Former County COO of Economic Development Guilty of Embezzling $6.7 Million
A Germantown resident and former Chief Operations Officer of the Montgomery County Department of Economic Development has pleaded guilty to a scheme in which he embezzled more than $6.7 million from the Montgomery County government and failed to report the money as income on his tax returns.
Byung Il Bang, also known as, Peter Bang, 59, of the 17800 block of Cormorant Lane in Germantown, pleaded guilty on Friday, Nov. 16 to wire fraud and making false statements on his tax returns, it was announced by United States Attorney for the District of Maryland Robert K. Hur; Special Agent in Charge Kelly R. Jackson of the Internal Revenue Service; and Montgomery County State’s Attorney John McCarthy.
“The County has cooperated fully with the Internal Revenue Service, the United States’ Attorney, and the State’s Attorney in their investigations,” said County Executive Ike Leggett, in statement. “We also have worked closely on the matter with the County’s independent Inspector General, and the County has retained two independent auditing firms to review the County’s system of management and control as well as past transactions in which Mr. Bang had been involved.”
According to his plea agreement, from 2010 through July 2016, Bang was the COO of the Department of Economic Development for Montgomery County. In 2016, the MC-DED was privatized and Bang’s position was moved to the Montgomery County Department of Finance, where he was employed until May 2017.
“Stealing money from County taxpayers is one of the worst things that any public employee can engage in. That’s exactly what this individual has done,” said Leggett.
The MC-DED established business incubator and/or innovation centers throughout the County with different areas of focus, such as computer technology, biological technology, and small minority - and women-owned businesses, to help small businesses by giving them below-market rent, placing them in an environment with other small businesses, and providing education on how to run a business. As MC-DED COO, Bang oversaw budgets for these incubators and was authorized to request disbursement of County funds to the incubators. Bang’s position also enabled him to authorize and direct the disbursement of money from County partners, including the Maryland Economic Development Corporation, and the Maryland Conference & Visitors Bureau, without any significant oversight or approval.
In 2010, Montgomery County and the Chungcheongbuk-Do province of South Korea entered into an agreement to develop an incubator fund. On July 20, 2010, Bang caused a company called Chungbuk Incubator Fund LLC to be incorporated in the State of Maryland and opened four bank accounts in the name of the company, listing his home address as the address of the LLC. Bang used this entity and the bank accounts to facilitate his fraud.
According to Leggett, “Bang took advantage of the fact that Economic Development funds are exempt – under County policy - from the County’s usual procurement oversight procedures, an exemption designed to give the former Department of Economic Development more flexibility in creating and attracting new jobs and investment. That put more responsibility on the Department of Economic Development itself for oversight. Mr. Bang was able to exploit his past reputation as a highly effective employee and his knowledge of established County procedures.”
Bang admitted that between 2010 and 2016, he fraudulently authorized the disbursement of $6,705,669.37 from the Montgomery County government to the bank accounts of the fraudulent entities that Bang created and controlled.
Specifically, between 2010 and 2016, Bang caused the Montgomery County Department of Finance to issue checks and direct deposits totaling $5,447,964; caused MEDCO to send a total of $1,213,987.63 to bank accounts controlled by Bang; and caused the Maryland Conference & Visitors Bureau to send a total of $43,717.74 to the Chungbuk LLC accounts. Bang did not report the money he embezzled as income on his individual tax returns. His failure to report those funds as income resulted in $2,335,913 in taxes due and owing to the IRS.
Bang also admitted that he lied on his County financial disclosure statements for the years 2012 through 2016, by failing to disclose his interest in the Chungbuk entities, including: property holdings; his relationship with an income source; and the type and amount of income he received.
“Investigations to date have indicated that Mr. Bang acted alone in perpetrating these crimes,” said Leggett. “The County retained an independent forensic auditing firm on November 28, 2017 to review the transactions engaged in by the former County Department of Economic Development going back 10 years.”
“As a result of this theft, I initiated a process to fully address the factors that allowed the individual to evade the normal controls and processes that exist to prevent fraud and abuse in County programs and to strengthen those controls and processes,” said Leggett.
Those steps include;
• Strengthened segregation of duties within each department by requiring that separate persons authorize the transaction, receive the services, and process the invoice.
• Ensured that all agreements ‘exempt’ from the procurement regulations will be subject to a new review process by representatives of the County Attorney and the Department of Finance.
• Requiring, for exempt transactions, sufficient information supporting the basis for procurement exemption, and that sufficient additional documentation supporting payments previously subject only to departmental review now be subject to centralized scrutiny.
• Centralized and improved controls and restricted systems over the held check process to require department director level authorization to pick up checks.
• Curtailed the practice of accepting vendor information directly from departments and implemented additional controls and authorizations to register vendors on an exception basis.
• Increased oversight over payment processing.
• Implemented automated forensic review of disbursements prior to payments being issued as a means to detect questionable payments.
• Establishing a new “Compliance Unit” within the Department of Finance to review and approve department requests to enter into procurement exempt transactions, ensure that those direct purchase orders have appropriate support, expand and enhance post-payment audits to ensure payments were properly supported and authorized, and analyze tests run by forensic software designed to detect irregular payment transactions.
• Trained all County managers concerning their responsibilities to ensure effective internal controls and management oversight of financial transactions, including the importance of appropriate segregation of duties, identification of potential “red flags” of employee fraud and misappropriation of funds, and what to do if such allegations or issues are identified or brought forward as allegations by other employees.
• Strengthening its oversight and management of the business incubator program by contracting through procurement with a contractor with industry expertise to perform property and portfolio management of the Silver Spring Innovation Center and will have a property management contract in place by December 1, 2018 for the Rockville and Germantown Innovation Centers while directly overseeing the financial operations of the Rockville and Germantown Innovation Centers.
As part of his plea agreement, Bang is required to pay restitution in the full amount of the victims’ losses, and to plead guilty in the Circuit Court for Montgomery County, to the state charges of theft scheme over $100,000, and misconduct in office.
Leggett added, “As to recovering the stolen monies, the County, working with the federal and state authorities, will use all means at our disposal. Loss insurance held by the County will replace some of the money. We are aggressively looking for the balance in any other accounts or properties held by Mr. Bang."
However, Montgomery County State’s Attorney John McCarthy told Fox5DC that Bang gambled away nearly all of the $6.7 million. McCarthy said the County has only recovered a second home in which Bang had invested.
Bang faces a maximum sentence of 20 years in federal prison for wire fraud, and three years in prison for making false statements on his tax returns. U.S. District Judge Paula Xinis has scheduled sentencing for February 22, 2019 at 1:00 pm.