Federal Reserve instructed to preserve documents

APRIL 20, 2001

In a move being called "highly unusual," the investigator assigned to the trust fund lawsuit on Thursday ordered all Federal Reserve banks be instructed to preserve any documents related to the assets of an estimated 300,000 American Indians throughout the country.

The order comes just two days after Special Master Alan Balaran faulted the Federal Reserve for destroying trust fund records as recently as March. In a legal opinion, Balaran on Monday cited the fed for its "abysmal record" at preserving financial records.

Balaran said 29 out of 37 Federal Reserve banks reported destroying documents. Some banks have yet to respond to his request for information, he also said.

Yesterday's action marks the first time the banks have received explicit instructions not to destroy documents. The Departments of Treasury and Interior have been under similar orders since the beginning of the five-year-old case, but haven't always complied.

In August 1999, Judge Royce Lamberth fined the agencies $600,000 for failing to report that Treasury employees destroyed some 162 boxes of trust documents. Government lawyers attempted to cover the incident up.

By that time, then Treasury Secretary Robert Rubin, then Secretary Bruce Babbitt, and then Assistant Secretary Kevin Gover had been declared contempt of court for failing to produce key documents in the case.

Yet numerous reports of destruction have continued to stain the government's record since then. Balaran is currently conducting investigations into a number of the incidents.

With regards to the Federal Reserve, the Treasury was able to escape direct blame by convincing Balaran officials had no control over actions taken by bank employees. But that won't necessarily be the case in the future, as Balaran's order will hold the Treasury accountable for directing the Fed to preserve any records.

While the Federal Reserve provides services to the Treasury, it is not a party to the Cobell lawsuit. The Federal Reserve is the central banking system of the US government but is not an agency of the Treasury, who has a trust responsibility to account holders.

Yesterday's order will be in effect for 60 days, during which time the Federal Reserve must obtain written approval before destroying any trust related documents. Once the two months are up, Balaran may extend the order.

The plaintiffs in the case, led by Blackfeet Nation of Montana banker Elouise Cobell, said the level of oversight was "highly unusual."

Relevant Links:
Federal Reserve - http://www.federalreserve.gov
Department of Treasury - http://www.ustreas.gov
Trust Management Improvement Project - http://www.doi.gov/bia/trust/tmip.htm
Indian Trust: Cobell v. Norton - http://www.indiantrust.com

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The Trust Fund Fiasco (Smoke Signals 1999)

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