The Center for Public Integrity Latest Stories

Clean Air case yields rare criminal convictions in New York

2013-06-18T06:06:01-04:00

In a rare criminal prosecution under the Clean Air Act, the U.S. Department of Justice scored a double victory this year, winning convictions against a western New York coke manufacturing plant and its former environmental manager.

Next up: sentencing for the company and its manager in July — and hope, in the town of Tonawanda, just upstate from Buffalo, that the prosecution will help end decades of concern over the toxins tainting the community.

The federal case focused on Tonawanda Coke Corp. and environmental manager Mark L. Kamholz, of West Seneca, N.Y.

For years, residents had complained that elevated levels of benzene, a carcinogen, emanated from the plant. Homeowners began taking evidence with their own hands, testing the air with special buckets and pressing authorities to take action. Their contention: The plant had for years underreported its emissions. The community’s struggle for clean air was explored as part of a 2011 series, Poisoned Places, by the Center for Public Integrity and NPR.

In March, a federal jury confirmed the community’s long-standing fears.

Charged in a 19-count indictment, the company and executive were convicted of 14 and 15 felonies, respectively. Each was convicted of five counts of violating the Clean Air Act by emitting coke oven gas from an unpermitted emission source, along with other convictions for operating the plant without required pollution control devices called baffles. Other violations involved the Resource Conservation and Recovery Act.

They were acquitted of four Clean Air Act counts. Kamholz, but not the company, was convicted of obstruction of justice for instructing an employee to conceal emissions during an inspection.

“Citizens of this community are entitled to breathe clean air and drink clean water,” U.S. Attorney William J. Hochul Jr. said in a prepared statement after the verdict. “From the evidence of this case, where literally hundreds of tons of coke oven gas containing benzene was released into the atmosphere and significant quantities of hazardous waste containing benzene were left out in the open, it would be hard to imagine a more callous disregard for the health and well being of the citizens of this community.”

Tonawanda Coke and Kamholz are scheduled to be sentenced July 15 in federal court in Buffalo, though the defense is asking for a delay. While the convictions could yield prison time and millions in fines, the plant itself still produces worry for the working-class western New York town, where many living near the facility suffer from health problems.

For Joyce Hogenkamp, watching lawyers present evidence in the downtown Buffalo courthouse made her think of her late mother.

Growing up on Hackett Drive about two miles from the plant, Hogenkamp remembers how her mother always slept with the window open, out of a fear of closed spaces, even though winds from the southwest blew in smoke from the coke plant that smelled like burning tires. She, like many in the community, eventually became sick.

When the trial recessed one day, “I cried the entire drive home that day,” Hogenkamp said.

Jackie James-Creedon, who founded a local group that used buckets and hand-held vacuums to test the air near the plant, watched nearly every day of the four-week trial. For years, she and her neighbors pressed state regulators to act. It took five years before New York regulators formally blamed Tonawanda Coke for the town’s air pollution; it took another four years for the criminal trial to begin.

Still, James-Creedon said she had been “concerned” that the jury wouldn’t see the evidence as she did.

“I literally was shaking, just with anticipation,” James-Creedon said.

Uncommon Criminal Case

Yet Tonawanda’s case proved to be nearly unique: A rare criminal prosecution of the federal Clean Air Act.

Prosecutors say the complexity of Clean Air Act cases makes them difficult to prove — one reason prosecutions are so rare, the Center for Public Integrity reported in Poisoned Places. Since 1990, fewer than 800 Clean Air Act cases had led to fines or prison time — the fewest of any of the three major environmental laws designed to protect air, water and land, the Center found.

Instead of criminal prosecution, the federal government is far more likely to pursue civil cases, which typically result in corporate fines and agreements to curtail emissions. Companies would surely prefer to settle cases with civil fines — than face criminal prosecution.

"Usually it doesn't get to this point," said Richard Lippes, an environmental attorney representing about 400 personal injury cases against Tonawanda Coke. “Usually once a company’s hands are found in the cookie jar, they’ve got to put the cookies back and maybe have to beg for more cookies.”

The EPA says that fewer criminal cases were initiated in part because of personnel cuts, and as part of a strategy to focus on the worst polluters. According to agency data, the EPA initiated 320 criminal investigations overall in 2012 and charged 231 defendants — both down from 2011. The agency says asbestos prosecutions made up 41.5 percent of cases — still the most common, but down from previous years. Cases involving false statements, tampering with equipment or permit violations were 23.6 percent of all cases opened, the agency said.

“The criminal enforcement program identifies and investigates cases with significant environmental, human health, and deterrence impacts while balancing its overall case load across all pollution statutes,” the EPA said in a statement.

The EPA closed 28 criminal cases involving the Clean Air Act in fiscal year 2012 and so far in 2013, the Center found, yet few involved air pollution from industrial plants. Instead, more than 60 percent involved asbestos disposal violations. About 10 percent covered violations of ozone rules, two prosecutions targeted scammers who sold biofuel credits for fuel they didn’t produce, and two cases targeted vehicle inspectors who accepted payoffs to falsely pass cars that didn’t meet pollution standards.

Four cases concerned industrial polluters like Tonawanda Coke that reported false information to the EPA as part of Clean Air Act-mandated permits.

Prosecutions don’t always lead to prison time. Belvan Corporation, which operates a natural gas processing plant in Crockett County, Texas, and three of its executives pleaded guilty in 2012 to a Clean Air Act violation for failing to correct malfunctioning equipment that diverted acid gas into the plant’s flare system, releasing hydrogen sulfide, sulphur dioxide and other pollutants. The company waited years to report the emissions, “and thus placed people in imminent danger of death and serious bodily injury,” the EPA said.

The company was fined $500,000. The executives paid $50,000, $22,000 and $15,000 fines — and were ordered to spend eight hours completing an environmental awareness training program.

In the Tonawanda Coke case, jurors took five and a half hours to reach a verdict. At trial, prosecutors said the plant released coke oven gas, containing benzene, through an unreported pressure relief valve. The company skirted other anti-pollution laws through its “practice of mixing its coal tar sludge, a listed hazardous waste that is toxic for benzene, on the ground in violation of hazardous waste regulations,” according to prosecutors.

Just before a 2009 EPA inspection, Kamholz told a fellow employee “to conceal the fact that the unreported pressure relief valve, during normal operations, emitted coke oven gas directly into the air, in violation of the TCC’s operating permit,” the DOJ said.

Attorneys for Kamholz and Tonawanda Coke did not respond to interview requests. In court papers, the lawyers are asking the judge to dismiss most of the convictions.

In theory, the convictions could bring significant sentences: Tonawanda Coke faces a $200 million maximum fine, and Kamholz could be sentenced to prison for as long as 75 years. But few expect maximum sentences to be handed out.

A fine of $8 million to $10 million, and a year or two of jail time might be more realistic, said Erin Heaney, the executive director of the Clean Air Coalition of Western New York.

Assessing the damage

In Tonawanda, state officials are still trying to measure the damage to the air, water and soil — and to people’s bodies — in an effort that will continue long after sentencing.

According to a draft health outcomes review published in February by the New York Department of Health, residents living near the plant have been more likely to suffer lung and bladder cancer; men showed more cases of esophageal cancer, while women were more likely to have uterine cancer than the rest of the state. The study cautioned, however, that it couldn’t prove what caused the illnesses.

When residents started using homemade air tests using buckets and vacuums almost 10 years ago, they found levels of benzene 500 times above state health guidelines. State tests later found benzene levels between 10 and 75 times above the guidelines, plus high levels of formaldehyde, carbon tetrachloride and other toxins. Federal officials then forced the company to install monitoring equipment that pinpointed benzene emissions at 91 tons per year — about 30 times more than its previous reports to air regulators had indicated.

Investigators later found the plant didn’t have required pollution control devices. For years, the omission went unnoticed by state officials. The plant also opened an emergency valve every 20 to 30 minutes that released untreated gas laced with chemicals.

Now, residents say money is needed to continue the monitoring long-term, and help people pay for health services. Activists are concerned that, under the EPA’s rules, there’s no guarantee fines remain in the community. In theory, Heaney said, they could simply be deposited in the U.S. Treasury.

Hoping to prevent this, residents have launched a frantic campaign to gather victim impact statements. The hope, James-Creedon said, is that U.S. District Judge William Skretny will order fine money allocated for community improvement projects. The Clean Air Coalition is holding a series of community meetings to let the public brainstorm and ultimately vote on which projects residents prefer.

Still, the uncertainty has James-Creedon nervous. “We’re not sure we’re even going to see one penny of that money,” she said.

And, Tonawanda Coke must comply with numerous EPA violations that began with the initial investigation — and manage pollution levels if production, which dipped during the economic downturn, begins to rebound.

“It’s a relatively obsolete plant,” said community attorney Lippes, “so bringing themselves into compliance may not be that easy.”

New super PAC forms in contested Calif. district

California,United States — 2013-06-17T12:35:34-04:00

A new super PAC called "Empower Central Valley" has registered with the Federal Election Commission, listing its address in California's 10th Congressional District, which is represented by sophomore Rep. Jeff Denham, a Republican.

Last year, the district was one of the top targets for partisans on both sides of the aisle. On top of the $4.4 million spent by the candidates themselves, outside groups spent more than $8 million on the race, according to the Center for Responsive Politics.

Just two other House contests in California saw more non-candidate spending during the 2012 election cycle.

The Democratic Congressional Campaign Committee alone pumped nearly $2.7 million into the district in 2012 on advertisements critical of Denham or supportive of Democratic candidate Jose Hernandez. Meanwhile, the GOP-aligned American Action Network spent about $2.5 million on such messages, according to the Center for Responsive Politics.

Empower Central Valley's objectives are not yet clear. The group lists its treasurer as Nancy Watkins, a Florida-based Republican accountant who did not immediately respond to requests for comment from the Center for Public Integrity. Its mailing address is listed as a box at a UPS store in Tracy, Calif., in San Joaquin County, and it does not have a website.

Watkins has served as the treasurer for dozens of GOP candidates and groups across the country, including Rep. Michele Bachmann's failed presidential bid in 2012. Earlier this month, she signed on as treasurer for a super PAC that's backing Republican Gabriel Gomez in Massachusetts' special U.S. Senate election.

While Republicans have a slight edge in California's 10th Congressional District, President Barack Obama beat out Republican Mitt Romney there by 3.5 percentage points in 2012, according to the nonpartisan Cook Political Report, which currently ranks the district among the top six dozen competitive House districts in the country.

OPINION: an outbreak of bipartisanship

Michigan,United States — 2013-06-17T10:34:57-04:00

Folks, there is reason to be hopeful that our lawmakers can put aside their ideological differences every now and then and do what makes sense for constituents.

In fact, last week some of the people we have elected to represent us — at least at the state level — even showed a willingness to put careers at risk by doing what they believe is the right thing.

One of the most contentious issues during state legislative sessions this year has been whether to expand the Medicaid program for low-income individuals and families, as Congress intended when it enacted health care reform three years ago.

The state-level debate was made necessary when the Supreme Court ruled last year that Congress can’t force the states to expand their Medicaid programs, even if the feds will always cover no less than 90 percent of the cost. Medicaid is jointly funded by the states and the federal government.

All of the states in which Democrats control both the governor’s office and legislature were quick to notify the Obama administration that they would take the federal money and expand their Medicaid programs to include families with incomes up to 138 percent of the federal poverty level. But that has not been the case in many of the states where Republicans enjoy a majority in one or both legislative chambers or have a Republican governor.

To date, 20 of those states have said “no thanks” — at least for now. The debate is still going on in seven others. But 23 states and the District of Columbia, including a number of red or purple states, have agreed to move forward with expansion next January.

Advocates of both health care reform and bipartisanship had reason to cheer last Thursday when lawmakers in conservative Arizona passed and sent to GOP Gov. Jan Brewer a Medicaid expansion bill she had endorsed. It would not have passed had several Republicans in both the House and Senate not joined Democrats in supporting the bill during a special session of the legislature.

The other good news Thursday came from Michigan, when after nine hours of debate, the GOP-controlled House approved, on a bipartisan vote of 76-31, a bill supported by Democratic Gov. Rick Snyder to expand Medicaid there.

I learned about it within minutes of the vote, thanks to Twitter. “Medicaid expansion passed!” tweeted Democratic Rep. Rashida Tlaib. “So proud of both my Democratic and Republican colleagues today.”

One legislator, Democrat Brandon Dillon, went so far as to say that Thursday was the first day he’d been proud to be a state rep.

And this from Republican House Speaker Jase Bolger: “This is a great example of cooperation in Lansing leading to the resolution of a difficult issue in a way that keeps the focus on the people of Michigan and what they need.”

It clearly took time for Republicans in both Arizona and Michigan to come around to supporting any part of the federal reform law they have criticized from the beginning.

While many Democrats hold the belief that “health care is a human right,” Republicans had to be persuaded that expansion makes sense from an economic point of view.

Crain’s Detroit Business quoted Republican Mike Shirkey as saying he was a “hard no” initially because of his general opposition to “Obamacare” but that he came around to support the expansion bill after weighing the pros and cons.

“There are perfectly good, legitimate, philosophical reasons to oppose, but a sincere effort to analyze the other sound, definable and measureable reasons to support outweighed those,” he said.

Among those measurable reasons: when more poor people have coverage, hospitals will have less “uncompensated care,” a misnomer because hospitals charge paying customers — and their insurers — substantially more just to cover the cost of care they provide to people who don’t have the means to pay.

Another compelling reason why many Republican lawmakers ultimately supported expansion is that if they didn’t, the federal taxes paid by state residents toward expansion would go to places that did enlarge their Medicaid programs.

As the Arizona bill was on its way to Brewer, she said in a statement that “it will extend cost-effective care to Arizona’s working poor using the very tax dollars our citizens already pay to the federal government.”

It may take a while, maybe even a few years, but I’m betting that lawmakers in the states that are saying “no thanks” now — even “hell no” — will eventually come around, despite what surely will be continued opposition from the Tea Party wing of the GOP. They will figure out at some point that it makes no sense for their fellow Floridians or Texans, for example, to be paying with their taxes for the coverage of folks in Arizona and Michigan.

Soros charitable foundation sometimes leans right

SOROS FUND MANAGEMENT LLC — 2013-06-17T06:03:02-04:00

George Soros may be one of the nation’s top liberal political benefactors, but his company’s charitable program encourages employees to donate to any cause they would like — even if it potentially conflicts with his political ideology.

Soros Fund Management, a hedge fund firm founded by Soros in 1969, will match any donation an employee makes to a nonprofit organization, a common practice among large companies.

And while Soros strongly supports myriad progressive causes, including abortion rights and same-sex marriage, the Soros Fund Charitable Foundation contributed more than $255,000 to 35 different Christian organizations and churches, which typically lean right, in 2012, according to Internal Revenue Service records reviewed by the Center for Public Integrity.

For instance, 12 affiliates of the U.S. Catholic Church, which has heavily criticized President Barack Obama’s stances on contraception and abortion, together received nearly $50,000 last year from the foundation. They include the Archdiocese of New York, the Diocese of Bridgeport, Conn., and various schools and churches throughout Connecticut, New York and New Jersey.

The foundation, a 501(c)(3) nonprofit of which Soros is one of several directors, also donated $2,700 to the Campus Crusade for Christ, which shortened its name to “Cru” two years ago. Among its many religious affirmations, Cru states “that God has called us to help build … spiritual movements everywhere, so everyone knows someone who truly follows Jesus Christ.”

Cru spokeswoman Alison Geist said the organization does not take a prospective donor’s ideology into account when raising funds.

“We gratefully accept financial contributions from all who desire to spread the good news of Jesus Christ around the world,” Geist wrote in an email to the Center for Public Integrity.

Other faith-based organizations also received money from the company’s foundation. The foundation contributed more than $825,000 to 15 separate Jewish synagogues, schools and organizations around the country and an additional $63,000 to two Islamic-affiliated groups. Dozens of mainstream charities such as the United Way and Habitat for Humanity, as well as several colleges, likewise received funding.

The Soros Fund Charitable Foundation also made contributions last year to a pair of politically active organizations known for their liberal advocacy. It gave $120,000 to Human Rights Campaign Foundation and $15,000 to the Planned Parenthood Federation of America.

Planned Parenthood spokeswoman Deni Robey said in an email that it is the organization’s policy “to accept gifts and grants for specific programs and purposes, provided that their intent is consistent with Planned Parenthood’s mission, policies, beliefs and current priorities.”

In 2012, Planned Parenthood’s super PAC and 501(c)(4) nonprofit arms spent a combined $11.9 million backing Democrats running for office, while its political action committee donated $1.7 million to Democratic candidates and groups, according to the nonpartisan Center for Responsive Politics.

Additionally, Democrats received $1.1 million in contributions last cycle from pro-gay rights Human Rights Campaign's PAC, which only spent around $58,000 on independent expenditures through its 501(c)(4) arm.

The Soros Fund Charitable Foundation’s single largest 2012 contribution went to the Trustees of Deerfield Academy, a boarding school in northwestern Massachusetts, which received $514,500.

Overall, the Soros Fund Charitable Foundation made $8.6 million in contributions to dozens of public health, education and faith-based nonprofit groups, among others, during calendar year 2012 and approved another $1.1 million for future payment, IRS documents show. The foundation finished 2012 with more than $167 million in assets, which have steadily grown over the last 15 years.

Most of the private foundation’s original funds came from the sale of stock holdings initially provided by Soros Fund Management. Last year’s sole source of revenue was nearly $9 million in investment income.

Michael Vachon, a spokesman for Soros Fund Management, said the charitable fund was originally created to promote philanthropy among the company’s employees, and that Soros does not personally determine where the funds are directed.

“It shows the diversity of our employees,” Vachon said.

Soros, 82, made his most notable splash in national politics during the 2004 election, contributing a total of $23.7 million to liberal-leaning 527 committees dedicated to defeating then-President George W. Bush.

Soros was less active throughout the 2012 election, but, along with his family, still ranked among the cycle’s top 20 donors to super PACs, contributing $5.1 million to those aligned with Democrats.

That included $1 million apiece from the elderly patriarch to the pro-Obama Priorities USA Action and American Bridge 21st Century. His family members also donated a combined $1.1 million to a super PAC his son, Jonathan, founded to push for campaign finance reform.

Soros is also a chairman, director, trustee or board member for 16 other nonprofit organizations.

This includes his chairmanship of the Open Society Foundations, which provides funding for the Center for Public Integrity. (For a list of the Center's donors, visit this page on the Center's website.)

ICIJ releases offshore leaks database revealing names behind secret companies, trusts

2013-06-15T10:03:24-04:00

When Bernard Madoff built his $65 billion house of cards; when food distributors passed off horsemeat as beef lasagna in Europe; and when Apple, Google and other American companies set up structures to channel their profits through Ireland — they all used tax havens.

They bought secrecy, minimal or zero taxes and legal insulation, the distinctive products that tax havens market and that allow companies to operate in a fiscal and regulatory vacuum. Using the offshore economy is akin to acquiring your own island where the rules that most citizens follow don’t apply.

The International Consortium of Investigative Journalists publishes today a database that, for the first time in history, will help begin to strip away this secrecy across 10 offshore jurisdictions.

The Offshore Leaks Database allows users to search through more than 100,000 secret companies, trusts and funds created in offshore locales such as the British Virgin Islands, Cayman Islands, Cook Islands and Singapore. The Offshore Leaks web app, developed by La Nación newspaper in Costa Rica for ICIJ, displays graphic visualizations of offshore entities and the networks around them, including, when possible, the company’s true owners.

Attacking Apathy

The data are part of a cache of 2.5 million leaked offshore files ICIJ analyzed with 112 journalists in 58 countries. Since April, stories based on the data — the largest stockpile of inside information about the offshore system ever obtained by a media organization — have been published by more than 40 media organizations worldwide, including The Guardian in the U.K., Le Monde in France, Süddeutsche Zeitung and Norddeutscher Rundfunk in Germany, The Washington Post and the Canadian Broadcasting Corporation (CBC).

ICIJ’s investigation — called Offshore Leaks by the Twittersphere and the public —has shaken the political and economic establishments from South Korea to Canada, sparking investigations, resignations and a renewed sense of urgency among world leaders that this is the time to rein in offshore abuses .
EU Commissioner Algirdas Semeta said the ICIJ’s investigation has transformed tax politics and amplified political will to tackle the problem of tax evasion – knocking down what the EUobserver called “a wall of apathy” in Europe that had thwarted previous attempts to attack offshore secrecy.

“I personally think Offshore Leaks could be identified as the most significant trigger behind these developments ... It has created visibility of the issue and it has triggered political recognition of the amplitude of the problem,” he told EU Observer.

Semeta said the need for tax transparency overrides the principle of data privacy.
During a visit to the White House in May, British Prime Minister David Cameron made a strong pitch for tackling what he called “the scourge of tax evasion,” one of the central themes of next week’s “G8” meeting, in Northern Ireland, of leaders of eight of the world’s wealthiest countries. “We need to know who really owns a company, who profits from it, whether taxes are paid,” said Cameron, who is under pressure from the international community to address the role of Britain’s crown dependencies and territories in the offshore economy.

Anti-corruption advocates are pushing Cameron to persuade the other G8 leaders to support proposals that would require owners of shell companies to register their holdings in public registries.
ICIJ’s Offshore Leaks Database reveals the names behind more than 100,000 secret companies and trusts created by two offshore services firms: Singapore-based Portcullis TrustNet and BVI-based Commonwealth Trust Limited (CTL). TrustNet and CTL’s clients are spread over more than 170 countries and territories.

The Offshore Leaks web app allows readers to explore the relationships between clients, offshore entities and the lawyers, accountants, banks and other intermediaries who help keep these arrangements secret.
While the database opens up a world that has never been revealed on such a massive scale, the ICIJ Offshore Leaks Database is not a “data dump” — it is a careful release of basic corporate information. ICIJ won’t release personal data en masse; the Offshore Leaks Database doesn’t include records of bank accounts and financial transactions, emails and other correspondence, passports and telephone numbers. The selected and limited information is being published in the public interest.

Pressure for Change

ICIJ’s reporting to date has revealed the offshore dealings of politicians, oligarchs, rogue nations and even religious leaders. While many of the arrangements are perfectly legal, extensive reporting by ICIJ and others show that the anonymity granted by the offshore economy facilitates money laundering, tax evasion, fraud and other crimes.

Even when it’s legal, transparency advocates argue that the use of an alternative, parallel economy undermines democracy because it benefits a few at the expense of the majority.

After 17 months of reporting, ICIJ reporters and partners are still digging into this massive trove of financial information. The Offshore Leaks Database gives ICIJ an opportunity to reach journalists and regular citizens in every corner of the world, particularly in countries most affected by corruption and backroom deals. ICIJ believes many of the best stories may come from its readers when they explore the database.
As it fields tips from the public, ICIJ will continue to work on in-depth, cross-border investigations with its network of reporters and media partners. At the same time, ICIJ will continue to reject demands from governments that it turn over all of the files in its offshore trove. ICIJ is an independent network of investigative reporters — not an arm of government.

Some of the same governments that at one time requested ICIJ and its partners to hand over the full cache of files later announced that they have been working on a gigantic leak of offshore documents similar to those obtained by ICIJ. U.S., U.K. and Australian tax authorities said they will share the data with other governments.

The release of the Offshore Leaks Database happens at a time of economic turmoil. Many countries are still fighting the effects of the 2008 financial crisis, putting leaders around the world are under unprecedented domestic and international pressure to make sure tax revenue is not lost to offshore havens.

Within days of ICIJ’s April release of dozens of stories based on the secret offshore files, French president Francois Hollande called for the “eradication” of tax havens. Europe’s largest economic powers — the U.K., France, Spain, Italy and Germany — announced that they will start exchanging bank information.

The surprise was even bigger when tiny Luxembourg, long known as one of the world’s most secretive tax havens, said it will share information with tax authorities about European and U.S. citizens with bank accounts in the country. Another “onshore” European tax haven, Austria, saw the country’s most powerful banker, Herbert Stepic, resign in May in the wake of an Offshore Leaks story that revealed he used companies in Hong Kong and the British Virgin Islands to conduct property deals he did not report to his employer, Raiffeisen Bank International AG.

Meanwhile, U.K. Prime Minister Cameron is trying to clean up his own backyard: the 10 crown dependencies and overseas territories that serve as tax havens. He has summoned their top ministers to London this weekend to try to convince them to share tax information widely with governments around the world. In a letter to the territories, Cameron told them that the time has come to “knock down the walls of company secrecy."

Semeta, the EU tax commissioner, said the change in EU politics — after years of stalling — is due to “a perfect storm” of events, including ICIJ’s Offshore Leaks.

“Secrecy is no longer acceptable. We need to get rid of it,” Pascal Saint-Amans, tax policy director for the Organization of Economic Cooperation and Development, told The Toronto Star. “If the rules make it possible, then we'll change the rules.”

Obama campaign fundraisers picked for plum ambassadorships

2013-06-14T18:39:47-04:00

President Barack Obama’s new picks to represent American interests in Denmark, Germany and Spain are all major Democratic fundraisers.

Rufus Gifford — who served as Obama’s 2012 campaign finance director and chairman of the president’s 2013 inaugural committee — has been selected to be the new ambassador to Denmark, the White House announced in a press release late Friday afternoon.

Obama also intends to nominate John B. Emerson, an executive at the investment firm The Capital Group Companies, and John Costos, a vice president at Home Box Office, to serve as the U.S. ambassadors to Germany and Spain, respectively.

Emerson raised at least $500,000 for Obama’s 2012 re-election efforts, according to a Center for Public Integrity review of information released by the campaign.

So, too, did Costos, along with his partner Michael Smith — whom the Obamas selected in 2008 to redecorate the White House and who currently serves on the Committee for the Preservation of the White House.

The actual amounts raised by the men could be much higher as the Obama campaign only voluntarily released information about their bundlers using broad ranges, the highest of which was “more than $500,000.”

Gifford, Emerson and Costos are among the first individuals to be nominated for ambassadorships since Obama’s re-election that are not career diplomats.

Like Costos, Gifford is openly gay. His former partner, Jeremy Bernard, currently works as the White House social secretary.

Their nominations come as gay rights activists have expressed frustration with the president for being slow to implement campaign promises that would guarantee more equal treatment.

First Lady Michelle Obama was heckled by a lesbian member of GetEQUAL at a Democratic National Committee fundraiser earlier this month.

The U.S. Supreme Court is also set to soon rule on two high-profile gay rights cases.

Obama also announced support for two career diplomats to be ambassadors to Brazil and Ethiopia, as well as Ken Hackett, the former head of Catholic Relief Services, to serve as the ambassador to Vatican City.

All ambassador-nominees must be confirmed by the U.S. Senate.

Majority of Supreme Court members millionaires

2013-06-14T14:14:04-04:00

At least five and perhaps as many as eight of the nine members of the U.S. Supreme Court are millionaires according to recently released financial disclosures, and only two hold any consumer debt.

Assets on the forms are reported in a range making it impossible to say precisely how much each justice is worth, but suffice to say, none of them are hurting financially.

Ruth Bader Ginsburg boasts the highest potential net worth at $18.1 million with Stephen Breyer a close second at $17.1 million. Both were appointed by former President Bill Clinton.

However, Ginsburg’s actual net worth may be as low as $4.4 million and Breyer’s as low as $5 million. Federal officials are also exempt from disclosing the value of their homes, making an accurate calculation even more difficult.

After collecting nearly $2 million in book advances, Justice Sonia Sotomayor's assets rose to between $1.7 and $10.3 million, ranking her No. 3 in terms of highest potential net worth. Sotomayor is an appointee of President Barack Obama.

Chief Justice John Roberts, an appointee of former President George W. Bush, possesses one of the court’s most complex financial portfolios. His net worth is valued between $2.8 million and $6.6 million, ranking him No. 4.

As for the rest:

Antonin Scalia, appointed by former President Ronald Reagan, reported a net worth between $1.9 and $4.2 million, ranking him No. 5.

Obama appointee Elena Kagan's assets total between $815,000 and $2.1 million, according to the Center’s analysis, putting her at No. 6.

Clarence Thomas, an appointee of President George H.W. Bush reported between $1.8 million and $715,000, ranking him seventh.

Samuel Alito has not yet filed his 2012 report and sought an extension, but in 2011 the George W. Bush appointee reported between $380,000 and $1.1 million in wealth putting him at No. 8 for maximum potential wealth.

Anthony Kennedy, appointed by Reagan, reported assets of between $330,000 and $700,000, placing him at No. 9.

Salaries plus perks

Justices make good money, though with their backgrounds they could easily earn much more in the private sector. Roberts, as chief justice, earns $223,500 per year, while the eight associate justices make $213,900.

But there are perks. Judges rake in tens of thousands of dollars from speaking fees, professorships and book deals.

Most of Ginsburg’s assets are held in mutual funds and retirement accounts. In 2012, Ginsburg earned nearly $26,000 for taking part in two separate university-sponsored events, including a two-week Wake Forest School of Law summer seminar held in Venice, Italy, and in Vienna, Austria.

The bulk of Breyer’s holdings are in mutual funds, retirement accounts and bonds. But one of Breyer’s two largest reported assets is a $1 million to $5 million stake in Pearson, the publishing company that owns the Penguin Group and The Financial Times. The justice collected between $15,000 and $50,000 last year in dividends thanks to his stock holdings in that company.

Breyer enjoyed a windfall last summer when he sold his stock in Amgen, Inc., the pharmaceutical company that was party in a case that came before the Supreme Court in its most recent term. In late September, just a month after he realized between $15,000 and $50,000 in gains by selling his Amgen holdings, the court docket noted that Breyer was no longer recused from proceedings related to the case.

Investing in China

Also notable is Breyer’s holdings in Tai Shan Fund which invests in tech companies in China, Hong Kong and Taiwan and is part of a Boston-based capital management firm led by investor Thomas Clafflin, according to a Bloomberg report.

Roberts has invested heavily in technology and telecommunications companies — some of which have had business before the high court. He also owns a mix of bonds, retirement accounts, mutual funds and shared ownership of a cottage in County Limerick, Ireland.

The top justice owns up to a total of $750,000 in shares of Time Warner, Microsoft and Texas Instruments and up to $200,000 in T-Mobile and Sirius XM Radio stock, according to his report.

Roberts recused himself from a patent dispute involving Microsoft, which the software giant lost in a unanimous 8-0 decision in 2011.

As the Center for Public Integrity reported last week, Justice Sonia Sotomayor’s disclosure is notable for the nearly $2 million she received in book advances and promotion for her memoir, My Beloved World, published by Knopf Doubleday.

One of Sotomayor’s most valuable assets is her former New York City residence, now a rental property valued between $1 million and $5 million, though she carries a mortgage on the property. Unlike most of her colleagues on the bench, Sotomayor reported a handful of liabilities in her disclosure, including between $250,000 and $500,000 for the rental. Her debts for four credit cards were each less than $15,000.

Scalia reported a debt of less than $15,000 for a loan on a life insurance policy.

Scalia also reported receiving between $5,000 and $15,000 in rent for a property he owns in Charlottesville, Va. His report also shows that he has investments in gold-related securities totaling between $80,000 and $215,000.

Scalia reported earning $26,500 in 2012 for teaching at five different universities, including John Marshall Law School and the University of Southern California. Scalia also reported receiving nearly $64,000 in book royalties. Last year, the justice co-authored Reading Law: The Interpretation of Legal Texts with legal scholar Bryan Gardner.

Well-traveled justices

Scalia traveled frequently in 2012. In the “Reimbursement” section of his financial disclosure, he reports 28 trips to various schools and organizations to deliver speeches and lectures.

In most cases, the justice was provided or reimbursed for transportation, food and lodging. (Federal officials are not required to report how much they were reimbursed, either in exact amounts or in dollar ranges.) In September and October, Scalia gave speeches and lectures at five events hosted by the Federalist Society, a conservative nonprofit that advocates reform of the legal system.

Scalia reported giving a speech at an Aug. 25 event hosted by “Friends of Abe,” a low-profile conservative group organized by actor Gary Sinise and whose members reportedly include singer Pat Boone and actor Jon Voight.

Scalia also reported receiving one gift in 2012. According to his disclosure report, the justice accepted a $1,000 shotgun from the National Wild Turkey Federation.

The bulk of Kagan’s assets were invested in mutual funds and retirement accounts, including some from the University of Chicago, where she was a law professor in the 1990s.

Thomas reported investments in gold- and silver-related securities valued at somewhere between $60,000 and $200,000, according to his report.

Though Kennedy was the high court’s least wealthy justice for the third consecutive year, his report indicates that 2012 was a year of jet setting for the moderate judge. Between January and November of last year, Kennedy traveled to Las Vegas, Palm Springs, Aspen, Maui, London and Paris for various speaking and teaching arrangements.

Justice for sale in state supreme court elections?

2013-06-13T23:47:16-04:00

Is justice for sale at the state level? That is a legitimate question in the many states that now elect their supreme court justices. (Only 12 states do not elect their justices.)

A new study by The Center for Public Integrity shows that outside spending groups —including nonprofits that do not disclose their donors and state-level super PACs— are funneling more and more money into state supreme court races. And they’re having an impact. Out-of-state influence likely helped decide recent races in North Carolina, Iowa and Mississippi.

The Center examined 10 high-profile state supreme court elections in 2012 and 2013 in which outside spending was a factor. At least a third of the $11.7 million spent by independent groups originated outside the election states, mostly from Washington, D.C.-based organizations, according to our analysis of campaign finance reports, tax records and documents filed with the Federal Communications Commission.

Tracking all outside spending is nearly impossible thanks to lax state disclosure rules, as well as a loophole in the federal tax code that allows politically active nonprofits to run attacks ads without disclosing who funds them.

The Center chose 10 states for this investigation based on their notoriety and the high level of spending by outside groups. Besides North Carolina, Iowa and Mississippi, our research focused on Florida, Louisiana, Michigan, Montana, Ohio, Oklahoma and Wisconsin.

The influence of nonprofits and super PACs has changed the nature of state supreme court races, formerly shielded, at least in part, from the broad influence of money and partisan politics. Now, in many states, justices are involved in bare-knuckle partisan brawls similar to those that characterize non-judicial elections. In such contests, money makes a big difference.

In the 10 state races analyzed by the Center, national political groups were active directly or indirectly in seven. Seventy-five percent of the outside money could be traced to the long-running battle between trial lawyers and business interests. Trial lawyers helped carry the day in Florida, Louisiana and Oklahoma, while the U.S. Chamber of Commerce says it was successful in North Carolina, Michigan, Ohio and Mississippi.

In the months ahead, The Center for Public Integrity will be expanding its coverage of spending in governor’s races by all outside groups. And the Center will be looking at financial disclosures of state supreme court justices and federal appeals court judges. Stay tuned. Until next week.

Bill

Tornado shelter firm lobbies up for federal tax relief

Oklahoma,United States — 2013-06-14T14:15:58-04:00

In the wake of tornadoes ravaging Oklahoma, a storm shelter company is heading to Washington, D.C., in search of financial assistance — and has hired a prominent lobbyist to help.

Del City, Okla.-based OZ SafeRooms hired firm McDermott, Will & Emery to press the federal government on “storm shelter tax relief legislation,” according to documents filed this week with the U.S. Senate.

To date, there's no bill pending in Congress this year that calls for residential tax breaks on storm shelters, although Sen. Jim Inhofe, R-Okla., introduced such legislation — it died in committee — in 2011. Federal tax breaks would ostensibly make OZ SafeRooms's products more affordable to homeowners.

OZ SafeRooms has little Washington experience, as the company has never lobbied the federal government before and does not sponsor a federal political action committee, according to federal records.

The storm shelter company will, however, be represented by one of the larger lobby shops in Washington.

McDermott, Will & Emery earned nearly $1.4 million in lobbying income through the first three months of this year, according to the Center for Responsive Politics. The firm has wide range of clients, including the pharmaceutical company Allergan, the Brewers Association and the Coalition for Rational and Fair Taxation.

Teddy Eynon, a partner at McDermott, Will & Emery, will personally lobby for OZ SafeRooms on Capitol Hill.

Prior to working at McDermott and several other lobbying outfits around Washington, Eynon served as deputy chief of staff to former Rep. John Shadegg, R-Ariz., from 1999 to 2002, and as counsel to former Rep. Elton Gallegly, R-Calif., from 1997 to 1998.

A spokesman for OZ SafeRooms declined to comment on the company’s lobbying activity. Eynon did not return several requests for comment.

But OZ SafeRooms is outspoken about the durability of its storm shelters, with the company’s website displaying several photos of its poured concrete structures that it says survived a “direct hit in Moore, Oklahoma, with no damage.” It describes its shelters as "the world's safest tornado protection."

Two separate tornadoes cut through the Oklahoma municipalities of Moore and El Reno in late May, claiming dozens of lives and injuring hundreds of others. The El Reno tornado is believed to be the widest twister ever observed at about 2.6 miles across.

Inhofe's 2011 storm shelter bill called for individuals to receive a federal tax deduction of up to $2,500 for the purchase, construction and installation of storm shelters.

Inhofe's unsuccessful bill followed a series of tornadoes in his home state during September 2011, and it's unclear as to whether he plans to reintroduce it. A representative for Inhofe could not be reached for comment.

Following the latest tornado in Oklahoma, the mayor of Moore, Okla., called for a new ordinance requiring all new homes to have reinforced storm shelters, which the Associated Press reports can cost around $4,000 to build.

Groups seek Justice Department intervention in Dallas-area school discipline

2013-06-13T10:57:36-04:00

Dallas-area students who are tardy or accused of unexcused absences are allegedly being handcuffed at school, forced into court and saddled with fines of up to $500 — in violation of their constitutional and civil rights, according to a complaint three civil rights groups filed Wednesday with the U.S. Justice Department.

The complaint was filed against four Texas school districts in the Dallas region and against Dallas County truancy courts, where children accused of excessive absences must appear before judges.

The complaint, which asks federal officials to intervene, alleges that students’ rights are violated because they appear in court for prosecution on misdemeanor charges with no appointed counsel; are inappropriately restrained; and are not adequately advised of their rights. The rights of children and parents who speak limited English and of disabled children have also been violated, the rights groups allege.

The Center contacted the independent school districts named in the complaint — Richardson, Mesquite, Dallas and Garland — and the truancy courts, but not all were available for comment. The districts that did respond said they were complying with the law, and using the truancy courts only as a last resort.

Attorneys with Texas Appleseed, a nonprofit law group, the National Center for Youth Law and Disability Rights Texas filed the complaint on behalf of seven children.

Texas courts, the complaint charges, pursued about 113,000 truancy cases against children ages 12-17 in 2012, allegedly more than twice the number of truancy cases prosecuted in the other 49 states combined. Dallas County prosecutes more truancy cases than any other county in Texas, with more than 36,000 cases filed in 2012.

The courts collected in excess of $2.9 million in truancy fines in 2012. According to the complaint, that’s equivalent to about 75 percent of the Dallas Truancy Courts’ total operational costs per year.

Deputy Director of Texas Appleseed Deborah Fowler told the Center for Public Integrity she observed truancy court proceedings over the course of a year and witnessed tactics she believed amounted to intimidation.

“The pressure on children during the plea process,” the complaint says, “is amplified by the truancy court’s threat of jail.” The complaint went to say that “families regularly reported that judges threatened to send children to jail, even children who were too young to be sent to jail.”

“During one court proceeding,” the complaint alleges, “a judge told a student that he would be ‘happy to take two days out of [the student’s] life’ by sending him to jail and that the student would ‘never get [those days] back again.’ ”

Richardson Independent School District published a statement saying that it complies with Texas Law in prosecuting truancy, and works proactively to educate students and parents about attendance expectations.

Laura Jobe, an administrative officer for communication for Mesquite Independent School District, said it treats truancy courts as “a last resort.” The district has no current plans to update their truancy policy or practices, but will be reviewing the concerns raised in the complaint.

The Justice Department did not immediately respond to a request for comment.

Dallas County Judge Clay Jenkins told the Dallas Morning News that that representatives of the three law centers spent days in court “harassing” families, and looking for disgruntled defendants.

“People who are being held accountable for not complying with the law are generally not happy about it,” the Morning News quoted the judge saying.

Attorneys with the law centers told the Center that schools in the Dallas area have developed a variety of stringent policies and anti-truancy rules that are often confusing and overly punitive.

In some schools, turning in a doctor’s note three days late means a sickness is counted as an unexcused absence. Three absences can lead to a Class C misdemeanor ticket, which carries up to $500 fines and if not paid, the risk of jail time once a minor turns 17.

One student named in the complaint, Brittany Brown, is a special-education student who claims to have received erroneous unexcused absences by her school. At her hearing, Brown appeared with no counsel, the complaint says, and her mother threatened with contempt of court.

Another student named in the complaint only by her initials, J.D., allegedly missed school because of illness – she suffers from asthma — and was prosecuted for truancy for failing to turn in a doctor’s note within three days.

Another student, K.W., has missed school because of her mother’s serious illness and was prosecuted for absences, the complaint says.

Michael Harris, senior attorney for the National Center for Youth Law, said he wonders if courts have grown accustomed to the flow of cash.

“Over and over again, they were really focused on extracting money from the students or the parents,” he told the Center. “We heard judges many times threaten students or parents with jail time if they did not pay these fines. It was really frightening. If they are under 17, then the judge really doesn't have the authority to put them in jail, but the kids don’t know that.”

The complaint is filed with the U.S. Justice Department’s Civil Rights Division, Equal Education Opportunities Section. The complaint asks that the Justice Department declare the practice of prosecuting truancy as a crime as unconstitutional.

It also asks that schools be required to exhaust school-based and community-based intervention programs to deal with unexcused absences and turn to courts only as a last resort.

The complaint asks that federal officials require that school districts direct teachers and administrators to consider reasonable explanations for class tardiness and absences, and modify polices to ensure that disability-related absences are properly excused.

Security lapse provokes new criticism of huge role played by costly intelligence contractors

2013-06-14T14:20:25-04:00

The Obama administration promised four years ago that it would significantly shrink the number of private contractors working for U.S. intelligence agencies. But a key member of Congress said this week she remains unconvinced the administration has done enough to shift critical intelligence-related jobs back to government employees.

The most recent public data from the intelligence community depict a one-year decline of 1 percent in the number of contractors holding security clearances, leaving private-sector workers still holding about 22 percent of all those clearances.

In the wake of new controversy about such work, stemming from the recent leak of secrets about U.S. surveillance tactics by a federal contract employee in Hawaii, officials this week cited the decline as a sign of the administration’s commitment to reduce the outsourcing of intelligence work, reversing a hasty expansion of the contractor population after the Sept. 11, 2001 terrorist attacks.

But members of the Senate Intelligence Committee say that problems with outsourcing intelligence functions to private contractors have not been solved. The panel reported in March that after some early progress, some intelligence agencies have been hiring additional contractors. This has resulted in a contracting workforce that “continues to grow,” the committee said in a March 22 report on its activities.

The battle over the administration’s commitment to thin contractor ranks is expected to intensify because of the unprecedented security breach claimed this month by Edward Snowden, who worked less than three months for national security consulting giant Booz Allen Hamilton. The company said it fired the 29-year-old Snowden on Monday for violations of its ethics policy.

At the White House this week, spokesman Jay Carney responded to questions about the number of contractors and their access to classified material by saying these topics merit debate. But he did not say if President Obama will reassess the role of contractors. “I think that is an interesting question and perhaps worthy of debate as part of this conversation that we should be having,” Carney said Tuesday.

Director of National Intelligence James R. Clapper’s office, reacting to questions by the Center for Public Integrity, said this week that the number of so-called core contractors, who assist in the collection and analysis of intelligence, has declined by 36 percent since 2007, when the collection of such personnel data began.

But that statistic, which appears in an unreleased report, refers to a subset of the overall number of those contractors holding clearances, and partly to reductions that preceded Clapper’s arrival in August 2010, government sources said. The pace of reductions has since slowed and “in certain cases, the addition of new contractors outweighed those [positions] dropped and converted” to civilian jobs, one congressional source said, speaking on condition he not be named.

Senate Intelligence Committee Chairman Dianne Feinstein, D-Calif., who vowed in 2010 to keep pushing “until contractors are not used for any inherently governmental purpose” in the intelligence community, said this week in a statement to the Center for Public Integrity that she plans to step up her efforts now. “I am working on legislation to reduce the numbers of contractors and their access to highly classified information,” she said Tuesday.

Congress passed legislation in 2011 allowing intelligence officials to exceed authorized personnel ceilings if they hire federal employees to replace contract workers on a one-for-one basis. But it has not used legislation to force specific cuts in the contractor workforce.

At a Sept. 13, 2011 joint hearing of the House and Senate Intelligence Committees, Feinstein disclosed what she described as a 2009 agreement by the Obama administration to shrink contractor numbers by 5 percent a year, largely by transferring to federal employees any "inherently governmental" work being done by contractors.

The impetus for the informal promise, which had not been publicized before then, was public outrage over the involvement of private contractors in some of the prisoner abuses at Abu Ghraib prison in in Iraq in 2003 and 2004. A congressional aide said this week that the agreement originally involved the Central Intelligence Agency. But the 17 agencies that make up the nation’s intelligence community also agreed to reduce the number of contractors performing a range of critical tasks, the aide said.

That 2009 agreement capped a year when Feinstein’s committee seized on the contracting issue and revealed in a report accompanying the annual intelligence authorization bill that in 2008, contractors comprised 29 percent of all intelligence community personnel but collected a whopping 49 percent of the personnel budget.

The committee acknowledged agencies had made a 3 percent reduction in the total number of intelligence contractors in 2009, but insisted in its report on a 5 percent reduction in 2010.

On July 20, 2010, Feinstein raised the outsourcing issue during Clapper’s confirmation hearing to be director of national intelligence. She and her committee colleagues said they were disturbed by disclosures in the Washington Post that more than 300 firms carried out key functions of the intelligence community.

The number of contractors had been “coming down slightly” during the tenure of his predecessors, she told Clapper.

He agreed with her that time had come “for that pendulum to swing back as it has historically” to reduce the size of the contractor workforce as the wars in Iraq and Afghanistan were ending. Clapper, an Air Force lieutenant general who retired in 1995 and then worked briefly as a Booze Allen Hamilton executive for military intelligence programs, explained past growth by saying that with the “gusher” of funding after 9/11 to support the wars and global counterterrorism operations, “it is very difficult to hire government employees one year at a time.”

“So the obvious outlet for that has been the growth of contractors,” Clapper said. But he added that he needed to see what impact past contractor cuts have had, telling Feinstein: “I’m just reluctant to commit to a fixed percentage" of annual reductions.

By the time Clapper appeared at a joint hearing of the House and Senate intelligence committees on Sept. 13, 2011 — an event intended to assess the intelligence community a decade after 9/11 — Feinstein told him and then-CIA Director David Petraeus they were not doing enough on the contractor front.

Clapper’s office had released figures for fiscal year 2010 showing that the number of so-called core contractors who give direct support to critical intelligence tasks had declined by only 1 percent.

“We had an agreement in 2009 to reduce I.C. contractor numbers by 5 percent a year, but it's clear that progress has not been maintained and sufficient cuts are not being made,” Feinstein said.

When asked this week to comment about the agreement, Michael Birmingham, a spokesman for Clapper, declined to discuss what he referred to as private discussions between the director of national intelligence and the Senate and House Intelligence Committees.

But Birmingham gave a preview of the case Clapper is likely to make to Congress about the size of the contractor workforce. “Since Director Clapper has been the DNI, the number of core contract personnel has been reduced by 15 percent," he said. Details appear in a classified report given to Congress.

A congressional source said a reduction in the rate of shrinkage “is to be expected, as the cuts get harder the more you make.” But Feinstein still believes that “further cuts are appropriate, that contractors should not be performing inherently governmental functions, and that contractors should not have access to large amounts of highly classified information, as Mr. Snowden appears to have had,” the aide added.

Feinstein’s interest in limiting access to classified material is not surprising. “Clearly there’s going to be intense scrutiny of the security clearance [process] as a result of the Snowden case,” said Steven Aftergood, director of the Federation of American Scientists Project on Government Secrecy. Among key questions federal investigators and lawmakers will be asking, he said, are: “Was the scope of his access broader than justified? Was he vetted? Or was he fully vetted?”

“People are asking, why does a kid who couldn't make it through a community college can make $200,000 grand a year and be exposed to some of our most significant secrets,” Senate Appropriations Committee chairwoman Barbara Mikulski (D-Md.) said at a hearing Tuesday. “So we'll have a lot of hearings ... on this.”

The latest annual report on security clearances showed the annual shifts vary by category. In fiscal year 2012, 15,482 fewer contractors held confidential, secret or top-secret clearances than in fiscal year 2011. But 4,428 more held top-secret clearances to handle the most sensitive information, like that leaked by Snowden.

The total number of people with security clearances rose 1.1 percent in the one-year period, with 4.9 million government employees and contractors having confidential, secret or top-secret clearances as of last Oct. 1, the report said. Of that total, 1.4 million held top-secret clearances, with more than a third of that group comprised of contractors.

The report also listed a significant jump in the number of contractors deemed eligible during the year for a top-secret clearance — and a nearly corresponding drop in the number of government employees who were given similar status.

The 133,493 contractors newly deemed eligible for access to top-secret information represented a 30.5 percent increase over the number of contractors in the same category the year before. The number of contractors eligible for confidential and secret clearances rose by nearly 12 percent. For government employees, however, the number eligible for top-secret clearance dropped by nearly 22 percent, while those eligible for confidential and secret clearances declined by 9 percent, the report showed.

Birmingham, the spokesman for Clapper, discounted any notion that these trends portend substantial contractor growth in the last year, explaining that the figures only refer to government workers and contractors considered eligible for access to sensitive materials, but not yet awarded their clearances. Some outside experts said this data could reflect the high turnover seen often within the contractor workforce.

Both Clapper’s office and the White House took pains this week to praise the vast majority of intelligence contractors as patriotic Americans who take an oath to protect the nation’s national security secrets.

“Contractors are an integral part of our workforce and are critical to our national security efforts,” Clapper said in a message sent Monday to the Intelligence Community workforce. “No matter what color badge you wear, you prove every day how much you care about our nation.”

In response to questions Tuesday, White House spokesman Carney said, “I would note that contractors have long been involved in both our defense and intelligence efforts, and that when it comes to security clearances, they are subject to the same system of checks and security clearance procedures as government employees.”

D.C.-based groups bombarded state high court races with ads

2013-06-15T02:16:28-04:00

Correction (June 14, 2012, 8:21 p.m.): An earlier version of this story reported that Carrie Severino, chief counsel to the Judicial Crisis Network, had said that the organization's strategy was to end judicial appointments and switch to judicial elections. Severino says she did not make this statement and that the JCN’s “objective is to promote judicial selection methods — be they elective or appointive — that are accountable to the people they serve. [N]either I nor JCN has ever engaged in a strategy to end judicial appointments, nor have we promoted state judicial elections as a one-size-fits-all approach. On the contrary, we have applauded efforts to establish a federal style of judicial appointments in some states.”

Sam Ervin IV must have been feeling pretty good about his chances of winning a seat on the North Carolina Supreme Court last fall.

He had name recognition — his grandfather was the legendary senator who led the Watergate investigation — and a poll released less than a week before Election Day showed him leading his opponent, incumbent Justice Paul Newby by 6 points, 38-32.

But on the Friday before the election, "Justice for All NC" — an independent political committee whose funding came mostly from out of state — dropped a TV ad depicting a scowling Ervin and asking: "Sam Ervin. Can we trust him to be a fair judge?"

Ervin lost the race by 4 points, 52 percent to 48 percent.

“As far as I know,” says Ervin, “there had never been an attack ad in a North Carolina judicial race.”

North Carolina’s supreme court election was arguably decided by groups like Justice for All — secretive nonprofits, unaffiliated with a candidate, whose money came from out of state.

Independent groups accounted for at least $2.59 million in spending to influence North Carolinians’ supreme court vote with more than half the total ultimately coming from groups outside the state, according to a Center for Public Integrity analysis.

And North Carolina is not alone.

The Center for Public Integrity examined 10 high-profile state supreme court elections in 2012 and 2013 where outside spending was a factor. At least a third of the $11.7 million spent by independent groups — collected from campaign finance reports, tax records and documents filed with the Federal Communications Commission — originated outside the election states, mostly from Washington, D.C.-based organizations.

Out-of-state influence likely helped decide races in North Carolina, Iowa and Mississippi.

The influence of nonprofits and super PACs has changed the nature of state supreme court races, formerly shielded, at least in part, from the influence of money and partisan politics. Now, in many states, justices are involved in bare-knuckle partisan brawls similar to those that characterize non-judicial elections.

Trial lawyers helped carry the day in Florida, Louisiana and Oklahoma, while the U.S. Chamber of Commerce says it was successful in North Carolina, Michigan, Ohio and Mississippi.

***

In North Carolina, supreme court campaigns are mostly funded by taxpayers to spare candidates from having to raise significant money and appear beholden to individuals, companies or interest groups that may face them in court. The outside money in last fall’s race overwhelmed the public finance system, rendering it largely irrelevant.

Justice for All NC, which spent $1.7 million to influence the race, got 68 percent of its money, or $1.2 million, from the Washington, D.C.-based Republican State Leadership Committee. The group in 2010 spearheaded a Republican effort to elect GOP state legislators, who would determine the boundaries of congressional districts following the U.S. Census.

The U.S. Chamber of Commerce’s Institute for Legal Reform gave $3.5 million to the RSLC in 2012, making it the largest single donor to the national Republican group last year. The Institute, a major foil of trial lawyers, lobbies for legislation that would mandate lower damage awards in civil trials.

The anti-Ervin ad was just one part of what appeared to be a coordinated effort between a network of groups with ties to the D.C. area to defeat Ervin and keep Newby on the bench. Officials from RSLC did not return calls seeking comment.

The D.C. money arrived early and stayed late.

In August, the Washington, D.C.-based nonprofit Judicial Crisis Network gave $75,000 to pay for radio ads supporting Newby. The group doesn’t disclose its donors.

Starting in October, another group, the N.C. Judicial Coalition, which received $1.5 million from Justice for All NC, blanketed the state with TV ads featuring a banjo player crooning about Newby’s tough stance on crime.

The North Carolina arm of Americans for Prosperity, the northern Virginia-based group tied to billionaire industrialists Charles and David Koch, spent $225,000 on mailers in late October calling on Newby to “keep standing up for taxpayers.”

The icing on the cake was the attack ad against Ervin just days before the election.

Ervin too had help from outside groups, though they spent only $71,500 on his behalf.

The ultimate provenance of much of this money is a mystery to the public. Those in the know aren’t talking and the disclosure rules in state campaign finance laws and federal tax codes mean they are not required to.

“The average voter doesn’t need to trace every dollar to figure out whether to vote for a candidate,” says Judicial Crisis Network’s chief counsel, Carrie Severino.

***

In Michigan, the Judicial Crisis Network spent more than $1 million on a last-minute attack ad against Democratic supreme court candidate Bridget Mary McCormack. The ad featured the mother of a slain soldier chastising McCormack for “volunteer[ing] to help free a terrorist.”

McCormack wound up receiving the most votes in her race.

Because of Michigan’s lax disclosure rules, the group did not have to report any of its spending to state election officials. Instead, a watchdog group, Michigan Campaign Finance Network, collected filings from local TV stations to calculate the group’s spending.

Teri Johnson, the mother who appeared in the ad, says she was never told who paid for them.

“I don’t know anything about the finances behind it,” she says.

McCormack says her campaign did not know who was behind the Judicial Crisis Network attack, or why she had been targeted among a field of other liberal candidates.

As a “social welfare” nonprofit, the group is not required to report its donors.

Regulatory filings show that the group has several ties to well-connected conservative political operatives.

It shares office space in Washington, D.C., with Grover Norquist’s anti-tax group, Americans for Tax Reform.

Gary Marx, the Judicial Crisis Network’s former executive director, is executive director of the Faith and Freedom Coalition, evangelical powerbroker Ralph Reed’s advocacy organization.

Treasurer Neil Corkery holds the same title for the National Organization of Marriage, the largest anti-gay marriage group in the country. The group spent at least $148,000 in Iowa’s state supreme court race last year.

Tax filings show that the Wellspring Committee, a social welfare organization run by Neil Corkery’s wife Ann, gave the Judicial Crisis Network $350,000 in 2010 and another $170,000 in 2011, making it by far the largest donor to the group. Judicial Crisis Network’s total revenue in fiscal 2010, which ended on June 30, 2011, was $382,453. Wellspring also doesn’t name its donors.

Neither Marx nor the Corkerys returned calls seeking comment.

***

In Iowa, 57 percent of the money spent in a retention election for Justice David Wiggins came from groups backed primarily by out-of-state donors.

Conservative groups, including Colorado-based Focus on the Family, the D.C.-based National Organization for Marriage and the Pennsylvania-based Patriot Voices run by former presidential candidate Rick Santorum, spent $225,000 trying to toss Wiggins from the bench. None of these groups disclose their donors.

In 2010, conservatives successfully unseated three of Wiggins’ former colleagues after the high court voted unanimously in favor of gay marriage.

Wiggins won, thanks in large part to $115,000 spent by another non-disclosing nonprofit, the gay-rights group Human Rights Campaign. Spokesman Fred Sainz says his group was determined to counter the conservative money being spent trying to unseat Wiggins.

“Our goal was to ensure that the campaign in Iowa had the resources that it needed to campaign effectively,” says Sainz, who said the HRC is funded largely by small-dollar donors.

***

The fallout from the 2010 Iowa election spread to Florida last year, where conservatives unhappy with a high court ruling to invalidate a ballot initiative challenging the Affordable Care Act took steps to oust three justices. Two tea party groups, including Americans for Prosperity, spent small amounts in a campaign against the judges, and the Republican Party of Florida urged its members not to retain the justices.

The initiative was opposed by a coalition of trial lawyers, unions and others who spent more than $3.2 million through a group called Defend Justice from Politics. The total was tops among outside groups that spent money on state supreme court elections last year. Former President Bill Clinton even recorded a robocall for the group.

America Votes, a D.C.-based, union-backed group, contributed $300,000 to Defend Justice, making it the single biggest donor. Nine Florida law firms each gave $100,000 or more.

“The one thing we learned from Iowa was that they were ill-prepared and non-funded and we were not going to allow that to happen in Florida,” says Neal Roth, a Miami attorney and former head of the state’s trial lawyer association. Voters retained the three justices — R. Fred Lewis, Barbara Pariente and Peggy Quince.

The spending on the other side was a fraction of that raised in support of the judges. One group, Tallahassee-based Restore Justice, only raised $75,000. An official for Americans for Prosperity estimates they spent less than $100,000.

Slade O’Brien, the Florida director of Americans for Prosperity, says he was looking to deter “judicial activism and legislating from the bench.” Despite the loss — the justices were retained with about two-thirds of the vote — O’Brien claims his group enjoyed a strong return on a modest investment.

“Now there’s a level of scrutiny, they can’t just toil away in anonymity,” O’Brien says.

Roth said the money raised by his group showed that out-of-state groups will find a stiff challenge in the Sunshine State.

“Don’t come to Florida again, because it isn’t going to work,” he says.

Trial lawyers also prevailed in Oklahoma, where their spending helped retain four justices, and in Louisiana, where the Republican candidate they supported won the seat.

***

In Mississippi, out-of-state organizations helped tilt the field toward the winning candidate.

Improve Mississippi, funded heavily by a state physicians’ political action committee, state business groups and the D.C.-based American Tort Reform Association, reported spending more than $350,000 in support of Josiah Coleman against Flip Phillips in a race that is technically non-partisan.

Coleman’s other backer, the northern Virginia-based Law Enforcement Alliance of America, did not disclose its donors or spending.

Coleman won with 58 percent of the vote, even though Phillips’ campaign raised more money than Coleman’s.

The LEAA spent at least $188,000, according to records filed by Memphis television stations with the Federal Communications Commission. The ads portrayed Phillips as a greedy trial attorney. The total does not reflect amounts spent in smaller markets.

One Memphis station, Fox Broadcasting-affiliate WHBQ, refused to provide information about how much LEAA spent for ad time it bought in the two weeks leading up to the election.

Founded in 1991 with support from the National Rifle Association, which has long been a partial financial backer, the LEAA frequently pays for attack ads against state-level candidates.

Several observers in Mississippi, including former supreme court justices, believe that the U.S. Chamber of Commerce is supplying the money behind the LEAA’s attack ads.

Mississippi had a reputation as one of the most plaintiff-friendly jurisdictions in the country when in 2000 the U.S. Chamber spent $1 million trying to influence the state supreme court elections.

The out-of-state influence bothered many in the state, including then-Chief Justice Lenore Prather, whom the Chamber supported, according to published accounts during that election.

She asked the Chamber to stop running its ads, a request that was ignored. State officials later sued the Chamber over its refusal to disclose who paid for the ads. A federal judge ordered the disclosure, but the ruling was overturned on appeal.

In 2002, the Chamber issued what The Wall Street Journal dubbed a “call to arms” to Mississippi voters and referred to the state as a lawsuit “Mecca.” But unlike two years prior, no ads identified as being paid for by the chamber ran on state TV. Instead, the state was blanketed by ads paid for by the Law Enforcement Alliance of America.

The LEAA also ran attacks ads in 2008 against then-state Supreme Court Justice Oliver Diaz, whom the U.S. Chamber had targeted in 2000.

Diaz says he believes Chamber money was behind the push polls, mailers and radio and TV ads that the LEAA sponsored.

“The ads that the U.S. Chamber ran against me in 2000 were extremely similar [to the ones] that the LEAA ran against me in 2008,” says Diaz, who also notes that the attacks in both races were launched right before the election.

The LEAA was also active in Texas that year, running attack ads against the Democratic attorney general candidate. A state court there has ordered the LEAA to reveal the donors who funded those ads, a ruling that’s currently being appealed to the Texas Supreme Court.

No one from the Chamber or the LEAA responded to requests for comment.

In Montana, a mysterious outside group called the Montana Growth Network helped sway the course of that judicial race as well.

***

Earlier this year in Wisconsin, pro-business groups spent nearly $700,000 in the state supreme court race, helping incumbent Justice Patience Roggensack cruise to victory over challenger Ed Fallone.

State supreme court races were expensive affairs in recent years in Wisconsin, but this year’s contest was more subdued as liberal groups didn’t spend much to back Fallone.

The state arm of Club for Growth, an anti-tax group, spent at least $287,000 on TV ads supporting Roggensack’s bid, according to FCC records. The group is not required to disclose its donors.

The National Association of Realtors, based in Chicago, spent at least $206,000 supporting Roggensack via the organization’s state chapter.

After the 2010 Citizens United U.S. Supreme Court decision, the Realtors association began charging its members a $1 fee to pay for ads and other political efforts in an initiative it called “My Realtor Party,” according to Bill Malkasian, president of political strategic planning.

***

State supreme court candidates backed by deep-pocketed outside spending groups weren’t always successful.

Partnership for Ohio’s Future, an affiliate of the Ohio Chamber of Commerce, spent more than $1.1 million in a losing effort to help Republican Justice Robert Cupp win re-election.

The organization didn’t disclose its donors, but in past years the U.S. Chamber has been a major contributor, according to the watchdog group Ohio Public Action.

Tax records show the local chamber gave the group $500,000 in 2012, and tobacco giant Reynolds American Inc. reported giving $100,000 to the group last year.

***

Back in North Carolina, Newby was the final brick in the red wall Republican outside groups began building in 2010, when they took control of both chambers of the state legislature for the first time in more than 100 years.Sympathetic justices on the court would lock in new voting districts approved by the majority, and boost the chances that laws passed by the Republican lawmakers, and signed by the new Republican governor, would stand up to any challenges.

Democrats and other groups, including the state’s NAACP chapter, have sued to undo the Republican-led redistricting effort, and tried unsuccessfully to block Newby from voting on the matter.

Republican Gov. Pat. McCrory this year named Raleigh retail magnate Art Pope as the state’s budget director.

Pope is a board member of the Koch-backed Americans for Prosperity. A nonprofit political group he founded and helps fund, Civitas Action Inc., used a $75,000 donation from the Judicial Crisis Network to buy radio ads to keep Newby on the bench.

One of Pope’s top priorities: doing away with the state’s public financing of judicial races.

Paul Abowd contributed to this report.

Elizabeth Warren, nonprofit seek green together

2013-06-12T10:54:06-04:00

During Sen. Elizabeth Warren’s race last year against incumbent GOP Sen. Scott Brown, the League of Conservation Voters spent more than $1 million on “independent expenditures” that either advocated for Warren’s election or Brown’s defeat, including mass mailings and paid canvassers.

The 501(c)(4) nonprofit’s treasury, as well as its related political action committee and super PAC, accounted for the spending, which helped push Warren to victory in a race that ranked among the League’s top electoral priorities. The League also bundled more than $100,000 in earmarked campaign contributions for Warren, federal records show.

Now tonight in Washington, D.C., supporters of the League — one of the nation’s most politically active environmental nonprofits — will gather for a fundraising gala during which Warren, a Democrat, is scheduled to address the crowd.

The event is the latest illustration of how politicians and special interest groups, which by law can’t coordinate election spending, nevertheless forge mutually beneficial ties.

Sen. Al Franken, D-Minn., will also speak at the League’s fundraiser — notable since the nonprofit could play a role in helping propel him to a second term next year.

League spokesman Jeff Gohringer said the two senators should be commended for being “two voices in Congress who are working hard on environmental priorities.”

Lacey Rose, Warren’s press secretary, told the Center for Public Integrity not to “read into” the senator’s appearance “too much.”

“Sen. Warren is a strong advocate for clean energy and environmental protection,” Rose said. “She supports the LCV’s mission to educate the public on global warming, energy and conservation, and was honored to be asked to speak at their event to share her passion for these important issues.”

Warren ultimately raised an eye-popping $42.5 million from all donors ahead of her 7.5 percentage point-victory over Brown.

Next year, Franken, who was narrowly elected to the U.S. Senate in 2008, will again face voters.

The former comedian, who serves as the Senate’s Energy and Natural Resources Committee’s energy subcommittee chairman, is currently one among a handful of candidates promoted on the League's “Give Green” website.

The site steers prospective donors toward pro-environment candidates.

“Franken is a fierce advocate for combating climate change,” said spokeswoman Alexandra Fetissoff, adding that the senator “shares many of the same values and viewpoints on energy and the environment as members of the League of Conservation Voters.”

At the end of the first-quarter of 2013, Franken’s campaign had $2 million in the bank, federal records show.

The League has conducted its annual “Capital Dinner” fundraiser for more than 20 years, said Gohringer, who added the event is about both “celebrating our successes” and rallying for “the fights that lie ahead” in Congress.

State legislators' ties to nonprofit groups prove fertile ground for corruption

New York,United States — 2013-06-12T06:03:01-04:00

When investigators examined the operations of a sprawling New York social service organization, what they uncovered was deeply troubling. Board members of the Ridgewood Bushwick Senior Citizens Council had almost no experience in nonprofit management. Several couldn’t name any of the group’s programs. Two of them could not identify the executive director, who in turn told investigators she was unaware of a fraudulent scheme carried out under her watch: Employees had squandered or stolen most of an $80,000 city grant.

As a result of that July 2010 report by New York City’s Department of Investigation, both the city and state quickly pulled the plug, suspending the organization’s grants, which provide practically all of its funding. But just as quick, the Brooklyn-based group won back it’s government support on the condition that it enact corrective measures, and today, the council has active grants from the city and the state totaling more than $50 million. Maybe that’s because the organization provides critical services, such as senior care and affordable housing, as a city spokeswoman said when funding was restored. But the council may also be thriving because its founder, Vito Lopez, was for years one of New York’s most powerful politicians — a state legislator who spent much of his career channeling that power through Ridgewood Bushwick.

Lopez personally directed at least $505,000 in state grants to the organization from 2007 through 2010, the only years for which data are available, and has reportedly had a hand in millions more. He helped elevate the group’s employees to political office. Other candidates, elected with Lopez’s help, have directed even more public money to Ridgewood Bushwick in return. The council’s former executive director, forced out in disgrace, was Lopez’s campaign treasurer; she later pleaded guilty to lying about a raise that hiked her salary to $782,000 for the fiscal year ending in June 2010. And Ridgewood Bushwick’s housing director is Lopez’s girlfriend.

This may look bad. It’s not unusual. Vito Lopez is but one example of a surprisingly common phenomenon afflicting state legislatures. Since 2010, at least eight New York lawmakers or their related charities have been investigated, charged or convicted of pillaging public funds. Earlier this year, former state Sen. Shirley Huntley pleaded guilty in two separate cases, one in which she sent state grants to a nonprofit she had founded before pocketing the money, the other in which she helped her niece and a former aide steal funds she directed to another group that, yes, Huntley herself created.

New York’s legislators outshine their peers in this department, but they’re not alone. Two former Florida state senators repeatedly directed state funds to a struggling group on whose board they sat, apparently not a violation of state law. A Pennsylvania charity had its state funding frozen after a state audit found it allegedly gave no-show jobs worth hundreds of thousands of dollars to a pastor and his aide at the direction of a state lawmaker. Illinois, Ohio and South Carolina all have seen similarly close ties between certain legislators and charities they helped fund.

While several examples led to criminal charges of theft and fraud, others appear to be perfectly legal: public officials are simply tipping the scales in favor of groups they are associated with or have a family member working for.

“The issue to me is what’s legal, and the fact that there’s a tremendous amount that’s legal,” said John Kaehny, executive director of Reinvent Albany, a group advocating government transparency. Kaehny said public officials in New York have used charities to conduct “widespread looting” of taxpayer funds with little repercussion.

As for Lopez, he’s gotten into plenty of trouble in recent weeks — but not for anything related to Ridgewood Bushwick, despite reports of federal investigations back in 2010. Instead, in May, the New York Assembly forced Lopez to resign after the state’s ethics commission released a report exposing lurid details of several sexual harassment complaints against him. On June 11, the Legislative Ethics Commission said that Lopez's conduct had violated state law and fined him $330,000.

Lopez and his attorney did not return calls seeking comment. James Cameron, who became CEO of Ridgewood Bushwick in 2011 after the city ordered the group to overhaul its leadership, said the organization is fully independent of Lopez. Any ties exist simply because it operates in the neighborhoods he has represented for decades.

“He does not control, influence or dictate anything that happens in the organization,” Cameron said. “But it’s a large organization. If he’s talking to staff out there in the field I would have no way of knowing.” The former executive director, interviewed by city investigators three years ago, likewise distanced herself from her subordinates’ actions, saying she had no “crystal ball” to know if employees were dishonest. Ridgewood Bushwick and affiliates employ 2,100 people.

Lopez is now running for a seat on the New York City Council and has received campaign contributions from at least 10 employees of the organization.

Rick Cohen, who has written extensively on the links between politicians and charities for Nonprofit Quarterly, said that in state capitols across the country, lawmakers direct taxpayer money to their pet groups irrespective of whether they need or deserve scarce public dollars. “I’ve seen very little evidence in … states that do this,” he said, “that there’s an accountability regimen or the oversight that’s needed.”

A lack of scrutiny

Over the past few decades, state governments have increasingly outsourced many functions to community-based nonprofits in an attempt to provide more effective, flexible social services. But the result, some say, has been the creation of what is essentially another arm of government.

“The function may be outsourced, but a lot of the funding is coming from government,” said Susan Lerner, executive director of Common Cause New York, a good government group. Ridgewood Bushwick, for instance, derived $13.4 million of its $15.5 million in outside funding in the fiscal year ending in June 2012 from government grants (affiliated groups pulled in some $42 million more, mostly in government health care contracts). When independent nonprofits spend that cash, rather than a government agency, Lerner said, public money does not receive the same level of oversight. “It has a tendency to fall into nepotism and favoritism and cronyism.”

Separating favoritism from efficient use of funds has proven to be a daunting task for state governments. Some ethics experts say states should draw a clear line: that lawmakers cannot be involved in sending funds to any group with which they have a direct link, even as an unpaid board member.

“Where there’s a real personal connection, financial or otherwise, I think it makes sense for the law to say that you can’t be involved in that,” said Peter Sturges, who served as executive director of the Massachusetts State Ethics Commission from 2000 to 2007. “You can’t be making decisions objectively.”

But few states draw such a line. Most laws consider a situation a conflict only if an official derives a direct financial benefit; sending money to your pet project, regardless of merit, is fine as long as you don’t get a cut. In many states, lawmakers do not have to disclose if they hold an unpaid board position with a nonprofit in their community, or if family members or political staffers do (New York is among the few that do require this disclosure, though it does not extend to staff members of the lawmaker or grown children).

Ethics oversight bodies have weighed in on the topic in several states, and in most cases, they have allowed the lawmakers to help fund nonprofits with which they are associated.

In Texas, one lawmaker who worked for a nonprofit wanted to solicit contributions for the group (Texas, like most states, has a part-time legislature). The Ethics Commission said that solicitations “could be viewed as improper under certain circumstances” and advised the legislator to use “extreme caution,” but in January the body gave its approval.

Two 2006 advisory opinions from Colorado’s Ethics Board allowed lawmakers to vote on or sponsor legislation that benefited nonprofits they were associated with, one as a paid director, the other as an unpaid board member.

The general counsel for Florida’s House of Representatives has issued four relevant opinions since 2007, each time determining that soliciting funds or voting on a bill that could benefit the nonprofit did not raise a conflict of interest. In one case, the lawmaker was a paid employee of a nonprofit,while the other three had volunteered for the group, co-hosted events, or were otherwise associated with an organization or its founders.

In one of these cases, a legislator wanted to solicit funds for a group the lawmaker volunteered for and sometimes partnered with on “joint community projects.” The general counsel said the lawmaker was free to solicit the funds, but highlighted state laws against using an official position for personal gain or to grant special privilege, saying, “it would be prudent to keep these in mind.” The opinion adds that while “the law grants latitude to members,” because they serve part-time, “what may be a legally tolerated conflict of interest may be viewed as inappropriate or corrupt” by the public.

The counsel was sounding a common theme: the gulf between what is legally permissible but seemingly inappropriate.

“I’m certainly aware of a growing trend nationally of public officials having ties with nonprofits and those nonprofits perhaps, not always, benefiting from the public official’s position of power,” said Carol Carson, executive director of Connecticut’s Office of State Ethics. She said state employees, including executive branch officials, often come to her office to ask whether they can be involved in awarding a grant to a group they are associated with. As long as the grant doesn’t directly benefit them financially, she tells them yes. “That might not pass muster with the court of public opinion,” she said, “but under the Code of Ethics, that would be allowable.”

Trouble in Gotham

“It’s become a routine headline in New York: Politician pinched in charity scandal,” said a September 2012 article by Andrew J. Hawkins in Crain’s New York Business. “The story changes little from case to case: An elected official funds a nonprofit and staffs it with cronies. Sometimes the group works on his campaigns — or does no work at all.”

Assemblyman William Boyland Jr. accounts for several of these tales just by himself. Boyland Jr. comes from a line of Brooklyn legislators: he gained his post through a special election in 2003 after his father resigned; his uncle held the seat previously. The district is covered with the family name — a street, a school, a housing project and more are all named for the elder Boylands.

Boyland Jr.’s activities first came to light in March 2011, when federal prosecutors charged him with taking bribes, in the guise of consulting fees, from the executive of a nonprofit that operates hospitals in exchange for helping the organization, MediSys, secure millions in state funds. Boyland Jr. had worked for MediSys before taking office, and continued earning a salary after his election without reporting it as required, prosecutors said. The MediSys executive was eventually convicted of offering bribes to Boyland Jr. and two other lawmakers, but a jury acquitted Boyland Jr. in November 2011. One juror told The New York Times, “We could not say that because he got the money, he advocated for MediSys. … We couldn’t do that beyond a reasonable doubt.”

Within a month, however, prosecutors charged Boyland Jr. in another, unrelated bribery case. The allegations include the solicitation in an Atlantic City hotel suite of more than $250,000 in bribes from undercover FBI agents posing as real estate investors. According to the indictment, in exchange for the cash, Boyland Jr. was to help with development deals in his district and secure state financing for the purchase and resale of a hospital building. Prosecutors had just filed the first set of charges against him, so Boyland Jr. needed cash to pay his lawyers, he allegedly told one of the agents.

In May, prosecutors updated the new charges to include allegations that Boyland Jr., from 2007 through 2010, sent public funds to a nonprofit group while directing some of the money to be spent on political events and expenses for the lawmaker, including the printing of T-shirts that said “Team Boyland.” (The family reportedly had handed out these shirts for years.) Boyland Jr. is facing 21 criminal counts and has pleaded not guilty. The trial has yet to start.

Boyland Jr. has ties to another, upstate New York charity, the Altamont Program, which also has operations in Brooklyn. The FBI and state authorities raided the upstate offices in December. The Albany Times Union said agents were looking into Boyland Jr.’s direction of $1.2 million in state grants to Altamont and a related group from 2004 to 2009, using a controversial legislative vehicle called “member items” that put state funds at the discretion of individual lawmakers. Boyland Jr.’s father went to work for the organization as a consultant after he resigned as a legislator in 2003. Boyland Jr.’s sister also reportedly worked for the group.

Boyland Sr. says he worked for the group from 2008 to 2010. He was reportedly fired after the organization discovered that he had used a company credit card for personal expenses. In an interview, the elder Boyland did not deny using the card for the purchases, but said that in consulting work, it’s impossible to distinguish between business and personal expenses.

A spokeswoman for Boyland Jr. referred questions to his lawyer, Nancy Ennis. She did not return phone calls and emails requesting comment.

Many a similar scandal in New York, including Huntley’s and Lopez’s, has been fueled by those “member items” — part of a gentlemen’s agreement between legislative leaders and the governor that for years disbursed hundreds of millions of dollars to groups of lawmakers’ choosing with no oversight or trail of who got what. In 2007, Gov. Eliot Spitzer pushed a bill that required the legislature to disclose each member item. The same year, the Attorney General’s office reached an agreement with the legislature that required recipients to certify the funds were being used appropriately. But even with this level of oversight, watchdogs and some legislators ridiculed the practice as corrupt and wasteful.

“It’s a system which invites abuse,” said Lerner, of Common Cause.

In 2010, Gov. David Paterson vetoed thousands of member items in the budget, citing fiscal austerity, and Gov. Cuomo has continued to veto the requests, effectively ending the practice for now. But there are still funds from multi-year grants that have not yet been spent. And political insiders in New York say new tricks have taken the place of the “member item” abuses.

“There are lots of ways to direct money,” said state Sen. Liz Krueger, who has co-sponsored a bill that would ban legislators from giving member items to groups that employ family members or staff and would apportion them equally to each district. Traditionally, the majority party controlled most of the funds and disbursed them as it pleased.

Machine politics in Illinois

Lawmakers in other states have their own ways to send money to charities, particularly in states with hefty budgets. In Illinois, legislators can direct funds without having to disclose they were the source, much as in New York. In 2009, for example, a paragraph tucked into an appropriations bill included a $98 million grant to the United Neighborhood Organization, a Latino community group that builds and operates charter schools in Chicago.

Over the past several years, the group built close ties to the state’s most powerful politicians, pushing the boundaries of appropriate activity by tax-exempt charities, which are barred by federal law from working on political campaigns. After the organization’s CEO, Juan Rangel, co-chaired Rahm Emanuel’s successful campaign for Chicago mayor, Emanuel jokingly referred to the fact that the charity is not supposed to be directly involved in politics. The organization’s staff and lobbyists include former city officials, and some of them have left to enter politics. Rangel regularly endorses candidates. Contractors hired by UNO (often with public money) have contributed to those candidates. Rangel hosted a fundraiser for state House Speaker Michael Madigan in October, with the organization’s contractors giving more than $24,000 to Madigan, according to a Chicago Sun-Times report.

The close relationships paid off with that 2009 grant of $98 million. But in February, a report by the Sun-Times revealed that UNO had spent millions from the grant on insider contracts with relatives of the organization’s staff and political allies. Within days, Rangel said the organization had launched an internal review and had suspended some of the suspect contracts. He also said, however, that all of the contractors were qualified and that the work had been fulfilled. The organization’s vice president, whose brothers had won a contract, resigned. The state determined that the practices constituted apparent violations of the grant, and in March suspended what remained of the grant. In response, the group hired a full time compliance officer and Rangel stepped down from the board of directors (though he stayed on as CEO). In June, the state restored the flow of funding.

Officials at UNO did not respond to requests for comment.

Steve Brown, a spokesman for Madigan, who sponsored the spending bill that included the grant to UNO, said the speaker is a supporter of the organization, but that the grant had nothing to do with the contributions from the Rangel fundraiser, which he described as modest in relation to Madigan’s overall fundraising.

Rey López-Calderón, executive director of Common Cause Illinois, said some nonprofits have become modern-day political machines in Illinois, citing UNO as the prime example. Groups receive state grants with the help of politicians and in return, he said, their members contribute money and even time to the officials’ campaigns. “That kind of activity is rampant in Illinois.”

Other nonprofits or their employees in Illinois have been questioned about the extent of their ties to legislative patrons. In 2010, for example, a federal grand jury subpoenaed records related to dozens of state grants for nonprofits linked to at least one lawmaker. Thomas Homer, the state’s legislative inspector general, said there are no requirements that lawmakers disclose their ties to nonprofits unless they receive a salary from the group, and that there are no ethics rules that apply to the situation beyond general laws prohibiting bribery and kickbacks. He said his office refers complaints of schemes involving nonprofit groups to the FBI, and that there are several open cases, though their nature and number remain confidential.

Behested payments

In addition to state grants, lawmakers have found another source of funds they can direct to nonprofits: corporate contributions. It’s become common practice in many states and in Congress for corporate donors and lobbyists to contribute money to specific charities at the request of lawmakers, in what’s often called a behested payment. A few states have formal systems to regulate this, but in many cases it’s an uncharted field.

The payments present a “win-win situation all around,” said Nola Werren, a client specialist at State and Federal Communications, which provides corporate clients with information about state lobbying laws. “The lawmaker gets this benevolent image for his constituents and shows that he cares,” while the corporation gets its name on the donation and the nonprofit gets the money. But the arrangement can also serve as a route around restrictions on gifts to lawmakers or campaign contributions, allowing corporations to curry favor with politicians, frequently without disclosure.

California is one of the few states that does require disclosure, but that hasn’t discouraged the practice, said Phillip Ung, a spokesman for California Common Cause. Last year, 57 lawmakers reported such contributions, totaling $2.3 million.

Ung pointed to state Sen. Roderick Wright, who has directed $166,500 in corporate contributions to the National Family Life and Education Center from 2010 through 2012. In the fiscal year ending in June 2011, the last year records for the organization are available, the payments comprised more than half of the group’s outside income. Wright has co-hosted several events where the group handed out prizes, school supplies and provided health screenings to families in his district.

In an email, Ung praised the fact that the funds are helping the community but added, “there is the ethical question of why are these corporate interests giving at the behest of Mr. Wright and what do these behested payments earn them in political influence.”

Among the contributors are AT&T, Time Warner Cable, Edison International and the Morongo Band of Mission Indians. Wright is the chairman of the Governmental Organization Committee, which oversees gambling by Indian tribes in the state, and sits on the Energy, Utilities and Communications Committee.

Cine Ivery, Wright’s chief of staff, said the nonprofit helps mentor youths in the senator’s district, and that it couldn’t do the work without the corporate donations. The companies get nothing in return, she said. The organization did not return phone calls or emails.

The practice is on the rise across the country, Werren said. Her company has gotten so many requests from clients about the rules covering such payments that it decided to canvass state laws. According to State and Federal Communications, only 14 states require lobbyists to disclose such gifts. California is the only state Werren knows of that requires lawmakers to disclose them, and only New York and Maryland prohibit behested payments.

Changes slow to come

Even as experts say the questionable ties between nonprofits and politicians are on the rise, many states have been slow to enact reforms that might prevent them. One step would be to ban, or restrict, discretionary spending directed by a single lawmaker.

But there are many reasons why even advocates for reform say this could be a bad idea. “Legislators, if they’re good, know what their district needs. They know the good organizations,” said Sturges, the former Massachusetts regulator. “Why should they not be able to direct funds to the best organizations in their districts?”

There’s no doubt that many charities provide critical services in poor communities as a result of grants shepherded by their representatives. Sen. Krueger of New York pointed out that some small community groups do not fit the pre-packaged conditions required by many state grant programs, but are worthy recipients nonetheless. And, both Krueger and Sturges said, there’s no indication that leaving such decisions to governors or other executive branch officials produces markedly better results.

In lieu of prohibitions, many good-government groups are pushing for increased disclosure of all budgetary spending. They say that whatever discretionary funds do exist should have strict requirements tied to them that would dictate what types of projects can be funded and prevent staff, relatives or associates of public officials from being associated with any recipients of the funding.

Kaehny, of Reinvent Albany, has called for more disclosure from the nonprofit world as well. In New York, for example, he said that an independent body should regulate charities, rather than the politically charged Attorney General’s office, and that all the data that is already public from tax forms and other documents should be added into a searchable database.

Lawmakers have introduced bills that would require their colleagues to disclose positions with nonprofit organizations in Arizona and Florida, but neither bill has passed. In response to a series of scandals, Pennsylvania’s House and Senate adopted rules in 2007 and 2013 restricting members’ ability to form and fund nonprofits. But two bills that would have gone further, including one that would have ended “legislative initiative grants,” the state’s own version of member items, failed to pass the legislature. The bill that Sen. Krueger cosponsored in New York to reform member items has also failed to pass.As have repeated efforts to require disclosure of Illinois’ own version of the funding, called “member initiatives.”

Cohen, of Nonprofit Quarterly, said that any changes face an uphill battle because most of those with the ability to enact them, from lawmakers to charities, benefit from the status quo. “There are a lot of players that have a stake in this,” he said, “and want to see it continue.”

Bob Casey bucks fundraising trend with beer bash

2013-06-11T13:06:01-04:00

Politicians are practically Precambrian if they're not wooing potential donors with whiz-bang fundraising experiences, which these days might involve ski trips, skeet shoots, Star Wars send-ups or chichi dinners with Hollywood stars.

But tonight, Sen. Bob Casey, D-Pa., is going old-school — boozing with some lobbyists.

The scene for "Beer with Bob" is the rooftop 1001 G St. NW in Washington, D.C., a property that plays home to the Podesta Group, the nation's No. 3 firm last year in terms of lobbying income.

"We'll have plenty of beer from PA, featuring Jack's Hard Cider and several other specialty brews, along with sandwiches from Taylor Gourmet and several other native PA treats," reads an invitation obtained by the Center for Public Integrity.

Throughout his career, Casey has advocated for increased lobbying disclosure. During his 2006 campaign against former Sen. Rick Santorum, R-Pa., Casey had particularly harsh words for lobbyists, derided K Street as "a mess" and "place of corruption and influence peddling."

Among tonight's scheduled attendees are Donald C. Auerbach, chief government affairs officer for the Investment Company Institute, and Daniele Baierlein, Izzy Klein and Andy Lewin, all Podesta Group principals.

Also: Sean D'Arcy, a partner at law and lobbying firm Akin, Gump, Hauer, Strauss & Feld; Robert Getzoff, a Bank of New York Mellon lobbyist; Marshall Matz, principal attorney and lobbyist at Olsson Frank Weeda Terman Matz PC and Jason M. Rosenstock, director of government relations for ML Strategies.

Admission for "young associates" is $100, while general tickets require a $250 contribution. Political action committee representatives, meanwhile, need to fork over a grand to Casey's re-election committee.

Amy Pfaehler, the Casey campaign's national finance director, directed questions about the event to the senator's personal office, a representative of which could not immediately be reached for comment.

To be sure, Casey isn't completely immune from campaign coffer kitsch.

Next month, he's scheduled to host a fundraiser at a Beyoncé concert in D.C.

Charitable 'matches' used to entice PAC giving

The Coca-Cola Company — 2013-06-11T10:42:36-04:00

Federal law prohibits companies from donating directly to political candidates, which is why individual employees must voluntarily fund corporate-sponsored political action committees — and their bosses can't force them to donate.

Yet one enticement companies are using to attract PAC support is a program that will "match" employees’ donations with contributions to charities of their choosing.

Take Coca-Cola Co., for instance. Employees who donate to the company's PAC can designate charitable organizations to receive a gift equal to their PAC contributions.

In 2012, Coca-Cola gave $217,000 to charities in the name of employees who contributed to its corporate PAC, according to information disclosed online by the company. That's up from $148,000 in 2011.

Among the most popular charities in 2012 were Children’s Healthcare of Atlanta (nearly $80,000); Special Olympics International (about $35,000); United Service Organization (roughly $30,000); and The Nature Conservancy (about $18,000).

At a national conference for PAC professionals earlier this year, a Coca-Cola official even evangelized such programs to "improve your fundraising numbers."

Coca-Cola spokeswoman Amanda Rosseter told the Center for Public Integrity that the PAC match program was started five years ago to "encourage employees to engage in the political process and at the same time provide support to civic and philanthropic organizations."

The Federal Election Commission has held that corporate PAC matching programs are legal because they “do not provide any tangible benefit to the contributing employee.”

Neither the employee nor the company receives a tax-deduction for such gifts.

Coca-Cola's disclosure of its matching program finances is voluntary; the FEC does not require PACs to include such information as part of their mandatory reports to the agency.

These programs, which have existed since the 1980s, are “relatively common” and “relatively uncontroversial,” said Larry Noble, the FEC’s former general counsel who now heads the nonprofit Americans for Campaign Reform.

“People like the idea that the company [will] match their contribution to the PAC with a contribution to a charity,” Noble added.

While other companies offer similar PAC match programs — aerospace giant Boeing and American Express are among them — Coca-Cola rival PepsiCo. Inc. does not, said Phil Swink, senior vice president of government affairs.

In all, Coca-Cola’s PAC raised $429,000 in 2012 and donated about $500,000 to federal candidates and committees, records indicate.

During the first four months of 2013, the PAC raised $148,000 and gave out $221,500 to politicians, according to its most recent FEC report.

Super PAC leader undeterred by criminal conviction

2013-06-10T15:40:31-04:00

A criminal record isn’t keeping one young moderate from operating new a super PAC.

Jonathan Fauber, a 22-year-old Mechanicsburg, Pa. native, recently filed paperwork with the Federal Election Commission to form the PA Victory Fund, which he tells the Center for Public Integrity will seek to support “pragmatic, practical” candidates from either party in federal and state races in the Keystone State.

But Fauber, who currently works as a bank teller at a Wells Fargo branch in Mechanicsburg, was banned from the Virginia Tech campus last year because of an incident in which a court found him guilty of trespassing.

The Virginia Tech Police Department initially arrested Fauber in August for “threaten[ing] bodily harm,” according to the department's crime log. Virginia Tech police declined to provide further information regarding the arrest when contacted Monday.

Virginia court records indicate Fauber then faced a charge of extortion in writing — a low-level felony. But the charges were ultimately lowered to misdemeanor trespassing, for which Fauber was found guilty and ordered to complete community service, records show.

Fauber, who deemed the affair “a misunderstanding with an ex-girlfriend," says he plans to appeal his ban from the Virginia Tech campus.

When asked if the incident could hinder his group’s fundraising efforts, Fauber responded, “Absolutely.”

“It’s on Google,” he added. “It will be there forever.”

Nonetheless, Fauber said he plans to solicit small-dollar donations, from friends and family at first, and encourage younger voters to get involved in the political process.

“It’s not so much about big money, but being smart with the money you have,” Fauber said.

While Fauber is a registered Republican, he said he felt a super PAC was the most effective way to express his voice because he does not want to be “tied down” to a specific party or candidate.

“I try to model my philosophy after Jon Huntsman,” Fauber said, referring to the former Utah governor and 2012 Republican presidential candidate.

Fauber said he has never donated to a political campaign before, but volunteered for GOP presidential candidates Mitt Romney and John McCain during the last two elections.

Fauber is not the only twentysomething to form a super PAC in the wake of the 2010 SpeechNow.org v. Federal Election Commission decision, which gave rise to these high-powered political committees that may raise and spend unlimited amounts of money on politics as long as they do not coordinate with candidates.

Last election cycle, Liberty for All, the super PAC of 21-year-old John Ramsey, a Stephen F. Austin State University student and Ron Paul devotee, spent more than $1.7 million in an effort to elect a select group of Republicans running for office, according to Center for Responsive Politics data. Mother Jones previously reported that Ramsey helped initially fund the group with $890,000 he inherited from his grandfather.

Comedy Central star Stephen Colbert also inspired a number of students from college campuses all across the country to create spinoffs of his former super PAC, Americans for a Better Tomorrow, Tomorrow.

OPINION: smoothing out Medicaid's 'churn'

2013-06-10T09:51:27-04:00

Bipartisanship is so rare on Capitol Hill these days, especially in regard to health care, that when such comity breaks out, it’s worth reporting.

Around the time the House of Representatives was voting for the 30-somethingth time to repeal Obamacare, two lawmakers from Texas — Democrat Gene Green and Republican Joe Barton — introduced legislation to fix a problem that most folks with private insurance know nothing about. That’s because it only affects the poorest among us who are eligible for Medicaid.

The problem is referred to by policy wonks as “churn.” Because of the way Medicaid is administered by the states, millions of Americans enrolled in the program lose coverage temporarily every year because of often minor fluctuations in their income or even a change of address. Many are removed from the rolls simply because they can’t take time off from work to go to a Medicaid office to re-verify their incomes every three months, which some states require.

It’s called churn because most people who are “disenrolled” — to use insurance industry jargon — are eventually reinstated. Their eligibility for Medicaid never changed. They lost coverage solely because of paperwork requirements or a slight and fleeting bump in pay because of having to work overtime during a given week.

This is unknown in the private insurance world because once you enroll in a health plan, you can stay enrolled in that plan for a year, so long as you keep paying the premiums on time. It doesn’t matter if you move from one street to another or work an extra shift to make a few extra bucks.

But staying covered for a full year under Medicaid is not a given, and the consequences of this churn are costly, and not just for those most directly affected. The situation is costly to taxpayers, too, because of the unnecessary administrative expense. It costs hundreds of dollars per enrollee to verify income multiple times a year and to process all the paperwork involved in reinstating a beneficiary. When you consider that 58 million of Americans are currently enrolled in Medicaid — a number that will grow substantially next year when many states expand coverage under the Affordable Care Act — billions of taxpayers’ dollars are being wasted because of churn.

Those who fare the worst, though, are eligible beneficiaries who get dumped into the ranks of the uninsured.

“Even short gaps in coverage can lead to delay or avoidance of needed care,” says Leighton Ku, director of the Center for Health Policy Research at George Washington University’s School of Public Health and Human Services, who along with colleague Erika Steinmetz studied the effects of churn. They released their findings in a report last month.

They found that gaps in coverage often lead to significant increases in hospitalization for chronic diseases like diabetes, asthma and mental disorders.

“Churning has a pervasive negative impact on health for low-income Americans,” says Margaret A. Murray, CEO of the Association for Community Affiliated Plans (ACAP), an organization representing health plans serving Medicaid beneficiaries, which commissioned the study. “It stymies the efforts of plans serving Medicaid populations to provide consistent, coordinated care. Worst of all, churning interrupts care for many people and forces them to go to an emergency department rather than their primary care doctor because they don’t have the coverage they thought they had.”

The problem will be even more acute when the states’ online health insurance exchanges, or marketplaces, begin enrolling folks this coming October. Most Americans who do not have coverage will be able to shop for it in these exchanges, which the Affordable Care Act requires states to set up. Murray cites research showing that up to half of the 28 million adults with incomes less than twice the poverty level — an annual income of $22,340 for an individual or $38,180 for a family of three — will have income fluctuations that will require them to switch between Medicaid and private coverage offered through the exchanges in a given year.

“This shift in eligibility may trigger a sudden change in plans and provider networks, which can have serious repercussions for the enrollee’s financial and health status,” says Murray.

What ACAP advocates — which Green and Barton’s bill would achieve — is a guarantee of 12 months of continuous eligibility to everyone with Medicaid. At the end of the 12-month period, eligibility would be re-evaluated. That’s what a few states do now for children enrolled in the program and in their Children’s Health Insurance Programs (CHIP).

The idea has also been endorsed by the Medicaid and CHIP Payment and Access Commission (MACPAC). Other advocates include the Children’s Hospital Association, the National Association of Public Hospitals and Health Systems and the National Committee for Quality Assurance.

If Green and Barton’s bill makes it through Congress — no sure bet considering the gridlock that seems to prevail on Capitol Hill — it would save us all a lot of money and give millions of low-income Americans greater peace of mind.

Sonia Sotomayor courts riches from book deal

2013-06-07T17:16:09-04:00

When they aren’t busy handing down landmark decisions, professing the law or attending the opera, U.S. Supreme Court Justices can make millions in book deals.

The high court’s authors raked in nearly $2 million in publishing advances, appearances and royalties during 2012, with Justice Sonia Sotomayor taking home the lion’s share, according to new personal financial disclosure documents reviewed by the Center for Public Integrity.

Sotomayor collected more than $1.9 million in advances and promotion for her memoir, My Beloved World, published by Knopf Doubleday.

As the third woman and first Hispanic justice appointed to the Supreme Court, Sotomayor’s rags-to-riches tome became a No. 1 New York Times bestseller after its January release.

See Sotomayor's full disclosure filing here.

The publishing industry was also good, but not as good, to Justices Stephen Breyer and Antonin Scalia.

Breyer made roughly $30,890 in book royalties, while Scalia — his ideological adversary on the bench — collected nearly $64,000.

Scalia co-wrote Reading Law: The Interpretation of Legal Texts last year with Bryan Gardner, legal scholar and editor and chief of Black’s Law Dictionary. Breyer wrote Active Liberty: Interpreting Our Democratic Constitution, released in 2007, and 2010’s Making Our Democracy Work: A Judge's View.

Secret court judge attended expenses-paid terrorism seminar

United States — 2013-06-07T15:14:02-04:00

U.S. District Judge Roger Vinson, who signed an order requiring Verizon to give the National Security Agency telephone records for tens of millions of American customers, attended an expense-paid judicial seminar sponsored by a libertarian think tank that featured lectures from a vocal proponent of executive branch powers.

Vinson, whose term on the secret Foreign Intelligence Surveillance Court began in 2006 and expired last month, was the only member of the special court to attend the August 2008 conference sponsored by the Foundation for Research on Economics & the Environment, according to disclosure records filed by the federal judge.

The Center for Public Integrity collected the disclosure records as part of an investigative report that revealed how large corporations and conservative foundations routinely sponsor ideologically driven educational conferences for state and federal judges.

It’s unclear which lectures Vinson attended during the “Terrorism, Civil Liberty, & National Security” seminar. FREE’s website only provides a general agenda for the program and no lecture transcripts.

But Eric Posner, a University of Chicago law professor who delivered two lectures, argued in a 2007 book he co-wrote — Terror in the Balance: Security, Liberty, and the Courts — that “the executive branch, not Congress or the judicial branch, should make the tradeoff between security and liberty.”

The book also asserts that while “no one doubts that injustices occur during emergencies, the type of judicial scrutiny that would be needed to prevent the injustices that have occurred during American history would cause more harm than good by interfering with justified executive actions.”

The seminar, conducted in Montana, also included separate lectures entitled “Terrorism & the U.S. Constitution,” “Decision-Making in Counter Terrorism Dilemmas” and “The Triumph & Pitfalls of the Security State.”

Update, 3:11 p.m.: From 2005 to 2009, FREE received a total of $430,000 in general operating support from the Claude R. Lambe Charitable Foundation, of which billionaire businessman Charles Koch is a director. The M.J. Murdock Charitable Trust, however, is listed as the sole funder for the national security conference that Vinson attended.

John Baden, FREE’s chairman, says that while his recollection of the seminar is hazy, it included experts from “both sides” of the national security debate.

One such conference speaker was University of Utah law professor Amos Guiora, who describes himself as a proponent of judicial review and checks on executive power.

He notes that his views regarding the balance of civil liberties and national security are very different from those held by Posner.

“Eric and I totally disagree,” he says, noting that he and Posner were the conference’s primary lecturers.

Vinson, a senior-status judge, also attended a 2009 economics seminar hosted by Northwestern University and sponsored by the conservative Charles G. Koch Charitable Foundation, the American Petroleum Institute and the U.S. Chamber of Commerce, among others.

He and Posner did not immediately respond to requests for comment.

Sheldon Snook, a spokesman for the Foreign Intelligence Surveillance Court, had no comment about the seminar but did release a statement from Presiding Judge Reggie Walton responding to criticism of the surveillance court that has recently surfaced in news reports.

“The perception that the court is a rubber stamp is absolutely false,” Walton’s statement reads. “There is a rigorous review process of applications submitted by the executive branch, spearheaded initially by five judicial branch lawyers who are national security experts, and then by the judges, to ensure that the court’s authorizations comport with what the applicable statutes authorize.”

In April, Vinson approved the government agency’s “top secret” request ordering Verizon on an “ongoing daily basis” to give the NSA telephone records for all its customers’ phone calls “between the United States and abroad,” as well as those made within the United States.

Vinson, who made headlines two years ago when he invalidated President Obama’s health care law, signed the order authorizing telephone surveillance as a member of the Foreign Intelligence Surveillance Court, a special eleven-member court established in the Foreign Intelligence Surveillance Act of 1978 to review applications for warrants related to national security investigations. The court is composed of federal district judges who are appointed by the Chief Justice of the United States and who serve staggered seven-year terms.

News reports of the highly classified court order, first reported by The Guardian newspaper Wednesday, sparked outrage among many Americans, especially civil libertarians. Legislators and White House officials downplayed the growing controversy, claiming that the monitoring of phone calls is “nothing new” and defending the agency’s efforts as an effective way to gather intelligence on terrorists.

Lobbying firm PACs start 2013 slow

2013-06-07T11:45:45-04:00

Most lobbying firms are not in a hurry to pad politicians' political coffers early this election cycle, with only a few either raising or spending significant cash, a Center for Public Integrity analysis of Federal Election Commission records indicates.

And that's for the lobby shops that have PACs: More than half of the nation's top 40 firms, ranked by 2012 lobbying income, do not sponsor one at all, the analysis shows. While this doesn't represent a major shift from the lobbying world status quo, the trend stands in stark contrast to the actions of other industries' largest corporations, which generally sponsor PACs as a means to support and interact with politicians and candidates.

Among the PAC-less government affairs powerhouses are Podesta Group; Ogilvy Government Relations; Peck, Madigan & Jones; Prime Policy Group and Dutko Worldwide.

For top lobbying firms that do sponsor PACs, only four — Akin, Gump, Strauss, Hauer & Feld; K&L Gates; Ernst & Young and DLA Piper — have reported spending more than $100,000 during the year's first four months, mostly on donations to political candidates and committees. This figure could rise slightly in July, as eight of the nation's top 40 PACs have chosen to report their finances semiannually this year.

DLA Piper's PAC, on balance, is the nation's most active among firm-sponsored committees, raising about $198,500 and spending more than $196,300 between Jan. 1 and April 30.

That's still a pittance compared to what is typically the most active corporate PAC overall — Honeywell's PAC, which has raised almost $1.3 million and spent more than $951,000 for the same period.

All the same, DLA Piper's PAC has spread the cash it is spending far and wide, federal records show.

On the left, Democratic U.S. Senate candidate Cory Booker, the mayor of Newark N.J., and Sen. Al Franken, D-Minn., are among its four-figure recipients. On the right, Senate Minority Leader Mitch McConnell, R-Ky., and Sen. Jim Inhofe, R-Okla., also rank among four-figure beneficiaries.

PACs are capped at donating $5,000 per election to a candidate committee and $15,000 per year to a national party committee.

The DLA Piper PAC also ended April with more than $143,800 in reserve — behind only Ernst & Young, the accounting giant that also runs a lobbying division.

DLA Piper's long lobbying client list includes broadcaster Al Jazeera America, Comcast, drugmaker Merck, the PGA Tour, defense contractor Raytheon and ZTE USA, the American subsidiary of a Chinese telecom company that has recently come under heavy government scrutiny.

DLA Piper officials did not respond to requests for comment.

Ernst & Young's PAC, for its part, ended April with nearly $445,000 cash on hand after spending an industry-leading $423,000 during the first four months of the year — at least among those that have reported their figures.

But it hasn't raised a cent during 2013, relying instead on its surplus cash to contribute four-figure amounts to the likes of House Speaker John Boehner, R-Ohio, and Reps. Darrell Issa, R-Calif.; Michael Grimm, R-N.Y.; Steve Israel, D-N.Y. and James Clyburn, D-S.C.

Ernst & Young's dozens of lobbying clients this year include corporate titans such as insurer Aetna, Barclays, Boeing, Citigroup, ExxonMobil, General Electric, insurer MetLife, Microsoft, New York Life Insurance and drugmaker Pfizer, according to U.S. Senate filings.

Spokesman John La Place said the company had no immediate comment about its PAC activity.

It may seem logical for companies so steeped in politics to operate an institutional PAC, and conversely, odd for a lobbying firm to forego doing so.

But since most large lobbying firms are not industry or issue specific — as opposed to other kinds of corporations, which usually are — it doesn't always make sense for firms to operate PACs, said Monte Ward, president of the American League of Lobbyists.

"Firms are better served if their clients have PACs to enhance that direct connection between constituent and member," Ward said.

That doesn't mean that lobby shops without PACs aren't represented on the D.C. political fundraising scene, where lawmakers host an endless string of campaign events that provide professional influencers prime opportunities to connect with the candidates — for a price.

In some cases, quite the opposite is true.

Perhaps there is no better example of this than No. 3 lobbying firm Podesta Group, whose leader, Tony Podesta, ranks among the most active individual political donors in the nation and frequently hosts fundraisers for Democratic candidates.

Meanwhile, employees of PAC-free Ogilvy Government Relations made about $110,000 in reportable donations to federal-level candidates and committees during the 2012 election cycle, FEC records show.

While Cornerstone Government Affairs also doesn't sponsor a PAC, its D.C. offices are among the capital's more popular venues for politicos looking to generate campaign cash, according to the Sunlight Foundation's event tracker Political Party Time.

Pentagon may be wasting a billion dollars a year in erroneous payments to contractors

2013-06-10T11:36:06-04:00

The Pentagon has been paying hundreds of millions of tax dollars a year to people and companies that don’t deserve it, but its financial management shortcomings are so severe that it’s made little progress in halting the errors or even measuring their magnitude, according to a report released by a Senate committee Thursday.

Although the Defense Department reported making over $1.1 billion in overpayments in fiscal year 2011 to military personnel and retirees, civilian defense workers, contractors, and others, investigators from the Government Accountability Office said that figure is not credible due to missing invoices and other flawed paperwork, as well as errors in arithmetic.

The Pentagon is required by law to ferret out programs susceptible to significant payment errors and then use statistical sampling to estimate the size of those errors, so that Congress can determine the size of the problem. But GAO found defense finance officials didn't have procedures in place to collect and maintain the data they need to come up with a credible estimate.

Even when the department could find and document mistaken payments, it frequently did not take cost-effective steps to recover the money, the GAO said. The U.S. Army Corps of Engineers, for example, has spent $256,000 since 2009 on an automated overpayment-detection program that has recovered just one improper payment of $20.79, GAO said.

The Pentagon’s payment system is so weak that sometimes it doesn’t pay what’s owed. By its own estimate, for example, the Pentagon made $238.2 million in overpayments and $48.4 million in underpayments related to travel alone during fiscal 2011, for a total of $286.6 million in incorrect payments.

But when pressed by GAO, defense finance officials were only able to identify $1.6 million, or less than 1 percent, of the program's estimated overpayments as recoverable, explaining that they lacked supporting documentation for a significant portion of the total.

The Defense Department "is at risk of foregoing the detection and recovery of potentially substantial funds owed to the government," the GAO report said.

Instead of conducting cost-effective audits to identify funds that can be recovered, GAO said the Pentagon relies on such methods as self-reporting by defense contractors and other recipients of the money, random sampling of payment records, and findings by the Defense Department inspector general or other auditors.

Members of the Senate Homeland Security and Governmental Affairs Committee, which released the GAO report, expressed anger and frustration over the findings. Several accused the Pentagon of failing to comply with a 2010 law requiring federal agencies to identify, prevent and recover payments made in error.

“The Department spends about a trillion dollars annually, but officials have no idea how much of that money it loses to waste and fraud. This is simply unacceptable,” said Committee Chairman Tom Carper, D-Del., who co-sponsored the law with Sen. Susan Collins, R-Maine, and others.

Sen. Tom Coburn, R-Okla., ranking member of the committee, cited the GAO’s conclusions while promising to reintroduce legislation requiring the Defense Department to conduct an accurate audit of its books, as required by federal rules the Department has repeatedly flouted.

“When our largest federal agency cannot produce a viable financial audit, it should be no surprise DOD cannot account for how much money it wastes on improper payments,” said Coburn, who vowed to use all the oversight tools at his disposal to expose and prevent defense finance abuses.

“Improper payments should be low-hanging fruit when it comes to eliminating government waste — but that clearly hasn’t been the case here,” said Sen. Claire McCaskill, D-Mo., who leads the panel’s Financial and Contracting Oversight subcommittee.

The problem is an old one at the Pentagon. Twenty years ago, GAO delivered a scathing report to the same Senate committee documenting a military payroll system that was so badly managed the Army had inadvertently paid $6 million to 2,269 troops who had already quit the service, were absent without leave or had deserted their units. In one case, a dead deserter was sent a paycheck.

A separate probe at the time revealed that managers at a defense finance and accounting center had miscalculated the pay of more than 201,000 Air Force retirees in 1986, giving them an extra dollar or two each month. It took nine years for managers to correct the error, which ended up costing taxpayers $16 million. Officials said they decided not to try to recover the money because the some of the retirees were probably dead, and the effort to collect would be too expensive.

In the report released Thursday, GAO said the Pentagon acknowledged overpayments in military pay and military retirement pay as part of the $1.1 billion in erroneous payments in fiscal 2011. In addition, the Pentagon made overpayments of military health benefits, civilian pay, travel pay, commercial pay to vendors and contractors and Army Corps of Engineers travel and contractor fees.

GAO faulted the Defense Department comptroller not only for these mistakes, but for doing a poor job of reporting on the issue to Congress. In one instance, the department claimed it would recover $67.6 million in improper military retirement payments while estimating that only $18.8 million in overpayments had actually occurred, GAO said.

Defense officials also failed to do “risk assessments” to determine what kind of corrective action is needed to reduce mistakes, GAO said. They failed to identify the “root causes” for errors, such as whether manual or automated controls were insufficient or even working.

In addition, GAO said the department did not comply with the 2010 law requiring “recovery audits” to evaluate the cost-effectiveness of procedures to recover money paid improperly to companies whose contracts have a total value exceeding $500 million in a fiscal year. According to GAO, defense officials said they were having a hard time tracing transactions and finding the original justifications for them, preventing them from conducting effective recovery audits.

If the Defense Department does not implement strategies to comply with federal improper payment laws, GAO warned, it will remain “at risk of continuing to make improper payments and wasting taxpayer funds.”

In a written statement released with the report, Robert F. Hale, the Defense Department’s comptroller, said the department is now developing risk assessments and corrective actions, reviewing its recovery efforts to ensure that they are cost effective, and working to ensure its reporting is complete and accurate.

“I continue to believe this program [to deal with overpayments] is fundamentally sound and I remain fully committed to comply in all respects with current statutory requirements,” Hale said.

Efforts to obtain further Pentagon comment Thursday were unsuccessful.

Time runs out on ethics reform in South Carolina

2013-06-07T06:03:01-04:00

South Carolina’s legislative session came to a close Thursday with a conspicuous absence: ethics reform. While the House passed an ethics bill April 30, and the Senate appeared to be briskly moving the measure through its own legislative process, in the end the upper chamber failed to garner enough support for the bill before the session’s clock ran out.

The measure would have required that legislators begin disclosing their sources of income, while limiting independent political spending and giving an independent Ethics Commission authority to investigate complaints brought against lawmakers. But by most accounts, the bill’s defeat had little to do with its contents.

“The bill became a political soccer ball and I don’t think it was blocked because of the substance of the bill,” said John Crangle, executive director of Common Cause South Carolina.

With time running out on this year’s session, a block of conservative Republicans wanted instead to focus their energies on passing legislation to block federal health care reform in the state; that effort did not pass. Gov. Nikki Haley, a Republican, blamed Democrats for holding up the ethics bill in final days. Some Democrats have said they support the effort but want more time to vet the bill.

But the bill’s supporters say failure to pass legislation this year is only a minor setback and that they’re confident the measure will be a top priority when the legislature resumes the second half of its two-year session in January.

“It’s on special order to be the first thing we take up,” said Sen. Wes Hayes, a Republican who has been a strong proponent for tougher ethics laws.

Still, it wasn’t supposed to happen this way. Last year, leaders from both parties and Gov. Haley called ethics a top priority for the session, and they established four advisory panels to develop the key components of ethics legislation. They were responding in part to a surge in public support for reform after former Gov. Mark Sanford, former Lt. Gov. Ken Ard and House Speaker Bobby Harrell were each either accused or convicted of violating ethics laws over the past few years. And they were also reacting to the failing grade issued the Palmetto State last year by the State Integrity Investigation —a collaboration of the Center for Public Integrity, Global Integrity and Public Radio International.

The advisory groups released their recommendations and the House quickly took up the cause. But the effort faced questions and controversy from the start. First, Republican leaders in the House introduced a bill but kept its contents secret. When they posted the language, it showed that the legislation would actually decriminalize some ethics violations. Representatives soon changed the language, and the House eventually passed a bill on April 30.

The Senate took up the issue and even improved the language, Crangle said. But politics quickly got in the way. In May, Sen. Robert Ford, a Democrat, resigned in the midst of a Senate Ethics Committee investigation into whether he used campaign funds for personal expenses. Days later, a spokesman for Haley said the case was evidence of the need for ethics reform. That in turn angered Democrats, with one saying that Haley, who was cleared in 2012 by the House Ethics Committee on charges of illegal lobbying, is the real example of why reform is necessary. In the end, the bill’s backers did not win enough support from Democrats and right-wing Republicans to pass the bill before the close of the session.

Bickering aside, there is one remaining major policy sticking point. Currently, legislators police themselves through House and Senate ethics committees, a system that watchdogs and even some legislators have criticized.

Senate Ethics Committee Chairman Luke Rankin, a Republican, told The State that the House Committee, which cleared Haley, has “swept some things under the rug over there.”

Rankin did not immediately respond to a request for comment.

The ethics bill would allow the independent Ethics Commission, which oversees the executive branch, to investigate complaints against legislators, but would still leave final decisions on how to handle a case to the legislative committees.

Hayes said the issue of who ultimately decides on ethics matters, and whether the Ethics Commission should even be allowed to investigate legislators, are the only substantive questions that legislators will need to address when they return to January. “There’s a lot of people in the Senate that think that the system that we have, in terms of policing ourselves, works pretty well,” he said.

Some Democrats had said there was no reason to rush a bill through in the final weeks of this year’s session when the issue can be rolled to next year. Crangle of Common Cause South Carolina said the wait will give him time to work on some amendments that would strengthen the financial disclosure provisions and close loopholes in the state’s campaign finance laws.

“I can’t say that I’m disappointed in the failure to pass the ethics bill,” he said. With Haley and the entire House up for reelection in 2014, Crangle added, it may be easier to push for stronger reforms next year anyway. It’s been decades since the state passed serious ethics legislation, Crangle said, so he wants to make sure the bill includes as much as possible. “We only get a chance like this once every generation.”

Lautenberg chemical bill drawing skepticism

2013-06-07T09:48:44-04:00

One of Sen. Frank Lautenberg’s last bills could represent the best chance to update the nation’s chemical safety regulations by requiring proof that a chemical is safe before it can be used.

But the legislation is drawing deep skepticism from some environmental groups and state officials who fear it could actually weaken safety standards.

Lautenberg, a New Jersey Democrat who died Monday of viral pneumonia at age 89, worked for decades on environmental legislation, including a 1986 law that created the Environmental Protection Agency’s Toxics Release Inventory, a database that allows members of the public to track pollution.

Lautenberg’s newest proposal, the Chemical Safety Improvement Act, was the product of a compromise with Republican Sen. David Vitter of Louisiana. Introduced May 22, it won the endorsement of nine Senate Republicans, along with the influential American Chemistry Council, a trade group.

A council spokesman called it “a balanced, comprehensive approach to updating the law, which will give consumers more confidence in the safety of chemicals, while at the same time encouraging innovation, economic growth and job creation by American manufacturers.”

An earlier, stricter chemical safety bill — essentially unchanged from legislation Lautenberg had put forward in each Congress since 2005 — failed to draw Republican support.

Lautenberg’s latest bill has been referred to the Senate Committee on the Environment and Public Works, which has not yet scheduled it for a hearing.

Meanwhile, prominent environmental groups like the Natural Resources Defense Council have expressed misgivings.

The bill “still leaves too many gaps in protecting the public,” Daniel Rosenberg, a senior attorney with the group, said in a statement May 24. Rosenberg said it lacks statutory deadlines for the EPA to review chemicals and may do little to improve on the Toxic Substances Control Act of 1976, which many dismiss as ineffective because it makes it difficult to require that chemicals be tested.

The existing law “has never accomplished its goal of protecting the public from dangerous chemicals,” Rosenberg said.

Others worry that the legislation could preempt stricter chemical regulations in states like California, known for its environmental laws, many of which were passed by voters in referendums or signed by Republican governors.

A 2003 law, for example, banned lead, cadmium, mercury and hexavalent chromium from product packaging, and was updated three times during Gov. Arnold Schwarzenegger’s administration. State lawmakers have also banned the sale of jewelry containing lead, and enacted a 2011 law to toughen fines against retailers who violate the restrictions.

In a statement Thursday, California’s Department of Toxic Substances Control said it was “reviewing the federal legislation and looking at what effect the preemption could have on our laws and regulations.”

In a May 31 letter to Sen. Dianne Feinstein, D-Calif., an official with the agency warned that the bill could impair the state’s decision-making because its authority relies on obtaining waivers from the EPA.

Under the proposed law, “the criteria to qualify for such a waiver make obtaining one nearly impossible,” wrote Josh Tooker, the department’s deputy director for legislation.

Richard Denison, a senior scientist at the Environmental Defense Fund, said the bill could override the requirements of California’s Proposition 65, which requires the state to maintain a list of chemicals that cause cancer or reproductive harm. Businesses are then required to notify customers when those chemicals are present. The list contains about 800 chemicals, according to the website of the state’s Office of Environmental Health Hazard Assessment.

Some states also ban bisphenol A, a chemical used in food packaging and other products, and certain flame retardants that federal officials have been slower to act on, Denison said.

“That’s why the industry has come to the table,” he said. “There’s got to be some expansion of preemption or there’s no reason for them to even play.”

While the bill would require the EPA to review an initial list of chemicals and test them for safety, if a chemical were found to be safe, states would be bound by that decision with few exceptions. Denison said it might be possible for industry to stall the EPA and put state rules on hold while new research was pending.

Denison wrote in a blog post Wednesday that he thought the legislation’s problems could be resolved in negotiations between Democrats, Republicans and industry groups.

Even in its current form, the bill is “significantly better than the status quo,” Denison wrote.

Reform pushed to G-8 meeting agenda after ICIJ's offshore tax haven investigation

2013-06-06T20:12:32-04:00

Sometimes great investigative reporting is a game changer — meaning extraordinary journalism can have such significant impact that the issue it illuminates will forever be cast in a different light.

Such is the case with our offshore tax haven project. Secrecy for Sale: Inside the Global Money Maze by the International Consortium of Investigative Journalists (ICIJ) continues to reverberate, especially in Europe. Tax havens will be high on the agenda when the G-8 countries sit down for their summit meeting in Ireland in a little more than a week. That’s in part because of ICIJ’s investigative work, which has received more than 11,000 worldwide media citations in just two months.

According to EU Commissioner Algirdas Semeta, the Offshore Leaks investigation by ICIJ and its partners has transformed tax politics and hardened political will to tackle the problem of tax evasion. "I personally think Offshore Leaks could be identified as the most significant trigger behind these developments ... It has created visibility of the issue and it has triggered political recognition of the amplitude of the problem", he told the EU Observer. He added that tax transparency overrides the principle of data privacy.

Likewise, European Council President Herman Van Rompuy says there has been a "real breakthrough" in the EU's efforts to combat offshore tax evasion. According to Reuters, Rompuy said the current aggressiveness of the EU's push is "unprecedented. We couldn't speak in those terms on those issues, let's say, a month or two months ago. . . . There is a strong political will by the leaders, not only the Europeans but also on a global level, to go forward in attacking tax fraud and tax evasion."

Again, the difference in political will seems to be that ICIJ’s offshore tax haven stories beginning in early April have engaged the public, and now have galvanized the politicians.

As part of a multi-year project, ICIJ started stripping away the biggest mystery associated with tax havens: the owners of anonymous companies. Drawing from a trove of 2.5 million leaked files, ICIJ led what may be the largest cross-border journalism collaboration in history — now encompassing 110 journalists in more than 50 countries. ICIJ’s investigation revealed the secrets of more than 120,000 offshore companies and trusts and nearly 130,000 individuals and agents, exposing hidden dealings of politicians, con artists, and the mega-rich in more than 170 countries.

Look for more of ICIJ’s tax haven reporting in the weeks and months ahead. And look for action on what British Prime Minister David Cameron calls “the scourge of tax evasion” at the G-8 meeting —action that’s occurring because of ICIJ’s investigative work.

Until Next Week,

Bill

Civil rights group's FCC positions reflect industry funding, critics say

2013-06-06T10:36:34-04:00

When the chairman of the Federal Communications Commission pitched a plan to allow more media mergers earlier this year, he received support from a curious source: the Minority Media and Telecommunications Council, once an ardent critic of industry consolidation.

Julius Genachowski wanted backing for a proposed loosening of a rule that bars the same company from owning a newspaper and a radio or television broadcast station in a top media market.

MMTC and its executive director, David Honig, have historically opposed relaxing ownership restrictions, saying they protect minority interests. Yet last week, the group released a key study arguing the opposite position.

So why the change of heart?

Critics say MMTC’s position may have something to do with its extensive industry funding. This includes more than $440,000 in luncheon sponsorships since 2010 from broadcast giants who favor the rule change.

In an 18-page response to questions for this article, Honig says the support does not influence the group’s positions.

“The most valuable asset that a nonprofit organization has is its integrity, and to imply that donations and fees influence our positions on issues is to suggest that we lack integrity, something we do not take lightly,” he wrote.

MMTC, which acts as a pro bono law firm on FCC issues for civil rights groups like the National Association for the Advancement of Colored People, was vital if Genachowski was to get his plan approved.

Two previous attempts to change the rule were slapped down by the courts, in part because of concern that greater media consolidation would reduce the number of minority media owners.

MMTC offered to commission the study in February, after voicing its support for Genachowski’s proposal.

Once a shoestring operation dependent almost solely on the volunteer efforts of Honig, MMTC has evolved in recent years into a potent organization that exercises much influence on the commission through its ability to shape the positions of large civil rights organizations on relatively obscure FCC issues.

The media ownership rules passed in the 1970s stemmed in part from the FCC’s failure to take action against TV stations in the South that blacked out coverage of the civil rights movement. They were also inspired by the perceived failures of large media outlets to report on grievances of inner cities that led to the race riots of the late 1960s.

It was believed that restrictions on ownership would lead to greater competition, more locally focused programming and more opportunities for minority ownership.

Consolidation has long been favored by many large broadcasters and newspaper companies, which seek savings by combining advertising and newsroom operations.

After years of defending the rules, Honig, wrote in a blog post in December that the cross-ownership ban should be relaxed, citing concern in minority communities about the decline of newspapers.

What he didn't disclose was the hundreds of thousands of dollars his group had received from CBS Corp., radio giant Clear Channel Communications Inc., Rupert Murdoch's News Corp. and the National Association of Broadcasters, an industry lobby group. All four have previously gone to court in an effort to end the ban. News Corp., which Los Angeles Times and a rule-change would clear the way for such a deal.

Clear Channel and News Corp. did not respond to questions for this article. Spokesmen for the NAB and CBS say their organization’s donations weren’t intended to change MMTC’s positions on cross-ownership or other matters.

Honig said the Center’s calculation of sponsorship totals — which were taken from MMTC materials — were “inaccurate.” He said the group may bump up the level of sponsorship of donors “for good will purposes.”

He did not provide alternate figures.

MMTC took in just under $2 million in 2011. Of that, $1.7 million was derived from sponsorships, donations and fees from companies, lobbyists, lawyers and religious broadcasters with interests before the FCC, according to an IRS filing.

“It is important to look at David’s source of funding to determine who David really represents,” says Mark Lloyd, a former associate general counsel and chief diversity officer at the FCC from 2009 until last year. “I think that would tell you a great deal.”

The MMTC ownership study, released last week, concluded the impact of greater consolidation in media ownership on women and minority ownership can’t be a “material justification for tightening or retaining the rules.”

Critics argue that other studies have shown that more media concentration harms small broadcasters, and that most women- and minority-owned broadcasting companies control just a few stations each.

Net neutrality position raises eyebrows

MMTC has also received support from telecommunications and cable firms and its position on broadband regulation and other issues has dovetailed with theirs.

“He’s making arguments that are no different than those made by the big companies and yet they’re presented as those of the civil rights community,” says Craig Aaron, the executive director of Free Press, a group that opposes media consolidation. “Those are his views, but it’s curious how often they’re in line with the filings of Comcast and AT&T.”

Honig says MMTC aims to promote equal opportunity in broadcasting, telecommunications and broadband and that its positions are often in conflict with those of its donors. He pointed to a letter accompanying the ownership study which noted there was "an indication that an especially extensive" cross-media merger could hurt minority ownership in smaller markets."

MMTC’s position on “network neutrality” early in President Barack Obama’s first term angered consumer groups and many technology companies that wanted the government to force Internet service providers to treat all traffic equally.

Proponents of an open Web were concerned that without strong network neutrality rules, broadband providers would be free to offer preferential treatment to deep-pocketed media outlets.

Honig sided with the Internet service providers, arguing that new rules would hurt the ability of cable and telecommunications companies to expand broadband in poor, minority neighborhoods.

"We think that closing the digital divide should be the top priority and that net neutrality should be second," he told the Los Angeles Times.

From 2009 through 2011 MMTC received at least $725,000 in contributions and sponsorships from network neutrality foes including Verizon, Time Warner, and the National Cable and Telecommunications Association, according to MMTC tax filings and sponsorship lists.

MMTC’s relationship with Verizon demonstrates the group’s various methods of obtaining industry revenue. In 2009, at the height of the net neutrality debate, Verizon made a direct $40,000 contribution to MMTC. From 2010 to 2013, MMTC documents list Verizon as funding at least $160,000 in MMTC conference sponsorships.

Additionally, MMTC worked with Verizon on a $189 million sale of wireless spectrum licenses to minority-owned Grain Management this year — a deal announced in conjunction with a larger $1.9 billion license sale to AT&T. A spokesman for Verizon says money paid to MMTC wasn’t intended to influence its policies but to support its mission of promoting inclusion in the industry.

Some saw Honig playing a key role in organizing traditional civil rights groups like the National Urban League and the League of United Latin American Citizens (LULAC) to sign on to anti-network neutrality filings with the FCC.

Honig is “the nerve center for much of the action we've seen on the part of the civil rights groups,” blogged James Rucker, then the executive director of ColorOfChange.org, a technology-oriented civil rights group that supported network neutrality.

“In my opinion, Honig is leading many of the respected civil rights groups he is advising off of the digital cliff,” he added.

Rucker isn’t alone in the view that Honig uses his credibility with civil rights organizations and expertise in communications law to influence them to take positions on complex issues that primarily benefit industry players.

Honig “undermines trust in his organization’s legacy” when he urges groups to join his advocacy campaign and they later find out the issues aren’t quite what they expected, says Cheryl Leanza, co-chairwoman of the Leadership Conference on Civil Rights’ media and telecommunications task force.

“He does a disservice to his past work when other organizations take his advice and they don’t know the consequences or implications of that advice.”

Leanza says her views are her own, not those of the LCCR.

Civil rights activist

Honig began his civil rights activism in the 1960s as a high school student, when he became a youth leader of the Southern Christian Leadership Conference in Rochester, New York.

He earned a law degree from Georgetown in 1983, and after the FCC under President Ronald Reagan suspended key minority broadcast ownership rules, he co-founded MMTC on a shoestring budget.

He mixed MMTC’s advocacy with litigation on behalf of civil rights groups. In the 1990s he led a high profile but unsuccessful legal battle representing the N.A.A.C.P. in its effort to prevent Rupert Murdoch’s News Corp., the parent of Fox Broadcasting Co. and the owner of a New York City television station, from gaining a waiver from the cross-ownership rule to buy the New York Post—the same rule Honig now favors eliminating.

In 1991, on behalf of LULAC, the N.A.A.C.P. and other civil rights groups, his legal work helped spur an FCC investigation and long-running legal fight with the country’s largest Christian television network, Trinity Broadcasting Network (TBN).

Known for its broadcasts of televangelists like Jimmy Swaggart and network founders Paul and Jan Crouch, Honig accused TBN of setting up a sham minority corporation to win additional FCC broadcast licenses.

Honig helped spur the FCC to restore equal employment rules to the cable and broadcast industry in 2002 and pass a 2007 rule preventing advertisers from instructing their agencies not to place spots on radio stations with large black and Hispanic audiences.

By the late 1990s, Honig had also found a way to successfully fund MMTC. In 1998, MMTC began collecting fees from broadcasters in return for helping them sell stations to minority buyers — earning $450,000 that year alone by helping Clear Channel sell a Boston station for $5 million, according to a report in the trade newspaper Broadcasting & Cable. The story noted that Honig was able to begin paying himself a $41,125 salary.

The report also said that rival brokers were complaining that one MMTC client, CBS Corp., did not typically use brokers and had retained Honig “only to curry favor with the diversity-minded FCC.”

In 2002, the group added an annual “Access to Capital” fundraising luncheon, which helped net it $22,806. Honig’s compensation had risen to $161,000, according to tax filings.

By 2006, the luncheon had become so successful at attracting industry interest it had been expanded to two days and was addressed by three of the FCC’s five sitting commissioners — MMTC raised $291,334.

Station donations

Additionally, the non-profit MMTC began accepting donated broadcast properties.

In 2008, Mega Communications, a Spanish radio network owned by New York art collector Adam Lindemann, donated a Tampa Bay area AM station to MMTC. Honig says the station was used to train women and minorities. MMTC sold the station for $1.15 million last year to Christian broadcaster Salem Communications.

In 2010, Trinity Broadcasting Network donated 147 low-power television stations to MMTC. That year MMTC awarded TBN, along with Clear Channel, its “Extraordinary Service Award,” an annual prize given for those “who have far exceeded the call of duty in the service of the civil rights cause,” according to MMTC’s website.

The FCC soon reclaimed the licenses of many of the TBN stations, but in 2011 MMTC sold 78 of the stations for $390,000 to a Tennessee company run by broadcast entrepreneur Henry Luken, whose holdings include The Nashville Network and the male-oriented Tuff TV.

TBN declined to comment on the donation. Honig says MMTC did not solicit the donation from TBN, and that Luken has pledged to enact a training program for women and minorities as part of the deal.

By the time of the sale of the former TBN stations, MMTC had grown substantially. In 2011, the last year for which tax forms are available, it reported almost $2.8 million in net assets.

Honig’s salary had also increased to $212,072. His addresses included a waterfront home on Maryland’s Eastern Shore assessed at $856,700, according to Maryland property records.

Today its website lists eight lawyers, two researchers and a communications director. Its brokerage team includes three others, two of whom are former Clear Channel staffers. MMTC ranked as the seventh-largest broadcast broker in the U.S. in 2011, and has worked on deals valued at $1.8 billion over the past 15 years. Honig, 63, says he plans to semi-retire next year.

Comcast and AT&T

Among the group’s most generous donors is cable giant Comcast, which, according to MMTC documents has spent at least $375,000 on fundraising luncheons and conferences in Washington hosted by MMTC between 2009 and this year.

In addition to taking Comcast's side on Net Neutrality, Honig publicly hailed its 2011 buyout of NBC Universal.

Honig publicly hailed Comcast’s 2011 buyout of NBC Universal saying the $16.7 billion merger was “a win for all Americans, especially minority and low-income consumers who have largely been left out of the digital equation.” The deal required Comcast to expand broadband to low-income Americans and create 10 new television channels in partnership with minorities.

NBC Universal contributed $150,000 to MMTC in 2010, and retained MMTC’s brokerage arm to help it sell a Los Angeles TV station as required under terms of the deal.

“We supported MMTC's work for years prior to the NBC Universal transaction,” said Sena Fitzmaurice, a spokeswoman for Comcast, in an email response to questions about the relationship. “We support a wide variety of organizations and they don't always support all of our policy positions just as we don't always support all of their policy positions.”

MMTC also supported a failed attempt by AT&T to buy T-Mobile in 2011 for $39 billion, the group’s first endorsement of a media and telecom merger in its 25-year history. The combination would benefit minority broadband consumers by allowing AT&T to expand service to more than 97 percent of consumers, Honig wrote in a brief to the FCC.

Groups such as the National Hispanic Media Center and the Center for Media Justice disagreed, arguing that T-Mobile was the low-cost carrier and that its elimination would not only harm consumers but disproportionately affect minority customers.

In 2010 and 2011, AT&T and T-Mobile provided $240,000 in sponsorships to MMTC fundraising events, according to MMTC documents. A number of other civil rights groups such as the NAACP and Gay and Lesbian Alliance Against Defamation also backed the proposed merger and also received AT&T funding.

At the time the chairman of MMTC’s board, former FCC Commissioner Henry Rivera, worked at law firm Wiley Rein, which represented T-Mobile in the merger. Julia Johnson, then MMTC’s treasurer and its current board president, runs a public relations firm whose clients have included AT&T, according to the Tampa Bay Times.

Ari Fitzgerald, a communications lawyer at Hogan Lovells and secretary of the board at MMTC, has done FCC work for T-Mobile both before and after the failed merger proposal.

AT&T relayed questions about the relationship to Honig, who defends MMTC’s stance in the merger, citing AT&T’s record of hiring minority staff and suppliers. Johnson, Fitzgerald and Rivera recused themselves from voting on MMTC’s position on the merger, he said.

“MMTC’s officers and directors are highly skilled, experienced individuals, and they all serve pro bono,” said Honig, adding: “No MMTC officer or director would tolerate attempts at ‘purse-string advocacy.’”

Growing Entity

Long-time public interest lawyer and MMTC board member Andrew Schwartzman says a turning point for the group came when it entered telecom advocacy. He says Honig is “well-motivated” but on some telecom issues “misguided rather than improperly influenced.”

Schwartzman’s own organization, the Media Access Project, closed its doors last year due to a lack of funds. He does not see MMTC’s positions as being “dictated by specific corporate contributions.”

“I don’t see these as a sudden transactional relationship but something longstanding,” he added, in reference to the donations.

Alex Nogales, the director of the National Hispanic Media Coalition, is less forgiving.

"We're disappointed in David," said Nogales. "He's gotten a bit too chummy with the industry and he's tried to drag us into those machinations and I don't appreciate it."

He says he resigned his spot as a member of MMTC’s board because of concerns about its growing corporate ties.

Whether the MMTC’s cross-media ownership study will lead to a relaxation of media ownership rules is a matter that will be decided under its next chairman.

Either way, the MMTC is looking to remain a key player at the FCC under the new regime.

President Obama’s pick for the spot, Tom Wheeler, a former cable and wireless industry lobbyist, was endorsed by the group just hours after news of his selection was leaked to the media.

John Dunbar contributed to this report.

Lobbyists helping banker recoup land Saddam 'stole'

United States — 2013-06-05T10:16:46-04:00

A Michigan financial adviser says Saddam Hussein long ago stole a chunk of his land that now houses a U.S. and Iraqi military installation — and he wants the real estate back.

What to do?

Hire a pair of well-connected lobbyists in Jason Poblete and Mauricio Tamargo, partners at the D.C. and Coral Gables-based firm Poblete Tamargo who both once worked for the federal government.

Their mission: Help Walid Habboo, who fled Iraq in the early 1970s to escape persecution and now works for Wells Fargo Advisors in Farmington Hills, Mich., recoup a disputed 35- acre plot in southeast Baghdad that Habboo says once belonged to his family.

Poblete and Tamargo registered to specifically lobby Michigan’s congressional delegation on Habboo’s behalf regarding issues that involve “confiscated property and related claims against the Republic of Iraq,” according to U.S. Senate disclosure filed Friday and an interview with Poblete.

The two men have also served as his lawyers for about a year.

“For a U.S. citizen to resolve a property claim in a foreign country, it’s a pretty tall order,” said Poblete, who served as a staffer for Rep. Bill Thomas, R-Calif., and the House Administration Committee before joining the private sector in 2003.

Lobbyists-for-hire typically represent corporations, unions or moneyed special interest groups. Picket signs, petitions and public meetings account for more traditional methods for private citizens attempting to voice frustration to federal lawmakers.

But for international cases like Habboo’s, retaining a lobbyist might be the only way for U.S. nationals to resolve the issues, Poblete said.

“People like the Habboo family are usually the last people dealt with because they don’t have the clout to reach into this process.” Poblete said. “A lot of these Iraqi-American families haven’t had the recourse that a lot of big companies have had.”

Habboo, a U.S. citizen, and his family are Chaldean Christian, a sect of Assyrian Christians who have sometimes faced violent marginalization in Iraq.

Habboo, who when reached by phone directed questions to his lobbyists, argued through them that Hussein’s regime expropriated land from his family. This includes a large tract called Camp Rustamiyah, an Iraqi military academy that was captured by U.S. armed forces during the Iraq War.

The United States officially turned over the training facility to the Iraqi military in March 2009, although many U.S. military forces and privately-contracted soldiers still populate the base, according to a U.S. Army document obtained through a Freedom of Information Act request made by Habboo’s legal counsel and reviewed by the Center for Public Integrity.

The U.S. Army’s heavily-redacted response, dated Nov. 26, revealed that the base houses about 3,000 soldiers. Additional U.S. personnel, according to the document, include:

600 employees of the government contractor Kellogg, Brown and Root
136 interpreters
24 Army Air Force Exchange Service personnel
40 Iraqi police advisers

Tamargo, Habboo’s other personal lobbyist, is no stranger to the reams of bureaucratic red tape that can block U.S. citizen from resolving a property claim in a foreign country.

From 2001 to 2009, Tamargo chaired the U.S. Department of Justice Foreign Claims Settlement Commission, which evaluates claims similar to those of Habboo and adjudicates how much U.S. citizens are owed by a foreign government. He's also a former chief of staff and general counsel to Rep. Ileana Ros-Lehtinen, R-Fla.

Tamargo, who with Poblete has met with the Iraqi ambassador other Iraqi emissaries in Washington, D.C., would not disclose his client’s asking price for the land. But he says he’s hopeful that they will settle the claim with the Iraqi government amicably — and without involving the DOJ commission.

“We’re hoping that we can persuade the Iraqi government to simply settle the matter before it’s something that has to go to the Foreign Claims Settlement Commission or any kind of tribunal,” Tamargo said.

Son of former Korean president obtained secret offshore company amid family’s tax evasion scandal

2013-06-05T10:32:50-04:00

The eldest son of South Korea’s former President Chun Doo-hwan obtained an offshore company in the Caribbean in 2004 amid a tax evasion probe into his younger brother’s alleged involvement with their father’s bribery-fed slush fund.

Prosecutors are aggressively seeking the ex-president’s hidden assets in the face of an approaching statute of limitations deadline for his unpaid fine of 167.2 billion won ($149.3 million).

Chun Jae-kook, the oldest child of the former military strongman, became a director and shareholder of a secret company in the British Virgin Islands with the help of a law firm and an offshore services provider in Singapore, according to records obtained by the International Consortium of Investigative Journalists (ICIJ) and reviewed by the Korea Center for Investigative Journalism (KCIJ), also known as Newstapa.

Chun Jae-kook, CEO of the country’s major publishing house, Sigongsa, did not respond directly to requests for comment for this story.

He released a statement saying that his offshore company had nothing to do with his father and that it was not created for evading taxes or concealing assets. He explained that his involvement in offshore came about as he moved the money he had for studying and living in the United States to Singapore when he returned to South Korea in 1989.

“I have never taken assets out of the country, and am currently holding no assets abroad,” he said.

Dictator’s Ill-gotten Wealth

Chun Jae-kook’s 2004 acquisition of the offshore company came months after his younger brother, Chun Jae-yong, was arrested on charges of evading taxes on 16.7 billion won, money that the younger Chun said he inherited from his maternal grandfather.

A court ruled that at least 7.3 billion won of the money came from his father’s slush fund.

Chun Doo-hwa ruled the country from 1980 to 1988 after seizing power through a military coup in 1979. He was convicted in 1997 of amassing a huge slush fund of hundreds of billions of won in bribes funneled to him by businessmen during his presidency.

The former president was also convicted of charges stemming from the 1979 mutiny and a bloody crackdown in the southern city of Gwangju in May 1980, in which hundreds of pro-democracy protesters were massacred by police.

Chun Doo-hwan was initially sentenced to death in 1996 for his role in the Gwangju slaughter, but was later pardoned.

Chun Jae-kook, the eldest son, has faced suspicions that he, like his younger brother, may have been associated with the management of his father’s slush fund, but no evidence has been found linking him to the father’s concealed assets.

Unpaid fines

In 1997, the former president was ordered to repay 220 billion won of the ill-gotten gains he was found to have amassed while in office.

He has paid only a quarter of the total. He still owes 167.2 billion won in outstanding fines.

Chun Doo-hwan told a court hearing in 2003 that he had only 290,000 won in savings, claiming that he was unable to pay the rest of the fine.

His children’s assets, meanwhile, are estimated to be some 200 billion won, and the father has come under fierce public criticism for a lavish lifestyle that includes trips to prestigious golf resorts. He also donated more than 1,000 million won to the Korea Military Academy, his alma mater.

Prosecutors have come under increasing public pressure to track down Chun Doo-hwan’s wealth before the statute of limitations in his case expires in October. They recently launched a special task force to step up their investigation. The deadline in the case can be extended if prosecutors uncover traces of the hidden assets.

Prosecutor General Chae Dong-wook encouraged the newly-established team to use “every possible means” to locate the ex-president’s illegally accumulated fortune.

Yoojung Lee is a reporter with the Korean Center for Investigative Journalism.

Stealthy super PAC strikes in Mo. special election

2013-06-03T18:34:01-04:00

A newly formed super PAC has invested more than $12,000 into 11th-hour efforts to turn out the vote for Republican House candidate Jason Smith in Missouri, federal records show.

But voters in the Show-Me State's 8th Congressional District won’t know the source of the money behind the pro-Smith messages until long after the polls close in Tuesday's special election.

That's because the Conservative StrikeForce Super PAC, which registered with the Federal Election Commission in March, didn't spend money until last week — well after the final pre-election reporting deadline. The groups isn't required to publicly disclose any of its donors until July 4, when post-election reports must be submitted to the agency.

The Conservative StrikeForce Super PAC spent about $10,000 on Thursday toward a tele-town hall event and telephone calls designed to get voters to the polls, according to a report filed Friday with the FEC. The group, whose address is a mailbox at a UPS store in northern Virginia, also reported spending about $2,000 for robocalls to be placed today and Tuesday.

When the Center for Public Integrity contacted Scott B. Mackenzie, the group’s treasurer, he declined to comment, saying, “I really don’t have anything to say to you. Nice talking with you.” Other Conservative StrikeForce Super PAC representatives did not immediately respond to requests for comment.

The Conservative StrikeForce also operates a traditional political action committee, which raised $6 million during the last election cycle, according to FEC records. Ahead of the 2012 election, it directly contributed more than $100,000 to GOP politicians and spent nearly $500,000 on messages that advocated for Republican candidates, including Reps. Michele Bachmann, R-Minn., and Allen West, R-Fla.

On its website, the Conservative StrikeForce PAC says it was launched by a “small group of devoted conservatives who wanted a way to effectively support candidates by motivating like-minded voters at the grassroots level.”

The super PAC’s expenditures in Missouri rank it as the largest independent spender in the race where Smith, a state representative, is a heavy favorite in the GOP-leaning district, according to a Center for Public Integrity analysis of federal records. His opponent is Democrat Steve Hodges, a fellow state representative and self-described "conservative Democrat" who supports gun rights and abortion restrictions.

Three other PACs have made modest independent expenditures on Smith’s behalf: the National Right to Life Victory Fund, the Missouri Farm Bureau PAC (Southeast District) and the Conservative Campaign Committee — an organization formerly known as the Campaign to Defeat Barack Obama. The three groups together have reported making roughly $8,000 in expenditures in the race.

Tuesday’s special election follows the resignation of Republican Rep. Jo Ann Emerson, who left Congress in February to head the National Rural Electric Cooperative Association, which was her No. 1 campaign contributor during her career, according to the Center for Responsive Politics.

OPINION: the peril of Obamacare's promise

2013-06-03T11:36:09-04:00

Presidents often live to regret some of the words speechwriters put in their mouths. The first President Bush paid a steep price for his ill-advised “Read my lips. No new taxes!” promise in 1988. He lost his bid for a second term.

No doubt President Obama regrets saying, with equal bravado: “If you like your health care plan, you will be able to keep your health care plan.”

That was just plain stupid. For starters, he and his speechwriter either didn’t understand or chose to ignore this reality: for most Americans, whether or not they keep an existing health plan is not up to them or the government. Insurance companies and our employers are the ones making those decisions.

Like most Americans, Obama probably had never heard of terms like “benefit buy-down” and “full replacement.” Insurance company executives use them frequently, but almost never to anyone other than their corporate customers and Wall Street financial analysts.

If the employer-sponsored health plan you have today has fewer benefits or requires you to spend more of your own money for medical care than the plan you had last year — the one you liked but can’t keep — you have been the victim of benefit buy-down, a practice employers have been using for years to limit their share of the cost of providing coverage to workers.

And if you were in an HMO or PPO but found out during open enrollment that your employer has eliminated those options in favor of a high-deductible plan, you have become a victim of full replacement. The health plans you liked were fully replaced by a plan enabling your employer to shift more of the cost of care to you.

So if the President’s speechwriters were paying attention to what has been going on in the health insurance world, they would have found some other way of saying what Obama reportedly meant — that the reform he supported would build on the uniquely American employer-based system while reducing the number of folks without coverage. In other words, people would not have to give up their private insurance and enroll in a government-run plan, even though many consumer advocates believed something like Medicare-for-all would have been a better way to go.

As we get closer to the date when most Americans will be required by Obamacare to enroll in a private health plan if they’re not eligible for Medicare or Medicaid, it’s becoming clear, especially to the president’s critics, that the law will indeed mean that health plans offering the least protection from financial ruin after a serious illness or injury — especially in the individual market — will soon go away. That is unless, as I wrote last week, insurance companies are able to take advantage of loopholes in the law that will enable them to continue selling junk insurance.

Banning junk insurance is a good thing for consumers, but making such policies unlawful — as Obamacare will do — means that people who are currently enrolled in them will have to find health plans that offer real coverage by January 1 of next year.

Obama’s speechwriters should have been thinking ahead to the day when Obamacare will protect us from buying the equivalent of snake oil. If they had, they might have understood why the president didn’t want to promise folks they could keep existing plans.

The advantage that Obamacare’s critics have is that many people who buy junk insurance don’t realize they’ve been paying good money for almost nonexistent coverage — that is, until they wind up in the hospital after getting sick or hurt. And because most Americans stay relatively healthy and injury free, those who are in junk plans can go years without testing the limits of their coverage.

States are starting to disclose how much insurers plan to charge for the policies they sell through the online health insurance marketplaces beginning Oct. 1, and so far, we are seeing little evidence of the “rate shock” some politicians and insurance executives were predicting earlier this year. But it won’t be long before people who are enrolled in plans with the skimpiest benefits will find via cancellation notices from their insurers that their plans won’t be available next year. Some inevitably will find that premiums for more comprehensive coverage — which many undoubtedly will insist they don’t need or want — will be considerably higher than what they were paying for junk.

That’s all the president’s political opponents will need to claim, with some justification, that Obama made a promise he didn’t keep when he was trying to sell the public on the need for reform. The president’s speechwriters better be thinking now how to get him out of the trap they set for him four years ago.

Cancer-cluster study seeking to debunk 'Erin Brockovich' has glaring weaknesses

PG&E Corporation — 2013-06-03T10:04:11-04:00

Even before the film Erin Brockovich depicted the true-life plight of a California town with poisoned water, state scientist John Morgan was calling claims of a cancer cluster there pure fiction.

For the past 18 years, the Loma Linda University professor, who also works as an epidemiologist for the California Department of Public Health, has tenaciously tried to debunk the notion that families in the desert community of Hinkley were suffering from a high rate of cancer after Pacific Gas & Electric Co. dumped tons of a contaminant into an unlined wastewater pond.

Morgan has kept his research up to date and even today presents it at scientific conferences. His message is not subtle. At a conference in Maryland last year, he popped up one slide comparing Brockovich to a delusional Don Quixote and another mocking the Academy Awards for honoring the film “in spite of the absence of evidence of a cancer excess in Hinkley.”

Morgan doesn’t hide his disapproval of a recent ruling by the California Environmental Protection Agency that drinking hexavalent chromium, the rust inhibitor that PG&E dumped in Hinkley, can cause cancer. The agency based its ruling on rodent studies, but as Morgan says, “We’re not big rats.”

The U.S. Environmental Protection Agency has reached the same conclusion internally as California’s EPA — that drinking chromium causes cancer — but it faces powerful opposition from the chemical industry in making its ruling official. At stake is whether regulators will set stricter limits on how much chromium is allowed in drinking water. Tens of millions of Americans drink small amounts of chromium each day in their tap water.

The ongoing controversy has resurrected interest in Morgan’s work. Some writers and scientists cite it as proof that Brockovich was wrong.

But a review by the Center for Public Integrity found glaring weaknesses in Morgan’s analysis that challenge the validity of his findings. In his first study, he dismisses what others see as a genuine cancer cluster in Hinkley. In his latest analysis, he excludes people who were exposed to the worst contamination.

Morgan has done other questionable work. As an advisor to the American Council on Science and Health, which gets funding from the chemical industry, Morgan is featured on the group’s website, Riskometer.org. He claims that exposure to a number of toxic chemicals, including known carcinogens such as dioxins and hexavalent chromium, has killed no one from cancer in America.

Morgan stands by his research. He says he was dispelling a misconception fostered by the lawsuit and film that the entire community of Hinkley suffered from a high rate of cancer because of the pollution.

Questionable methods

In his Hinkley analysis, Morgan fails to distinguish residents who were exposed to heavy doses of chromium from those who were exposed to little or none at all. With any carcinogen, the more you’re exposed to it, the higher your odds of getting cancer as a result.

Morgan tallies all cancers among roughly 3,500 people in a 137-square-mile census tract. Yet the families who sued PG&E at Brockovich’s urging lived in a neighborhood of 13 homes covering roughly one square mile. Those families were exposed to chromium levels up to hundreds of times higher than anyone else in Hinkley.

Despite obvious limitations, local and state health officials often do this sort of back-of-the-envelope calculation when people complain about too many cancers in a neighborhood. Still, some epidemiologists say such analysis is weak science.

Other problems in Morgan’s work are not so common. In his first analysis from 1988 to 1993, Morgan actually found the cancer rate in Hinkley was 25 percent higher than in the surrounding counties. But he dismisses this cluster as a statistical mirage, a mere fluke.

Other epidemiologists who looked at Morgan’s numbers at the Center’s request disagree. Statistically, there’s at least 95 percent certainty that the cluster is not a fluke, said Richard Clapp, a Boston University professor who used to direct the Massachusetts Cancer Registry. He said that’s the statistical standard most epidemiologists use.

In his 2011 update, Morgan reports fewer cancers than expected in Hinkley. But he starts counting cancers in 1996, coincidentally the year PG&E settled the Brockovich lawsuit.

By then, PG&E had bought and bulldozed every home in the neighborhood where it had dumped chromium. All the people who had sued and were portrayed in the film had moved. One of them, Roberta Walker, said only a couple of families stayed in Hinkley. So, hardly anyone exposed to high levels of chromium are in the Morgan analysis most often cited.

“It seems to me that what’s going on here is this guy has got a bias. He’s trying to use his science to confirm his opinion,” said Stephen Lester, science director for the Center for Health, Environment & Justice, a group that helps communities with environmental problems.

Morgan defended his analysis, saying that he wasn’t testing whether chromium was safe to drink. He acknowledges that he has no data on who was exposed and by how much. But he said there was a popular notion that people in Hinkley were suffering from a high rate of cancer, and his analysis proves that was not true.

But what about the cancer cluster that other epidemiologists discovered in his first analysis? Morgan acknowledged that a 95 percent confidence interval is the standard most epidemiologists use. But he said the guidelines for the California Cancer Registry — guidelines he helped craft — call for 99-percent certainty. The cancer cluster in Hinkley didn’t reach that bar.

Morgan himself isn’t consistent in his use of the standard. He says the real problem in Hinkley is a cluster of cervical cancers as a result of women not getting Pap smears. But Morgan relies on a 95-percent confidence interval to deem that cluster statistically significant.

He justifies switching to a lower standard by saying his most recent research was done in his role as a college professor, not a state epidemiologist, so he didn’t have to adhere to state guidelines. In other words, the job Morgan is working determines whether a cancer cluster is real.

He struggled to explain why he started his latest Hinkley analysis in 1996, saying demographics change from one census to the next and for that reason it may be impossible to do a study over more than a decade. Morgan’s latest study stretches over 12 years, but he says he was pushing it by looking at such a long period of time.

Clapp said it is possible to do studies spanning more than a decade, and there are ways to adjust for changing demographics.

Morgan knows the neighborhood portrayed in the film was gone by 1996. He also knows that levels of chromium in most of the water in Hinkley are not much higher than is found naturally in the Mojave Desert. But again, he said it didn’t matter to him whether people in his study were exposed to chromium. He wasn’t looking into chromium exposure, he said; he was addressing the misconception that there was a cancer cluster in Hinkley.

Morgan speculated that people in Hinkley may be exposed to less chromium than others because he doesn’t believe they had been drinking the water since the film came out. In a visit in 2000, he noticed everyone had switched to bottled water. If he’s right, Morgan is left counting cancers in a town where an unknown number of people drank small traces of chromium many years ago.

Surprised by being asked about his analysis, Morgan said, “Now, what I presumed was you're going after Erin Brockovich.”

Limitations of epidemiology

Whether anyone in Hinkley got cancer from drinking chromium is an obvious question to ask. But science may not be able to answer it. Epidemiologists must rely on statistics, which aren’t capable of detecting whether a few extra people in a community got cancer from exposure to a toxic chemical. Either the chemical has to be really deadly, or the number of people in the study has to be very large. Epidemiologists sum it up this way: If they can detect a problem, you know you have a true catastrophe.

Morgan’s analysis illustrates the scientific limitations the EPA grapples with whenever it evaluates a toxic chemical.

The boundaries of the groundwater polluted by PG&E are now drawn around wells in Hinkley with more than naturally occurring levels of hexavalent chromium. The Lahontan Regional Water Quality Control Board currently defines that as 3.1 parts per billion — equal to about a tablespoon of chromium in an Olympic-size swimming pool.

Only 18 homes had private wells exceeding that level in recent years, according to Lauri Kemper, the board’s assistant executive officer. Based on the state’s estimate of risk, if a group of 6,500 people drank that much chromium every day, you might see one cancer caused by it. One additional cancer in 6,500 won’t show up in Morgan’s study of 3,500 people, even if everybody drank the most polluted water.

As is often the case, there simply aren’t enough people to do a study. Even if there were hundreds of thousands of people drinking low levels of chromium, gathering data on how much chromium is in each person’s well is a daunting and expensive task.

The families portrayed in the movie are a different matter. One well near where Roberta Walker used to live still reads 1,500 parts per billion, despite years of cleanup. That’s nearly 500 times more chromium than anyone in Hinkley is exposed to today. At that dose, a person’s risk of getting cancer increases — theoretically, at least — by one in 13.

The lawyers Brockovich worked for tracked down 650 people who lived in Walker’s neighborhood, dating back to when the dumping began in 1952. Many of those records are sealed as part of a lawsuit.

The California Office of Environmental Health Hazard Assessment mentioned but dismissed Morgan’s work in its 2011 public health goal, which concluded that drinking low doses of hexavalent chromium daily posed a cancer risk. State epidemiologist Jay Beaumont said in an interview that he reviewed Morgan’s work and found it “not very useful.”

Steven Patierno, an outside scientist who served on the EPA’s peer-review panel, criticized the EPA for leaving Morgan’s work out of its draft evaluation of hexavalent chromium. Patierno, now deputy director of the Duke Cancer Institute, has a long history of defending industry in chromium litigation. He served as a paid expert witness for PG&E in the Brockovich lawsuit.

‘I want to know the truth’

Morgan says he’s not paid by industry. His job as regional epidemiologist for the California Cancer Registry, he says, is to keep people in his Mojave Desert region from getting cancer.

He speaks with quiet passion, explaining that his philosophy is to wage war on cancer by focusing on the big things, like encouraging people to get screened. He argues that the Hinkley lawsuit doesn’t help him in his cause. Instead, he describes it as a crisis hyped up by a law firm to win a big settlement that ends up coming out of consumers’ pockets.

“I've heard different reports of $2 million or $3 million that Erin Brockovich received herself. And yet, she is the humanitarian. Well, I'm more humanitarian than she is. I want to know the truth. My salary is not dependent upon what I find,” Morgan said.

Brockovich said the personal attacks are disappointing. She said when she was investigating claims in Hinkley as a single mother of three working for a Los Angeles law firm, she was getting paid $800 a month. She said she was concerned about the people in Hinkley and had no clue she’d ever get a bonus.

Brockovich said she’s always considered Morgan’s analysis flawed because it didn’t track the people who were actually exposed to chromium.

“He’s projecting junk science onto me when he’s the one doing junk science,” she said.

Morgan did a cancer-cluster study in Redlands, Calif., at the request of scientists consulting for Lockheed Martin. The study was used in court to defend Lockheed Martin against allegations that an old rocket plant had polluted the groundwater with carcinogens. In a study very similar to the Hinkley study, Morgan found no cancer cluster.

Challenged in a 2004 deposition, Morgan testified that he didn’t know the scientists asking for the research were getting paid by Lockheed Martin. One of them, Michael Kelsh, worked at Exponent, a consulting company well known for defending companies in pollution cases.

In a 2005 report on one of the pollutants, perchlorate, the National Academy of Sciences said of Morgan’s study and others like it, “Because ecologic studies do not include information about exposure and outcome in individuals, they are considered to be the weakest type of observational studies.”

Still, Morgan’s work has been cited as evidence that cancer clusters are often creations of an ill-informed media. Morgan handed over an old clip from ABC’s 20/20 in which John Stossel uses his work to debunk the claims in Erin Brockovich that drinking hexavalent chromium can hurt people.

The American Council on Science and Health, a group whose stated mission is to present sound science in public debates, posted some of Morgan’s research on its website, Riskometer.org. On the site, the group says, “Americans are bombarded daily with warnings of dire threats to their health. … But in reality, most if not all of these warnings have little to do with the real threats to our health and lives.”

Morgan offers a list of toxic chemicals that includes dioxins and hexavalent chromium, chemicals that the International Agency for Research on Cancer classifies as known carcinogens. But Morgan concludes that in 2002, no one in American died of cancer from being exposed to any of these chemicals.

“It’s actually a ridiculous statement,” said Lester, a toxicologist at the Center for Health, Environment & Justice. He said although science may not be able to say what caused a person to get cancer, that doesn’t mean chemicals aren’t to blame.

Morgan now says he doesn’t remember the details of this analysis, done in 2007, or where he got his information.

Former Hinkley resident Julie Heggenberger watched her mother, who grew up across the street from the PG&E station, suffer from a host of painful diseases. In 1976, her maternal grandfather died of thyroid cancer. And Heggenberger says that on the day she was born in 1974, her grandmother died of stomach cancer.

Court records show the family may have been exposed to the worst contamination of all. A nearby well in 1965 had a reading of 15,000 parts per billion or nearly 5,000 times worse than any exposure today.

When you know your family drank a chemical known to cause cancer and you see them suffering, you don’t want to wait for the science to be perfect, she said, adding, “How much hurt has to happen before they say, well yeah, it was hurting people all that time?”

Norm Coleman sees big paydays from nonprofits

2013-05-31T15:15:09-04:00

Leading two politically focused nonprofits has generated big money for former Republican Sen. Norm Coleman of Minnesota — with paydays better than when he served in Congress’ upper chamber.

Coleman collected more than $570,000 during a nearly three-year tenure at the helm of the American Action Network and the American Action Forum, for an average of about $190,000 annually, according to a Center for Public Integrity review of federal filings.

That includes a combined salary of more than $116,000 in 2011, according to the groups' most recent annual reports — though Coleman was only a paid, full-time employee of the organizations for a portion of that year.

According to documents filed with the Internal Revenue Service, Coleman worked a combined 40 hours a week for the two conservative nonprofits during 2009 and 2010 — their first two years of existence, when he served as both groups’ chief executive officer.

He dialed back his time and responsibilities during the third year after taking a job at the Washington, D.C.-based law firm and lobbying shop Hogan Lovells, where his clients this year include Airbus Americas Inc. and Hong Kong-based investment firm Primus Holdings Ltd.

In their annual reports filed with the IRS, the two conservative nonprofits state that compensation levels are determined by reviewing compensation “for similar work at peer institutions” and approved by the organizations’ presidents.

Once Coleman stepped down from the chief executive officer posts, he was “no longer compensated by either organization,” Dan Conston, communications director for the two groups, told the Center for Public Integrity.

Coleman continues to serve as the chairman of the board of the American Action Network and sits on the board of the American Action Forum.

When Coleman was first sworn into the U.S. Senate in 2003, senators received an annual salary of $154,700 — a figure that increased to $169,300 during Coleman’s final year in office.

Many other former lawmakers, Republicans and Democrats alike, seek private-sector employment after serving in Congress.

Working in the private sector can be “pretty alluring,” said Viveca Novak, editorial and communications director of the nonpartisan Center for Responsive Politics.

“There is serious money to be made for a former member,” Novak continued, adding that Coleman’s efforts at Hogan Lovells are likely even more lucrative than his nonprofit work.

Coleman, who did not immediately respond to requests for comment, lost a highly contested race to Democrat Al Franken in 2008. An extended recount battle after Election Day went all the way to the Minnesota Supreme Court, which rejected Coleman’s final appeal of the result on June 30, 2009.

In July, Franken was sworn into the Senate, and Coleman helped launch both the American Action Forum, a policy institute organized under Section 501(c)(3) of the U.S. tax code, and the American Action Network, an “action tank” organized under Section 501(c)(4).

Ahead of the 2010 midterms, the American Action Network spent millions of dollars on ads that criticized Democratic candidates, earning the ire of campaign finance watchdogs that alleged the nonprofit spent too significant a portion of its resources influencing elections.

The group, which has denied the allegations, ranked as one of the most politically active nonprofits during both the 2010 and 2012 election cycles, according to the Center for Responsive Politics.

Coleman is also the chairman of the Congressional Leadership Fund, a super PAC that seeks to expand the Republican majority in the U.S. House of Representatives. That group made news last year for receiving a $2.5 million contribution from Chevron Corp., shareholders of which this week rejected an effort to stop the company from making political donations.

Award-winning Center series looks at toxic, sometimes hidden chemical releases

2013-05-31T11:07:51-04:00

In case you missed this last week, the Center for Public Integrity’s environmental reporting team produced another groundbreaking investigation in our award-winning “Poisoned Places” series.

Our latest story is about the often toxic, sometimes hidden releases emanating from oil refineries, chemical plants and other industrial facilities along the chemical corridor of the Louisiana and Texas Gulf Coast. Those unplanned emissions — known in regulatory parlance as “upsets” — are occurring more often than industry admits or government knows, according to interviews with regulators, activists, plant representatives, workers and residents, and an analysis of tens of thousands of records by the Center for Public Integrity.

Starting in 2011 and in collaboration with NPR, the Center has been looking into the toxic air we breathe, and how insidious forms of toxic air pollution persist in many parts of the United States. More than two decades ago, Democrats and Republicans together sought to protect Americans from nearly 200 dangerous chemicals in the air by passing a series of amendments to the Clean Air Act. That goal remains unfulfilled. Today, hundreds of communities are still exposed to the pollutants, which can cause cancer, birth defects and other health issues.

Take a look at some of these key findings from our latest report on accidental emissions (which NPR is also reporting on this week):

The “upsets,” often occur when equipment breaks down or other “unavoidable” mishaps occur. The Center found that these are happening more often than government reports reflect, adversely affecting residents living near industry.
Over the last five years in Texas alone, the nation’s refinery hub, accidental emissions have yielded almost four million pounds of some of the most toxic air pollutants.
From 2007-2011, the largest refinery and chemical facilities across Texas spewed almost 180 million pounds of accidental emissions. That represents additional contamination on top of the 14.8 billion pounds of routine air emissions.
Frequently, state regulators — the primary enforcers of the Clean Air Act — fail to investigate thousands of reports of accidental emissions. And even if regulators do act, offenders are rarely punished.
Pollution from accidental emissions is likely even greater than this data suggests. Regulators rely on an honor system which companies easily exploit.

For decades, the U.S. Environmental Protection Agency and state regulatory agencies have effectively ignored these accidental emissions. Officials don’t count such “upsets” in facility permits and compliance records because they simply aren’t supposed to happen. That means industrial facilities can get away with releasing more pollution than allowed by the federal Clean Air Act — with few or no repercussions. These incidents skirt normal pollution controls, venting through flares and leaks. Plants can have scores of events per year, giving off a constant cloud of invisible spoliation. As a former official in Houston with the Texas Commission on Environmental Quality told the Center, “A big dose of toxins [is] coming out of these facilities and into fence line communities.”

Look for more of our reports on Poisoned Places in the months ahead. And if you want to know the major pollution sources near where you live, then visit our interactive national map, and put in your zip code, to see information on local pollution sources.

Until Next week,

Bill

Target malfunctions imperil U.S. missile defense effort

2013-05-31T15:15:38-04:00

Shortly after 11 a.m. local time, a U.S. ballistic missile target loaded with a mock nuclear warhead blasted off from Narrow Cape, a low-lying coastal area of Alaska’s Kodiak Island. A network of radars from Alaska to California tracked the target, watching for the release of metal chaff, Mylar or aluminum balloons, or other objects like those that North Korean missiles might use to fool U.S. defenses.

This simulated attack on the United States on Dec. 5, 2008 was the first time massive sea- and ground-based defenses would try to penetrate the decoys or countermeasures that might be used to hide a warhead in the near-vacuum of space. As the Pentagon had wanted, a rocket interceptor launched from a silo at California’s Vandenberg Air Force Base destroyed the warhead and the radar network performed well, prompting officials to declare the test a success in a press release the same day.

But the real test of U.S. defenses against the countermeasures that North Korean missiles might eventually carry — the primary objective of that exercise, which was estimated to cost taxpayers between $200 million and $300 million — never happened. The target malfunctioned and failed to release them.

For years, the public’s focus on the nation’s nearly $10 billion-a-year missile defense program has been on whether American interceptors can hit incoming ballistic missiles and protect the country and its allies, a feat often likened to hitting a speeding bullet with a bullet. More than $90 billion has been spent since 2002 to develop the means to target incoming threats and intercept them, but without much demonstrated success.

Less attention has been paid to the targets used in U.S. missile defense testing, which have failed or malfunctioned at an alarming rate since the 2002 inception of the Missile Defense Agency, which oversees all the development, procurement and testing programs. In the last five years, target problems occurred in two of the last three intercept tests of ground-based interceptors — such as those already deployed to Alaska and California — and in two of the last seven tests of the Army’s mobile Terminal High Altitude Area Defense interceptors.

An investigation by the independent Government Accountability Office in 2008 found that 7 percent of the targets launched from 2002-2005 also had problems, a rate that more than doubled to 16 percent from 2006-2007.

Target problems have driven up costs, with GAO estimating the cost of the most recent ground-based interceptor tests at $230 million apiece. In total, the Pentagon is now spending roughly a half-billion dollars a year on targets, and another half-billion a year on testing.

And they have caused significant disruptions to testing schedules, often pushing back critical intercept tests by a year or more. The December 2008 test to see if missile defenses could distinguish between decoys and a warhead has yet to be repeated, undermining claims by both military and elected officials that U.S. missile defenses are capable and effective in protecting the homeland or U.S. troops overseas from a future missile attack by North Korea or Iran.

Those countries will be able to field threatening missiles during the next decade, the National Academy of Sciences told Congress in a report last September, adding that “at some point, countermeasures of various kinds should be expected.” Defense officials should expect any weaknesses to be exploited, observed Tom Collina, an analyst with the Arms Control Association. "In a real missile attack North Korea could be expected to use decoys and countermeasures that US defenses would not be able to handle,” he predicted.

Risky Test Set for Later This Year

The risk of another major development setback looms this fall when the military plans its first test of the missile defense system intended for Europe. In one of the most complex such experiments the Pentagon has ever attempted, two different interceptor systems will be used to try to defeat a near-simultaneous attack by two air-launched extended medium-range ballistic missiles. Originally meant to involve three different interceptor systems in a raid by up to five missile threats, the test was scaled back due to budget sequestration cuts, two congressional sources said. Unofficial estimates put the cost of the original test at more than $500 million.

A team of GAO investigators that has long pressed for reform in the MDA’s targets program recently issued a warning about the Pentagon’s plan to to use a new class of air-launched target missiles in this complex test without separately flight testing one of them first. “Using these new targets puts this major test at risk of not being able to obtain key information should the targets not perform as expected,” Cristina Chaplain, GAO’s director of acquisition and sourcing management, told the Senate Armed Services Committee at a May 9 hearing.

The manufacturer of these new targets, Lockheed Martin, disagrees. Noting that on May 13 it had successfully dropped a prototype out the cargo bay of a C-17 transport plane, it says the target missile is ready for the big test later this year. But the version that was dropped lacked an engine, so the test did not satisfy the GAO.

Richard Lehner, the Missile Defense Agency spokesman, said the agency’s scrutiny of key target components and its “proven quality control processes” give officials “the confidence necessary … to plan for and launch targets for the first time as part of a system-level flight test.” Lehner also reiterated the Pentagon’s official response to the GAO that any decision to perform a flight test of the new targets “must be balanced against cost, schedule, and programmatic impacts.”

Chaplain and her colleagues, including her assistant for missile defense, David Best, and her boss, Paul Francis, have been using their audits and congressional testimony to try to get MDA to resolve the target problems and stop relying on high-risk strategies in which major purchases of targets, interceptors and other hardware are made before all the design and engineering bugs have been worked out.

“Since its inception, MDA has been operating in an environment of tight time frames for delivering capabilities — first with a presidential directive in 2002 and then with a presidential announcement in 2009 on U.S. missile defenses in Europe,” Chaplain told the senators. Budget constraints “have already necessitated tough trade-off decisions and will require additional steps to reduce acquisition risk,” she added.

Besides the continuing pressure to meet development and deployment deadlines, there have been instances of poor execution by contractors, she and her colleagues say, as well as difficulties building an inventory of targets that do not have aged components, such as rocket motors from surplus Trident or Polaris submarine missiles.

The High Cost of Failure

The stakes are higher as more missile defense elements — sensors, interceptors and targets — are added to increase the complexity and realism of the tests. “These are exceptionally expensive tests,” Chaplain said in an interview, raising the possibility that well over $200 million will be wasted anytime one of them fails.

The GAO team has found that the missile defense programs most affected by target problems have been the Ground-based Midcourse Defense system and the mobile THAAD system. The first is the sole system tasked with protecting the United States against a North Korean missile attack, with 26 interceptors deployed to Alaska and four to California. The THAAD is a critical piece of land- and sea-based defenses scheduled to be deployed to Europe beginning in 2015.

The GMD system has not had a successful interceptor test since 2008, partly due to target issues, but some lawmakers are calling for its additional deployment in the eastern United States, anyway. And in March, amid North Korean saber rattling, the Obama administration announced a $1 billion plan to add 14 more of the GMD interceptors in Alaska by 2017.

A third system, the ship-based Aegis Ballistic Missile Defense, has fared better with targets and testing, although a key 2008 intercept test was postponed for three years due to problems with a Lockheed Martin LV-2 intermediate-range target missile and other issues, according to auditors. A March 2009 test had trouble with two refurbished Lance missile targets when both fell short of their expected trajectory, causing the Aegis BMD system not to fire one of its interceptors, GAO and MDA officials reported.

GAO also has documented major setbacks to missile defense programs due to other target issues, including inventory shortages and production delays of newly designed targets. The THAAD program was forced to postpone planned flight tests in fiscal year 2009 due to a lack of available targets, delays that GAO said cost about $201 million. A shortage of targets in 2007 prevented the ground-based system from achieving its primary test objectives that year and kept the Army from testing its radar systems.

Several analysts agreed that MDA’s efforts to save money have backfired when target-related troubles surfaced. Philip Coyle, a former director of operational test and evaluation at the Pentagon from 1994 to 2001, called it a management, not a contractor issue. “If MDA told the contractors to test their targets adequately, and paid them for it, the contractors would be happy to do that,” he said.

Missiles are sometimes thrown into a test against an interceptor without having been flown as targets beforehand to see how they will behave, mainly to save money, said George N. Lewis, a physicist and missile defense specialist at Cornell University’s Judith Reppy Institute for Peace and Conflict Studies.

But if a test fails due to a poorly performing target, more money must be spent to buy another target missile and plan and execute another test. “My impression is that it’s one of those things where you try to do something cheaply that ends up costing you a lot of money,” Lewis said.

Consider what happened on Jan. 31, 2010 after a 45-foot Lockheed Martin missile target was launched from the Kwajalein Atoll in the Marshall Islands and soared toward the edge of the atmosphere. After its booster engine, an old solid-fuel motor from a Trident submarine missile, finished its burn, ground controllers rotated the missile slightly, said Lewis, who has written a detailed analysis of the test with Theodore A. Postol, professor of Science, Technology and International Security at the Massachusetts Institute of Technology.

As the missile turned, the spent rocket stage began “chuffing,” Lewis said, spewing chunks of unburned fuel and insulator material, varying in size from less than an inch to 6-8 inches or larger, each creating unexpected radar signals that confused a sea-based radar defense system. The radar failed to identify the warhead, and so an interceptor fired from a silo at Vandenberg could not hit its target.

After that test, which the Pentagon said cost $150 million, missile defense officials took contractors to task for chronic lapses in quality control. “I’m not going to name names today, but I’m going to tell you we continue to be disappointed in the quality that we are receiving from our prime contractors and their [subcontractors] — very, very disappointed,” David Altwegg, then-MDA executive director, told reporters after the test.

But GAO’s Chaplain told Congress that MDA never subjected the target that had failed to a “risk reduction flight test.”

“While the target … was successfully flown in that flight test, aspects of its performance were not properly understood and lack of modeling data prior to that test contributed to significant delays in the test program,” she said in an April 2012 report.

Lewis said in an interview that debris fallout was not unusual for a Trident C4 motor that was 25-35 years old. Trident missiles had been launched many times over the years, “but had they flown it as a target, they probably would have found out about” the chuffing, he said.

This target-related test failure came less than two months after a target built by Coleman Aerospace, a unit of L-3 Communications, embarrassed missile defense officials when it had trouble during its release from a C-17 transport plane. The launch of a THAAD interceptor had to be aborted when the target’s motor failed to ignite once the missile cleared the plane’s cargo bay.

“We all sat there and watched the target fall into the water,” MDA’s Altwegg told reporters after the Dec. 11, 2009 test, which cost $41.2 million. He said the target was found to have a “big-time quality problem.”

Its failure led to a delay of the planned test, cancellation of five tests scheduled for fiscal year 2010, and “hundreds of millions of dollars” being spent to develop and acquire new medium-range air-launched targets, GAO said.

The failure also prompted the MDA to suspend Coleman Aerospace for a year due to quality-control issues.

A Decade of Management Problems

The GAO, which investigated the MDA’s target procurement program in detail in 2008, traced such performance problems and the rising costs of targets and testing to difficulties the agency had overseeing a long-term contract awarded to Denver-based Lockheed Martin Space Systems in December 2003. The military had decided to abandon its piecemeal purchase of targets and have Lockheed Martin act as a so-called lead systems integrator, charged with developing and producing short, medium and intermediate-range ballistic target missiles for use against all of its missile defense systems.

The idea was to use common components for all the targets, reduce the time needed to produce them, and cut costs. Existing targets in the military’s inventory had little in common, varying in size, shape and the age of their components — including some rocket engines from submarine missiles over 40 years old, GAO said.

But GAO faulted missile defense officials for not doing a thorough cost analysis or evaluating all alternatives before embarking on their plan. By the time Paul Francis, then-GAO’s director of acquisition and sourcing management, wrote leaders of the House and Senate defense committees in September 2008 to report the findings of his investigation, the total cost of the target procurement program had ballooned to $1 billion or more, with $553 million already spent.

None of the new targets had been delivered, forcing the MDA to use older targets much longer than planned, emptying its inventory of certain kinds of targets and putting the increasingly complex tests at risk of failure.

“Early in the development of [the procurement program], MDA underestimated the technical and design challenges involved in the development of a new target family,” Francis told lawmakers. “By May of 2006, MDA recognized that the funding set aside for [target] development was no longer adequate,” he added.

The cost of each target jumped from the $4.5 million to $8.5 million the agency paid in 2002-2006 to an estimated $32 million to $65 million in 2008-2010, Francis said. As a result, the agency’s plan would yield fewer targets at higher costs, he said.

The strategy “has not gone as planned,” wrote Francis, who added that Lockheed Martin chose to reuse surplus missile components for some of its targets. “The availability of targets for flight tests continues to be problematic, and as a result the scope of the flight test program has been reduced to better match available targets,” he said.

Work on all but one of the new classes of target missiles was cancelled in June 2008, partly due to the unexpectedly high costs. The MDA responded by promising to make “threat-representative targets available on schedule and within the funding allotted.”

In early 2009, Lt. Gen. Patrick O’Reilly, then the MDA director, publicly acknowledged the gravity of the availability and reliability problems, as well as the rising costs and schedule delays. He promised a new strategy, and began awarding separate contracts for four classes of targets, GAO’s Chaplain said.

In fiscal year 2011, the MDA received 11 targets, all of which performed as expected, she said. In addition, the agency awarded a competitively bid contract to Orbital Sciences Corp. to produce eight targets by 2015.

But Chaplain noted that, even under the agency’s new approach, an early attempt to award a competitive contract was cancelled after the agency received bids that were more expensive than it anticipated. The agency also continues to rely heavily on Lockheed Martin to produce some of its targets, she said.

In an interview, Chaplain said that even though the number of companies able to build ballistic missiles is quite small, GAO “would still like to see more competition in the procurements to maximize the potential for savings.”

Coyle, the Pentagon’s former testing chief, sees target failures as part of a larger problem with the testing of the ground-based missile defense system, which he said has gotten worse over time. He pointed to MDA data showing a decline in the rate of testing and the rate of success over the years, with three successful intercept tests out of eight since December 2002, and only one out of three since the Dec. 5, 2008 test that failed to release decoys.

“The performance of systems undergoing engineering development is supposed to get better with time, not worse,” said Coyle, a Pentagon veteran who specialized in overseeing such efforts. “If you count [the 2008 countermeasures test] as a failure, then the record since Dec. 5, 2008 is zero out of three,” he added. “Zero in five years!”

Tobacco giant funded conservative nonprofits

Reynolds American Inc. — 2013-05-31T10:18:28-04:00

Tobacco giant Reynolds American Inc. last year helped fund several of the nation’s most politically active — and secretive — nonprofit organizations, according to a company document reviewed by the Center for Public Integrity.

Reynolds American’s contributions include $175,000 to Americans for Tax Reform, a nonprofit led by anti-tax activist Grover Norquist, and $50,000 to Americans for Prosperity, a free-market advocacy outfit heavily backed by billionaire brothers Charles and David Koch.

The tobacco company’s donations are just a fraction of the nearly $50 million that those two groups reported spending on political advocacy ads during the 2012 election cycle, almost exclusively on negative advertising. Federal records show that Americans for Prosperity alone sponsored more than $33 million in attack ads that directly targeted President Barack Obama.

But the money, which Reynolds American says it disclosed in a corporate governance document at the behest of an unnamed shareholder, provides rare insight into how some of the most powerful politically active 501(c)(4) “social welfare” nonprofits are bankrolled.

Reynolds American is the parent company of R.J. Reynolds Tobacco, which makes Camel and Winston brand cigarettes.

“The shareholder specifically requested that we disclose information about 501(c)(4)s, and in the interests of greater transparency, we agreed,” Reynolds American spokeswoman Jane Seccombe said.

Large corporations — tobacco companies or otherwise — almost never release information about their giving to such groups, and it’s most unusual for the groups themselves to voluntarily disclose who donates to them.

These groups, which obtain their nonprofit status because they say their “primary purpose” is not political activity, are generally under no legal obligation to detail their funding sources. Super PACs and other recognized political committees, by contrast, must report the names of their contributors who give more than $200 and the amounts they give.

Yet during the 2012 election cycle, various social welfare nonprofit organizations, emboldened by the U.S. Supreme Court’s Citizens United v. Federal Election Commission decision in January 2010, spent more than $250 million to promote or attack federal political candidates, according to the nonpartisan Center for Responsive Politics. The source of most of that money remains a mystery.

Reynolds American’s other contributions last year to 501(c)(4) groups include $100,000 to the Partnership for Ohio’s Future, an organization run by the Ohio Chamber of Commerce that spent several million dollars in a failed 2012 ballot initiative campaign to uphold a law limiting public workers’ collective bargaining rights. It also gave $12,500 to the National Taxpayers Union, a 501(c)(4) group that backed Republican candidates last year with modest expenditures.

Ohio Chamber of Commerce Executive Vice President Linda Woggon told the Center for Public Integrity she wasn’t aware that Reynolds American planned to disclose its donation to Partnership for Ohio’s Future.

But Woggon said she did not have a problem with officials there doing so, adding that “the decision is up to the company.”

Americans for Prosperity, which in 2011 reported to the IRS it received more than $25.4 million in contributions and grants, “leaves it up to our supporters” to decide whether to reveal their donations,” spokesman Levi Russell said.

“It’s their right, and we respect it,” he said.

Officials at Americans for Tax Reform, which in 2011 reported to the IRS that it received nearly $4 million in contributions and grants, did not reply to several requests for comment.

Within the tobacco industry, Reynolds American competitor Lorillard, which manufactures Newport brand cigarettes, has no nonprofit donation disclosure policy in place.

Ronald Whitford, the company’s associate general counsel, said Lorillard “could look at possibly enhancing disclosure in the future.”

Altria, the world’s largest tobacco company, does make contributions to politically active nonprofit organizations, spokesman Bill Phelps said — but he would not name any beneficiaries.

Altria’s corporate policy only requires it disclose its contributions to 501(c)(4) nonprofits in narrow circumstances, none of which applied to its 2012 donations, Phelps said.

For example, Altria, which makes Marlboros, the top-selling cigarettes, would publicly disclose a contribution if a nonprofit used at least $50,000 specifically for “political activities” as defined by the Internal Revenue Service — but only if the nonprofit informed Altria of this fact.

The IRS considers political activity to be the “participation in, or intervention in, any political campaign on behalf of (or in opposition to) any candidate for public office.”

Therefore, by its own rules, Altria would not disclose contributions that a 501(c)(4) used to fund so-called “issue advertisements” that are sometimes barely distinguishable from ads that directly advocate for or against a politician.

Politically active nonprofit groups such as Americans for Prosperity and Crossroads GPS, which was co-founded by GOP strategist Karl Rove, together spent millions of dollars on these kinds of communications last year.

Reynolds American’s written corporate policy on nonprofit donation disclosure is similar to that of Altria. But the policy “represents the minimum disclosure threshold,” said Seccombe, the company spokeswoman.

Reynolds American specifically acknowledged its donation to Americans for Tax Reform “because of expected stakeholder interest, not because the contributions were intended to be used or were in fact used for ‘political activity’ as that term is meant for purposes of the Internal Revenue Code,” Seccombe added.

She declined to speculate on which 501(c)(4) organizations Reynolds American will donate to this year. But officials will release information on its 2013 donations early next year, she said.

The company’s actions, although limited and hardly in real time, “set a precedent” and are “to be commended,” said Bruce Freed, president of the Center for Political Accountability, which tracks and advocates for political transparency by corporations.

“We just haven’t seen this with other companies related to their giving to (c)(4)’s,” Freed said.

Chevron shareholders reject ban on political spending

Chevron Corporation — 2013-05-29T16:58:34-04:00

Chevron Corp. shareholders today rejected a resolution seeking to prohibit the company from using corporate funds for political activities.

Last year, the oil company was one of the largest corporate super PAC donors, as the Center for Public Integrity has previously reported.

Leslie Samuelrich, senior vice president at the financial advisory firm Green Century Capital Management — the firm was the lead filer of the shareholder resolution — said the measure garnered at least 3 percent of the not-yet-official vote.

But she spun this seemingly miniscule support as good news.

"We're thrilled," Samuelrich told the Center for Public Integrity. "It is the beginning of a turning of the tide."

Just weeks out from Election Day, Chevron donated $2.5 million to the Republican-aligned Congressional Leadership Fund, a super PAC led by former Sen. Norm Coleman, R-Minn., and associated with House Speaker John Boehner, R-Ohio.

Ahead of Chevron's annual meeting in California, the company's board urged shareholders to reject the measure.

"Chevron’s participation in the political process is an important means of protecting the interests of the Company and its stockholders," the company wrote in its 2013 proxy statement.

"A ﬁxed policy barring the company from participating in the political process would undermine the board’s flexibility to exercise its business judgment in a manner that it reasonably believes is in Chevron’s best interests," the board members argued.

The board also noted that Chevron voluntarily discloses on its website information about its donations to political committees and trade associations, such as the $1 million it contributed in 2012 to the U.S. Chamber of Commerce.

Samuelrich told the Center for Public Integrity that the motion's supporters gained enough traction to refile the resolution again next fall, should they so choose.

"We're looking at all our options," she noted. "We're not satisfied with the progress Chevron has made on this front."

In 2010, the U.S. Supreme Court ruled in Citizens United v. Federal Election Commission that corporations were free to use general treasury funds to call for the election or defeat of federal candidates. Corporations may now also donate unlimited amounts of money to super PACs and politically active nonprofit organizations that may, in turn, advocate for or against politicians.

Small donors fueled Michele Bachmann's campaign

2013-05-30T10:28:21-04:00

What do the woman who founded the Congressional Tea Party Caucus, the co-chairmen of the Congressional Progressive Caucus and the U.S. Senate’s lone self-described “democratic socialist” have in common?

They all rank among the top beneficiaries of small-dollar political donors, according to a Center for Public Integrity analysis of federal records.

It’s firm evidence that neither Democrats nor Republicans in Congress have a monopoly on small-dollar givers, who often serve as barometers for a candidate’s grassroots support.

And the correlation between politicians with fervent beliefs and small-dollar givers lies at the heart of an ongoing debate about the role and significance of modest contributions from the masses in a political age often dominated by sizable contributions from a wealthy few.

Do passionate defenders of ideological views attract small-dollar donors? Do small-dollar givers push politicians to the partisan extremes? And are small-dollar donors ideologically dissimilar from the average voter or their large-dollar counterparts?

During the 2012 election cycle, Tea Party Caucus founder Rep. Michele Bachmann, R-Minn., collected both more cash and a larger portion of her congressional campaign war chest from small-dollar contributions than any other incumbent politician at the federal level, according to the Center for Public Integrity’s analysis.

Donations of $200 or less, the threshold at which the Federal Election Commission requires itemization in campaign finance reports, amounted to more than $9.5 million — or 62 percent of the $15 million Bachmann raised for her 2012 re-election efforts.

This morning, Bachmann — who was facing multiple campaign finance investigations and a tough re-election bid — announced that she would not seek a fifth term in Congress.

Meanwhile, Sen. Bernie Sanders of Vermont, a left-leaning independent who caucuses with Senate Democrats, collected nearly $3.7 million — or 59 percent of his total $6.3 million — from such small-dollar giving. That was enough to rank the self-described socialist as second among incumbents, in terms of percentage of receipts from modest donors.

Attribute this success to the senator’s “career standing up to the most powerful special interests in the country and vigorously representing the needs of the elderly, the children, the sick and low-income Americans,” said Ben Eisenberg, the finance director of Sanders’ campaign.

“People in Vermont and across the country appreciate Bernie’s efforts,” Eisenberg added.

Former Rep. Allen West, R-Fla., another darling of tea party activists, ranked third. Ahead of his narrow defeat by Democrat Patrick Murphy in November, West collected $9.3 million in contributions of $200 or less — nearly half of the $19 million he raised.

Representatives for Bachmann and West did not respond to requests for comment.

Tapping the grassroots

Among non-incumbents who raised at least six figures, Republican congressional challengers John Dennis of California, Anna Little of New Jersey, Samuel “Joe the Plumber” Wurzelbacher of Ohio, Karen Harrington of Florida and Chris Fields of Minnesota placed as the top five beneficiaries — percentage-wise — of small-dollar support, according to the Center for Public Integrity’s analysis.

Each reported raising at least half of their funds as coming from contributions of $200 or less.

Money from grassroots supporters doesn’t always translate into electoral success. Incumbency still remains a most powerful force.

Dennis, for instance, raised 84 percent of his campaign cash from low-dollar gifts and received just 15 percent of the vote in his longshot bid to unseat Democratic House Minority Leader Nancy Pelosi, D-Calif.

All the while, Democratic lawmakers, including Sen. Sherrod Brown of Ohio and Reps. Carolyn McCarthy of New York, Raul Grijalva of Arizona and Keith Ellison of Minnesota, also ranked highly among incumbents who raised a lofty portion of their campaign war chest from small-dollar contributions.

And Florida Democrat Alan Grayson pulled in $2.5 million from small-dollar gifts — more than any other House candidate — ahead of his victory last November. That sum accounted for roughly 47 percent of the $5.4 million he raised overall in the race.

Grijalva and Ellison are the co-chairmen of the Progressive Caucus.

In a telephone interview, Grijalva told the Center that “grassroots” donors help “shift the balance of power.”

“The lady that sends me 10 bucks out of her Social Security check for six months is at the table when I’m making a decision as much as a captain of industry is sitting at the table trying to affect the decision,” he said. “It equalizes things.”

Peggy May, McCarthy’s campaign treasurer, noted that the New York congresswoman “wants to foster an environment in which everyone can get involved and make a difference, no matter how small.”

McCarthy, whose husband was killed in a 1993 mass shooting on the Long Island Railroad, “is a singular figure in Congress when it comes to fighting to reduce gun violence,” May said. “She fights for this issue even when it's not in the headlines and her supporters recognize that.”

Overall, the median portion of campaign funds raised by an incumbent House member during the 2012 election cycle from small-dollar gifts was about 4 percent, and the median portion raised by an incumbent senator was about 11 percent.

Celebrity breeds small-donor success

Recently, Washington Post policy wonk blogger Ezra Klein argued that “small money is polarizing.”

“Small money will turn on you if you dare cut a deal with the other side,” Klein wrote. “Small money attacks the bipartisanship that, for better and worse, is required for the system to function.”

Michael Malbin, executive director of the nonpartisan Campaign Finance Institute, and Norm Ornstein, a scholar at the American Enterprise Institute, disagree.

When you raise political money, Ornstein told the Center for Public Integrity, you “naturally” attract support first from partisans. But you can change the system to expand the donor base “beyond those who are the most intense.”

Added Malbin: “Small-donor fundraising presumes that you will be known by a large enough number of people to get a decent response.”

Politicians typically achieve small-donor fundraising success because they have “gotten some celebrity either because they are leaders or because of statements they’ve made,” Malbin continued.

Both Malbin and Ornstein contend that small-dollar donors are a counterweight against corruption.

Ornstein says that under the current system, where most politicians chase large-dollar contributions, the potential for corruption is two-fold: Lawmakers can “shakedown” donors, and donors can make “explicit threats” to members of Congress.

Small-dollar donors, Ornstein said, “just don’t provide those kinds of problems.”

Texas passes ethics bill, but many proposed reforms are left on the cutting room floor

Texas,United States — 2013-06-17T11:47:21-04:00

This story has been updated.

When Texas’s biennial legislative session began earlier this year, many advocates for tougher ethics laws sounded an upbeat tone. Since a large crop of new lawmakers was coming aboard, some said at the time, 2013 was the year for bold reform.

But on Sunday, the legislature ended those hopes. An ethics bill was indeed passed, but it failed to include most provisions that watchdogs had pushed for. During a conference committee between the Senate and the House, lawmakers stripped several amendments that would have required online financial disclosure, exposed “dark money” in state campaigns and required lawmakers to disclose financial interests in businesses that receive state contracts.

“We’re extremely disappointed,” said Craig McDonald, director of Texans for Public Justice, a good-government group in Austin. “There were a lot of good things in there that reformers have been asking for for years, and all those were stripped in the dark of night.”

All was not lost for the reformers, though. The legislation, officially a reauthorization of the state Ethics Commission, did include several changes to the Lone Star state’s ethics laws. The measure will ban outgoing lawmakers who register as lobbyists from giving their unspent campaign funds to sitting lawmakers for two years, and directs the Ethics Commission to divide its cases into three categories, ranging from clerical errors to serious violations. The change will allow the commission to better manage its case load and devote more resources to serious ethics complaints, said Tom Smith, Texas director for Public Citizen, a Washington-based advocacy group.

The legislation also calls for a change in the Railroad Commission, which regulates the oil and gas industry: commissioners will now have to resign before running for another office. For decades, commissioners have pulled in huge contributions from energy companies while spending much of their time campaigning for another position, using the Railroad Commission simply as a lucrative launching pad, Smith said.

“Not only are the good government advocates like us sick of it,” he said, “but many in the industry supported it because they were tired of being shaken down.”

In a written statement, state Sen. Joan Huffman, a Republican who sponsored the bill, said it “includes substantial improvements in transparency.”

While that may be the case, state Sen. Wendy Davis, a Democrat, noted that most of the changes in the bill apply to other branches of government. “When it came time for making these decisions for shedding light on own our activities,” she said, “as usual in the Texas legislature, there was a tremendous amount of resistance.”

One of the more contentious provisions in the bill would have required nonprofits that spend on political campaigns, known as 501(c)(4) groups for a section of the federal tax code, to disclose the names of some of their donors. The legislature had passed a stand-alone version of the measure, but added an amendment to the reauthorization bill in case of a veto of the stand-alone bill by Gov. Rick Perry, who opposed the effort. But lawmakers removed the amendment Friday night, and the following day, Perry vetoed the stand-alone bill.

“It’s a tragedy,” Smith said.

Another controversial part of the legislation would have removed the ability of the Travis County District Attorney’s office, which is generally controlled by a Democrat, to investigate public corruption cases, leaving the jurisdiction to the Attorney General, who is usually a Republican. GOP legislators have pushed the move for years, McDonald said, to no avail. Instead, the legislature approved a study to look into the matter.

The provision governing post-legislative lobbying fell short of what some lawmakers had pushed for: a two-year ban on all lobbying activity after leaving office. Texas is one of 15 states that allow out-going lawmakers to register as lobbyists as soon as they leave office. This year, eight former House members registered as lobbyists, according to the Texas Tribune.

That failure was just one of many disappointments for good-government groups and their allies in the legislature. With the session now over, they’ll have to wait two years to try again, unless Perry adds ethics reforms to a list of issues covered by a 30-day special session that began Monday.

The bill now awaits action from the governor. Spokeswoman Lucy Nashed said in an email that “as with all legislation, the governor is reviewing the bill in its final form,” and has not decided what to do, but McDonald said he expects Perry to sign the bill.

Update: (June 17, 11:33 a.m.): On Jun 14, Gov. Rick Perry vetoed the bill. Perry said he supported some components of the bill, but that those changes were, "outweighed by several provisions added late in the legislative process without an open and honest discussion." He urged legislators to consider revisions before the next session "in an open, deliberative and transparent way."

Super PAC to tout North Carolina House speaker

2013-05-28T12:11:59-04:00

A new super PAC called "Grow NC Strong" has formed to promote North Carolina House Speaker Thom Tillis, a Republican who is considering a U.S. Senate bid in what could rank among the nation's more competitive races in 2014.

Grow NC Strong registered with the Federal Election Commission on Thursday, new documents show.

The paperwork identifies Michael Luethy as the group's executive director and Cindy Marrelli Watko as its treasurer.

Luethy is a political consultant who previously worked for the National Republican Congressional Committee and North Carolina Republican Party, according to his official online biography.

Marrelli Watko is a former business executive who worked for companies including Triology, Electrolux, Accenture and IBM. She is also a real estate broker, a board member of the Christian nonprofit Project Mercy, which combats poverty in Ethiopia, and an activist with the Republican Party focused on "expanding the role of women in government and leadership," according to her LinkedIn profile.

Tillis, a former IBM executive, was first elected to the North Carolina legislature in 2006.

His top campaign contributors over the years include the North Carolina Association of Realtors, Duke Energy, Bank of America and AT&T, according to the nonpartisan National Institute on Money in State Politics.

Incumbent Democrat Kay Hagan is seeking re-election in 2014, and several Republicans other than Tillis, including Reps. Virginia Foxx and Renee Ellmers and North Carolina Senate President Pro Tem Phil Berger, are reportedly considering getting into the race.

Hagan's campaign had more than $2.7 million in the bank at the end of March, according to federal records.

Eyelid lifts skyrocket among Medicare patients, costing taxpayers millions

2013-05-28T05:09:01-04:00

Aging Americans worried about their droopy upper eyelids often rely on the plastic surgeon’s scalpel to turn back the hands of time. Increasingly, Medicare is footing the bill.

Yes, Medicare. The public health insurance program for people over 65 typically does not cover cosmetic surgery, but for cases in which a patient’s sagging eyelids significantly hinder their vision, it does pay to have them lifted. In recent years, though, a rapid rise in the number of so-called functional eyelid lifts, or blepharoplasty, has led some to question whether Medicare is letting procedures that are really cosmetic slip through the cracks — at a cost of millions of dollars.

As the Obama administration and Congress wrestle over how to restrain Medicare’s growing pricetag, critics say program administrators should be more closely inspecting rapidly proliferating procedures like blepharoplasty to make sure taxpayers are not getting ripped off.

From 2001 to 2011, eyelid lifts charged to Medicare more than tripled to 136,000 annually, according to a review of physician billing data by the Center for Public Integrity. In 2001, physicians billed taxpayers a total of $20 million for the procedure. By 2011, the price tag had quadrupled to $80 million. The number of physicians billing the surgery more than doubled.

“With this kind of management malpractice, it’s little wonder that the [Medicare] program is in such dire shape,” said Sen. Tom Coburn, R-Okla., who is also a physician. “The federal government is essentially asking people to game the system. Every dollar we spend on cosmetic surgery that isn’t necessary is a dollar that can’t be used to shore up the program for people who need it the most.”

Plastic surgeons say there are a number of legitimate reasons for the spike, including a tendency among the elderly to seek fixes for real medical issues they might have quietly suffered through even a decade ago. But surgeons also acknowledge an increased awareness of the surgery fueled by reality television, word-of-mouth referrals, and advertising — often including dramatic before-and-after photographs — that promises a more youthful appearance. And doctors concede they face increased pressure from patients to perform eyelid lifts, even when they do not meet Medicare’s requirement that peripheral vision actually be impaired.

Thomas Scully, former Medicare administrator under George W. Bush, has a blunter assessment; he doubts the jump is caused by anything other than seniors seeking younger-looking eyes. “How many seniors among your friends or family have needed eyelid surgery?” he said. “I bet a hell-of-a-lot of them at 65 say, ‘You know what, I bet I can get Medicare to pay for this.’ And I can imagine the plastic surgeons love it. If you can go to patients and say that Medicare will pay, they will do it in much larger numbers.”

Florida surgeon bills Medicare for more than 2,200 eye surgeries a year

Surgeons who bill Medicare for large numbers of eyelid surgeries dot a map of the United States. Yet 11 of the 20 highest billers in 2008 were in Florida, which is both an elderly mecca and the country’s foremost magnet for questionable Medicare billing.

Among the top surgeons, the data show a South Florida doctor billed Medicare more than $800,000 in 2008 for about 2,200 eyelid lifts. That’s an average of six a day, including weekends. This same doctor was also a top biller in 2006 and 2007.

The Center is barred from naming the Florida surgeon. A 1979 federal court injunction blocks the Department of Health and Human Services from publically releasing doctor’s names in conjunction with specific Medicare billing information. The Center sued HHS to obtain the Medicare data but as a condition for obtaining it, signed an agreement not to publish the names of individual doctors, unless they agreed to discuss their billing histories. After repeated calls for comment, and a fax including the billing referenced by the Center, the Florida physician’s office assistant said he would not talk “due to prior engagements.”

Dr. Michael Migliori, president of the American Society of Ophthalmic Plastic and Reconstructive Surgery, said the Florida surgeon’s billing level might be feasible, if he was a busy eyelid specialist who performed few or no other procedures. But since the doctor also advertises breast augmentations, tummy tucks, liposuction, and a variety of other general cosmetic procedures, Migliori said his billing “does seem like an awful lot.”

Ryan Stumphauzer, a former federal prosecutor in the Southern District of Florida and founding member of the Medicare Fraud Strike Force, put it more bluntly: “There is no way that is anything other than crap.”

A spokesman for the Centers for Medicare and Medicaid Services, after being shown the Center’s data analysis, declined to comment on whether agency officials had noticed the dramatic uptick in blepharoplasty or taken any measures to ensure the billed procedures are legitimate.

Strict Medicare guidelines difficult to enforce

Quick, easy, and relatively painless, eyelid surgery is one of the most popular cosmetic procedures, with patients paying out-of-pocket for more than 200,000 a year, according to the American Society of Plastic Surgeons. The process for purely cosmetic surgeries and Medicare-funded blepharoplasty is the same. Doctors numb the eyelids with a local anesthetic before removing fat and excess skin, often with a laser. The entire process usually takes less than 30 minutes, and is performed most often in doctors’ offices or outpatient surgical centers, some of which are connected to “medical spas” or “beauty clinics.”

Medicare reimbursement ranges from $574 to $640 per eye, depending on the setting, but the rules for Medicare coverage are firm. Purely cosmetic surgeries do not qualify. Before filing a Medicare claim, doctors are required to test a patient’s vision and document that drooping skin significantly compromises a patient’s eyesight. The exam usually involves lifting a patient’s eyelids with tape and comparing their vision results to tests performed without tape.

Unlike private insurance plans, though, Medicare does not require pre-authorization of eyelid surgeries. Robert Berenson, a health policy expert at the Urban Institute and former commissioner of the Medicare Payment Advisory Commission, has pushed for selective pre-authorization for some Medicare services. But Berenson questioned whether reviewing physician records in advance would help much in the case of blepharoplasty, if surgeons have learned how to document the need for the procedure in order to work the system. “I am sure there are some patients who are hampered by eyelids drooping. And I’m sure that many of them are not and it’s a cosmetic reason,” Berenson said. But the doctors, he added, “have probably gotten very skilled at knowing how to document that something is not cosmetic.”

Dr. Bruce Quinn, who served as Medicare medical director of California’s Medicare Part B program from 2004 to 2008, said monitoring blepharoplasty claims is notoriously difficult. When a claim is reviewed, Quinn said, staff receives a medical record from a doctor that says a patient’s eyelids interfered with their vision, along with a photo of someone with droopy eyelids. There really isn’t anything to review, Quinn said. “It’s really hard to go much further on that.”

It’s also difficult and expensive to take blepharoplasty cases to court if a provider is suspected of fraudulent billing, Quinn said. To make a case, the prosecution requires patient testimony and boxes of records, a bar that is hard to meet. Quinn said although the explosion of blepharoplasty caught his attention in California, it was “pretty slippery to get a handle on.”

In most cases, Medicare trusts that doctors follow the rules and pays the claims it receives. The program later reviews a small percentage of claims and sometimes attempts to recoup money. Experts say the process, derisively known as pay and chase, has allowed fraud to thrive.

Medicare does have the authority to review claims before payment, and does so in certain cases. In 2012, Palmetto GBA, a government contractor that processes and pays Medicare claims, instituted a pre-payment probe of functional eyelid surgery claims in California, Nevada, Hawaii and the Pacific Islands. In California, where the probe is complete, Palmetto denied nearly 62 percent of claims it reviewed. The majority of those errors involved insufficient information showing the eyelid surgeries were “reasonable and necessary,” a Palmetto spokesman said.

Top docs says treatments necessary

Unlike the top biller in South Florida, some eyelid surgeons were willing to discuss their Medicare billing. “I’m disappointed that I am not number one. I wish I was on top,” joked John LiVecchi, a Florida plastic surgeon who was among the top ten billers listed in 2008 Medicare data. LiVecchi, an eyelid specialist, said his practice at St. Luke’s Cataract and Laser Institute is one of the largest in the country, which accounts for his numbers. St. Luke’s operates five offices in the Tampa Bay area.

LiVecchi, who has had an eyelid lift himself, disputes that patients are flocking to the procedure primarily with vanity in mind. Patients with droopy eyelids often don’t realize how much the droopy skin is narrowing their field of vision, he said. LiVecchi said he jokes with his patients that he doesn’t want them driving in his neighborhood until after the surgery. “It’s safer for society,” he said.

As for the cosmetic boost, LiVecchi compared eyelid surgery to removing a cancerous lump from a patient’s face. In both cases the doctor’s primary objective is keep a patient healthy, he said. A more youthful appearance is only a pleasant side-effect, which he sees no problem with. “Doesn’t everybody want to look good?” he asked.

LiVecchi said he believes most Americans should have the surgery by the time they are in their late 70s, yet only a small percentage are currently getting the fix. Droopy eyelids, like cataracts, are a fact of life, he said. “It’s something you can’t prevent. It’s part of the aging process.”

Yet 2008 claims records shows that more than 25 percent of eyelid surgeries billed for traditional Medicare beneficiaries were for patients 65 to 69-years-old.

The benefits of functional eyelid surgery for some patients are documented. A 2011 study published in the journal Ophthalmology, for example, found that the surgery provided “significant improvement in vision, peripheral vision, and quality of life activities.”

The surgery does not always go well, and some patients are left worse off. Gail Wilensky, a former Medicare administrator whose husband is a plastic surgeon, said her mother needed the surgery, yet she feels it was poorly performed and left her with tearing for the rest of her life.

Plastic surgeons interviewed said vision problems are not always the draw. Migliori, the president of the American Society of Ophthalmic Plastic and Reconstructive Surgery, said he sees three or four people a day who need the surgery at his practice at Rhode Island Hospital. But he conceded he faces a lot of pressure from patients who do not qualify. “They come in begging for you to do this surgery,” Migliori said. “You get a lot of pressure to bend the rules.”

Migliori said fudging the paperwork wouldn’t be hard. “You could tell the patient to squint,” he said, regarding the requirement that the condition be documented by a photograph, and then fake the vision test. But he thinks the majority of his colleagues are honest.

“To me it seems like a lot of work for something that doesn’t pay that great,” he said.

Surgeons make Medicare eyelid lifts big business

Medicare pays a third, or less, of what many surgeons charge patients out of pocket for cosmetic eye surgery. In the medical world, it is far from a big ticket item. But for practices with a large number of Medicare patients, the dollars quickly add up.

Sean Blaydon, an ophthalmic plastic surgeon at the Center for Aesthetic and Reconstructive Eyelid and Orbital Surgery in Austin, Texas, said his practice is a top biller of Medicare eyelid lifts because with five eyelid specialists, it is likely the largest center in the country. “Our bread and butter is eyelids,” Blaydon said.

Blaydon said the doctors at the Austin clinic drive, and sometimes fly, across central Texas to examine prospective patients referred to them. Candidates travel for the procedure to the doctor’s Austin outpatient surgical center, which is in the same building as the center’s Italian-themed spa that advertises “the Bellisimo Experience,” and offers Botox, skin peels and a variety of cosmetic skin rejuvenation treatments.

Blaydon said the clinic’s high numbers make it vulnerable to Medicare appeals. The center keeps all patient records on site and hands them over to Medicare when they ask for them, he said.

Although Medicare contractors have strict rules for eyelid surgery, Blaydon said it’s hard to judge the reasons why patients are flocking to the surgery like never before. Some of it has to do with vision, he said. And some of it has to do with vanity.

“There is no questioning that when they come here they also want to look better,” Blaydon said.

OPINION: a cynical search for loopholes

2013-05-29T17:20:14-04:00

There is an age-old tradition in this country: if you don't like a law and can't get rid of it, look for a loophole.

That's what some companies that don't want to comply with an important Obamacare requirement have done, and it appears they've hit pay dirt.

The provision of the law mandating that all new insurance policies must cover certain "essential" benefits will take effect January 1, 2014. From that date forward, all polices offered on the online insurance marketplaces in every state must cover ten categories of benefits that range from prescription drugs and lab services to hospitalization and maternity and newborn care.

The sponsors of the law hoped the provision was among those that would all but eliminate the need for Americans to file for bankruptcy because of medical debt.

The United States is alone among developed countries in having medical debt as the leading cause of bankruptcies, even among people who have health insurance. That's because a lot of the policies being sold today have such limited benefits, high deductibles and annual and lifetime coverage limits that many people realize after a serious illness or injury that their policies provide little help in paying medical bills.

"No longer will American families be a car accident or heart attack away from bankruptcy," said Senate Majority Leader Harry Reid in response to the Supreme Court's decision last June upholding the constitutionality of the law.

But as reported by the Wall Street Journal last week, corporate loophole hunters have invalidated Reid's statement, which honestly was an overstatement even then. While Obamacare will make affordable coverage available to millions of Americans for the first time, several million others — primarily low and middle-income workers — will still be left out.

According to the Journal, regulations written by the Obama administration pertaining to employers are being interpreted by health insurance benefits consultants as applying only to small businesses that buy coverage for their employees in the state online marketplaces. Those marketplaces, also called exchanges, were created for employers with up to 100 workers and individuals who cannot get coverage through the workplace.

So the good news is that anyone buying coverage through a state exchange will have the assurance of knowing that their policies will cover essential benefits and have lower deductibles than many policies being sold today.

The bad news for millions of others, however, especially those who work in low paying jobs at places like chain restaurants, retailers and nursing homes, is that many of the consumer protections that apply to policies bought through the exchanges will not apply to them. The adequacy of their coverage will depend on how much money their employers are willing to devote to health insurance.

We'll probably never know, but I suspect the language in the law pertaining to employer-sponsored coverage was written in a purposefully ambiguous way by lobbyists for insurance companies that have found selling inadequate coverage quite profitable. Some of the biggest insurers, including Aetna, Cigna and UnitedHealthgroup, bought companies several years ago that specialize in so-called limited-benefit plans. You can be certain they would try to protect their investments, especially considering that limited-benefit plans typically have high profit margins. That's because the insurance companies that sell them never have to pay out much in claims.

And that's why so many Americans filing for bankruptcy because of medical debt actually have insurance. According to a 2009 study by Harvard researchers, 78 percent of people who listed medical debt as the leading reason for their bankruptcy filings had insurance.

Those researchers found that medically related bankruptcies have been rising steadily-from 8 percent of bankruptcies in 1981 to 62 percent in 2007. Also growing steadily during that timeframe was the number of underinsured Americans.

The Commonwealth Fund recently estimated that approximately 30 million Americans are enrolled in policies that do not offer adequate protection. The organization's Biennial Health Insurance Survey of 2012, released last month, found that 46 percent of adults between the ages of 19 and 64-an estimated 84 million people-did not have insurance for the full year or were underinsured and consequently unprotected from high out-of-pocket costs. Two of five adults reported that they had problems paying their medical bills or were paying off medical debt.

In response to a question last month about the implementation of the reform law, President Obama said, " ... in a country as wealthy as ours, nobody should go bankrupt if they get sick." Regrettably, because of loopholes in Obamacare that undoubtedly will be exploited by employers more concerned about the bottom line than the health of their employees, that will continue to be little more than an aspiration for years to come.

Practice attack on Moscow was anything but routine

Moscow,Russia — 2013-05-28T13:01:34-04:00

An ailing, 69-year-old Yuri Andropov was running the Soviet Union from his Moscow hospital bed in 1983 as the United States and its NATO allies conducted a massive series of war games that seemed to confirm some of his darkest fears.

Two years earlier Andropov had ordered KGB officers around the globe to gather evidence for what he was nearly certain was coming: A surprise nuclear strike by the U.S. that would decapitate the Soviet leadership. While many of the officers didn’t believe that the U.S. had such plans, they dutifully supplied the Kremlin with whatever suspicious evidence they could find, feeding official paranoia.

The Western maneuvers that autumn, called Autumn Forge, were depicted by the Pentagon as simply a large military exercise. But its scope was hardly routine, as Americans learned in detail this week, for the first time, from declassified documents published by the National Security Archive, a Washington-based nonprofit research organization.

To the Russians, it could easily have looked like a genuine preparation for a nuclear strike, the documents revealed: A total of 40,000 U.S. and NATO troops were moved across Western Europe, with 16,044 more U.S.-based troops being airlifted overseas in 170 missions conducted in radio silence.

More ominously, in an unpublicized exercise called Able Archer 83, U.S. and NATO officers practiced the procedures they would have followed in authorizing and conducting real nuclear strikes, shifting their headquarters as the game escalated toward chemical and nuclear warfare. In communications, they several times referred to non-nuclear B-52 sorties as nuclear “strikes” — slips of the tongue that could have been intercepted by Soviet eavesdroppers.

While historians have previously noted the high risk of an accidental nuclear war during this period, the new documents make even clearer how the world’s rival superpowers found themselves blindly edging toward the brink of nuclear war through suspicion, belligerent posturing and miscalculation.

In a coincidence that could have proved catastrophic, the script for the maneuvers dovetailed snugly and perilously with the Soviets’ fears that they were under threat, coupled with nagging doubts about their ability to protect themselves from U.S. military might.

The problem with this brinksmanship was that it increased the risk of a nuclear exchange due to miscalculation, according to Nate Jones, a Cold War historian with the National Security Archive who edited and published the collection of more than 50 documents, totaling more than 1,000 pages, in three installments beginning May 16 and ending Thursday.

Ranging from presidential note cards to previously secret CIA reports, the documents describing Able Archer 83 offer fresh insight into a much studied but incompletely understood episode in the U.S.-Soviet rivalry. “This episode should be studied more because it shows that U.S. leaders might not have learned as much from the Cuban missile crisis [about avoiding accidental conflict] as they should have,” Jones said.

In the current edition of the Journal of Strategic Studies, Israeli historian Dmitry Adamsky calls the 1983 war games “the moment of maximum danger of the late Cold War.” Able Archer, he wrote “almost became a prelude to a preventative nuclear strike.”

The March 1984 edition of Air Man Magazine, a rare detailed public account, called Autumn Forge “the biggest North Atlantic Treaty Alliance show of force of the year — a test of military readiness in the context of NATO’s deterrent mission.” But the article emphasized the air lift, never mentioning rehearsal for nuclear war.

Even the troops on maneuver tried not to draw too much attention to themselves. At Dusseldorf Airport, the 45th Tactical Air Wing commander had his planes park away from the passenger terminal to keep a low profile. Most travelers, he was sure, were not even aware of troop activity at the airport.

But the Pentagon knew that the Soviets were monitoring his troops’ every move. “The series of exercises are watched very carefully by the Eastern Bloc nations, just as we try to watch their exercises as closely as we can, to learn tactics and procedures,” Air Force Maj. Gen. William E. Overacker told Air Man.

The impetus for the exercise came from the White House, “where they wanted to stare down the Soviet bear,” said Jones.

Tensions had heated up that September, after the Soviet shoot-down of Korean Air Lines Flight 007, which had strayed into Soviet air space. The administration responded with stepped-up surveillance, and provocative naval maneuvers, and pressed for the deployment of new Pershing II missiles in Europe capable of reaching Moscow in less than ten minutes.

Considered in a vacuum, Able Archer 83, in which officer’s at NATO’s Belgium headquarters practiced their response to a hypothetical chemical and nuclear conflict with a thinly-disguised Soviet Union, might not have seemed particularly threatening.

But for two years prior to Able Archer 83, KGB agents had been scouring the world for evidence of what the Soviet leadership in general — and Andropov in particular — believed were U.S. preparations for all-out nuclear war against the U.S.S.R.

The massive intelligence-gathering effort, called “Operation RYAN,” pressured the KGB to find proof that the U.S. was planning a “decapitating” strike against Moscow with its nuclear forces. (The Russian acronym derives from Raketno-Yadernoye Napadeniye, or nuclear missile strike.)

According to an unclassified summary of the Western nuclear exercise scenario, prepared for the National Security Archive by a NATO historian, the war game began with briefings on an imaginary East-West conflict in the Middle East, including “Orange” — that is, Soviet — arms deliveries to Syria, coupled with unrest in Eastern Europe.

Rising tensions and a change in the Soviet leadership triggered an invasion by the Red Army of Yugoslavia, Finland, Norway and Greece, according to the exercise scenario. After the “Orange” Soviets finally attacked “Blue” — U.S. and NATO forces — with chemical weapons, NATO decided to respond with two series of nuclear strikes.

The Soviets — in a characteristic mirror-image — feared a U.S.-initiated attack, and certainly made no secret about it at the time. One key document, held by the Library of Congress, describes how Andropov repeatedly warned that the U.S. was approaching the “red line” leading to nuclear war when he met with veteran U.S. diplomat Averell Harriman in June 1983.

But President Reagan was unsure if the Soviets were really convinced that the U.S. was preparing a sneak attack on them, or were merely “huffing and puffing,” as Reagan asked his ambassador to the U.S.S.R. in 1984.

There was skepticism in Washington about Andropov’s sincerity. Three days after the end of Able Archer 83, the CIA issued a Top Secret Joint Net Assessment of U.S. and Soviet strategic forces that assured senior administration officials that the balance of forces “is probably adequate to deter a direct nuclear attack on the United States.” It did not acknowledge the possibility of nuclear war through miscalculation.

Another Top Secret CIA analysis, written six months after Able Archer 83, shows how profoundly the spy agency may have misread the Kremlin’s thinking. “We believe strongly that Soviet actions are not inspired by, and Soviet leaders do not perceive, a genuine danger of imminent conflict or confrontation with the United States,” its authors wrote.

It acknowledged, however, that since the Able Archer exercise, the Soviet military had stepped up its activity and deployed new weapons and forces.

Even if his intelligence advisers were sanguine, Reagan himself was worried after the exercise that the Soviets genuinely feared the U.S. was preparing to commit nuclear aggression, writing at one point in his diaries that “I feel the Soviets are so defense minded, so paranoid about being attacked that without being in any way soft on them we ought to tell them that no one here has any intention of doing anything like that. What the h—l have they got that anyone would want.”

Moscow’s reaction to the November 1983 war games is not well documented, partly because obtaining material from Russian government archives has become increasingly difficult since the 1990s. “I wouldn’t say it has stopped, but it’s proceeding at a glacial pace,” Jones says.

But Russia isn’t the only country hanging onto some of the secrets surrounding the 1983 war scare.

The papers of former Washington Post reporter Don Oberdorfer include a summary of what Jones says may be the most comprehensive account of the Able Archer 83 ever written, a classified 110-page report completed in 1990 by the President’s Intelligence Advisory Board.

The report has never been released, but Oberdorfer’s notes, based on an interview with a confidential source, say it concluded that the 1983 “war scare was an expression of genuine belief on the part of Soviet leaders that US was planning a nuclear first strike, causing Sov(iet) military to prepare for this eventuality, for example by readying forces for a Sov(iet) preemptive strike.”

The note concludes in telegraphic style: “If so, war scare a cause for concern.”

Jones says the 1990 report to President George H. W. Bush may be the most comprehensive account ever written on what happened during those five days in November of 1983, but he’s been fighting to get it declassified without success since 2004. “Until the President’s Intelligence Advisory Board report is declassified, we won’t know how close the U.S. came” to nuclear war, Jones said.

This post has been corrected to change the name of the National Security Archive and other minor errors.

Vitter's hunt for super PAC cash limited — but watch out, alligators

2013-05-24T15:48:38-04:00

During his time at an upcoming “Louisiana Bayou Weekend” super PAC fundraiser, Sen. David Vitter, R-La., will be able to ask attendees how they like the Cajun cooking. And he’s free to inquire whether they bagged a gator during the weekend’s planned alligator hunt.

But he won’t be able to ask them to contribute more than $5,000 to its sponsor, the Fund for Louisiana’s Future, a super PAC created to support Vitter.

That’s because federal law prohibits federal candidates from officeholders from soliciting contributions in excess of $5,000 per year for super PACs, even though the groups may accept contributions of unlimited size.

It also doesn't matter "whether the funds are used for state or federal election work,” attorney Paul S. Ryan of the Campaign Legal Center told the Center for Public Integrity.

“The donor can always give as much as they choose to,” added Joe Birkenstock, an attorney at Caplin & Drysdale in Washington, D.C. “It’s a limit on what can be asked.”

Vitter, who is mulling a run for governor, will appear at the September fundraiser as a “special guest,” according to an invitation obtained by Politico.

The Fund for Louisiana’s Future is also registered with the state of Louisiana, which caps contributions to all political action committees at $100,000 per election cycle.

Since the advent of super PACs during the 2010 election cycle, federal politicians on both sides of the aisle have solicited funds for the unlimited-spending groups, including Senate Majority Leader Harry Reid, D-Nev., and GOP presidential nominee Mitt Romney.

Neither Fund for Louisiana’s Future treasurer, Charlies Spies, nor a spokesman for Vitter immediately responded to requests for comment.

Conservative nonprofit seeks to oust IRS official

2013-05-24T13:53:42-04:00

The American Future Fund, a Republican-aligned “social welfare” nonprofit, is circulating a petition to “fire Lois Lerner,” the Internal Revenue Service official at the center of the ongoing political storm about the agency’s targeting of conservative groups seeking tax-exempt status.

“Did you see IRS official Lois Lerner’s stunning and insulting actions before a Congressional committee yesterday where she made a personal statement of innocence, then plead the Fifth and left?” American Future Fund founder Nick Ryan wrote in an email to supporters Friday obtained by the Center for Public Integrity.

“Does it leave you seeing red that Ms. Lerner refused to fully and honestly answer questions before the Committee about who knew what and when?” Ryan continued. “Then let’s do something about it.”

The American Future Fund itself has frequently been singled out by campaign finance reform groups, who have accused the nonprofit of masquerading under Section 501(c)(4) of the U.S. tax code when it ought to be registered as a political committee — and subject to donor disclosure rules.

During the 2012 election season, the American Future Fund spent more than $29 million on political advertisements, as the Center for Public Integrity previously reported.

As a 501(c)(4) nonprofit, it is allowed to make election-related expenditures, so long as politics are not its “primary” purpose.

Little is known about the donors to the American Future Fund. Between 2009 and 2011, 51 percent of the money the group raised came from another nonprofit — the Arizona-based Center to Protect Patient Rights, which has no website and lists its address in government filings as a post office box in Phoenix.

The American Future Fund was awarded tax-exempt status under Section 501(c)(4) in October 2008, IRS records show.

Lerner, the director of the IRS exempt division, was put on administrative leave from the IRS on Thursday.

Two DOE electric car loans, two different paths

2013-05-23T16:09:18-04:00

They are two cutting-edge electric car makers, headquartered in California and backed by powerhouses of politics and money. In 2009, each secured half-billion dollar loan commitments from President Obama’s Department of Energy to help transform their clean-energy cars from drawing boards to showrooms.

But this week, the fortunes of Tesla Motors and Fisker Automotive took sharply divergent turns.

On Wednesday, the Energy Department announced that Tesla repaid the balance of its $465 million government loan nine years early. Fisker, meantime, has ceased making cars as it weighs potential bankruptcy, confronts a $171 million loan balance with DOE and, last month, faced questions from the House Committee on Oversight & Government Reform.

In October 2011, The Center for Public Integrity and ABC News explored the Energy Department’s risky $1 billion bet on two companies lauded for their innovative design, but facing warnings from experts over the marketability of cars that, in some models, carry price tags hovering around six figures.

In announcing Tesla’s loan repayment this week, the department said the risks were worth taking, coming at a time the industry itself suffered a deep downturn. “The lack of financing for the automotive industry was critical and potentially lethal,” Energy Secretary Ernest Moniz said in a statement. “Providing these loans was a calculated risk — but it was the right decision for the country.”

Yet for Fisker, whose loan was heralded by Vice President Joe Biden, the risks remain ripe. The company’s vision of developing a muscular Karma and more practical sedan faltered amid a series of setbacks from slow- moving government approvals to recalls and financial downturns involving suppliers.

DOE initially agreed to loan Fisker $529 million to help the company develop two lines of plug-in hybrids. Of that, $359 million would help the company re-open a shuttered former GM plant in Delaware, where Fisker would develop “Project NINA” — a mass-market hybrid sedan to be called the Atlantic. “The company estimates it will build 75,000-100,000 of these highly efficient vehicles every year by 2014,” DOE announced in 2009.

The remaining money would help Fisker complete its luxury Karma.

"We understood a new chapter had to be written, a new chapter in which we strengthen American manufacturing by investing in innovation,” Biden said in 2009, citing Fisker’s loan.

Yet reality collided with those projections, and Fisker Automotive has not come close to meeting its goals.

The company began drawing down on the DOE loan in 2010, and by the middle of 2011, had collected $192 million in government money, records show. But then, as Fisker encountered production hiccups, the Energy Department cut off the money spigot. DOE has recouped $21 million of the $192 million it loaned Fisker, leaving the company $171 million in debt to the government as it weighs a potential bankruptcy.

Testifying before the Oversight and Reform Committee late last month, co-founder Henrik Fisker said the company had sold 2,000 Karmas worldwide. He cited a series of setbacks that, like a domino, helped topple production of the company’s fleet.

In 2011, Fisker said, regulatory approvals for the Karma in the United States “took longer than anticipated.” Then, after the company began delivering the car to customers, two parts provided by outside suppliers had to be recalled. “The recalls generated bad publicity, diverted management attention, impacted sales, and further delayed our production schedules,” Fisker said.

Then came a bigger blow: In October 2012, Fisker’s lithium ion battery manufacturer filed for bankruptcy protection. Fisker’s exclusive supplier — another recipient of DOE funding — stopped manufacturing batteries.

“Fisker Automotive had to cease production of the Karma,” Fisker said. “We explored options for other battery suppliers, but due to large investment costs and long development cycles, we could not secure arrangements that would allow us to resume production immediately.

“This was a crippling factor in restarting production of the Karma.”

With Hurricane Sandy came more bad news. More than 330 Karmas, awaiting shipment at Port Newark in New Jersey, were “damaged beyond repair during this unforeseen natural disaster. This constituted a major share of the company's inventory and resulted in a drastic loss in revenue,” Fisker said.

Fisker’s other car, the Atlantic, has yet to go into production.

Henrik Fisker stepped down as CEO in 2012, and resigned from the board in March. Yet he told the committee the company’s technology earned honors, and said Fisker Automotive “still has the potential to build on these achievements” if it can secure financing.

“From the outset, Fisker Automotive aimed to be a new American car company, setting pioneering standards for low-emission technology and cutting-edge design,” he said. “I sincerely hope that the company can find a way to move forward and repay its Department of Energy loans.”

Tesla, the other California electric car company backed by DOE money, repaid its loan this week.

Both companies received backing from heavyweights in business and politics. Fisker’s prime supporters included the California venture capital firm Kleiner Perkins Caufield & Byers, whose partners include former Vice President Al Gore. Tesla’s prime backers include venture capitalist and Obama fundraiser Steve Westly, and Google co-founders Larry Page and Sergey Brin.

While Fisker searches for a potential buyer to help salvage the company, Tesla has, of late, pointed to headlines: Its Model S was recently named Motor Trend Car of the Year. On its website, Tesla prices the sedan from $62,400-$87,400, depending on the model — after a $7,500 federal tax credit. Its six-figure Roadster sports car, it said, is sold out in North America.

Tesla’s $465 million loan, the DOE said, enabled the company to open a shuttered plant in Fremont, California, “and to produce battery packs, electric motors, and other powertrain components.”

In a brief interview Thursday, Diarmuid O’Connell, Tesla’s vice president of business development, said the company raised money to pay off the DOE loan this week.

Asked why the two electric car companies have forged disparate paths, he provided a concise answer.

“Fisker and Tesla have always been on different trajectories, our business models have always been different,” O’Connell said. “What we are focusing now on is building market.”

For the Energy Department, the next focus could be Fisker — and bankruptcy court, should the company take that route. On Thursday, energy officials did not respond to questions about what steps the department would take if Fisker files for bankruptcy, or how much the government anticipates recovering.

Senators investigating Apple own company stock

Apple Inc. — 2013-05-23T10:31:05-04:00

Two senators serving on a subcommittee that Tuesday grilled Apple Inc. executives over the company's offshore tax practices are themselves owners of Apple stock, either directly or through a spouse, according to interviews and a review of federal disclosure documents by the Center for Public Integrity.

Sen. Heidi Heitkamp, D-N.D., owns the most Apple stock among the 14 members of the Senate Homeland Security and Governmental Affairs Committee's Permanent Subcommittee on Investigations, with her holdings worth at least $250,001 and up to $500,000, according to personal financial disclosure documents for calendar year 2012. She also earned up to $5,000 in Apple stock dividends last year, records show.

Heitkamp was one of six committee members to not attend Tuesday's hours-long hearing, during which Apple Chief Executive Officer Tim Cook defended his company against accusations of tax dodging. Attendee or not, the senator's stock holdings do not pose a conflict with her committee service, a spokeswoman said.

“Senator Heitkamp was selected to serve on the Homeland Security and Governmental Affairs Committee because of her unique position being from a border state and her past experience as a state attorney general working along aside law enforcement," spokeswoman Whitney Phillips said. "Her position on this committee is in no way impacted by her personal financial holdings.”

Sen. Tom Carper, D-Del., chairman of the Homeland Security and Governmental Affairs Committee and an ex officio member on its Permanent Subcommittee on Investigations who attended the hearing and asked questions, reported that his wife, Martha Ann, owned up to $100,000 worth of Apple stock during 2012. The stock also generated up to $2,500 in dividends last year, federal records show.

Officeholders generally disclose their assets and earnings in broad ranges.

Carper's committee office confirmed the senator's wife currently owns Apple equities, but spokeswoman Jennie Westbrook declined to answer specific questions about the stock holding.

(Update, 10:19 a.m., May 23: Westbrook followed up with a statement regarding Carper's Apple holdings, which reads: “In his role as chairman of the Homeland Security and Governmental Affairs Committee, Chairman Carper continues to make it a top priority to conduct thorough and proper oversight. Neither Chairman Carper’s financial holdings nor his family’s influence his policy and oversight work on the committee or in the Senate. This is underscored by the fact that he actively participated in Sen. [Carl] Levin’s hearing on this important matter.”)

Sen. Tom Coburn, R-Okla., another ex officio subcommittee member, also reported trading in Apple stock options during 2012, earning up to $50,000 from the transactions, according to his newly released personal financial disclosure document.

The same document also states that Coburn's Apple holdings at the end of 2012 were worth $1,000 or less — an indication he may no longer have Apple holdings. Representatives for Coburn, who also did not attend Tuesday's hearing, could not be reached for comment.

In addition to Carper, Sens. Carl Levin, D-Mich; John McCain, R-Ariz.; Claire McCaskill, D-Mo.; Ron Johnson, R-Wis.; Rob Portman, R-Ohio; and Kelly Ayotte, R-N.H. attended Tuesday's hearing. These senators reported no Apple stock holdings in 2012 outside of what might exist in broad-based mutual funds that many of them reported.

Another committee member in attendance, Sen. Rand Paul, R-Ky., was granted a 90-day filing extension for his 2012 disclosure paperwork after asking for more time. It is therefore unknown whether Paul, who defended Apple during the hearing, owned Apple stock during 2012. During 2011, he did not, federal records show.

In 2011, Apple stock, which today closed at $441.35 per share, ranked among the most popular holdings by all members of Congress — just below the stock shares of other massive companies such as General Electric, ExxonMobil, Pfizer and Bank of America, according to the Center for Responsive Politics.

Pro-Rand Paul super PAC's name may violate law

2013-06-18T16:44:51-04:00

Supporters of Republican Sen. Rand Paul, R-Ky., have launched “Rand PAC 2016.” But because the super PAC uses the potential presidential candidate’s first name, this action may violate federal law.

Three Hillary Clinton-themed super PACs established earlier this year could also find themselves in the same situation. Since, however, the former secretary of state is not officially a candidate for president or any other federal office, they are on safe ground — for now anyway.

Paul, on the other hand, has raised more than $600,000 for his 2016 re-election to the U.S. Senate, including $457,000 during the first quarter of 2013, according to Federal Election Commission filings.

Federal law, in most cases, only permits political committees authorized by a candidate to use that candidate’s name — which super PACs, by definition, are not.

The regulations, though, are unclear about whether the use of a partial name would trigger a change.

This would be “a good area for the FEC to clarify its own rules,” Paul S. Ryan, an attorney at the nonpartisan Campaign Legal Center, told the Center for Public Integrity.

An FEC spokesman directed questions to the agency’s chairman and vice chairman, who could not immediately be reached for comment.

The FEC typically sends a letter to a super PAC if it uses a candidate’s name. For example, during the 2012 GOP presidential primaries, the super PAC “Americans for Rick Perry” ran afoul of the rule and changed its name to “Restoring Prosperity Fund.”

Brandon Edwards — the 27-year-old, self-described libertarian from California who is the chairman of the newly created Rand PAC 2016 — said that if his group were asked to change its name by the FEC, “that would be no problem.”

Edwards said his group does not want to be seen as “leaching off" Paul's name.

“That’s definitely not the goal of this,” he added. “The goal is to become active with the community, find other like-minded people and help spread the message of liberty.”

Another pro-Paul group may face a similar predicament. It christened itself the "Stand with Rand PAC" when it registered in March as a hybrid super PAC.

A hybrid super PAC can operate one bank account fueled by limited contributions to dole out money to candidates — plus a second account funded by unlimited donations that are used to produce political advertisements.

Bill Willenbrock, Stand with Rand PAC's treasurer, said his group had not been asked to change its name by the FEC, adding that he was "not aware that Ayn Rand was running for office," making reference to the deceased author, a libertarian icon.

The super PAC’s website features a photo of the Kentucky senator above the assertion that it exists to “support candidates like Rand Paul who stand up for the Constitution and, more specifically, the Bill of Rights.”

In a previous interview with the Center for Public Integrity, Willenbrock said his group planned to support Paul as well as "other candidates who stand for liberty," such as Sens. Ted Cruz, R-Texas, and Mike Lee, R-Utah.

In January, several notable Clinton supporters formed a super PAC called “Ready for Hillary PAC,” as the Center for Public Integrity previously reported.

The super PAC has not yet been required to report any fundraising to the FEC, but Democratic heavyweights such as strategist James Carville and former Michigan Gov. Jennifer Granholm have already made pitches for the group.

“We are aware of this federal regulation,” said Jim Lamb, Ready for Hillary's general counsel. "If Hillary decides to run and becomes a candidate, we will continue to be in compliance with this regulation."

Clinton supporters have also created an Iowa-based group called "Hillary Clinton Super PAC" and a California-based super PAC called "Hillary FTW," an acronym standing for "for the win."

Further confusing the issue, political committees designed to specifically oppose a candidate are granted an exemption from the rules governing names.

Case in point: the “Stop Hillary PAC” registered with the FEC last week as a hybrid super PAC. Similarly, the “Retire Pryor” super PAC has spent about $10,000 opposing the re-election of incumbent Sen. Mark Pryor, D-Ark, who will face voters in 2014.

The only other exception to the naming restriction is for groups that seek to “draft” a candidate to run for office. These groups must also “clearly indicate” that they are “a draft committee,” according to federal law.

Like super PACs, draft committees need not abide by the strict contribution limits faced by candidate’s own committees.

Release of offshore records draws worldwide response

United Kingdom — 2013-06-17T17:51:12-04:00

ICIJ’s investigative series on offshore secrecy — which draws from a cache of 2.5 million secret records — has ignited reactions around the globe.

Since the initial release of stories by the ICIJ and its media partners across the world, public officials have issued statements, governments have launched investigations, and politicians and journalists have been debating the implications of the records and the reporting.

Among the latest reactions and responses:

Leaders of Britain’s overseas territories — long known as key cogs in the global tax haven system — have agreed to begin sharing tax information with other countries.

UK Prime Minister David Cameron said officials from Britain’s network of territories and dependencies have pledged to sign on to an international convention that provides for automatic exchange of information among tax authorities.

“I commend their leadership and I look to other international partners to work with their own territories to reach similar agreements,” Cameron said. He called the agreement a “very positive step forward” in the fight to ensure that “those who want to evade taxes have nowhere to hide.”

The British Virgin Islands, Bermuda and other UK overseas territories and dependencies also agreed to begin working to remove the veil of secrecy that often hides who owns offshore companies, Cameron said.
Philippine authorities said the launch of ICIJ’s Offshore Leaks Database will prompt them to review the tax records of Philippine residents whose names appear in the data. Kim Jacinto-Henares, commissioner of the country’s Bureau of Internal Revenue said she welcomes the public release of the database, saying it can aid the agency’s efforts to gather information that could lead to tax investigations and cases. “We will look into it and match (the information on Philippine residents in the database) with income tax returns,” Henares told the Philippine Center for Investigative Journalism, an ICIJ reporting partner.
EU Commissioner Algirdas Semeta says the Offshore Leaks investigation by ICIJ and its partners has transformed tax politics and amplified political will to tackle the problem of tax evasion.

"I personally think Offshore Leaks could be identified as the most significant trigger behind these developments ... It has created visibility of the issue and it has triggered political recognition of the amplitude of the problem", he told EU Observer. He added that tax transparency overrides the principle of data privacy.
South Korean financial regulators have opened an investigation into possible illicit fund transfers by hundreds of Koreans whose names are included in ICIJ’s “Offshore Leaks” database. “We will investigate every one of them,” a top regulator said. “When doing capital transactions, they’re required to report to the authorities prior to the trades, so now we are investigating whether they violated the law.” ICIJ’s investigative partner, the Korea Center for Investigative Journalism, revealed that it had identified at least 245 Koreans who established companies in the British Virgin Islands, Cook Islands and other offshore havens.
Canadian Senator Vern White has called for a probe into a fellow legislator’s role in her husband’s use of an offshore hideaway in the South Pacific. The conservative Senator said he has asked the Senate's ethics officer to look into Liberal Senator Pana Merchant's role in the matter, saying there are "serious questions" to be dealt with. The Senate ethics office said in a statement that will give Merchant a chance to respond before deciding whether to launch a formal investigation. CBC News and ICIJ revealed last month that Merchant's husband, famed class-action lawyer Tony Merchant, had shifted some CA$1.7 million (US$1.1 million) into a Cook Islands trust while he was locked in battle with Canadian tax authorities.

The Chief Executive Officer of one of Europe’s biggest banks, Raiffeisen Bank International AG, has resigned a day after officials began a probe into his investments revealed through Offshore Leaks.

Documents show Herbert Stepic, who has worked with the Raiffeisen banking group for four decades and took its eastern European division public, used companies in Hong Kong and the British Virgin Islands (BVI) to conduct property deals he did not report to his employer.

Stepic did not answer any questions at a press conference called by the bank this morning. In a statement, he referred to the potential damage to the bank because of the "media debate" around the Offshore Leaks revelations and that he took the responsibility to resign to avoid this.

He repeated an earlier statement that he made his offshore investments with income that had been taxed in Austria, and said he was resigning "for personal reasons".
European Council President Herman Van Rompuy says there has been a "real breakthrough" in the EU's efforts to combat offshore tax evasion.At the council's May 22 meeting, Reuters reports, Rompuy said the current aggressiveness of the EU's push is "unprecedented. We couldn't speak in those terms on those issues, let's say, a month or two months ago. . . . There is a strong political will by the leaders, not only the Europeans but also on a global level, to go forward in attacking tax fraud and tax evasion."
The Luxembourg finance ministry announced they would automatically exchange information with United States tax authorities about the bank accounts held by U.S. citizens and residents. The tiny nation, one of the biggest financial centers in Europe, announced in April they would "follow a global movement" and end decades of banking secrecy in regards to EU citizens. The move came on the eve of European leaders meeting to discuss sharing more data on citizens who park wealth across borders, in an effort to limit tax evasion.
The Council of the European Union issued a statement May 14 calling for efforts at the national, EU and international levels “to combat tax fraud and tax evasion” and “aggressive tax planning.” The statement noted that the council’s presidency plans to ask ICIJ to supply EU member states “with the names and details regarding all EU citizens on the ‘offshore leaks’ list.” ICIJ has said that it will not turn over the data to government agencies, but that it is exploring the possibility of publicly releasing some entity ownership data.
After meeting with President Barack Obama at the White House, British Prime Minister David Cameron made a strong call to tackle what he called “the scourge of tax evasion,” one of the key topics in next month’s G8 meeting in Ireland. “We need to know who really owns a company, who profits from it, whether taxes are paid. And we need a new mechanism to track where multinationals make their money and where they pay their taxes so we can stop those that are manipulating the system unfairly,” Cameron said.
British, U.S. and Australian tax authorities announced that they are pursuing tax evasion investigations based on a cache of offshore documents that link to the Cook Islands, Singapore and the Cayman Islands, among other jurisdictions. The secret records are believed to include those obtained by ICIJ and that are the basis of the Offshore Leaks investigation. British tax authorities said the files “reveal extensive use of complex offshore structures to conceal assets by wealthy individuals and companies.” The three agencies plan to share the information with their counterparts from other countries in what could be the beginnings of one of the largest tax investigations in history.
Canada's revenue minister Gail Shea announced a $30 million commitment to fight tax evasion and target the practice of hiding money in offshore accounts, and the formation of an international tax expert "SWAT team". Asked if her department now has the list of 450 Canadian names contained within the documents obtained by ICIJ, Shea said: "We currently don’t have the list and I can assure you that we’re looking at all of our options. We’re working with our international partners to get that list."
The UK Treasury announced that following the lead of the Cayman Islands, all British overseas territories – including Bermuda, the British Virgin Islands, Anguilla, Montserrat and the Turks and Caicos Islands – have agreed to share information about individuals holding bank accounts in their jurisdictions with the UK, France, Germany, Italy and Spain.
The South China Morning Post reported that the new information exchanges will have real implications for Hong Kong and China companies, which do significant business through the Cayman islands, the British Virgin Islands and other offshore locales.
European finance ministers may reach an agreement to eradicate tax havens on May 13, after a meeting in Helsinki between finance ministers from Finland, Luxembourg, Greece, Slovakia, and Lithuania as well as the European Commissioner on Taxation to discuss measures against tax evasion.
The European Commissioner on Taxation Algirdas Šemeta and Irish Finance Minister Michael Noonan sent a letter to all EU Finance Ministers, setting out 7 key areas for immediate action in improving the fight against tax fraud, evasion and avoidance. Member States were asked to agree on these actions at the ECOFIN in May. The letter credits the offshore leaks investigation with "sharpening the focus" on tax fraud, and says it will ask ICIJ to supply names and details of European citizens from its data.
Finance ministers and central bankers at the G20 meeting in Washington said in a communiqué that automatic exchange of tax-relevant bank information should be adopted as the global standard to overcome international tax evasion. Skeptical European leaders reportedly "became more enthusiastic" after the public outcry over ICIJ's offshore leaks revelations.
Bayartsogt Sangajav, deputy speaker of the Mongolian Parliament, has beendismissed from his post following ICIJ's revelations about his undeclared offshore company and bank account. In a parliamentary session he was asked to explain his actions. Several MPs called for further disciplinary action, including expelling him from Parliament entirely.
Santosh Kumar Agarwal (Kedia), a member of the board of directors for the Antwerp World Diamond Centre, has resigned from the organization after his offshore dealings were revealed. “In the interest of the integrity of the Antwerp World Diamond Centre as [an] organization and the industry as a whole, Kedia has taken the initiative to withdraw from the AWDC's board of directors, awaiting the outcome of a potential investigation,” said a statement released by the company.”
French president Francois Hollande has published the personal financial details of government ministers on the official government website, following the Jerome Cahuzac and Jean-Jacques Augier offshore assets scandals. The list of assets includes details of bank accounts, life insurance, property and other expensive items such as cars, art works and antiques. Various properties in Paris and the south of France have already been itemized by ministers, as well as designer lounge chair (Industrial Renewal Minister Arnaud Montebourg) and a David Beckham t-shirt (Culture Minister Aurelie Filippetti).
European Council president Herman Van Rompuy announced that tax evasion will be discussed at the next European Council in May, saying "we must seize the increased political momentum to address this crucial problem."
BVI government officials have announced they are opening a new business headquarters in Hong Kong, with Orlando Smith, BVI Premier and Finance Minister, confirmed to officiate the opening. Executive director of BVI International Finance Centre, Elise Donovan, said the data obtained by the ICIJ was "a small fraction" of the total number of BVI firms. She later added, "We want to reassure clients in Hong Kong and the region that this is an isolated incident. We remain committed to clients' privacy and confidentiality."
The Swiss and U.S. governments are investigating a possible solution to the dispute over wealthy Americans using Swiss banks to hide their money . These talks come at time when Switzerland’s banking sector is under increased pressure to surrender personal information about suspected tax evaders. Swiss Finance Minister Eveline Widmer-Schlumpf said all countries should be treated equally in the drive for bank transparency. "We consider it very important that rules must apply to all and are engaging ourselves for a level playing field in multilateral forums," Widmer-Schlumpf said.
German Chancellor Angela Merkel urged UK's PM David Cameron to crack down on tax havens during talks in Berlin, following a public outcry in Germany over the "offshore leaks." Sources "close to Cameron" claim he was actually the first to raise the issue, spelling out how his government was cracking down on tax avoidance in places such as Jersey and Guernsey.
Russian Deputy Prime Minister Igor Shuvalov.Russian Deputy Prime Minister Igor Shuvalov is moving his offshore assets back to Russia after ICIJ's revelations that Shuvalov's wife Olga Shuvalova was either a shareholder or owner of several secretive offshore entities. The Shuvalovs had a declared income of $12.7 million in 2011, most of which was earned by Olga.
Spanish political party Unión Progreso y Democracia submitted written questions to the Spanish Congress today in the wake of French president François Hollande's announcement that French banks had to declare their tax haven subsidiaries. The questions read: Is the government going to present in the European institutions any initiative to eradicate the tax havens within the Member States? and Is the government going to force banks to disclose the subsidiaries they have in tax havens and what are their activities?
Francois Hollande: called for tax havens to be "eradicated."French president François Hollande called for "eradication" of the world's tax havens and toldFrench banks they must declare all of their subsidiaries. He also announced the creation of a special prosecutor to pursue cases of corruption and tax fraud. French government ministers have been ordered to declare their assets publicly within days.
Luxembourg's Prime Minister Jean-Claude Juncker announced his country plans to lift bank secrecy rules for European Union citizens who have savings based in the country, ending decades of bank secrecy in Luxembourg. "We are following a global movement," Juncker told parliament in a state-of-the-nation address. The new transparency regime would begin in January 2015. Austria is now the only EU country not sharing data about bank depositors. In a recent interview, Austrian Vice Chancellor and Finance Minister Spindelegger Fekter said: “How much money someone has in the bank is a matter between the bank and the customer and is no one else’s business."
Algirdas Semeta, European Union Tax Commissioner stated in a recent interview that it istime to move “quicker and harder” against tax evasion. He said the “growing willingness to act” increases the likelihood of a more coordinated EU stance against tax havens.
Europe’s five biggest economic powers — Britain, France, Germany, Italy and Spain —announced they would begin regularly exchanging banking and tax information as a way of identifying tax dodgers and other financial wrongdoers.
Meanwhile, the British Virgin Islands (BVI) authorities are not fans of the ICIJ investigation. The BVI premier and Finance Minister Orlando Smith told the South China Morning Post that "BVI authorities are actively investigating how this private information has been illicitly obtained and used to attack the BVI financial services industry, which operates compliantly within international guidelines and the law."
Athens’ district attorney Panayota Fakou has started a preliminary probe to find out if Greeks who own offshore companies unearthed by the ICIJ investigation have evaded taxes or laundered money. According to the Greek newspaper Ta Nea, prosecutors will send information requests to British Virgin Islands’ financial authorities asking them to turn over records of 107 entities connected to Greek citizens.
An investigation by Finnish State Televisionand ICIJ exposing the offshore connections of state-owned postal company Itella has been received with surprise by the Finnish Finance Minister, Jutta Urpilainen. The minister said that “state owned companies should be an example for other companies. That is why it is especially unacceptable that Itella owns a company in a tax haven.” Urpilainen said the Finnish government should adopt clear rules on the use of offshore jurisdictions by state-owned corporations and called tax havens “one of the biggest threats to the Finnish welfare state.”
Canada's national revenue minister Gail Shea says the government may pursue the Canadian Broadcasting Corporation in court to force it to share the offshore leaks records.
Quebec Premier Pauline Marois has declared that neither she, nor any other elected officials in her government have dealings in the offshore world. Marois also supported the handover of internal documents to Canadian authorities, stating the Quebec government would not hesitate to use "all legal means" to ensure this.
French budget minister Bernard Cazeneuve joins the clamor from governments around the globe in urging ICIJ and its media partners to release the offshore tax haven files to them, to "aid justice and help them do their job." Le Monde's response: "It is up to the justice system to establish responsibilities at a time when the law might have been broken ... It is up to the press to enlighten the reader..."
Austrian Chancellor Werner Faymann says he is ready to make concessions on banking secrecy, to bring the nation in step with Switzerland and Luxembourg. "Austria should participate in talks on banking secrecy,” Austrian Chancellor Werner Faymann declared to Die Presse.
The European Commissioner for Taxation, Algirdas Šemeta, called for an automatic exchange of information between countries and a "tough common stance." "Recent developments,fuelled by the outcome of the Offshore Leaks, confirms the urgency for more and better action against tax evasion .... Now it is time to put words into action." He said he was "very pleased" to see many of the Member States reviewing where they stand on the issues and "intensifying their political will to act."
The Swiss government has distinguised itself from other world governments by publicly stating it does not want access to the offshore leaks records. Finance minister Eveline Widmer-Schlumpf said Switzerland has worked hard in recent years to curb fraud and tax evasion and that much of the activity pointed to in the leaked documents can be perfectly legal. She says the Swiss government does not want access to the data as "it was acquired illegally and Bern wants no part of that".
The Philippine Presidential Commission on Good Government probe into the disclosure that Maria Imelda Marcos Manotoc, the eldest daughter of the late dictator Ferdinand Marcos, was a beneficiary of a secret offshore trust in the British Virgin Islands, will release its report within two weeks. “We are duty bound to investigate and, depending upon informed preliminary findings, decide whether to pursue the matter,” said Andres Bautista, the chairman of the Presidential Commission on Good Government, tasked with recovering the Marcos family’s alleged ill-gotten wealth.
The president of the Association of German Banks denied that his group’s members had helped customers engage in tax evasion. “First in line are the individuals and the organizations that invest their money in tax oases,” Andreas Schmitz said."
The Berne internal revenue service authorities announced they will re-open the Gunter Sachs case after ICIJ's revelations about the former Mr. Brigitte Bardot's intricate offshore scheme.
In Canada, a Liberal senator urged his caucus colleague, Senator Pana Merchant, to answer questions in the wake of CBC News and ICIJ reports that she has been listed as beneficiary of an offshore trust created by her husband, a well-known class-action attorney. "We're all innocent until proven guilty in this country, but I want to hear her explanation," Senator Percy Downe told CBC News in an interview.
In the Philippines, two lawmakers dismissed a report by an ICIJ media partner, the Philippine Center for Investigative Journalism (PCIJ), that they had offshore holdings. Senator Manuel Villar said his offshore entity was a “1-dollar shell company” that he wasn’t required to report, because he hadn’t made any real investment in it. Villar said that he hadn’t conducted business with the British Virgin Islands company “because I decided to concentrate in the Philippines.” Congressman Joseph Victor ‘JV’ G. Ejercito suggested the story about him was politically motivated. “To the best of my knowledge, I have truthfully and accurately declared all my assets, liabilities, and net worth” on required disclosures forms for public officials, he said in a statement.
Germany's Economics Minister Philipp Rösler urged the media to pass the data on to the government, stressing that tax evasion was a "criminal act."
Luxembourg's Finance Minister Luc Frieden says he is open to greater transparency of its banks in order to cooperate further with foreign tax authorities.
The Indian Finance Minister P. Chidambaram said an inquiry had been initiated by the authorities against individuals whose names figured in the global media report. “Yes. We have taken note of the names and inquiries have been put in motion in respect of the names that have been exposed,” he told a press conference.
The Mongolian Deputy Speaker, Bayartsogt Sangajav, admitted to an "ethics failure" over his undeclared million-dollar Swiss bank account. He told a press conference: “It is true that there is 1,658 Euros or 2.9 million MNT in a Swiss bank account. I opened the account to trade in international stocks with three other acquaintances in 2008. My failure of responsibility is that I did not include the company in my declaration of income. I have admitted my ethic failure and I am ready to take responsibility."
Philippine government officials said they will investigate evidence that Maria Imelda Marcos Manotoc, a provincial governor and daughter of the late dictator Ferdinand Marcos, was the beneficiary of a secret BVI offshore trust.
George Mavraganis, the Deputy Finance Minister of Greece announced that the Greek government is moving to address offshore-driven tax dodging. Greek members of parliament asked Mavraganis what he planned to do about the 103 offshore companies that ICIJ found hadn’t been registered with Greece’s tax authorities.
George Sourlas from Greece’s Ministry of Justice said the revenue loss caused by offshore was huge. “By the actions of offshore companies in Greece, the revenue loss to the Greek government is in the order of 40% or more of the debt of our country,” Sourlas said. “The offshore companies cast a shadow at this time of great crisis, when some get rich and many get poor.”
In France, President Francois Hollande denied knowledge of the offshore accounts held by his 2012 campaign manager, Jean-Jacques Augier, asserting that it’s up to the tax administration to monitor Augier’s private activities. Reports about Augier’s offshore dealings by Le Monde, the BBC and other ICIJ partners came in the wake of news about tax fraud charges against Hollande’s ex-budget Minister, Jerome Cahuzac.
The office of Azerbaijani President Ilham Aliyev asserted there was nothing unusual about the information in the leak – which showed that his two daughters were shareholders of three offshore companies. The statement said the President’s daughters “are grown up and have the right to do business.” A spokesperson for Azersun – a holding company controlled by Hasan Gozal, a corporate mogul who was listed as the director of the daughters’ companies – said the report was biased and based on inaccurate information. “I regret that authority of Press Council doesn't go beyond Azerbaijan and there is no such institution worldwide to fight racketeer journalists,” the spokesman said.
Ex-Colombian President Álvaro Uribe Vélez publicly defended his sons’ involvement in offshore business. Uribe stated that his sons Tomás and Jerónimo are entrepreneurs and “have participated in business dealings since they were children” and “they are not tax evaders.”
In the UK, David Cameron is facing renewed pressure to take action over Britain’s entanglements within the offshore world. Lord Oakeshott, a senior Liberal Democrat said that the secrecy haven of the British Virgin Islands “stains the face of Britain.” Oakeshott and others are questioning whether Cameron will raise the issue in June of at the G8 summit of wealth nations. "How can David Cameron keep a straight face calling for the G8 to make big business pay tax when we let the BVI use British law and British protection to suck in billions in dirty money?" Oakeshott asked.
German Finance Minister Wolfgang Schäuble stated on public radio that he was “pleased”with the ICIJ reports. He went on to say, “I think that such things as have been made known will increase the pressure internationally, and we will be able to increase the cooperation with those who have been more reticent”, a sentiment reflected in Germany’s previous lobbying to stamp out tax avoidance.
Canadian Federal Revenue Minister Gail Shea called the released of offshore banking information as “good news” for Canadians and bad news for tax evaders. Ms. Shea urged ICIJ or anyone else with information on tax cheats to come forward.
Pascal Saint-Amans, director of the Organization of Economic Cooperation and Development, said: "Secrecy is no longer acceptable. We need to get rid of it. If the rules make it possible, then we'll change the rules.”

Nuclear security bill clears House but Senate prospects unclear

United States — 2013-05-22T06:03:01-04:00

WASHINGTON -- The U.S. House of Representatives on Monday overwhelmingly approved legislation to ensure the United States complies with two broadly supported international nuclear security accords, but a key Senate opponent on Tuesday affirmed his lingering opposition.

The 390-3 vote marked the chamber's second endorsement of measures needed to comply with the treaties and two separate maritime security agreements. The two nuclear pacts, which address nuclear terrorism law and domestic nuclear material security, are themselves relatively noncontroversial; the Senate issued resolutions of advice and consent for them in 2008. House lawmakers, though, took nearly four years to break a stalemate over measures included in the legislation that could extend wiretapping authorities and apply the death penalty in nuclear terrorism cases.

The House first passed the legislation last summer without those elements, but, Senate Judiciary Committee Ranking Member Charles Grassley (R-Iowa) said he wanted them included, and an anonymous hold prevented a Senate vote. Grassley would be willing to consider it on the Senate floor this year with a separate vote on the death penalty provision, Grassley spokeswoman Beth Levine said. Senate Democrats last year prevented passage of a draft containing revisions sought by Grassley.

As with four prior drafts, the newest bill would complete U.S. ratification of the International Convention for the Suppression of Acts of Nuclear Terrorism. The pact, which entered into force in 2007 and now has 86 states parties, requires member nations to criminalize possession and use of nuclear and radiological weapons by individuals. It establishes guidelines for cooperating in the extradition and prosecution of individuals linked to a nuclear plot or threat.

The bill would also bring the United States into line with a 2005 amendment to the Convention on the Physical Protection of Nuclear Material. The amendment updates the 1980s-era pact, which governs international shipments of civilian nuclear material, by including standards for securing nonmilitary atomic substances held, used or transferred within a single nation’s borders.

Sixty-seven governments had fully adopted the amendment as of last month. To take effect, the measure must receive backing from two-thirds of the full treaty's signatories. The original convention now has 148 members, placing the amendment's implementation threshold at 99 states.

"Many other countries have indicated that they are waiting for the United States to complete ratification before moving ahead with their own ratification processes, since it was the United States that pushed for the amendment in the first place,” Kingston Reif, nuclear nonproliferation director at the Center for Arms Control and Nonproliferation, said in comments released by the Fissile Materials Working Group. Responding to one of Grassley's key objections to the House-approved language, Reif and another expert argued last week that existing law already allows for the execution of convicted nuclear terrorists.

"In the wake of the Boston attacks, it seems clear that an attack involving radiological or nuclear material would allow prosecutors plenty of latitude to seek the death penalty,” Reif and Miles Pomper, a senior research associate at the James Martin Center for Nonproliferation Studies, wrote in a World Politics Review column last Friday.

Story by Diane Barnes, courtesy of Global Security Newswire.

Clean Air Act law, reality collide

Texas,United States — 2013-05-21T08:28:30-04:00

Nothing in the law allows for the invisible danger from “upset” emissions to persist, but legislation and reality often collide.

On the contrary, the federal Clean Air Act was meant to reduce harmful emissions by requiring continuous pollution limits for industrial facilities. But since its passage in 1970, state and federal regulators have created loopholes involving accidental releases — loopholes that have for years been challenged, re-written and bogged down in bureaucracy.

Nearly from the start, regulators began waiving pollution standards when equipment unexpectedly malfunctioned and had to be shut down, started up and maintained.

By 2004, 29 states had devised what University of Texas-Austin researcher Kelly Haragan calls “a flat-out exemption” for such emissions. The Environmental Protection Agency offered similar immunity for those involving hazardous air pollutants.

“There is a big caveat here,” acknowledges Adam Kushner, who headed the EPA’s air enforcement unit until last year. “They didn’t necessarily count against your compliance picture.”

This murkiness began fading after environmental groups sued the EPA in 2003, alleging its exemption violated clean-air laws. By December 2008, a federal court agreed, vacating the language. The agency has lagged at fully closing its loophole; earlier this year, it unveiled a proposed rule that would require facilities in any state to follow pollution limits during periods of start-up, shut down and maintenance.

At the state level, regulators have begun replacing blanket exemptions with rules that, critics say, aren’t much firmer. In Louisiana and Texas, plant managers can claim unauthorized releases are “upsets” as a defense to enforcement.

“When regulators get one of those reports, they don’t even think about it any further,” says Adam Babich, of the environmental-law clinic at Tulane University, who has sued a half dozen plants. “It’s like, ‘Look, here’s another incident report. Let’s file it away.’ ”

Frequently, state regulators — the primary enforcers of the Clean Air Act — fail to investigate the thousands of reports of emissions events they receive, let alone issue enforcement orders. When regulators do act, punishment can amount to a slap on the wrist. Less than one percent of the 7,533 upset reports filed by Texas companies in 2004 had ended in penalties or corrective plans, a 2005 study by the nonprofit Public Citizen found.

Little has changed, enforcement data collected by the Texas Commission on Environmental Quality suggests: Throughout fiscal year 2011, agency officials investigated 36 percent of emissions events. About 3 percent of the reports led to enforcement notices yielding fines or corrective action.

Regulators bristle at the notion they’re ignoring this fence line pollution. To some extent, they say, they must expect that industrial facilities — many complicated amalgamations of countless pieces of equipment — will have unexpected releases. Simply put, says Tim Knight, an environmental-compliance administrator at the Louisiana Department of Environmental Quality, “Industry will have problems.”

Earlier this year, the LDEQ launched a voluntary workgroup with ExxonMobil Baton Rouge and 39 other petrochemical facilities to identify common causes of upsets. The TCEQ has paid particular attention to emissions events over the past decade, requiring that companies report online and revamping permitting policies.

Larry Soward, a former TCEQ commissioner, believes such scrutiny has had an effect; indeed, upset events in Texas declined from 4,766 reported incidents in fiscal year 2010 to 4,469 a year later.

EPA officials, too, portray emissions as a “high priority.” Officials at the agency’s regional office encompassing Texas and Louisiana launched a program in 2011 inviting the area’s top 17 emitters to the table.

Program directors asked companies to analyze their own records of upsets. Under current voluntary-compliance guidelines, companies wouldn’t begin to “benchmark” the emissions and thus document reductions until 2014. So far, no company has agreed to participate.

“We have found that using multiple approaches to try and solve this problem has worked best,” says Sam Coleman, EPA’s deputy regional administrator, noting that a similar initiative in 1999 “consistently” reduced upsets for several years. “The voluntary approach is simply one tool in the toolbox.”

Advocates remind federal regulators problems continue.

Eric Schaeffer, director of the Environmental Integrity Project and a former EPA enforcement chief, has sent letter after letter to Texas and EPA officials, flagging “egregious upset releases” and urging them to pursue the worst offenders. On April 23, he asked the EPA’s inspector general to examine how regulators responded to repeated upsets by the biggest Texas emitters. In Louisiana, Bucket Brigade advocates have turned toward a little-known EPA program that inspects facilities for the risk of “unanticipated” releases.

After a flurry of lobbying activity by the group highlighting a benzene leak at ExxonMobil Baton Rouge, EPA inspectors showed up at the company’s refinery for four days last July. Inspectors outlined a host of concerns, including pervasive “piping, valve, and vessel corrosion,” a November report shows. Exxon supervisors also failed to “correct deficiencies” in processing equipment; to assure that equipment was installed correctly; and to inspect underground piping.

Exxon says it has reviewed the EPA report and is sharing information that “we believe may clarify many of the areas of concern.” The company stresses the report doesn’t constitute a notice of violation.

EPA officials declined to elaborate. Coleman says, “It’s not appropriate for me to say whether there will be violations or what the outcome will be.”