HOW CLINTON USED TAX FUNDS TO ENRICH DEM CRONIES: THINK OPIC
opensecrets.org
Open Secrets | Circa 2001 | PAUL HENDRIE
Capital Investments: OPIC’s politically connected investors can’t lose as U.S. taxpayers shoulder the risks
A senator’s husband. Another senator’s son. The vice president’s former campaign manager. An ex-client of the White House chief of staff. Presidential appointees to government advisory panels. Lincoln Bedroom overnight guests and participants at White House fund-raising coffees. Leading Democratic Party fund-raisers and contributors.
What do they have in common?
Many are sponsors or managers of multimillion dollar international investment funds hand-picked for generous taxpayer guarantees by a little-known government entity called the Overseas Private Investment Corp., or OPIC. It’s a no-lose deal for some fund sponsors and investors. OPIC provides long-term secured loans and loan guarantees backed by the full faith and credit of the United States.
There’s no competitive bidding or public process for soliciting and evaluating proposals to establish OPIC-backed funds. Even a Freedom of Information Act request and appeal failed to pry any information out of OPIC about the selection and evaluation of the funds that get government guarantees. Except in a couple of cases where the funds volunteered the information, OPIC won’t disclose who’s investing in the funds, what projects are being financed, and how well the funds are performing. Annual reports and audits of the funds are off-limits to the taxpayers shouldering the risks. Since most of the fund sponsors are privately held firms, it takes considerable detective work just to identify the partners.
It’s kind of like asking dear old dad to cosign your car loan, then refusing to tell him where you’ll buy the car, what model you want to purchase, and how you expect to earn enough money to repay the loan.
When the Clinton administration took office in 1993, there were just two OPIC investment funds, capitalized at $100 million. By the end of Clinton’s first term, 22 new funds valued at $3.1 billion had been created. Many are sponsored or managed by major Democratic Party fund-raisers or contributors and others with strong political ties.
During the 1996 election year alone, OPIC approved guarantees to six funds valued at $585 million. Sponsors and investors in several of those funds had attended White House coffees. And the sponsor of another heads a political action committee that contributed more than $50,000 to Democratic candidates during the 1995-96 election cycle.
When President Clinton sipped coffee in the White House Roosevelt Room on Dec. 15, 1995, with a select group of Democratic fund-raisers and contributors, the guest list included financier Richard C. Blum, husband of Sen. Dianne Feinstein (D-Calif.), and Texas investor David Bonderman, a partner with Blum in several ventures. Bonderman apparently was so filled with the holiday spirit that exactly two weeks later he wrote checks totaling $100,000 to the Democratic National Committee (DNC).
Bonderman, a corporate takeover artist whose acquisitions have included Continental Airlines and DelMonte foods, ranked 116th on Mother Jones magazine’s list of the 400 biggest political contributors of 1995-96. Bonderman once was quoted as observing about the downsizing that often occurs after corporate buyouts: "Generally speaking, you like to dance with the girl that brung you, and if you can’t sometimes you have to shoot her."
In September 1996, Bonderman’s Texas Pacific Group won OPIC’s backing for a $300 million fund called Aqua International Partners. The fund is managed by former Environmental Protection Agency head William Reilly. It will invest in companies focused on improving water quality in developing nations, should begin investing in early 1998. Chase Capital Partners LP of New York is the fund’s lead investor.
OPIC also authorized taxpayer guarantees on March 12, 1996, for Andean Capital Partners, a fund set up to invest in the Andean region. The fund is managed by former Assistant Secretary of State for Inter-American Affairs Bernard Aronson. Neither Blum nor Bonderman had any involvement with the fund before its approval by OPIC. More than six months later, Aronson said, Newbridge Latin America, a private equity fund managed by Bonderman’s Texas Pacific Group and Richard C. Blum and Associates invested in the fund. That investment is not guaranteed by OPIC, according to the investment firm Donaldson, Lufkin & Jenrette, the placement agent for the OPIC note. Blum’s interest in Newbridge Andean Partners L.P. is listed in Senator Feinstein’s personal financial disclosure filing. And Bonderman’s Texas Pacific Group is an investor in the fund and sits on its investment committee, Securities Data Publishing reported earlier this year. Blum and Bonderman have teamed up in a variety of investments under the Newbridge name. The fund’s name was changed to Newbridge Andean Partners to reflect the new strategic partnership, Aronson said. He said political influence played no role in the fund's creation or operation.
Does politics have anything to do with OPIC’s decision to help establish and guarantee private funds?
Since OPIC won’t release any information about the deliberative process, it’s impossible to tell what factors the agency considered. What we do know is that many of the funds are sponsored or managed by major campaign contributors and fund-raisers, as well as others with powerful political connections.
The OPIC investment fund program was born in the Reagan administration with the 1987 creation of the $25 million Africa Growth Fund. Under President Bush, the $75 million Asia Pacific Growth Fund was created. Those were the only OPIC funds that existed when President Clinton took office in 1993.
But the funds proliferated during Clinton’s first term, when OPIC created 22 – including 13 funds launched during the 1995-96 election cycle. They include:
The South Asia Integration Fund ($150 million), sponsored by Ziff Brothers Investments and approved on March 12, 1996. Five weeks earlier, Dirk Ziff, who heads the family firm, had attended a White House coffee with the president. He also was among those privileged to spend a night in the Lincoln Bedroom, and his name appeared on fund-raising "call sheets" the DNC prepared for Clinton. Ziff and his brothers Robert and Daniel gave more than $400,000 in 1995-96 to Democratic candidates and party committees.
The Israel Growth Fund ($40 million), sponsored by Apax Partners and approved in July 1993. The U.S. chairman of Apax is venture capitalist Alan J. Patricof, who joined the president at three White House coffees and as an overnight Lincoln Bedroom guest. Patricof and his wife Susan gave more than $140,000 to Democratic candidates and party committees in 1995-96. Earlier this month Clinton raised an estimated $600,000 for the Democrats at a fund-raiser Patricof hosted in his New York City home. He was an early Clinton supporter in 1992, when he barnstormed the country to drum up business support as head of "Entrepreneurs for Clinton/Gore." Clinton named Patricof chairman of the 1995 White House Conference on Small Business. The Israel Growth Fund was one of the few that consented to release of its major investors, which include Archer-Daniels-Midland Co, the 85th biggest overall contributor in 1995-96; Continental Casualty; Cowen & Co.; and Zenith Insurance.
The CEENIS Property Fund ($240 million), sponsored by Auburndale Properties and approved on Jan. 1, 1995. The fund invests in Central and Eastern Europe. Auburndale is headed by Steven J. Green, an early Clinton supporter, Lincoln Bedroom overnight guest, participant in the late Commerce Secretary Ron Brown’s trade missions, and appointee to the President’s Export Council. A 1995 Business Week story reported that Brown’s backing helped Green win the lucrative contract to renovate Moscow’s world-famous GUM Department Store. The article noted that the Clintons hosted a 28th anniversary party for Green and his wife. Green hired former White House aide Mark Middleton – a central figure in some of the 1996 campaign fund-raising controversies – in February 1995, shortly after the president announced OPIC’s approval of the CEENIS fund, Mother Jones magazine reported last year. Green later apparently became disenchanted with Middleton and asked him to leave, the magazine reported. Green contributed $11,000 to the DNC and $1,000 to the Clinton/Gore campaign in the 1995-96 election cycle Investors in the CEENIS Fund include MCI and Bank Boston.
The Allied Small Business Fund ($20 million), sponsored by Allied Capital Corp. of Washington and approved in March 1995. Allied Capital does not rank among big Democratic donors, but does have another tie to the White House: The company was a client of White House Chief of Staff Erskine Bowles before he joined the Clinton administration, presidential press secretary Mike McCurry acknowledged last year. The White House also confirmed published reports that Bowles had contacted Allied Capital in 1994 to seek work for Webster Hubbell, the Clinton confidant who had just resigned from the Justice Department and would later plead guilty to bilking former law partners and clients. Bowles headed the Small Business Administration at the time, and Allied Capital is an SBA lender under the Small Business Investment Corporation program. Whitewater prosecutors have been investigating whether the effort to aid Hubbell was intended to discourage cooperation with the probe. In the end, Allied Capital apparently did not hire Hubbell.
Global Environment Fund Corp. has two OPIC funds, the $70 million Emerging Markets Fund approved in September 1993 and the $120 million Emerging Markets Fund II approved in March 1996. Global’s president, H. Jeffrey Leonard, attended a White House coffee with Vice President Al Gore on Dec.18, 1995.
The New Africa Opportunity Fund ($120 million), sponsored by Sloan Financial Group of Durham, N.C. and approved on May 2, 1996. The fund will invest in Southern Africa. Sloan Financial Group is headed by Maceo Sloan, who is registered with the Federal Election Commission as treasurer of the Mobilization for Economic Opportunities PAC. The PAC distributed $50,500 to Democratic congressional candidates in 1995-96. A leading supporter of the fund’s creation was conservative Sen. Jesse Helms (R-N.C.), once an adamant opponent of economic sanctions against South Africa’s former Apartheid regime. Helms’ backing is important, because he is chairman of the Senate Foreign Affairs Committee, which oversees OPIC. Citicorp is among the fund’s major investors.
The No. 2 Republican on the Foreign Affairs Committee is Sen. Richard Lugar of Indiana. His son, John Lugar, is executive vice president of Westsphere Equity Investors, a firm that sponsors the $180 million South America Private Equity Growth Fund. OPIC approved participating in the fund in March 1995.
The Bancroft Eastern Europe Fund ($100 million), sponsored by the Bancroft Group of Washington and approved by OPIC in November 1994. The fund invests in privatizing companies in eastern and central Europe. The Bancroft Group’s president is Fred Martin, national campaign manager for Al Gore’s 1988 presidential effort and a former top aide to Vice President Walter Mondale.
The insurance company American International Group (AIG) teamed up in 1994 with an independent investment house called Brunswick Capital Management Ltd. to form a $300 million fund investing in private enterprises in Russia and other former Soviet states. The AIG Brunswick Millennium fund won OPIC backing on June 21, 1994. AIG contributed $458,500 in soft money to the two major parties during the 1995-96 election cycle, including $245,500 to the Democrats. Documents from the files of former White House official Harold Ickes revealed that AIG subsidiaries also funneled at least $20,000 in directed donations through state Democratic Parties during 1996. AIG was among the companies that loaned more than $100,000 to bankroll the 1993 presidential inaugural festivities, and AIG’s Chief Executive Maurice Greenberg accompanied the late Commerce Secretary Ron Brown on a January 1995 trade mission to India.
The OPIC funds are great deals for investors, but are they good for taxpayers? OPIC says the funds are winners, which earn money at no cost to the public, encourage private sector investment in developing economies, create American jobs, and promote U.S. foreign policy objectives. But an odd assortment of Capitol Hill critics, ranging from free-market conservatives to liberal consumer advocates, view the funds – and OPIC itself – as corporate welfare. Pointing to the savings and loan industry’s collapse in the 1980s, they argue that tax dollars are being risked in investments best left to the private sector. The House actually voted to kill OPIC in 1996, but the action was reversed and Congress last year reauthorized the corporation for two more years. OPIC will fund its operations from the $2.7 billion in reserves it has accumulated over the years, instead of receiving a direct appropriation from Congress.
Meanwhile, the business of creating new international investment funds for big political contributors continues at OPIC. In November, OPIC launched a new $60 million fund to invest in Gaza, the West Bank, and Jordan. The fund will be managed by an affiliate of Capital Investment Corp. of McLean, Va. Capital Investment’s principals include Hani Masri – who gave $50,000 in soft money to the Democrats in 1995-96. |
