Extortion: How Politicians Extract Your Money, Buy Votes, and Line Their Own Pockets

by Schweizer, Peter

  Dunn helped craft an SKDKnickerbocker proposal that went out to hedge funds, in late 2011, ostensibly to boost their image. The idea was simple: Dunn and her partners were offering to develop a national “paid media” pro–hedge-fund campaign as well as a “comprehensive public affairs operation” to “raise awareness about the positive role hedge funds play in the American economy” and to “eliminate the need for politicians to take aim at hedge funds.”47

  The proclaimed goal of the campaign, to be done in conjunction with the PR firm McLean/Clark LLC, was to get politicians to “think twice” about attacking hedge funds and give them “political cover” to defend the hedge-fund industry.

  The reaction from those in the hedge-fund industry was one of astonishment. As one executive who didn’t want to be named (because of the possibility of retribution) put it, “First we see Dunn attack us on television, and then she tells us to hire her to head off the exact attacks that she herself is hurling at us. The entire thing begins to stink like a protection racket.”

  The proposal warned that hedge funds needed to do something to respond to the attacks Dunn herself had helped to fuel. As the packet noted, “Both the leftist Occupy Wall Street activists and the right-wing Tea Party movement herald a new era of populist peril for anyone associated with finance. Given current U.S. volatility, various measures of a similarly reactionary nature might very well attract strong political support. . . . Hedge funds make inviting targets.” As if to add fuel to the fire, Dunn’s fellow managing director at Knickerbocker is Hilary Rosen, who sits on the board of the Center for American Progress Action Fund, which was engaged at that very time in a campaign attacking the hedge-fund industry.48 The game is simple: make threatening noises, while offering services to protect against those threats. Dunn has become a go-to person for corporations under pressure from the Obama administration. With easy access to the White House, and as a senior campaign official, she is a logical source of protection. When AT&T was facing both Department of Justice and Federal Trade Commission litigation over a proposed merger with T-Mobile, it hired Dunn’s firm to provide strategic advice.49

  The Permanent Political Class regularly solicits donations from firms and individuals concerned that they might be in legal jeopardy or face serious costs. It’s easy to see the opportunities for extracting donations.

  Consider this dilemma. On June 18, 2012, President Obama was scheduled to appear at a New York City campaign fund-raiser hosted by members of the publishing industry. But two months earlier, the Obama administration had filed antitrust cases against five leading publishers, claiming they were fixing prices on the sale of electronic books. The Obama Justice Department was also suing Apple, as the prices in question came about at Apple’s encouragement. These were the five largest publishers: HarperCollins, Hachette, Simon & Schuster, The Penguin Group, and Macmillan.50 By August, many of them had settled the suit. Granted, the publishing industry tends to be liberal and would be expected to support a candidate like President Obama. But does the legal threat create further motivation to donate? It caught the attention of seasoned reporters like John Aloysius Farrell of the National Journal. “In any other field of business, the timing would suggest a classic political shakedown—Nice little literary business you got here. It would be a shame if anything were to happen to it—or an attempt by a shady commercial interest to grease its way in Washington.”51

  We’ve come to accept this as routine: companies facing legal action from the federal government being solicited at the same time for campaign donations. On the street, this would be considered de facto extortion.

  Consider the challenges faced by the telecom industry in the spring of 2012. The cherry blossoms had already turned on the Washington Mall, and America was increasingly preoccupied by a presidential election, but what worried the telecom industry was the possibility of being sued for doing something the federal government told them to do. Telecom companies had been advised to cooperate with federal law enforcement and U.S. intelligence agencies that were monitoring criminal or terrorist activity over the Internet or telephone lines. The problem? They might be sued in civil court by customers on the grounds that they had violated the privacy rights of people using their services. A bill pending in Congress, called the Cyber Information Sharing and Protection Act (CISPA), would allow telecom companies to share information with U.S. government law enforcement and intelligence agencies dealing with a possible cyber or terrorist threat, while also granting them legal immunity from lawsuits.52 The telecom companies had been granted immunity previously, but that was set to expire. And now there was a strong push by some in Washington to repeal the immunity. President Obama was hinting at it, as were a number of members of Congress. This would be a disaster for these industries: in effect, they would be forced to share information with government agencies while being left open to lawsuits for doing so. Again, forget for a minute the policy implications of this bill and consider the extortion opportunities.

  The bill had been introduced in the House almost six months earlier. Because of some heated opposition, it was possibly stalling. One of the key votes on the issue was Congressman James Clyburn of South Carolina. A member of the powerful House Committee on Appropriations, Clyburn was the third-ranking Democrat in the House, behind Nancy Pelosi and Steny Hoyer. Owing to his seniority, Clyburn was well respected by his colleagues. Democrats in Congress were heavily set against extending the immunity, while Republicans were generally in favor. Clyburn was open to extending it, but he was also well positioned to extract money. The vote was scheduled for April 26. In the weeks before the vote, he kept coy about what his position might be. Meanwhile, he collected checks from AT&T, Verizon, and the National Telephone Cooperative Association in late March, for a total of more than $10,000. As the vote came closer, Clyburn saw the arrival of more checks. T-Mobile and the Cellular Telecom and Internet Association each sent him money, as did Time Warner Cable and the Echostar Dish Network.53 Funds also arrived from a lobbyist for the Cellular Telephone and Internet Association, and Telecom Industry Association.54

  In the end, only 42 Democrats would vote in favor of the bill, and 140 against, granting the telecom companies immunity. But Clyburn voted in favor of immunity.55

  The power of federal government officials to control or threaten large corporations is immense, even beyond legitimate law enforcement functions. In 2011 the Department of Health and Human Services (HHS) declared that the federal government would not work with the pharmaceutical company Forest Labs unless it replaced its CEO.56 HHS claimed that the longtime chief executive, Howard Solomon, had engaged in “marketing violations.” But Forest Labs had committed no real legal or regulatory violations. “The action against the CEO of Forest Labs is a game changer,” Richard Westling, a corporate defense attorney, told the Wall Street Journal. “It would be a mistake to see this as solely a health-care industry issue. The use of sanctions, such as exclusion and debarment to punish individuals where the government is unable to prove a direct legal or regulatory violation, could have wide-ranging impact.”

  In 2009, during the height of the debate over health care reform, the company Humana found itself subject to investigation because it had communicated with its customers and expressed concerns that the proposed reform bill would increase health care costs and hurt benefits to seniors. Senator Max Baucus, the chairman of the powerful Senate Finance Committee and a supporter of the bill, contacted a former aide who was then at the Centers for Medicare and Medicaid Services (CMS), which oversees federal dollar spending on those programs, and asked him to investigate the communication. Needless to say, Humana wants to be on good terms with CMS. If they get on the agency’s bad side, they risk being excluded from Medicare and Medicaid programs. CMS promptly launched an investigation of the company for expressing its opinions and sent a warning letter telling it not to do the same in the future.57

  The power of the purse is enormous in Washington. But where does all the money go? Is it main
ly just for individual politicians’ campaign funds? Or are there more nefarious ebbs and flows? You would be amazed at the complex rivers of cash, and where they flow.

  4

  The Underground Washington Economy

  Government is supposed to exist for the good of the people, not the other way around, and clearly not for the personal enrichment of those who hold public office.

  —ROD BLAGOJEVICH, FORMER GOVERNOR OF ILLINOIS, APRIL 17, 2006

  IN THE CLASSIC FILM The Godfather, the Mafia boss Don Vito Corleone (played by Marlon Brando) is visited by Johnny Fortane (Al Martino), a famous singer who also happens to be his godson. Johnny’s career is fading, and he’s been turned down for a role in a movie by some sleazy Hollywood studio boss. He’s come to ask Corleone for help. His godfather is all too glad to help. “I’m going to make him an offer he can’t refuse,” he tells Johnny.

  Later we see the studio boss waking up to find a severed horse head in his bed. Johnny, needless to say, gets the part.

  The Mafia economy is simple. Mobsters run legitimate businesses alongside illegal ones, and they use muscle and force to protect those businesses and to extort cash. As we will see throughout this book, political fund-raising can be remarkably similar. According to Clyde Wilcox, a Georgetown University professor who studies political giving psychology, “You start your fundraising network by thinking of people . . . who can’t say no.”1 But how, exactly, do they do it? The other chapters of this book reveal the opportunities and the results. This chapter is about methods.

  Campaign fund-raising generates the headwaters of the political economy in Washington. We know that it is used for winning elections. But once money has been raised by politicians, it can be moved, redirected, and shifted to other tributaries apart from campaigns. The money can be shifted into politicians’ own personal pockets, or those of their family members. And it can be transferred to the pockets of other politicians—perhaps in exchange for a vote on a particular bill.

  For regulators, the river of campaign money is a challenge, since it is visible only part of the time. It flows underground at critical junctures where it is not easily visible to the general public or to journalists. Indeed, there is an Underground Economy of politicians’ money that flows through the nation’s capital that is much wider and deeper than the nearby Potomac.

  Politicians spend an extraordinary amount of time raising money. By some estimates, it takes up between 30 and 70 percent of their day. Some of that effort is retail: sending out fund-raising letters and collecting small checks sent through the mail, online, or at a local county political event. But the heavy lifting is often done in Washington, D.C., in the shadow of the Capitol dome, while Congress is in session. This is wholesale fund-raising. Federal laws don’t allow lawmakers to collect checks in congressional buildings or in the Capitol Building (with one critical exception we discuss later). So politicians typically walk to a nearby location to either make phone calls or attend private fund-raising events. The number of events that take place is enormous. For well-positioned bars and restaurants, these events create a constant flow of business. Even in an off-election year, fund-raising remains constant (in 2011 congressional representatives and senators had more than 2,841 fund-raisers in the nation’s capital), and they often list their committee assignments on the invitations so that invitees know how they can do invitees favors, or cause them harm.2

  Former Senate majority leader George Mitchell recalls being flooded with calls from colleagues asking that he not schedule legislative business at certain times because of fund-raising obligations. In fact, there were so many of these requests that he had to ignore them: “If I put all the requests together, the Senate would never vote. I once had my staff keep a list of such requests on one day . . . and had I honored all of the requests, there could not have been a vote that day.” The requests spanned from 9:00 a.m. in the morning until midnight.3

  Politicians report making hundreds of phone calls between legislative votes, committee hearings, and nightly fund-raising receptions (sometimes multiple receptions in the same night). Closed-door fund-raisers in Washington are ritualistic events with their own set of unwritten rules. The media and the general public are not invited in. And an “invitation” to one of these events is a little like the studio boss being “invited” to reconsider his decision not to include Johnny in his movie. You can choose not to attend the event, or choose not to donate, but you may very well suffer the consequences.

  In the days leading up to the contentious Dodd-Frank financial reform bill vote, Congressman Joseph Crowley, a member of the powerful House Ways and Means Committee, held four fund-raising events targeting financial institutions that stood to gain or lose from the vote. The day before the final vote, Crowley held two fund-raising events, including a cocktail hour hosted at a lobbyist’s home. Of the forty-two guests who showed up, thirty-one were lobbyists for the financial reform bill or their coworkers. After cocktails, Crowley then went to a dinner with thirteen other lobbyists who were working on the financial reform bill. The cost to attend was $2,500 for PACs or $1,000 for individuals. Emails from his campaign show that he specifically targeted financial industry lobbyists for donations. Crowley raised $90,000 in one night.4

  The day before the final vote on Dodd-Frank, Congressman Tom Price of Georgia, a member of the Financial Services Committee, solicited donations at a “Financial Services Industry Luncheon.” It was organized with the input of Bank of America employees, who helped to write the invitation list. All but three of the individuals who attended Price’s luncheon were lobbyists for the bill.5

  Congressman John Campbell of California, also a member of the House Financial Services Committee, asked representatives of several large financial institutions—Bank of America, Chubb Corporation, MasterCard, and New York Life—if they wanted one-on-one meetings about the bill. Campbell also held a “Financial Services Dinner” in October 2009, one day before the markup of the bill in committee. Like Price and Crowley, Campbell also held multiple fund-raising events in the days before the final vote.6

  John Hofmeister, the former president of Shell Oil, recalls, “If you are invited, you are expected to be there. There is an implicit aspect of the request that makes that clear. And when you get there, you better show up with a check.”

  Hofmeister’s description of these events resembles a shakedown. Not much needs to be said, unless you fail to comply. “You are standing in the room, and there is a glass bowl in the center. You are supposed to place your check in that bowl. Someone who works for the politician is watching from the corner to make sure everyone puts their check in the bowl. It’s public. If you don’t—they are going to come and ask you why. That is the expectation.”

  And if you fail to pay your tithe? Politicians will be very blunt, says Hofmeister. “‘Why am I meeting with you?’ they will ask. ‘What have you done for me?’”

  Many executives and corporate PACs do what Hofmeister did—they purposely give to both sides. It’s kind of like paying protection money to two rival gangs. “I made it a practice to give to each side equally,” he told me. “If you want access or to raise something with them that concerns you, they check to see if you are a donor before they meet with you.”

  Politicians spend so much time raising money because that is how you win elections. Outspending your opponent is no guarantee, of course. American politics is full of examples of wealthy candidates going down in flames. But the evidence is pretty overwhelming that money matters. Nine out of ten times in the House of Representatives, and eight out of ten times in the Senate, the candidate who spends the most money wins.7

  Campaigning has always required money to reach voters. Back in 1757, a young fresh-faced former Army lieutenant named George Washington ran for a seat in Virginia’s House of Burgesses. He “provided his friends with the customary means of winning votes” by delivering a quart and a half of cider, wine, and beer to each of the 391 voters in his district.8

 
Today you can substitute media advertising and data sets for wine and beer as the best way to reach voters.

  Most politicians absolutely hate raising money. Many will echo the words of former congressman Walter Minnick of Idaho, who said, “It’s absolutely the most distasteful thing to do as a congressman, or a senator, or a candidate.”9 Connecticut’s Senator Chris Murphy laments having to squeeze fund-raising events between floor votes and says, “The conditions under which we labor are pretty depressing.”10

  This very fact, that politicians generally hate raising money, is a good reason to keep the current system. Having to raise money is one of the few things that keeps these people humble. As former senator Slade Gorton recalls, “I felt that for all of us who were senators, and who were being treated as minor nobility, that the fact that we had to go ask people for money was very healthy and that it gave you at least a slight degree of humility.”11

  The problem is not that politicians need to raise money; the problem is in how they do it, and in how they can redirect funds once they have them. Reformers want to restrict fund-raising (some even call for taxpayer-funded elections) because they believe that fund-raising is ultimately about “buying votes.” But the reality is that there is little evidence that vote-buying actually goes on in the way most people think it does. Three political scientists compared more than forty studies on the links between PAC donations and votes and found that, “in three out of four instances, campaign contributions had no statistically significant effects on legislation or had the ‘wrong’ sign—suggesting that more contributions lead to less support.”12