’ 12 companies agreed to a guilty plea and the $4 million
forfeiture.

The settlement documents also pointed out that after the October 2003
raids, Wal-Mart notified the government that it intended to take
action to ensure that independent contractors working for Wal-Mart
comply with laws on employment of illegal immigrants.

Wal-Mart also agreed to a court order requiring it to train its
managers on preventing the hiring of illegal immigrants, and to verify
that its independent contractors are complying with immigration laws.

Walters and the Wal-Mart executives avoided any criminal charges,
but prosecutors came down on others linked to the scheme. Three months
after the settlement was announced, Walter Truszkowski, the owner of
Deluxe Cleaning, pleaded guilty in federal court in Chicago of money
laundering and conspiracy to conceal illegal immigrants.

Truszkowski admitted with his guilty plea that, through Walters’
company Intensive Maintenance Care, he got "criminal proceeds in the
form of Wal-Mart’s payments." Last month, Truszkowski was sentenced
to three years in prison and ordered to pay a $60,000 fine.

Truszkowski, of McHenry, Ill., admitted that he paid $247,319 as part
of the conspiracy to an illegal immigrant from Lithuania, Algimantas
Kondratavicius.

Kondratavicius, who was arrested in 2000 at a Wal-Mart in Valparaiso,
Ind., pleaded guilty of importing illegal immigrants, admitting he
obtained his workers from "alien smugglers" in Moscow and Tomsk,
Russia. In 2004, he was sentenced to a year in prison.

Meanwhile, two other subcontracting firms, DJR Cleaning and CMS of
Queensbury, got deals like Walters’. DJR owner Vincent W. Romano was
not charged with a crime, but DJR itself pleaded guilty of conspiracy
to transport aliens into the country and agreed to forfeit $200,000.
Charges against CMS owner Stanley Kostek were dropped, but CMS pleaded
guilty and forfeited $10,000.

Dryjak, who allegedly assaulted the Armenian while moving crews of
illegal workers for CMS in the Northeast, pleaded guilty of conspiracy
and was sentenced to probation.

Meanwhile, Walters’ companies have yet to forfeit the full $4 million.

Last September, federal prosecutors dropped their efforts to force
Walters to forfeit the home in Ladue and the apartment complex
in Fenton.

Marty Carlson, first assistant U.S. attorney for the middle district
of Pennsylvania, which investigated Walters, declined to discuss why
the full forfeiture had not taken place.

"We intend to move forward until we’ve secured the full $4 million,"
he said.

Amid all the Operation Rollback cases, what remains obscured is the
fate of the hundreds of illegal immigrants arrested at Wal-Marts
nationwide. Immigration officials have said many were deported,
but it is unclear how many. Some disappeared during the investigation.

Some former Wal-Mart janitors have filed a lawsuit claiming Wal-Mart
committed racketeering offenses in its failure to pay the minimum wage
and Social Security taxes to janitors, including illegal immigrants.

James Linsey, an attorney who is seeking to make the case a class
action on behalf of many Wal-Mart janitors, said immigrant janitors
were "were working seven nights a week, 364 days a year," and in some
cases were locked inside stores while they worked overnight.

Wal-Mart has denied the claims and has asked a federal judge in New
Jersey to dismiss the case.