Treasury Department Challenges Independence of TARP Inspector General

ABCNews’ Jake Tapper & Matt Jaffe report

The Obama administration’s disputes with government watchdogs do not end with fired Inspector General Gerald Walpin. Behind the scenes, the Treasury Department is embroiled in a disagreement with Neil Barofsky, the watchdog for the $700 billion government bailout Troubled Asset Relief Program, or TARP.

The dispute was revealed in a letter that Sen. Chuck Grassley, R-Iowa, sent on Wednesday to Treasury Secretary Tim Geithner, first reported by the Los Angeles Times’ Peter Wallsten .

As part of his duties performing audits and keeping tracking TARP dollars, Barofsky asked the Treasury Department for some documents about a financial institution receiving tens of billions in taxpayer bailout dollars. The Treasury Department refused to hand them over, “on a specious claim of attorney-client privilege,” Grassley wrote. “It is my further understanding that this disagreement then escalated into broader questions about whether SIGTARP is subject to your direct supervision and direction, which may have been referred outside Treasury for an independent legal opinion.”

“The ability of Inspectors General to secure agency records subject to audit or investigation is essential to ensure the integrity and reliability of their work on behalf of Congress and the American People,” Grassley wrote. “The Inspectors General were created by Congress as a means to combat waste, fraud, and abuse and to be independent watchdogs ensuring that federal agencies are held accountable for their actions.”

“We will review the letter and respond to the Senator before making comment as is our practice,” a Treasury official said. Barofsky’s office had no comment.

The subject of the disagreement between Geithner and Barofsky remains unclear, but there is something of a paper trail.

In a memo dated April 7, Barofsky – referring to his office under the name SIGTARP, Special Inspector General for TARP -- clearly felt compelled to defend the independence of his office.

“SIGTARP believes that the Emergency Economic Stability Act of 2008…provides that SIGTARP is an independent entity within Treasury, that SIGTARP is not subject to the Secretary’s supervision, and that attorney-client privilege is not a bar to SIGTARP’s access to Treasury’s records or information,” Barofsky wrote to Geithner at the time.

In a statement, Grassley said, ”The grassroots is furious about the way TARP dollars have been used and what looks like a lack of accountability for this massive infusion of tax dollars. It’s added injury to hear about the Treasury Department putting up hurdles to slow down the work of the watchdog who’s supposed to track the money. One of the biggest lessons of the last year is that the public deserves more transparency and, in turn, accountability from New York and Washington.”

Barofsky is not the only inspector general who has been butting heads with the administration. Walpin, the former Inspector General of the Corporation for National and Community Service, was fired last week by President Obama , a move that incited criticism on Capitol Hill from both sides of the aisle, including from Grassley and Sen. Claire McCaskill, D-Missouri .

-Jake Tapper & Matt Jaffe

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