Extortion (8 page)

In 2011 Boehner raised six times what he had raised in 2010 when he had merely been minority leader. But it’s not just politicians who extort. Well-connected members of the Permanent Political Class also got in on the Wall Street game. Anita Dunn joined the Obama campaign in 2008 and served as director of communications. When President Obama was elected, she moved to the West Wing, where she served as communications director. Her husband, Robert Bauer, became President Obama’s White House counsel. They were lauded as one of Washington’s “Power Couples” by
Newsweek
magazine.
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During her tenure in the White House, Dunn was part of a vocal group of political activists who tilted to the left. She became a staunch critic of the hedge-fund industry and of Wall Street for their excessive compensation.
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Shortly after leaving the White House, she became a director at the consulting firm SKDKnickerbocker. The firm specializes in corporate communications, crisis communications, and public relations. Dunn’s contributions at the firm included providing “strategic communications” advice to clients.
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Immediately upon joining the firm, she peddled some very expensive advice to those she had so aggressively criticized.

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.”
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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.
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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.
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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.
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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.”
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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.
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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.
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Funds also arrived from a lobbyist for the Cellular Telephone and Internet Association, and Telecom Industry Association.
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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.
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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.
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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.
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The power of the purse is enormous in Washington. But where does all the money go? Is it mainly 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

I
N 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.”
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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.
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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.
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