Investigation Uncovers Massive Fraud at Bronx Water Plant

Investigators looking into work performed on the troubled $3.2 billion Croton Water Filtration Plant in the Bronx, one of the city’s largest public works projects, have uncovered massive fraud and other crimes that are expected to lead to criminal charges against three men, a former owner, a company executive and a superintendent at an electrical contracting firm. The investigation found two fraud schemes involving Schlesinger-Siemens Electrical, a company controlled by the German conglomerate Siemens AG.

In one, the company essentially used smaller minority-owned subcontractors as fronts to make it look as if they had provided roughly $10 million in labor and equipment, when it was really provided by Schlesinger-Siemens or other companies.

By doing so, the company evaded city contract requirements that it hire a certain percentage of contractors owned by minorities or women, or certified by the government as disadvantaged.

The second arrangement, involved fraudulent filings with city agencies that made it look as if the company, as required for bidding and the contract, had a licensed master electrician on site overseeing the work: installing the systems that will run the huge plant.

The company had no such electrician for several years as it won its contracts and did much of the work, according to the people, who spoke on the condition of anonymity because the charges have not been announced.

This first phase of the inquiry, which also focused on current and former officials at Schlesinger-Siemens Electrical and at other companies controlled by Siemens AG, has been winding down; charges could be announced as early as this week.

The investigation was expected to result in a prosecution agreement under which Siemens Electrical, the successor to Schlesinger-Siemens, would, to resolve the matter, pay about $10 million and agree to reforms.

Criminal charges stemming from the same matters were also expected against three men, a former owner of Schlesinger-Siemens, a former company executive and a former superintendent.

The water filtration plant, one of the city’s largest public works projects in decades, in part, because it is being built underground — 10 stories beneath the golf course in Van Cortlandt Park — is nearly $2 billion over budget and years behind schedule.

It has been plagued by problems since before work began in 2007. There was intense community criticism, charges of mismanagement and a primary contractor’s 2010 admission that it had committed wire fraud in a similar minority-contracting scheme.

Assemblyman Jeffrey Dinowitz said, “This suggests that what many of us believed for years: Namely that this ill-advised project is plagued both with incompetence and corruption.”

In recent months, Manhattan district attorney Cyrus Vance Jr., and lawyers for Siemens Electrical have been negotiating the prosecution agreement, which would allow the company to resolve the investigation without charges that could have made it difficult for it and related Siemens companies to win future public contracts in the United States.

The city’s Department of Environmental Protection, which has overseen the project, awarded two contracts to Schlesinger-Siemens Electrical. The contracts are valued at over $200 million. In 2010, Siemens AG indicated that it had already lost more than $250 million on the plant contracts.

During the inquiry by the Manhattan district attorney’s office and two other agencies, allegations of shoddy work by Schlesinger-Siemens have also arisen.

Law enforcement officials have said they sought to determine whether it used inferior Chinese couplings — banned by city rules — to link the piping through which much of the wiring at the plant passes.

It was unclear if investigators were able to determine whether inferior couplings — many of which would now be beneath poured concrete — were used, but no related charges are planned. The environmental agency has defended its management of the project and has said all the work was up to code.

The agency acknowledged the company’s lack of a master electrician, but added that it had tightened scrutiny on electrical and plumbing licensing and hired an outside monitor. It said that there was nonetheless sufficient oversight of the work.

The federal Environmental Protection Agency has fined the city $5 million for delays on the project, which was mandated by law.

Siemens Electrical has taken over Schlesinger-Siemens’s contracts, including those at the water treatment plant. It is expected to sign a prosecution agreement with the Manhattan district attorney’s office this week.

A representative from Siemens Electrical would not discuss the investigation and said that the company “would comment at an appropriate time.”

Siemens AG pleaded guilty to federal charges in 2008 and paid $1.6 billion to the US government to settle charges it used bribes and slush funds to secure public works contracts around the United States. Federal officials later called the cooperation of Siemens AG “outstanding,” and the company has said it has changed its culture.

The inquiry is to focus on current and former employees of Siemens subsidiaries after the current charges are announced later this week.