Bank accused of shredding taxpayers’ returns hires Washington lobbyists

Mellon Financial Corp.--the Pittsburgh-based banking and investment giant whose employees lost and hid taxpayer filings last year when the company was under federal contract to handle tax payments--retained two lobbying firms last month to advise the company on "congressional oversight of the processing of federal tax returns and payments," according to lobby disclosure firms.

The lobby firms--Sullivan & Cromwell and the Smith Free Group--did not return calls from National Journal, and a spokesman at Mellon's headquarters said that the company would have nothing to say about the lobbying arrangement.

But the move comes roughly seven months after Mellon officials acknowledged that employees at its Pittsburgh processing center lost tens of thousands of tax returns sent by individual taxpayers in New York and New England.

Several commercial banks--including Mellon--contracted with Treasury's Financial Management Service to receive returns from taxpayers, under what is called a "lockbox" contract. The role of the banks is to deposit the enclosed checks on behalf of the government and then forward the tax documents to the IRS. But the agency canceled Mellon's Pittsburgh contract after hundreds of taxpayers called the IRS to ask why their checks hadn't cleared.

A subsequent investigation found that as many as 71,000 tax returns sent by taxpayers to Mellon's Pittsburgh center had disappeared. The documents were reportedly stuffed in drawers and hidden in boxes. Some are alleged to have been shredded.

The company fired the workers responsible, but the IRS canceled the contract, and Mellon did not win the replacement contract.

It is unclear why Mellon has decided to hire lobbying firms now. Prior to the hiring of Smith Free and Sullivan & Cromwell, Mellon Financial Corp. did not report having any lobbyists in Washington, either in-house or outside the company.

However, Sen. Charles Schumer, D-N.Y., recently cited Mellon's mistakes in a well-publicized letter to IRS Commissioner Charles Rossotti. In the letter, Schumer asked Rossotti about the safeguards now used by the IRS to prevent similar problems elsewhere.

Mellon also has other contracting work with the federal government to protect. An existing "lockbox" contract with a Mellon facility in Los Angeles is still active, said Alvina McHale, legislative and public affairs director at the Financial Management Service.

Another Mellon program was touted as recently as last month by Treasury officials in testimony before Congress. In that program, Mellon collaborated with the Bureau of Public Debt, Treasury's Financial Management Service, MasterCard and IBM Corp. to build a widely used Internet-based system to sell U.S. Savings Bonds directly to the public.

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