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Does ASCE’s Code of Ethics Apply to Personal Behavior?

Jun 1, 2019


Situation

Local news reports from a large western state detail the indictment and arrest of more than a dozen people in connection with a federal tax evasion scheme. The leaders of this scheme are partners in a small accounting practice, who are purported to have prepared fraudulent personal income tax returns for clients in exchange for a percentage of the proceeds. According to the news reports, the scheme resulted in a payment by the Internal Revenue Service (IRS) of some $5 million in fraudulent tax refunds.

The indictment alleges that the accountants recruited participants in their scheme by promoting the so-called "redemption movement," a conspiracy theory that first surfaced in the 1990s and continues to find support to this day. This movement is founded on the belief that the United States rose out of its Depression-era financial straits by offering American citizens up as "collateral" to foreign investors, secretly and illegitimately committing the value of its citizens' labor in repayment of the national debt. It further posits that the U.S. Treasury shores up the currency of its human-collateral-based system by creating secret bank accounts in its citizens' names, each of which holds funds representing that citizen's estimated earning potential.

Promoters of the redemption movement commonly claim knowledge of methods through which savvy citizens can tap into these secret bank accounts and "redeem" funds in order to relieve their tax burden or personal debt--though in fact, their methods are, at best, ineffectual and, at worst, patently illegal. In the case of the indicted partners, their method of choice involved the filing of falsified 1099-OID forms, a tax form used to report income and withholdings related to a certain type of bond transaction.

Included among the tax preparers' indicted clients are an ASCE member and his spouse. The indictment alleges that the two accountants filed three fraudulent tax returns on behalf of the couple, one for the most recent tax year as well as two amended returns for previous years. Each of these returns contained falsified 1099-OIDs reporting hundreds of thousands of dollars of withholdings, and the three returns in total netted the couple a fraudulent refund from the IRS of almost $700,000.

After paying the tax preparers a 10 percent commission for their services, the member and his wife used the remainder of their refund to pay off the mortgage on their family home and eliminate a variety of other personal debts. The indictment claims that the couple next worked with the accountants to shield their newly debt-free property from future IRS action. With the preparers' assistance, the couple transferred ownership of the home into a sham trust, recruiting a personal friend to serve as trustee of the home, though in fact the friend played no role in administering the trust.

At trial, the couple attempted to portray themselves as unwitting dupes in the scheme, misled by the accountants to believe they were merely reclaiming funds that rightfully belonged to them. The court was less than sympathetic to this claim. After the couple's conviction, the presiding judge, in his sentencing memorandum, called out the member's role as an engineer along with his wife's business activities, finding that both were "educated and sophisticated individuals," not likely to be deceived by an "outlandish sales pitch, fraught with unbelievable claims about the supposed illegitimacy of the federal government."

Ultimately, the engineer and his wife are sentenced to serve 19 months in prison. One of the accountants pleads guilty to conspiracy to defraud the United States and receives a 10-year sentence, while the other is sentenced to 25 years because of his involvement in a second, separate tax evasion scheme.

An ASCE Section officer forwards copies of the news coverage to ASCE's Committee on Professional Conduct (CPC), which opens an investigation.


Question

Did the member's conduct in submitting fraudulent personal income tax returns violate the ASCE Code of Ethics?

 

Discussion

Fundamental Canon 3 of the ASCE Code of Ethics reads: "Engineers shall issue public statements only in an objective and truthful manner." Fundamental Canon 6 states: "Engineers shall act in such a manner as to uphold and enhance the honor, integrity, and dignity of the engineering profession and shall act with zero tolerance for bribery, fraud, and corruption."

Based strictly on a reading of these canons, it would seem clear that a member who falsified his tax returns for the purpose of defrauding the federal government of more than half a million dollars would have violated these two ethical principles. Yet, while all evidence seemed to confirm the member's culpability in this scheme, the CPC nevertheless found itself struggling with the question of whether the member's actions had indeed violated the code--or, more precisely, whether it was appropriate to apply the ASCE Code of Ethics to the member's personal conduct.

The code has often been described as "a model for professional conduct," and while Canons 3 and 6 themselves do not expressly limit themselves to professional conduct, the language of their guidelines seems to suggest that these strictures do apply only to behavior relating to a member's professional practice. For example, guideline b under Canon 3 says, "Engineers shall be objective and truthful in professional reports, statements, or testimony," while guideline a to Canon 6 requires that "engineers shall not knowingly engage in business or professional practices of a fraudulent, dishonest, or unethical nature."

Indeed, even the name of the CPC itself--the Committee on Professional Conduct--would seem to suggest an understanding that the committee's role is solely to investigate cases of a professional nature.

In this case, the unlawful acts appear to have involved strictly personal conduct; the fraudulent statements were made on the member's personal tax returns, the fraudulently obtained funds were used to satisfy his personal debts, and the fraudulent trust was meant to protect his family's personal assets. Indeed, none of the information featured in news coverage or presented at trial offered any linkage to the member's professional practice, nor did it raise any suggestion of impropriety in his work. And while the CPC felt it might be possible to make a tangential connection to the member's professional activities (e.g., by noting that the fraud alleviated the member's obligation to pay taxes on his engineering-related income), the committee was concerned that an unwelcome precedent might be set by diving too far into a member's personal affairs.

On the other hand, with both the trial documents and the news coverage making frequent references to the member's educational and professional background, the CPC felt that the member's conduct had certainly not enhanced the public perception of the "honor, integrity, and dignity" of the engineering profession. In addition, the CPC noted that many state licensing bodies could sanction or even revoke an engineer's license for criminal conduct unrelated to the professional practice, reflecting a philosophy that even purely personal acts might reflect on a person's fitness to practice engineering.

The CPC made numerous attempts to seek the member's side of the case, but neither the member nor his attorney offered any response to this correspondence. Instead, the member ultimately removed the decision-making burden from the CPC's hands entirely when his membership lapsed for nonpayment while the committee was still deliberating the case. Under ASCE's bylaws, individuals whose memberships lapse for nonpayment following notice of an active ethics investigation are deemed to have lapsed "with prejudice," meaning that they may not subsequently rejoin except by a two-thirds vote of ASCE's Executive Committee.

While this particular case ended without any definite answer from the CPC about the reach of the ASCE Code of Ethics, the question it raised will undoubtedly appear in a future case: Are professional ethics something that begin and end at the workplace, or are personal and professional ethics so closely entwined that a failure in one may rightly be deemed as a failure in both?


Tara Hoke is ASCE's general counsel and a contributing editor to Civil Engineering.

© ASCE, Civil Engineering, June, 2019