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

by Schweizer, Peter

  Walmart: Walmart had apparently hired agents in Mexico to help it expand its business, and those agents had given gifts—bribes—to spur movement on regulatory issues. But now the entire company, including executives and members of the board of directors who had no direct knowledge, was subject to possible legal sanction. Jim and Alice Walton, children of the founder of Walmart, were two of the largest contributors to efforts to unseat President Obama. Each contributed $200,000 to Restore Our Future, the super PAC supporting Mitt Romney.76 Jim Walton sits on the Walmart board.77 Again, it appears that bribery may have occurred. It is not at all clear that Walmart knew about it. According to the FCPA under Eric Holder, that apparently doesn’t matter.

  Hewlett-Packard: The firm came under investigation for alleged bribes made by now former employees to help a subsidiary break into the Russia market.78 CEO Meg Whitman and her husband had given a total of $200,000 to a pro-Romney super PAC.79

  What motivated the Justice Department to pursue these particular investigations? We can’t ultimately know. But given the history of the Justice Department and the SEC doing a president’s bidding, using criminal investigations as a tool of leverage and intimidation cannot be dismissed. As Professor Sara Sun Beale of Duke University Law School puts it, the very structure of the DOJ makes this sort of concern real. “It will not be possible to preclude entirely the possibility that political considerations might improperly influence decisions in individual prosecutions.” She goes on: “The nature of contemporary federal criminal law magnifies the potential for mischief, because the definitions of the relevant offenses are both broad and vague, giving the prosecutors extraordinarily wide discretion on which there are few checks.” Beale adds, “In comparison to other agencies the Department [of Justice] has a disproportionate number of presidential appointees.”80 (And recall in the Obama Administration at least half a dozen bundlers as well.) Noted defense attorney Harvey Silverglate is more blunt: “We must foster the realization that the Justice Department’s tactics too often are not employed to protect, but to attack law-abiding society.”81

  Let me be clear: I am not trying to absolve any of these firms of all wrongdoing. Exactly how they are pursued, under exactly what statute, is an important question. But my real question is this: if the Justice Department has pursued these firms, why hasn’t it gone after the Wall Street firms or MF Global? There was clear wrongdoing there too. Why does the government require intent by one set of executives (like Corzine), but not by another? Could it be that the key difference is that the Wall Street firms contributed heavily to the Obama campaign?

  After the 2012 election, Lanny Breuer resigned as the head of the Department of Justice Criminal Division. He returned to Covington & Burling to become vice chair of the firm. The key author of the Justice Department’s antibribery policy and its expansive, aggressive, opaque enforcement was now expected to earn “about $4 million” a year.82 His job? To offer advice to clients on how to avoid prosecution from his former colleagues. At Covington, according to the firm, Breuer now “specializes in helping clients navigate anti-corruption matters [among other things].” His biography on the law firm’s website notes that while at DOJ he “oversaw numerous prosecutions that set new benchmarks across a host of enforcement areas, including anti-corruption.”83 He certainly did.

  Dennis Kelleher, a former partner at another D.C. power firm, Skadden Arps, called the move a “blatant cashing-in.”84 And indeed, Breuer created a new demand for legal and accounting services that he and his colleagues leaving Justice and returning to Covington were now uniquely positioned to supply. Ethics laws require a one-year cooling-off period for Justice Department officials before they can represent defendants before their old department, “but these rules serve only to prevent the most egregious conflict of interest scenarios.”85 Breuer can still provide strategic advice and guidance behind the scenes. And his former Covington partner, Attorney General Eric Holder, is still calling the shots.

  Covington, for its part, made clear that “we are one of the few firms in the world with lawyers who recently held senior positions” at the Department of Justice, “which enables us to offer highly sophisticated advice regarding U.S. enforcement environments.”86

  Breuer is not alone. Other Justice Department officials who had lit the fuse on the antibribery bomb had also departed and could now charge big fees to defuse it. Nathaniel Edmonds left DOJ and headed to the power firm Paul Hastings, which boasts, “Mr. Edmonds was responsible for directly supervising up to half of the DOJ’s investigations into transnational bribery. . . . He also drafted portions of the FCPA Resource Guide published in November 2012, which details the contours of the FCPA legal regime.”87 Edmonds told the Legal Times after he left DOJ that with the expansion of FCPA investigations and prosecutions, “the practice would likely continue to be robust for attorneys.”88 The traditional mafiosi would have used more colorful language. Today’s revolving-door lawyers are essentially earning a form of “vig”—the money the bookies and mobsters used to skim off of betting operations.

  Many corporate executives are perplexed by the aggressive enforcement of this antibribery law, not because they defend bribery, but because the regime is encouraging it. As John Hofmeister, the former president of Shell Oil, told me, “The Foreign Corrupt Practices Act basically says you can’t give gifts to foreign government officials—which includes campaign contributions and donations to certain charities. Of course, that’s what we get asked to do all the time from Washington. Why doesn’t the FCPA cover Washington? Why not have a Washington Corrupt Practices Act?”

  Hofmeister, of course, is not holding his breath.

  9

  It’s a Family Affair

  Do you spend time with your family? Good. Because a man that doesn’t spend time with his family can never be a real man.

  –DON CORLEONE, THE GODFATHER

  HOURS AFTER SENATOR HARRY REID was sworn in for his fourth term on January 4, 2005, a collection of high-powered lobbyists gathered with him at an expensive steak house near Capitol Hill. Reid had just been selected the new leader of the Senate Democrats. The previous leader, Senator Tom Daschle of South Dakota, had lost his reelection bid that past November. Reid was seated in the quiet backroom of the restaurant. The lobbyists, who represented the largest and most powerful corporations in the world, took turns saying hello to the new leader. “It was like a scene out of The Godfather,” one lobbyist told Roll Call. “He was in the back room and people were lined up to greet him and pay homage.”1

  Senator Harry Reid rose to power in the Senate not because of natural charisma, good looks, or a gift for giving fine speeches. Instead, he has built a formidable political machine in Washington and in Nevada, a machine known for its toughness and ruthlessness. Susan McCue, then his chief of staff, said in 2005 that his methods were straightforward: Reid looks at a person’s vulnerabilities to “disarm, to endear, to threaten, but most of all to instill fear.”2

  The Reid machine is largely a family-run enterprise. If Harry Reid is the don, his three sons and a son-in-law are the street captains. The machine has accumulated significant power. With that power has come an opportunity to extract money and make the family wealthy.

  Halfway across the continental United States, Senator Roy Blunt of Missouri and his family have built an equally powerful and intimidating machine with many of the same characteristics as the Reid machine. Families engage in self-enrichment via extraction and piggybacking on power. The rise of these two families demonstrates how legal extortion has come to dominate the American political system.

  Harry Reid may be one of the most powerful men in Washington, but he grew up in tiny Searchlight, Nevada, a small mining town south of Las Vegas. In his youth, the town hosted rough bars and whorehouses. The community pool, where young Harry could swim once a week, had actually been built by a bordello owner for his prostitutes, and his sense of civic duty led him to allow town kids to swim there every Sunday. Searchlight was a tough
small town, and Harry’s mom took in wash for money while his father mined in the hardscrabble hills. When Harry Reid entered high school, he would catch a ride to class in nearby Henderson, Nevada. It was there that he found his first mentor, a high school government teacher and boxing coach named Mike O’Callaghan. A Korean War vet who had lost his leg, O’Callaghan taught Reid how to box, or more accurately, how to fight. In 1970 O’Callaghan ran for governor and won. Reid ran as lieutenant governor.

  In 1977 O’Callaghan made Reid chairman of the powerful Nevada Gaming Commission. Much of the job involved dealing with the mob. Reid knew how the game was played. He had represented an ex-con named Tony Domino, who had become a friend. “He had a big heart, and even though I suspected he had mob ties, there was nothing violent about him,” said Reid later. Organized crime had always been involved in the Vegas gambling industry. But high profits were pushing the Chicago Outfit and others to drive harder to corner the casino business. They used various techniques to move assets around. They often brought in front men who acted as the face of the casino and served as “hidden associates” who collected the extortion money. It wasn’t always clear who was who. One of Reid’s first acts as chairman of the gaming commission was controversial precisely for that reason. He personally approved the sale of the Hacienda Hotel Casino to a group of investors, even though it was opposed by the state Gaming Control Board, which believed that hidden associate mob figures were deeply involved in the purchase.3

  During his tenure, Reid did battle with mobsters, confronting wiseguys like Tony “The Ant” Spilotro, a figure in the Chicago mob, whom he barred from all casinos. That sort of behavior brought Reid death threats. In one particular case, police found a car bomb planted on the family station wagon. In July 1978, Reid was approached by a man named Jack Gordon, who offered him twelve grand to approve a new gaming machine for the casinos. Reid reported the incident to the FBI and wore a wire the next time he met with Gordon. The man was arrested and went to jail. (He later went on to marry LaToya Jackson.)4 Later, when it became clear that Gordon might be trying to kill him, a close friend visited Reid and offered to kill Gordon. Reid politely declined. “No, Gary, thanks, but forget about it.” Reid wrote later, “Wow, I thought, this is loyalty.”5

  By Reid’s accounting, he fought the mob and helped to drive them largely out of the casino industry. But other accounts paint a more complicated picture. Reid’s nickname as chairman of the commission was “Mr. Cleanface.” Ironically, the moniker came from Tony Agosto, a Kansas City mobster involved in the Chicago Outfit’s operations in Vegas. Agosto, who was the entertainment director of the Tropicana Hotel and Casino, had been monitored by the FBI and had once, in a visit with the Kansas City mob boss Nick Civella, bragged that “Mr. Cleanface” was on the mob payroll.6 Agosto’s testimony led to the conviction of several mob bosses from the Midwest. And the FBI believed that Mr. Cleanface was Reid. Agosto claimed that he channeled $10,000 a week to Reid through attorney Jay Brown, “an old and dear friend,” as Reid described him.7 But a five-month investigation of Reid by the Department of Justice revealed no evidence of criminal wrongdoing.

  Reid did go after mobsters. But he also became longtime friends and business partners with individuals like Jay Brown, whose name has appeared several times in federal investigations involving organized crime. Reid recommended Brown to be Governor O’Callaghan’s finance chairman for his 1974 reelection campaign. “The Browns and the Reids did spend a lot of time together, and we still do,” Reid says. He did land deals with Brown and also counts him as a major donor.8

  Of course, there is no need to use mob techniques for illegal ends when you can use them legally. That sense of using fear that Susan McCue talked about came not just out of the hardscrabble life of Searchlight but also from Reid’s encounters with organized crime. Reid has a calm outward demeanor, but he is a fierce player who knows how to help his friends and destroy his enemies. “I believe in vengeance,” he once told a reporter.9 Former Nevada senator Richard Bryan, a fellow Democrat, says that the man from Searchlight “has a memory like a political elephant. You cross him, he’ll never forget that. There will be a price to pay. Certainly there are people who paid the price.” When asked by a reporter for examples, however, Bryan said he would “rather not get into it.”10 Reid himself has accused other lawmakers of moblike behavior. “Our nation’s capital has been overrun by organized crime—Tom DeLay style,” he wrote in an op-ed in the Houston Chronicle. “The gangsters are the lobbyists, cronies and lawmakers who have banded together and abused their power to serve their own self-interest.”11

  Let’s see if Senator Reid was speaking from experience.

  Harry Reid’s godfather-like persona in Washington is a testament to the powerful machine that the Reid family has built in Nevada and Washington. Getting something done in Nevada usually means giving the Reids a piece of the action. You want to buy a large piece of land and develop it? You will probably have to deal with the Reids. Almost 87 percent of the land in Nevada is federal land.12 Before he became Senate majority leader, Reid sat on the powerful Appropriations Committee and the Environment and Public Works Committee.13 Reid had leverage over developers, builders, and corporations that wanted land because the federal government has to approve land swaps and land reclassifications involving federal land.14

  His sons Rory, Key, and Joshua and son-in-law Steve Barringer have all worked as lobbyists or in the government relations field greasing the wheels for these sorts of deals. All four have worked at one point or another for Lionel Sawyer & Collins, the most powerful law firm in Nevada. The firm makes its money by representing developers, mining companies, and casinos. Key Reid helped establish the firm’s office in Washington back in 2002. All four have also assumed important positions of power locally. Rory served for a time as the commissioner and vice chairman of Clark County, the most populous county in the state, and as vice chairman of the Southern Nevada Water Authority, a powerful institution in the sun-soaked desert state. Joshua Reid was appointed by President Obama to the governing board of the Tahoe Regional Planning Agency, which oversees development in the Lake Tahoe Basin. Reid has not been shy about pushing legislation that benefits his sons’ clients. As the Los Angeles Times reported back in 2003, Reid pushed the innocuous-sounding Clark County Conservation of Public Land and Natural Resources Act of 2002, which provided a “cavalcade of benefits to real estate developers, corporations and local institutions that were paying hundreds of thousands of dollars in lobbying fees to his son’s and son-in-law’s firms, federal lobbyist reports show.”15

  Son-in-law Steve Barringer has earned millions representing large mining companies like Barrick Gold as a lobbyist.16 According to one estimate based on lobbying records, he collected as much as $3.7 million between 1999 and 2009. During that decade, Senator Reid pushed to cut capital gains tax on collectible precious metals and pushed the U.S. Mint to produce more gold coins; both of these measures would increase demand and boost gold prices.17 In return, Barrick Gold funneled money to the Reid family through a variety of fund-raising committees. Barrick Gold regularly pumps money into Reid’s Senate campaign committee, joint fund-raising committees, and leadership PAC.18

  Reid doesn’t just pull the strings in Washington. When something is going on at the local level that he doesn’t approve of, he will call and shut it down. When Bruce Woodbury, a Clark County commissioner, wanted to set up a land swap to prevent a new residential development from going up in Boulder City, Reid called Woodbury to say he didn’t want the land swap to happen. “He was pretty blunt about it,” Woodbury says. The call ended with Reid abruptly hanging up. The deal died.19 When MGM was building a massive project called CityCenter, it ran into financial trouble. The project was under construction, but financing dried up. Harry Reid got on the phone and told banks to free up money so the project could be completed. They did.20

  Nevada developer Chris Milam learned the perils of the Reid machine when he tried to develop an
arena and bring an NBA team to Nevada. He hired Key Reid as a consultant in May 2011 and put him on a $5,000 retainer. But when it became clear that the Sacramento Kings of the NBA were not moving to Nevada, Milam tried to convert the project into a residential development. To make that happen he sued the City of Henderson, Nevada. The new city attorney was Harry Reid’s son Josh. Josh Reid told Milam’s legal team that “a longtime staffer of his father” was now in charge of the federal Bureau of Land Management, and even if they won the case in court, the feds would block him. Milam settled the case.21

  How Josh Reid became the city attorney for Henderson was itself an expression of Reid family power in Nevada. After Josh Reid left law school, he became a shareholder and attorney in the powerful firm Brownstein Hyatt Farber Schreck in Las Vegas. With its large lobbying operation, the firm could boast of its connections and ability to help energy companies get government-backed loans and Department of Energy grants as part of the 2009 stimulus. The firm took out an ad in the Wall Street Journal that read, “Expertise in sustainable energy law is worth nothing without connections. Learn how we’ve helped clients obtain funding from the Department of Energy through the American Recovery and Reinvestment Act.”22 Josh Reid focused on environmental regulatory matters at the firm. His bio explains that he organized the sale and lease of significant wind and solar projects, advising clients “on federal and state renewable energy policy” and helping with “project development strategies” for clients that included large public utilities.23

  When the opportunity to become city attorney of Henderson arose in 2011, Josh Reid was interested. The problem: the job called for ten years of experience. Josh had only eight. So the city council miraculously decided to change the rules and lower the requirement to eight years. Senator Harry Reid then called Henderson mayor Andy Hafen to discuss the merits of hiring his son.24 Reid was soon on the payroll for the $199,000-a-year job.25