M. Asif Ismail stories from The Center for Public Integrity

PEPFAR policy hinders treatment in generic terms

United States — 2012-02-24T12:11:58-05:00

When George W. Bush proposed his five-year, $15 billion initiative to "turn the tide against AIDS" in the developing world in 2003, he said the availability of low-cost drugs to fight the disease "places a tremendous possibility within our grasp."

Bush told Americans in his State of the Union address that the per-patient cost of antiretroviral drugs (ARVs), which improve the health and extend the lives of people who have HIV/AIDS, had dropped "from $12,000 a year to under $300 a year."

That significant decrease was a result of the competition from generic drug manufacturers. Yet Bush's initiative, the President's Emergency Plan for AIDS Relief (PEPFAR), funded by Congress a few months after that speech, has been slow to embrace funding cheaper generic ARVs.

ARV treatment is a major focus of PEPFAR and similar international programs. In addition to providing the drugs, it typically includes things such as HIV testing, counseling, monitoring for side-effects, lab tests and hospitalization.

Estimates released by PEPFAR reveal that in 2004 and 2005, its first two fully funded years, the plan allocated only about 5 percent of its overall ARV drug budget — less than $15 million — for generic drugs. A key reason for that lies in PEPFAR's own rules: only ARVs approved by the U.S. Food and Drug Administration (or given tentative FDA approval through an expedited review process set up in May 2004) can be procured with the program's funds.

While the president's AIDS initiative was still on the drawing board, that proposed stipulation drew fire from some, including Rep. Henry Waxman of California.

"I strongly oppose the efforts to block the use of low-cost generic drugs through the imposition of unnecessary and onerous drug approval standards," the Democrat wrote in a March 2003 letter to Bush. "It is no secret that U.S. pharmaceutical companies, which make brand-name drugs, do not want funds to flow to generic drug companies in India."

But the proposal became PEPFAR policy.

In 2004, almost all ARVs administered through the program were from well-known companies that make name-brand drugs. By mid-October this year, the FDA had approved 26 generic ARVs for use under PEPFAR, according to an agency spokeswoman, all but one manufactured by foreign firms. However, it is not clear how many of these ARVs are actually being used by PEPFAR. The Office of Global AIDS Coordinator, which administers the PEPFAR program, refused repeated requests by the Center to release that information.

In 2005, generic ARVs amounted to 11 percent of the program's drug procurement budget, according to a May 2006 report submitted to Congress.

The report prepared by the Partnership for Supply Chain Management, a nonprofit organization that works with PEPFAR, looked at how $128 million of the $191 million funded in fiscal 2005 was spent, based on a survey of country programs. Six of the 15 focus country programs — those in Côte d'Ivoire, Ethiopia, Rwanda, South Africa, Tanzania and Vietnam — procured virtually no generic ARV drugs last year, according to the report. Programs in three other nations — Guyana, Kenya and Namibia — each spent about 1 percent or less of their ARV drug money on generics.

The PEPFAR report said there is "a promising trend toward an increasing percentage of procurements being generic ARVs," with generics comprising as much as 70 percent of the procurements this year. But that statistic was based on data from just four grant recipients and ARV purchases worth $4.3 million, a tiny fraction of the overall ARV drug budget.

In fiscal 2006, which ended in September, the U.S. government had planned to spend about $868 million to support ARV treatment in PEPFAR's 15 focus countries. In fiscal 2005, it allocated $479 million — 47 percent of those country programs' prevention, treatment and care budgets — for ARV treatment. ARV drugs have accounted for about a third of the antiretroviral treatment budget of many programs.

Matter of safety or sales?

An August 2004 PEPFAR report to Congress stated that the program's policy is to "provide drugs at the lowest possible cost, regardless of origin, as long as the safety, efficacy, and quality of the drugs can be assured."

For any generic to be eligible for procurement, according to the report, "there must be proven bioequivalence between the original brand name drug (upon which tests of clinical effectiveness and safety were performed) and the copy drug."

About 1½ years later, a February 2006 PEPFAR report to Congress stated: "The Emergency Plan remains committed to funding the purchase of the lowest-cost ARVs from any source, regardless of origin, whether copies, generic, or branded, as long as those drugs are proven safe, effective, and of high quality, and their purchase is consistent with international law."

But like Rep. Waxman, some PEPFAR critics think the initiative's cautious approach toward generic drugs has its roots in big pharmaceutical companies' influence with the Bush administration.

"Every step of the way, roadblocks were put to [ensure that generics were not used]," William F. Haddad, chairman and chief executive officer of the New York-based generic biotechnology firm Biogenerics Inc., told the Center for Public Integrity.

Meanwhile, Yusuf Hamied, chairman of the Indian generic pharmaceutical company Cipla, put the blame squarely on Ambassador Randall Tobias, who was tapped by Bush in 2003 to launch PEPFAR as the nation's first U.S. global AIDS coordinator.

Hamied said that Tobias, who was president and CEO of pharmaceutical giant Eli Lilly from 1993 until 1999, "worked out a scheme" to "hoodwink the generics. They put in a lot of hurdles [to ensure] that the PEPFAR money wouldn't go to the generics."

Tobias, who now serves as administrator of the United States Agency for International Development (USAID), could not be reached for comment for this report.

But in a 2004 interview with TREAT Asia Report, Tobias said of PEPFAR: "There are people who, for whatever reasons, have spread a lot of misinformation about our policy or made assumptions about it. … We want to be satisfied that those drugs are safe and effective and of high quality."

Lowering the cost of living with AIDS

Generic antiretroviral drugs play a huge role in the fight against HIV, especially in the developing world. Before the rise of generics, ARVs — at $12,000 a year per person — were unaffordable for a vast majority in developing countries, which had become the epicenter of the AIDS epidemic by the 1990s.

But in 2001, generic drug manufacturer Cipla had a breakthrough when it began marketing Triomune — a combination of the drugs stavudine, lamivudine and nevirapine — for approximately $400 per person a year in Africa. The makers of the brand-name drugs had been marketing the medications separately, which allowed them to charge for each individually.

In addition to cutting the cost for the drugs, the generic fixed-dose combination allowed AIDS patients to reduce the number of pills they take daily to as few as two.

Until recently, only a few generic drug companies had been manufacturing similar fixed-dose combinations pills. Now, with the availability of more combinations and competition from other generic manufacturers, the cost of ARVs has plummeted, enabling governments and nongovernmental groups to make them available for a wider population.

"All of Africa had 15,000 people covered by the multinational drug companies [before the generics entered the market]," Haddad said. "Now Cipla alone covers 400,000 patients."

The U.S. State Department estimates that PEPFAR has supported antiretroviral treatment for 822,000 patients in its 15 focus countries from 2004 through the end of September 2006. Some critics assert, though, that by using generic drugs, PEPFAR could help many more infected people with the same resources.

Cipla chairman Hamied told the Center that if PEPFAR used generics in place of brand-name drugs, it could treat 10 times the number of HIV-infected patients that now receive treatment. PEPFAR's own study this year found some examples of generic ARVs costing as little as a 10th of the price of their brand-name counterparts.

That contention was bolstered by a 2005 U.S. Government Accountability Office report noting that other global HIV/AIDS initiatives were providing a larger selection of ARVs to patients than were available under PEPFAR — and at lower prices. According to the GAO, these differences in the price of a regimen could translate into millions of dollars of additional expense when considered on the scale of PEPFAR's goal of treating 2 million people by the end of 2008.

"For example," the report said, "for every 100,000 patients on [the World Health Organization's] first-choice regimen for 5 years, [PEPFAR] could pay over $170 million more than the other initiatives to purchase the ARVs."

One such initiative that places emphasis on generics is the Global Fund to fight AIDS, Tuberculosis and Malaria, a public-private partnership that supports antiretroviral treatment for more than a half-million people infected with HIV. A majority of the ARVs used by Global Fund grantees are generics, according to Mark Grabowsky, a procurement official with the organization.

The Global Fund and other initiatives, including several nongovernmental organizations doing relief work in the developing world, depend on the World Health Organization's Prequalification Project for ARV procurement. The project "prequalifies" drugs after verifying that they are safe for use. The WHO project had approved 38 generic ARV drugs through the end of 2005, a dozen more than the FDA had for PEPFAR through October 2006.

Creating a fast track for generics

At the beginning, PEPFAR did not plan to procure cheaper generic ARVs produced in the developing world. After persistent criticism from HIV/AIDS activists and the international generic drug industry, however, in May 2004, Tobias and then-U.S. Health Secretary Tommy Thompson announced the creation of the expedited FDA review mechanism to approve generic ARVs.

But the new mechanism failed to satisfy its critics, who had urged the U.S. government to allow procurement of generic ARVs already found safe by the WHO Prequalification Project. They saw the new review process as another obstacle to using generic drugs.

Health Global Access Project, a U.S. group of AIDS and human rights activists, said the new system "created needless duplication of the WHO pre-qualification project and new regulatory obstacles to accessing generic drugs."

PEPFAR officials insist that the prequalification process under WHO is not as stringent a regulatory review as that of the FDA or the European Union's European Medicines Agency. But WHO Prequalification Project head Dr. Lembit Rägo told the Center, "We are listing those [drugs for which] we have done full assessment."

According to FDA spokeswoman Karen R. Mahoney, it takes an average of 6½ months to get a generic drug approved under the fast-track PEPFAR program. However, the FDA approved the first generic drug for PEPFAR in December 2004, virtually guaranteeing that no generics would be procured under the program in its first year.

The FDA maintains that the timeframe is reasonable. Even the WHO Prequalification Project process takes nearly as much time in most cases, Rägo said. "Theoretically, [approval should take] three to four months," he said, "but … in more than 90 percent of the cases, [it takes longer]."

There has not been any great rush on the part of the generic drug makers to apply for FDA approval for the PEPFAR program. According to the FDA's Web site, all but two of the generic drugs approved so far for PEPFAR have been made by Cipla, Ranbaxy Laboratories, Aurobindo Pharma, or Strides Arcolabs — all based in India. The exceptions are one drug manufactured by the U.S.-based Barr Laboratories and one by Aspen Pharmacare of South Africa.

Mahoney said FDA's Office of Generic Drugs had received 42 applications by mid-October. No application has been rejected so far, she said.

Vineeta Gupta, director of the Stop HIV/AIDS in India Initiative, based in Washington, D.C., said, the rigorous FDA review process and the resources required for that might explain why more generic ARV manufacturers have not sought FDA approval.

Another issue slowing down the availability of generics under PEPFAR is the requirement that once approved by the FDA, the manufacturer must then register the drug in each of the countries for which it is procured.

"The U.S. is ordering that these drugs be registered in the recipient countries," said Brook K. Baker, a law professor at Northeastern University. Forcing manufacturers to register in 15 focus nations and dozens of other recipient countries, Baker said, creates another set of bureaucratic hurdles.

Rägo, the WHO Prequalification Project chief, notes that such requirements should be expected when doing business with national governments. "You have to understand that they are sovereign countries," he said.

Nearly all generic ARVs approved so far are drugs for first-line treatment. Every year, more than 10 percent of the infected population becomes resistant to these drugs. Most of the second-line ARVs are brand-name drugs.

Prescription for power

2011-09-16T11:33:35-04:00

The deep-pocketed pharmaceutical and health products industry has lobbied on more than 1,400 congressional bills since 1998 and spent a whopping $612 million* during that period, a Center for Public Integrity review of lobbying records revealed. Drug companies and manufacturers of health products have used more professional lobbyists in the last six and a half years—almost 3,000—than any other organized interest, the analysis also found. In comparison, the insurance industry, second-largest in terms of spending, spent $543 million* in the same period and employed just over 2,000 lobbyists.

In recent years, the pharmaceutical industry has scored a series of legislative victories on Capitol Hill, which could potentially translate into tens of billions of dollars of additional revenue to drug companies annually. The federal government will buy drugs worth at least $40 billion from the companies every year once the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 goes into effect next year. In addition, critics have accused the industry of having undue influence over the Food and Drug Administration, the agency that regulates pharmaceutical interests.

Industry-watchers say the drug companies' recent successes in Congress and with the FDA show how effective their lobbying campaign is. "The [lobbying] money is very well-spent," said Dr. Jerry Avorn, author of Powerful Medicines: The Benefits, Risks, and Costs of Prescription Drugs. "The fact that we are the only country in the industrialized world that does not have any provision for negotiating drug prices, the fact that we are spending far more per capita on drugs than any other country and the fact that when legislation is written it often seems to be exactly the kind of legislation that benefits the pharmaceutical industry [shows] they are getting their money's worth."

In 2003, the year that the legislation passed allowing prescription drug coverage through Medicare, 298 pharmaceutical and health industry groups spent $114 million* lobbying the federal government. They employed 1,274 professional lobbyists.

The passage of the new Medicare law had been an industry priority for many years. No wonder: The 415-page legislation contains several windfalls for drug companies, including a controversial provision that prohibits the federal government from negotiating with companies on drug prices.

The industry has also mounted campaigns to weaken federal regulation, strengthen patent protections, extend patents, win tax credits and get the federal machinery to protect its interests abroad, among other issues.

Other big wins on Capitol Hill include the extension of the Prescription Drug User Fee Act through September 2007, authorizing the FDA to continue collecting industry money to process drug approval applications. The FDA expects to take in more than $284 million in user fees this year alone. The user fee has helped FDA to hire more than 1,200 new employees—and thereby to reduce drug approval time. But many observers, such as Avorn and Thomas Moore, a fellow at George Washington University's Center for Health Services Research and Policy and author of Prescription for Disaster, a book on drug safety, oppose the arrangement because that money gives the industry greater leverage. The user fee act implies that the main mission of the FDA is to facilitate speedy approval of drug, Avorn said. He added that the legislation and the agency's "shrinking capacity to follow post-marketing safety problems, all together suggest that the needs of the industry have loomed larger at FDA than public health mission."

"The User Fee Act has left the pharmaceutical industry paying a very significant share of FDA's total budget," Moore said. "Each reauthorization is sort of another step to come to the bargaining table, if you will, to see if they can obtain some additional benefits."

Many critics also argue that by making the FDA dependent on the industry, it also opens the doors for a culture of conflict-of-interest to thrive.

In 2002, the industry also succeeded in getting the Best Pharmaceuticals for Children Act passed. The law encourages companies to test drugs in kids by extending patents for six months.

Drug interests have also successfully blocked a number of bills that would have affected its bottom line, among them, legislative efforts to control drug prices, legalizing drug importation, closing loopholes in patent laws etc.

Former government insiders

Leading the industry's lobbying efforts was the trade group Pharmaceutical Research and Manufacturers of America, the 10th* largest lobbying organization in the country. PhRMA alone spent more than $65 million* on lobbying in the last six and a half years.

Besides its 38 in-house lobbyists, PhRMA employed 160 lobbyists in 2003-2004. Since 1998, the organization used 64 different firms to lobby 35 federal agencies on 38 issues separately identified under the Lobbying Disclosure Act of 1995.

The Biotechnology Industry Organization, a trade organization that represents biotech and biomedicine companies, spent more than $20 million* since '98.

The Center analysis revealed the extent to which the industry used former government insiders to influence the federal government. Of the nearly 3,000 professionals who lobbied for the industry, 805 were former federal officials, including more than 50 former members from the House and a dozen from the Senate.

Both PhRMA and BIO are headed by former members of Congress. PhRMA's president is former Rep. Billy Tauzin (R-La.), who chaired the House energy and commerce committee until last year and was one of the co-sponsors of the Medicare legislation. The House Energy and Commerce Committee's jurisdiction includes the drug industry. Tauzin's former colleague on the committee, James Greenwood (R-Pa.) heads BIO. The former Pennsylvania congressman, who sponsored or backed numerous bills favorable to the industry, including the Best Pharmaceuticals for Children Act of 2002, joined BIO last July under controversial circumstances. As chairman of the Energy and Commerce Committee's Subcommittee on Oversight and Investigation, just before he accepted the position he was scheduled to hear testimony on possible links between antidepressant use and suicide among children. Because of the conflict of interest, he cancelled the hearing.

Both Tauzin and Greenwood have not yet registered to lobby—both recently retired congressmen have to wait for at least a year before they can legally lobby their colleagues. But the industry has employed at least 48 former members of the U.S. House of Representatives and 15 ex-senators to lobby.

That includes Sens. Bob Dole (R-Kan.), Birch Bayh (D-Ind.), Lloyd Bentsen (D-Texas), Dennis Deconcini (D-Ariz.), Steve Symms (R-Idaho), Tim Hutchinson (R-Ark.) and Howard Baker (R-Tenn.) and Reps. Bob Livingston (R-La.), Bill Paxon (R-N.Y.) and James Blanchard (D-Mich.). Dole and Bayh are the authors of the Bayh-Dole Act of 1980, which gave the drug industry greater access to government-funded research.

The Center's findings didn't surprise the industry's longtime critics. Rep. Bernie Sanders (I-Vt.), who has introduced several measures in Congress to regulate drug companies, says that the pharmaceutical industry has the most powerful lobby in Washington, D.C.. "Uniquely in the industrialized world, our government does not regulate the pharmaceutical industry—rather the pharmaceutical industry regulates the government, which is why Americans pay by far the highest prices in the world for medicines they need," he told the Center.

Note to readers: This story has been reposted. Since the report was originally released, the Center for Public Integrity has changed the way it calculates lobbying expenditures to reflect a more stringent methodology for determining the total amounts. The change was made to correct the potential overstatement of totals. Figures or relevant text that have been changed are indicated with asterisks. (5/2/2006)

Breaking the law

2011-09-16T11:37:08-04:00

Take, for example, Jorge Rodriguez-Marquez, former president of Bacardi-Martini U.S.A., the domestic subsidiary of Bermuda-based liquor giant Bacardi Ltd. Between 1998 and 2002, Rodriguez-Marquez lobbied the U.S. government to intervene on behalf of his Miami company—now known as Bacardi U.S.A. Inc.—in its longstanding trademark dispute with a Cuban-French joint venture over rights to the popular rum label "Havana Club."

Among those doing Bacardi's bidding was then-Sen. Connie Mack III, Republican of Florida, who, in 1998, quietly inserted into a huge government spending bill a measure designed to block U.S. courts from recognizing trademarks expropriated by Cuba (and who followed his Senate career by lobbying for Bacardi). This 11th-hour legislative ploy proved to be so controversial that it rankled both lawmakers and American corporations, which feared retaliation by the Cuban government. The European Union lodged a successful complaint against the United States with the World Trade Organization, and in 2004 the U.S. Patent and Trademark Office ruled against Bacardi.

But if Rodriguez-Marquez's lobbying had repercussions on and beyond Capitol Hill, the American public was entirely unaware. That's because the Bacardi-Martini official didn't file a single form about his activities until 57 months—that's almost five years—after he started lobbying, despite the fact that the law requires disclosure forms to be filed with the Senate and House of Representatives every six months.

Rodriguez-Marquez has plenty of company: A Center for Public Integrity analysis of all lobbying forms filed with the Senate Office of Public Records since 1998—some 183,000 in all—reveals that 36,000 of them (more than 19 percent) were late, 8,800 by more than three months. (Nearly 14,000 individual lobbyists registered to lobby last year alone.) The Center also found that more than 3,000 of those filings were submitted at least six months late, while more than 1,700 of them were overdue by at least one year.

While some lobbyists filed late, others chose to simply dispense with some mandatory forms. In fact, 49 of the top 50 lobbying firms (in terms of revenue) failed to file one or more required forms during the last six years. Similarly, 1,200 of the 6,400 companies registered to lobby—20 percent in all—failed to file one or more forms that the federal disclosure law requires.

The Center study also found:

Nearly 14,000 documents that should have been filed periodically with the Senate Office of Public Records are missing;
nearly 300 individuals and entities lobbied for one or more clients without registering;
more than 2,000 initial registrations were filed after the allowable 45-day time frame;
210 of the top 250 lobbying firms (84 percent) failed to file one or more required forms; and
more than 2,000 cases where lobbyists never filed the required termination documents.

The list of late-filers includes such established lobbying institutions as Van Scoyoc Associates. While the government affairs firm ranks sixth in revenue, with nearly $90 million since 1998, it had 498 forms posted online three months or more after they were due. Patton Boggs, the third-largest firm with more than $145 million in revenue, had 496 filings posted after this 90-day window. A review of these forms indicate that some were late, while others seem to have been filed in a timely manner.

It's likely that even more filings were late, as the Senate's database tracks only the day the information is entered into the computer. To account for delays in processing, the Center counted all forms entered within 90 days of the deadline as "on time." The Center relied primarily on Senate filings because the House does not make its records available in electronic form.

Lax compliance yields few indictments

Rodriguez-Marquez apparently paid no penalty for his noncompliance. Nor, it seems, have thousands of others who ply the lobbying trade in the cloak rooms and corridors of the nation's Capitol.

A search of the Transactional Records Access Clearinghouse database, which tracks federal enforcement, staffing and spending, revealed just nine civil referrals from Congress since Jan. 1, 1996. It is unknown whether any of those are related to the Lobbying Disclosure Act, which took effect then.

Campaign-finance analysts cite a variety of reasons for lobbyists' noncompliance and the government's reluctance to prosecute. For example, they say lobbyists are in many cases ignorant of the law's requirements. Reasons hindering government action include a lack of funding and interest by prosecutors, who put theses sorts of alleged violations low on their list of priorities.

While many disclosure forms are typically filed with such independent agencies as the Federal Election Commission and the Office of Government Ethics, lobbying disclosure forms are filed with the House and the Senate. Campaign finance reform advocates say this creates the potential for conflicts of interest, since so many members of Congress and their staffers migrate from Capitol Hill to K Street. It also puts Congress in charge of monitoring its former colleagues and employees, and conceivably could endanger the prospects of a lobbying career for anyone taking punitive actions against those not complying with the rules.

In fact, in 1993 the chairman of the Federal Election Commission wrote the House Judiciary Subcommittee to ask that his agency be put in charge of all lobbying disclosure. "All these functional activities are requirements of regulating campaign finance and we already have developed the type of staff expertise, procedures, physical plant and information technology necessary," FEC Chairman Scott Thomas wrote in addressing pending legislation. Two years later, when the Lobbying Disclosure Act was enacted, Congress decided to keep lobbying disclosure within its purview.

But the House and Senate offices with responsibility for lobbying disclosure have far fewer resources to enforce the relevant laws. The FEC, which has authority to enforce campaign finance laws, has 391 employees and an annual budget of $52 million. By comparison, the Senate Office of Public Records employs 11 people, and the House employs fewer than 35. Those offices are responsible for several other areas of disclosure and provide additional services to their respective chambers, in addition to monitoring compliance with lobbying laws. That's despite the fact that lobbyists routinely take in double the amount from their clients that campaign contributors donate to federal political campaigns.

Both the House and the Senate do contact lobbyists whose paperwork appears to be delinquent, sometimes with negligible results. For example, on May 4, 1999, Steve Pringle, legislative director of the Texas Farm Bureau, penned a mea culpa after being contacted by the House and Senate offices for noncompliance.

"Please accept my apology for the tardy Lobby Report," Pringle wrote to the House. "We have experienced some recent personnel changes which resulted in this oversight. We appreciate your bringing the matter to our attention, and hope to remedy this situation in the future." But five years later, Pringle was apologizing again, this time to the Senate: "Please accept my apology for the tardy Lobby Reports. As you can tell, we have submitted reports to the House, but inadvertently did not provide you a copy. We appreciate your bringing this matter to our attention, and hope to remedy this situation in the future."

A law without teeth

Part of the enforcement problem may be rooted in the Lobbying Disclosure Act itself. The act, which was passed in 1995, makes clear that the two offices tasked with supervising the law have neither auditing power nor investigative authority—both are fundamental to enforcement.

"They don't have audit power; all they can do is to mark the report in as filed," Elizabeth Bartz, president of State and Federal Communications Inc., which compiles information about lobbying and ethics laws, told the Center in an interview. "The [Lobbying Disclosure Act] is a great piece of legislation, but it needs teeth, and it doesn't have any."

Under the Lobbying Disclosure Act, a lobbyist who knowingly fails to comply with any provision of the law may be subjected to a civil fine of not more than $50,000, "depending on the extent and gravity of the violation."

Under the law, the House and Senate office must refer such alleged non-compliers to the U.S. Attorney for the District of Columbia, the principal prosecutor for federal criminal and civil offenses committed in Washington, D.C. It wasn't clear whether Jeff Trandahl, the House clerk, recommended action against the Texas Farm Bureau. The congressional offices and the U.S. Attorney's office could not divulge such information for privacy reasons. Calls to Pringle seeking comment were not returned.

Indeed, the House and Senate offices even refused to disclose the number of referrals they made to the U.S. Attorney's office. But the Center learned from press reports and interviews with former officials at the U.S. Attorney's office that, in 2002 and 2004, these two congressional offices made an undetermined number of referrals—described by one such official as "stacks"—for investigation and possible prosecution.

Mark Nagle, a former civil division chief at the U.S. Attorney's office in Washington, D.C., told the Center that he initiated action against non-compliers, several of whom settled the cases by agreeing to pay fines. The Center requested information on fines collected and the number of lobbyists penalized for noncompliance, but the House, Senate and U.S. attorney's office all refused to cooperate.

Interviews with former officials at the U.S. Attorney's office revealed why pursuing non-compliers of the lobbying disclosure is such a low priority.

"There is an astonishing lack of legislative guidance," said Nagle, referring to the 1995 law's ambiguousness on the enforcement matters.

Roscoe Howard, U.S. Attorney for the District of Columbia from 2001 to 2004, faulted the law for its lack of enforcement powers. "The law doesn't come with a mandate," he said. "The statute is very unusual: only the U.S. Attorney in the District of Columbia has the authority to prosecute, and the authority is only civil, only monetary."

Howard said there are "absolutely no resources" for enforcement. Both Howard and Nagle left government last fall to become partners at the Washington law and lobby firm Sheppard, Mullin, Richter & Hampton LLP.

With more than 350 prosecutors, the U.S. Attorney's office in the District of Columbia is the largest in the country. But because of the area's dozens of federal offices, it's also one of the busiest. "We cannot take every case that is a technical violation of [the lobbying law] because of limited resources," Howard said.

Among the large number of technical violations this office overlooked were some possibly committed by former senator Connie Mack, who upon leaving Capitol Hill was hired as a lobbyist for Bacardi U.S.A.—the benefactor of his last-minute legislative handiwork on the 1999 omnibus spending bill. Whether Mack is still lobbying on behalf of the giant liquor company is uncertain, as his most recent disclosure report is missing from the Senate Office of Public Records. Of the other two reports that Mack's former firm, Shaw Pittman LLP, has filed since first working for Bacardi in late 2003, one was filed more than five months late. In March, Mack and Shaw Pittman's entire government relations group moved to another firm.

The sincerest form of flattery

2011-11-17T16:49:11-05:00

Following the extraordinary success of the Washington-based Carlyle Group, which has built a private equity empire that's earned billions for its investors, a number of firms have lined up rosters of former government officials and high ranking military officers as they pursue companies that are in the national security business.

Carlyle, which ranked as the ninth largest Pentagon contractor from 1998 to 2003, has made billions of dollars by investing in the defense sector. A team of high-powered former Washington insiders, including Frank Carlucci, who served as secretary of defense in the Reagan administration, and James Baker, who served as George H. W. Bush's secretary of state, led its pursuit of defense deals. (See related report, "Investing in War.")

More than a half dozen companies are now following in the footsteps of Carlyle by signing up former high-ranking government and military officials as they try to make inroads into the Pentagon and the newly-created Homeland Security contracting business.

The blue-chip political talent these private equity firms have lured include five of the past nine defense secretaries, two secretaries of state, two national security chiefs, two CIA directors and dozens of distinguished retired military officials.

Veritas Capital Management is the 41st largest defense contractor and second only to the Carlyle Group among private equity firms. Though Veritas doesn't have any marquee former politicians in its ranks, its roster includes Adm. Joseph W. Prueher, ex-commander-in-chief of the U.S. Pacific Command and former U.S. ambassador to China; Gulf War I veteran and former U.S. Southern Command chief Gen. Barry R. McCaffrey; former commander-in-chief of Allied Forces in Southern Europe Admiral Leighton W. ("Snuffy") Smith; former commander-in-chief of the U.S. Central Command Gen. Anthony C. Zinni; and Gen. Richard E. Hawley, former commander of Air Combat Command at Langley Air Force Base, Va.

The companies it has invested in have been very successful in bagging defense contracts, with nine of them winning Pentagon deals since 1998. More than 70 percent of the firm's contracts were brought in by Vertex Aerospace (formerly Raytheon Aerospace, part of the Raytheon Corp.), which provides aviation and aerospace technical services to the Pentagon and other branches of the U.S. government. Veritas sold Vertex in December 2003.

Unlike the Carlyle Group, which has reduced its investments in the defense sector, Veritas is still investing heavily. Last July it bought a majority stake in Springfield, Va.-based McNeil Technologies, which provides translation services to the Defense Department and intelligence agencies, among others. Primarily catering to the national security market, the bulk of McNeil's more than 1,000 employees have security clearances.

New entrants

In the past three months alone, two new venture partnerships have been formed, with hundreds of millions in funds, to invest in the national security market. Former Pentagon leaders, both civilian and uniformed, are at the center of both efforts.

Last August, former Defense Secretary William Cohen disclosed his plan to form a merchant banking firm, TCG Financial Partners, to invest in defense companies. Cohen, who heads The Cohen Group, a consultancy in Washington, D.C., hired a top investment banker from Bank of America to head the new private equity firm, which aims to raise $300 million. According to news reports, the ex-Pentagon chief will also employ Gen. Joseph Ralston, Supreme Allied Commander in Europe until last year, and former NATO Secretary General George Robertson.

In September, Bear Stearns Merchant Banking, the private equity arm of investment banking and securities trader Bear Stearns, entered into an alliance with GlobeSecNine, a little-known private equity group headquartered just a few miles from the Pentagon in Arlington, Va.

Bear Stearns Merchant Banking, which manages $1.5 billion, has earmarked $300 million to invest in national security-related companies, while GlobeSecNine has connections to the country's defense and national security establishment. David C. Miller Jr., one of GlobeSecNine's founders, was a special assistant to President George H.W. Bush for counter-terrorism and counter-narcotics. Gregory S. Newbold, another founding member of the firm, served as director of operations for the Joint Chiefs of Staff before he retired in 2002.

GlobeSecNine's board of directors includes John Lawn, Drug Enforcement Administration chief under Presidents Reagan and the first Bush, and Gen. Al Gray, a former commandant of the Marine Corps and former member of the Joint Chiefs of Staff. And Brent Scowcroft, who served as national security advisor for Presidents Gerald Ford and George H.W. Bush, is the chairman of GlobeSecNine's advisory board.

In announcing their deal, GlobeSecNine and Bear Stearns Merchant Banking drew attention to another partnership the latter had formed for investing in the defense sector. In July 2003, Bear Stearns Merchant Banking teamed up with Giuliani Partners LLC, a consulting firm founded by former New York City Mayor Rudy Giuliani, along with his ex-police, fire and emergency management commissioners.

Growth industry

The homeland security industry is currently the fastest growing sector of the U.S. economy, predicted to grow from a $5 billion industry in 2000 to $130 billion in 2010, according to the Homeland Security Research Corporation, a private California think tank.

"[T]he war on terrorism and possible confrontation with Iraq have focused investors' attention on defense and homeland defense," Bob Grady and Jay Koh, members of Carlyle Venture Partners, wrote in a February 2003 article in the Venture Capital Journal. "The events of Sept. 11 have drawn many new investors into the sector, spawned a host of new companies and redefined some old companies."

Among the private equities that have focused their efforts on the emerging homeland security contracting, trying to replicate Carlyle's success with defense contracting, are Paladin Capital Partners, Arlington Capital Partners, and Behrman Capital.

Like Carlyle, Paladin and Arlington Capital Partners have enlisted several former political and military leaders.

"The advantage of having former politicians is that they give you perspective, they give you potential access to getting additional business," Bob Knibb, a partner of Arlington Capital, told the Center.

Paladin's roster of ex-officials includes former CIA Director James Woolsey and former National Security Agency director Kenneth A. Minihan, both principals of the Washington-based firm. Last December, Paladin entered into an alliance with homeland security consultancy Civitas Group LLC, also in Washington, D.C. President Clinton's National Security Advisor Samuel R. Berger and Republican strategist Charles R. Black, Jr. work for Civitas.

Paladin created a "Homeland Security Fund" immediately after 9/11 to invest in homeland security firms. Boeing Co., the second largest Pentagon contractor, was an early investor in the firm.

Paladin has made at least three investments in companies that do business with the Department of Homeland Security. It invested more than $10 million in AgION Technologies Inc., a Wakefield, Mass.-based company that makes anti-bioterrorism products. Paladin also bought stakes in ClearCube Technology Inc., which developed a computer-security system, and SafeView Inc., a Santa Clara, Calif.-based firm that provides personnel screening technology.

Arlington Capital Partners, a $450 million private equity, acquired two top federal contractors, ITS Services in April 2003 and Science & Engineering Associates Inc. in January 2004. The firm combined the two, and named the new company Apogen Technologies, which provides "technology solutions" to the departments of Defense and the Homeland Security, as well as other branches of the government. Apogen ranks among the top 10 Department of Homeland Security contractors.

The chairman of Apogen's board of directors is Phil Odeen, who served as an aide to Henry Kissinger when the latter was national security advisor. Odeen also served as chairman of the National Defense Panel and vice president of the Defense Science Board. Vice Admiral Daniel T. Oliver, a former chief of naval personnel and deputy chief of naval operations for manpower and personnel, heads the national security sector division.

Another major investor in the national security market is Behrman Capital, which acquired two defense and homeland security contractors in the past two years. The New York and San Francisco-based firm bought Hunter Defense Technologies, Inc., last January. It acquired majority stakes in ILC Industries, Inc., a defense, aerospace and industrial products provider, last year. The firm owned Condor Systems, Inc., a defense electronic firm, in the late 1990s.

Behrman, however, does not presently feature any prominent former civilian or military officials.

That's an exception among those private equity firms vying for companies in the national security market—where having political and military insiders for their boardrooms and executive suites is the norm.

Career opportunities

Five of the past nine defense secretaries, excluding those who are in the current administration, have ties to private equities. Of the remaining four, two are serving in the current administration (Donald Rumsfeld was the defense secretary in the Ford administration; Dick Cheney served George H.W. Bush's administration), one (Les Aspin) is deceased, and the other, Caspar W. Weinberger, is the chairman of the company that owns Forbes magazine. Every other defense secretary since Elliot Richardson held the post in 1973 has ties to a private equity firm:

Bill Cohen, the last defense secretary, entered the private equity market with his own firm, TCG Financial Partners.
Cohen's immediate predecessor at the Pentagon, William Perry, founded Global Technology Partners to help equity firms invest in defense, aerospace and technology companies, after he left office. The group advises Donaldson, Lufkin and Jenrette's Merchant Banking Partners.
James R. Schlesinger, defense secretary in the Nixon and Ford administrations, is an advisor to the Lehman Brothers investment banking firm.
Harold Brown, defense secretary in the Carter administration, is a partner at Warburg Pincus, an investment firm with holdings in approximately 490 companies worldwide.
Frank Carlucci, defense secretary during Ronald Reagan's second term, was the first Pentagon chief to make his mark as an investment banker.

A number of senior Pentagon officials who served these secretaries also work for private equities. Perry has three of his former deputies as his partners at Global Technology Partners. John White was a deputy secretary of defense under Perry, Paul Kaminski supervised Pentagon's acquisitions as an undersecretary at Defense, and Ashton Carter was an assistant secretary of Defense. Perry's founding partner was former CIA director John Deutch.

John F. Lehman, who served as Secretary of the Navy from 1981 to 1987 and was also a member of the 9/11 Commission, runs his own eponymous private equity firm, J.F. Lehman and Company. The firm's targeted markets include aerospace and defense. Gen. Paul X. Kelley, who served as a member of the Joint Chiefs of Staff, is a limited partner of the firm.

Also doing their parts in helping private equity firms to invest in the national security market are some members of the Defense Policy Board, an influential body that advises the defense secretary. Schlesinger and Woolsey are members of the board. Another member, Gerald Hillman, founded Trireme Partners along with Richard Perle, who once headed the board and was a member until he resigned in February.

Kissinger, another Defense Policy Board member who served as secretary of state and national security advisor to Presidents Nixon and Ford, is an advisor to the private equity firm Hicks, Muse, Tate & Furst. His firm, Kissinger McLarty Associates, also had a private equity unit, the Kissinger McLarty Capital Group. A spokesman from the company told the Center that the capital firm did not invest in any companies and has since folded.

Letter of the law

Watchdogs have long criticized the "revolving-door" between government and the private sector, particularly when former officials join businesses that they regulated while in office.

Ex-officials are subject to federal regulations enacted in the 1970s that require a one-year "cooling off" period before they can lobby their old agency; these former officials can, however, register to lobby immediately, provided they refrain from contacting their old colleagues.

Carlyle spokesman Chris Ullman says all former government officials working with the firm meticulously follow the regulations. "If someone serves their government and then leaves, and then abides by all of the conflict of interests rules related to lobbying former colleagues for a year," he said, "they abide by all those rules, and then they join a private sector job and don't lobby those officials, but share the expertise that they have and it happens to be the same as within the sector, the area they worked in, defense for example, that's a conflict?"

Some are more troubled by the revolving door.

"I think that this is a much more important issue than what has been legislated," says Dan Briody, an outspoken critic of Carlyle's business practices. "I think it is very detrimental to public's confidence in both the political structure and the business structure in the country."

On the other hand, those in the private equity business, such as Arlington Capital Partners' Knibb, see nothing wrong in the collaboration of private investment firms and former public officials. "Private equity as an entity is not necessarily a wrong one," he said. "There's a lot of credibility a gentleman like Odeen [who chairs the board of Arlington-owned Apogen] would bring to businesses."

Some Washington observers say that there's nothing "inherently unethical" about retired Defense Department officials working for private equities. "I wouldn't assume because someone is coming out of a revolving door-type situation, therefore, it's unseemly," said Michael Levy, a professor of public policy and business ethics at Georgetown University's McDonough School of Business. "It is not necessarily in any way shape or form wrong. There are pretty strict rules about speaking to your former agencies… It may be troubling, but it is not in itself a form of corruption."

According to Briody, author of The Iron Triangle: Inside the Secret World of the Carlyle Group, there's something ominous about Carlyle's success. "What's dangerous about the success of Carlyle is that other companies are beginning to understand that this is the way to make a killing," he told the Center. "These former politicians are coming out of office and they are in heavy demand. How far this goes is what I fear. I already feel that it has gone too far."

Researcher Sheetal Doshi contributed to this report.

Investing in war

2011-09-16T14:53:37-04:00

A dozen companies in which Carlyle had a controlling interest netted more than $9.3 billion in contracts.

Overall, six private investment firms, including Carlyle, received nearly $14 billion in Pentagon deals between 1998 and 2003. (See related report, "The Sincerest Form of Flattery.")

From its founding in 1987, the Carlyle Group has pioneered investing in the defense and national security markets, and through its takeover of companies with billions of dollars in defense contracts became one of the U.S. military's top vendors, ranking among better known defense firms like Lockheed Martin, Boeing Co., Raytheon Co., Northrop Grumman and General Dynamics.

Unlike those firms, however, the Carlyle Group itself is not a manufacturer. It offers no services directly to the Pentagon, and has no defense contracts. Rather, it manages investments—some $18.4 billion from 600 individuals and entities in 55 countries, according to its Web site. The firm's business is making money for these investors, the vast majority of whose identities are not disclosed to the Securities and Exchange Commission or other government bodies.

Though Carlyle itself has won no contracts, the companies it has owned or controlled have done billions of dollars worth of business with the Pentagon. The Carlyle unit that brought in the largest share—$5.8 billion—was United Defense Inc., which manufactures combat vehicles, artillery, naval guns, missile launchers and precision munitions. United Defense also owns the country's largest non-nuclear ship repair, modernization, overhaul and conversion company, United States Marine Repair Inc. Its most famous product may well be the Bradley fighting vehicle. United Defense brought in more than 60 percent of Carlyle's defense business.

Carlyle took United Defense public in 2001; by April 2004 it had sold all its shares in the company.

Lear Siegler Services, a leading contractor in aircraft logistics support, maintenance, pilot training and ground support, received contracts worth more than $1 billion. Carlyle sold the company in August 2002.

Southwest Marine Inc. also received contracts worth more than $1 billion since 1998, and Norfolk Shipbuilding & Drydock received contracts worth $827 million. In 1998, Carlyle merged these two companies into United States Marine Repair.

Vought Aircraft Industries, a large subcontractor doing work for military cargo planes, bombers, and fighters, received contracts worth $85 million. Vought is among the few defense contractors that the Carlyle Group has not sold.

Among other private equity firms, New York-based Veritas Capital Management firm that employs many former high-ranking military officials received Pentagon contracts to the tune of more than $2.2 billion. Veritas is the 41st ranked defense contractor.

Companies under the ownership of Vectura Holding Co., another New York-based group, got deals to the tune of $1 billion, while companies controlled by Berkshire Hathaway, led by billionaire investor Warren Buffett, won contracts worth $688 million. Companies owned by Green Equity Investors II LP ($275 million) and Gores Technology Group ($153 million) also received substantial defense money.

New market

Private equity firms did not have any significant presence in the defense industry until the end of the Cold War. Traditionally, the Defense Department depended on mega contractors such as Boeing Corp., Lockheed Martin and Raytheon for weapons and services. But since the 1990s, the military has increasingly outsourced to private contractors a variety of jobs and services, ranging from planning of operations to the supply of linguistic services. A U.S. government decision in the 1990s to encourage small-business participation in contracts also contributed to the expansion of the market for smaller, privately-owned companies.

The Carlyle Group acquired controlling interests in several underperforming defense contractors, installed its own management teams and revitalized the companies, in part by landing big Pentagon contracts. Then, they sold the contractors to other investors for a large profit.

"There have always been [private equities] that went in with management and bankrolled management," said Stuart McCutchan, editor of Defense Mergers & Acquisitions. "What Carlyle has done differently is they have taken it to a new level both in terms of size and in terms of being committed to an entire sector."

"Carlyle is the biggest single success in Washington of a venture capital firm," Dr. Loren B. Thompson Jr., a national security expert at the libertarian Lexington Institute, said.

In 1997, for example, the group made a 650-percent profit when it sold BDM International Inc., a McLean, Va., defense contractor. And in December 2001, Carlyle sold off the majority of its holdings in United Defense Inc. Altogether, Carlyle earned $1 billion in profit from the United Defense investment.

A windfall of war

The group cashed out many of its investments when the stock of defense companies rose dramatically in the aftermath of September 11 and the buildups to the Afghanistan and Iraq wars.

"Defense properties are too expensive these days," explained Carlyle spokesman Chris Ullman.

In 1997, Carlyle liked the price of United Defense, and beat out General Dynamics and Alliant Techsystems, which also coveted the underperforming artillery firm. General Dynamics bid more than Carlyle offered for the company, but potentially faced a lengthy, drawn out antitrust battle if it acquired United Defense. Carlyle ended up winning the bid.

Carlyle finally sold its stakes in United after taking it public in the aftermath of the September 11 attacks. The Washington Post called the hugely successful public offering "one of the most successful single venture investments of recent years."

But United did not seem all that lucrative before September 11.

"They [Carlyle] were really kind of in a pickle with United Defense," McCutchan said. "They wanted to cash out on the equity. There wasn't much money to be made... When 9/11 happened and the defense budget took off, suddenly they had a winner on their hands."

Even Carlyle, which typically does not disclose its financial and operational details, crowed over the sale.

"It was one of Carlyle's best investments," Carlyle's Ullman told the Center. "We did make more than a billion dollars on that deal, and we are very pleased that we served our investors quite well."

The reason Carlyle's defense portfolio is lean at the moment is the high value of defense firms, thanks in part to the ongoing U.S. wars. "If there comes a time when defense properties are priced in a way that we think makes sense for private equity investors, then we will certainly consider investing more of our dollars in that sector," Ullman told the Center.

Investment expertise

Carlyle has a diversified portfolio, focusing its investments in sectors that have heavy government regulation and contracting—defense, telecommunications and banking. Carlyle has matched its investments with the expertise of high ranking government officials, whom the firm has courted almost from its inception.

It was under the leadership of former Defense Secretary Frank Carlucci—first as a managing director, from 1989 to 1993, and as chairman from 1993 to 2003—that Carlyle grew from a small private equity to a global investment giant, and became a major player among defense contractors.

Other former government officials who have recent or current ties to the firm include former British Prime Minister John Major and former Philippines President Fidel Ramos; former Office of Management and Budget director Richard Darman; former Clinton chief of staff Thomas F. "Mack" McLarty; former Securities and Exchange Commission chairman Arthur Levitt and former Federal Communications Commission chairman William E. Kennard. Former Secretary of State James Baker works for the firm, as did his former boss, President George H.W. Bush, who was an adviser for the firm's Asian investment funds until he left Carlyle in 2003.

Critics have long denounced Carlyle's practice of recruiting former high-ranking government officials at the same time as it invests in companies regulated by their former agencies, dubbing it "access capitalism." For example, Kennard, who served as Bill Clinton's FCC chairman, is now managing director for Carlyle's global telecommunications and media group, directing the firm's business investments in companies he regulated.

"Carlyle would never have gotten to the level that it is at today had it not been for this premeditated commingling of business and politics," said Dan Briody, author of The Iron Triangle: Inside the Secret World of the Carlyle Group, a book that takes a critical look at the rise of the firm.

One of Carlyle's most controversial hirings was of former president Bush to serve as a senior adviser for its "Asia advisory board."

"The fact that George H.W. Bush was working for them while his son was president, while his son, in fact, was dramatically increasing defense spending—that seems to me one of the most blatant conflicts of interests in history," Briody said.

Bush—who joined Carlyle in 1998, before his son, George W. Bush, became president—ended his relationship with the firm in October 2003, Ullman told the Center. But that hasn't stopped the former president from continuing to give speeches for Carlyle, which he did at a Shanghai event sponsored by the firm in April 2004.

Ullman refused to disclose the remuneration Bush received for his services. "That's not information that we disclose," he said. "That's his personal business. You are certainly welcome to ask him."

Bush's office did not respond to the Center's request for an interview. Written questions faxed to the former president's Houston office, at an aide's request, did not elicit any response.

Though none are placed as closely as the president's father, Carlyle's other Washington insiders have ties to current Bush administration officials. Current Defense Secretary Donald Rumsfeld and Carlucci went to college together, for example, and Secretary of State Colin Powell was Carlucci's deputy on the National Security Council in the mid-1980s.

The continued presence of Baker and Carlucci riles critics such as Briody. "If you look at the relationship that Frank Carlucci still maintains with Don Rumsfeld and Colin Powell and the reach that he has to those folks—and he has in fact used that reach in the past and tried to influence decisions those folks were making, decisions that could directly or indirectly affect Carlyle's fortune," Briody said.

Carlyle dismisses the notion that Carlucci or any other former government or military leader on its payroll has any conflicts of interest. "Are you aware of any solicitations from [Carlucci] to Secretary Rumsfeld to ask for any particular benefits to United Defense or any of our other portfolio companies?" Ullman said. "All they [Carlyle critics] do is, they say: 'Oh, Carlucci used to work in the government and he went to college with Donald Rumsfeld, and Carlyle has defense investments, and now Secretary Rumsfeld is secretary of defense. Therefore, there is a conflict of interest.'"

Despite Ullman's assertions, media accounts have noted occasions when former government officials working for Carlyle have approached the Pentagon brass. For example, Fortune magazine reported in March 2002 that Carlucci had contacted at least two senior Pentagon officials, though Carlyle claimed these contacts did not constitute lobbying.

Ullman added that all former government officials working for Carlyle abide by "all of the conflict of interests rules related to lobbying former colleagues for a year." He pointed out that the Pentagon had cancelled the Crusader artillery system, produced by United Defense, adding, "So if we are as powerful as everyone thinks, why did they cancel it?"

Rumsfeld announced in May 2002 the termination of the artillery system; until then, the Pentagon had paid United Defense some $2 billion to develop the Crusader.

Researcher Sheetal Doshi contributed to this report.

Kerry carries water for top donor

2011-11-29T13:37:15-05:00

Sen. John F. Kerry, D-Mass., whose largest campaign contributor lobbies on behalf of telecommunication interests, pushed the legislative priorities of its clients in the wireless industry on several occasions, a Center for Public Integrity analysis of campaign, lobbying and congressional records has found. That analysis is part of the Center's research for The Buying of the President 2004 (to be published by HarperCollins), which tracks the financial backers and interests of the major candidates for the White House.

Kerry, who is seeking the Democratic presidential nomination, has sponsored or co-sponsored a number of bills favorable to the industry and has written letters to government agencies on behalf of the clientele of his largest donor.

Boston-based Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P.C. has been the biggest financial backer of the Massachusetts Democrat's two decades-long political career in elected office, with its employees contributing nearly $187,000 to various Kerry races, including his current presidential campaign.

Letters Cited
	October 2002 letter to FCC from Kerry et al
	May 2002 letter to FCC from Kerry and Ensign
	April 2002 letter to FCC from CTIA
	Kerry Statement to The Center for Public Integrity

Kerry's ties to the firm go beyond campaign contributions. His brother Cameron F. Kerry is an attorney at the firm's Boston office, and David Leiter, who was the Senator's chief of staff for six years, is a lobbyist for ML Strategies LLC, a Mintz, Levin affiliate that provides consulting and lobbying services.

Mintz, Levin advertises communications law among its areas of expertise and lobbies on behalf of wireless industry clients such as AT&T Wireless Service, XO Communications Inc. and the Cellular Telecommunications & Internet Association. CTIA is the trade association of the wireless industry; its more than 320 members include carriers, manufacturers and wireless Internet providers. CTIA-affiliated companies and their employees have contributed at least $152,000 to Kerry. The amount includes contributions made to his presidential campaign and his previous election efforts, his political action committees and the 527 group that Kerry formed. Verizon employees donated close to a third of that amount ($45,400).

Kerry and his wife Teresa Heinz Kerry have substantial holdings in telecommunications companies; between $17.6 million and $47.1 million of their combined fortune is held in companies with a stake in the industry, the Center's analysis of his financial disclosure form revealed. That falls in a range of roughly 7 percent to 11 percent of the couple's combined $165 million to $626 million in assets. Most of the fortune, and the stocks, belong to Heinz Kerry.

Some $3.9 million to $13.9 million of those holdings are in companies which are members of CTIA.

(Personal financial disclosure forms, which members of Congress must file annually, require that appointees value their assets in certain broad ranges: from 0 to $1,000; from $1,001 to $15,000; $15,001 to $50,000; $50,001 to $100,000, and so on. The two figures represent the lowest and highest estimate of the assets' worth.)

Since 1999, Kerry has taken positions that closely reflect the legislative agenda of CTIA. Between January 1999 and December 2002, he sponsored two bills for which CTIA lobbied and co-sponsored six more, the Center found. He also sponsored amendments and made floor statements that were favorable to CTIA's interests.

Whacking a piñata

Kerry intervened on the wireless industry's behalf over the auction of the spectrum, the range of electromagnetic radio frequencies used in the transmission of voice, data and video. Telecommunications firms see the availability of adequate amounts of the spectrum, or airwaves, as the key to its future. CTIA and its member companies have lobbied heavily over how and when portions of the spectrum—owned by the public and sold to companies for commercial use — would be auctioned off.

The proceeds of those auctions are federal revenue—like income taxes, they fund social programs, defense spending, and even deficit reduction. The Federal Communications Commission, the federal agency that regulates broadcast and communications companies, started auctioning spectrum licenses in 1994. So far 44 auctions have been completed, selling more than 22,300 licenses. Those auctions have raised about $23.5 billion so far, of which $14.4 billion has already been paid into the federal treasury.

The Federal Communications Commission scheduled two auctions of the upper and lower 700 MHz bands for June 19, 2002. Those bands are currently held by television broadcasters, which are expected to complete the bulk of their switch to digital signals by 2006, leaving the 700 MHz band free for other uses. However, the deadline for the transition is not final, meaning the broadcasters could hold on to the airwaves beyond 2006. As of May 1, 2002, the most recent period for which statistics are available, fewer than 25 percent of the broadcasters had even begun the change.

CTIA wanted the auctions delayed indefinitely. For the industry, investing billions of dollars in such "encumbered" airwaves didn't make any business sense, especially at a time when its stocks were on a downward skid on Wall Street.

Some public interests groups, including Consumers Union and New America Foundation, also favored the delay because part of the money from the auction would have been used to compensate broadcasters for vacating the 700 MHz band of the spectrum. The FCC saw the arrangement as an incentive for the broadcasters to expedite the shift to the digital spectrum, which they were awarded in 1997. Broadcasters were not required to pay for the rights to the spectrum, which some analysts valued at up to $70 billion.

"The Commission is asking bidders to swing blindly at a spectrum piñata, not knowing the contents," CTIA president and CEO Thomas E. Wheeler wrote FCC Commissioner Michael Powell in a letter dated April 3, 2002. "While a June auction might be called an 'auction,' in reality it would be the U.S. government opening a casino and collecting the ante for a much bigger private auction to enrich broadcasters at the expense of rational spectrum policy and the welfare of American taxpayers."

Wheeler pointed out that the Bush administration was also in favor of delaying the auction. The 2003 White House budget proposal had suggested shifting the statutory deadlines for the auctions to 2004 and 2006.

The FCC, which had already postponed the auctions twice, rejected the industry's request, saying that it did not have the power to delay any further.

Kerry and Sen. John Ensign, R-Nev., also wrote to Powell, urging him to postpone the auctions. Their letter, dated May 2, 2002, promised legislative action.

They introduced a bill the same day. "To proceed with the auction at this time would be a terrible example of budget politics taking precedence over sound spectrum management," Kerry said at the time. "I hope that the Congress will act soon to enact this bill and protect the interests of consumers of wireless services and the American taxpayer."

On June 18, 2002, the Senate passed a compromise bill to delay auctioning of the upper 700 MHz bands. Bowing to Congress' mandate, the FCC delayed the auction in the Upper 700 MHz category (777-792 MHz bands) until January 14, 2003, then postponed the auction again in July. Auctions of the lower 700 bands went ahead as scheduled.

The industry was pleased by what Powell would later refer to as "a late-inning legislative drive."

"We are extremely grateful to Senators Ensign and Kerry for defending the precious national resource of spectrum, serving American consumers, public safety and our global competitiveness," Wheeler said when the Senate bill was introduced. "Actions on both the House and Senate sides were bold and promising steps in the right direction."

In a statement, Sen. Kerry's office said, "On all issues, including issues important to the wireless industry, Senator Kerry makes his decisions based on what is sound policy and what is best for the people he represents."

Commerce and communications

Kerry, who sits on the Commerce, Science and Transportation Committee, which oversees the FCC, was not alone in taking positions the wireless industry advocated. Some 58 senators (led by Kerry) co-sponsored a bill that provided relief to firms that had bought spectrum licenses at an FCC auction that had belonged to NextWave, a nationwide, mobile wireless data network operator that filed for Chapter 11 bankruptcy reorganization in 1999. A lower court ruled that the licenses remained the property of NextWave, leaving those companies that had won the auction owing billions to the FCC and unable to use the licenses until the Supreme Court ruled in the matter (it ultimately decided in favor of NextWave). The FCC granted the relief Kerry and his colleagues had sought.

On July 2, 2001, Kerry joined five other senators in urging the Bush administration to expedite making portions of the spectrum then used by the federal government, including the U.S. military, available for a "third generation" wireless system—which would allow users to send not just voice but also data at high speed through the airwaves. Reallocation of the government's share of the spectrum has been a top CTIA priority in Washington in recent years.

In June 2000, Kerry introduced a bill, along with Senators Ernest Hollings (D-S.C.), Daniel Inouye (D-Hawaii), Jay Rockefeller (D-W. Va.), and Byron Dorgan (D-N.D.), to prevent firms that have more than 25 percent foreign government-ownership from buying U.S. telecommunications companies. CTIA had lobbied on that bill as well.

Over the years, Kerry has played a role in telecommunications legislative and oversight matters, some of which affect his younger brother's clients. According to the firm's Web site, Cameron Kerry "has represented cable industry and other communications clients before the [FCC], federal and state courts, state regulatory bodies, and municipalities in litigation under the Federal Communications Act and other laws; rate regulation proceedings; franchising and renewal proceedings; FCC rulemakings and licensing; regulatory aspects of mergers and acquisitions; counseling regarding regulatory and legal developments; and state common carrier proceedings."

Cameron Kerry has been with Mintz, Levin since 1983. Attorneys at the firm have been opening their checkbooks for John Kerry's campaigns ever since.

According to state records reviewed by the Center, Mintz lawyers donated more than $2,000 to Kerry's campaign in December 1983, only months after Kerry's brother was hired by the firm. Those contributions came after Kerry won election as lieutenant governor of Massachusetts, but before he announced his 1984 campaign to succeed Paul Tsongas in the U.S. Senate.

Cameron Kerry said his partnership at Mintz, Levin factored in the donations from the firm's employees. "Apart from my being here and having been involved in his campaigns over the years, he's got a number of other friends here," he told the Center.

Kerry's office echoed that line: "Senator Kerry has friends and family who work at Mintz Levin, ranging from his brother to former classmates who work in this Boston-based firm. In addition to having been elected to the Senate four times, John Kerry has been Lt. Governor and run for Congress in Massachusetts, so a lot of these folks go way back with him. It should come as no surprise that they would be supportive of his campaign for president and any effort to make anything more of it is sorely misguided."

Center database editor Aron Pilhofer, writer / data specialist Derek Willis, and researcher Daniel Lathrop contributed to this report.