Stanford Financial Group Uses 527s As It Fights Money-Laundering Legislation
Case Study #3: Corporate Effort to Shape Policy Through 527s
citizen.org
Stanford Financial Group Uses 527s As It Fights Money-Laundering Legislation
In September 1999 the Clinton Administration first unveiled its National Money Laundering Strategy, aimed at hampering the finances of illegal gambling, drug smuggling and terrorism networks.
Two months later, Stanford Financial Group,40 a Houston-based company, became active in federal politics for the first time. Stanford Financial would later be identified as one of the institutions that worked hardest to thwart money-laundering legislation, H.R. 3886 and S. 2972. Stanford Financial appears to have used campaign contributions, including large donations to 527 groups, as a key part of its strategy.
At the center of the story stands R. Allen Stanford, the CEO of Stanford Financial Group.40 Stanford has dual citizenship in the United States and Antigua 41 - a 100-square mile Caribbean island with about 67,000 people, more than 50 off-shore banks, and a reputation as a money-laundering haven.42 His Stanford International Bank Ltd. is Antigua's largest financial institution with more than $680 million in assets.43 The parent company, Houston-based Stanford Financial Group, is a privately held financial services firm with more than $14 billion in assets.44
In late November 1999, with the Clinton Administration's crackdown on money-laundering under way, Stanford hired one of Washington, D.C.'s most respected lobbying firms, Verner Liipfert, Bernhard, McPherson & Hand.45 Suddenly, in February 2000, Stanford Financial Group - which had never made a federal campaign contribution before - started pouring money into Republican and Democratic party committees.
Stanford's lobbying disclosure reports in 2000 made it clear that the company had only one interest in federal policy: money-laundering legislation.46 Former Treasury Department officials confirmed, in interviews with Public Citizen, that Stanford Financial vigorously opposed the legislation - along with several other Texas-border banking institutions - in meetings held on Capitol Hill.47 Between February 2000 and June 2001, Stanford Financial gave Republican party committees $208,000 and Democratic party committees $145,000.48
But Stanford didn't stop there. Stanford Financial and R. Allen Stanford gave another $95,000 to the 527 groups of three influential politicians - Senate Majority Leader Tom Daschle ($40,000), House Democratic Caucus Chairman Martin Frost ($50,000), and Senate Minority Leader Trent Lott ($5,000).
In doing so, Stanford became the single largest contributor between July 1, 2000 and June 30, 2001 to the 527 groups of Daschle and Frost.49 (Public Citizen's efforts to discuss these contributions were rebuffed by a Stanford Financial Group spokesperson.)
Stanford also contributed the maximum allowed to Daschle's 527, given Daschle's self-imposed limit of $10,000 per donor per year. Stanford contributed $10,000 from his company and $10,000 from himself in both 2000 and 2001.50
Why? What was Stanford trying to get from Daschle, the highest-ranking Democrat in the Senate, and Frost, the third-highest ranking Democrat in the House?
It's not entirely clear. Stanford Financial declined to answer Public Citizen's questions, which were submitted in writing, at Stanford's request.51 Anita Dunn, a spokeswoman for Daschle's 527 group, claimed not to know Stanford, promised to get back to Public Citizen with answers, and then did not to return calls.52 Greg Speed, a spokesman for Frost, said that Stanford's initial $25,000 contribution to Frost was aimed at getting Stanford face time with Texas lawmakers who were delegates to the 2000 Democratic National Convention.53
Frost was chairman of the Texas delegation (which included 17 members of Congress) at the Los Angeles convention, Speed explained. Money raised by Frost's 527, the Lone Star Fund, prior to the convention was targeted for Texas delegation expenses. It paid for travel, meals and a party, featuring the band Asleep at the Wheel, said Speed.
"The relationship [between Frost and Stanford] began at the time of raising money for the Los Angeles convention," said Speed. Stanford attended the convention, according to Speed. "He participated in our events in Los Angeles and helped underwrite the costs," Speed said. "He sought to have a role in L.A. and that he did... It's safe to think he would have a chance to talk with just about every member of the Texas delegation."
Frost himself has little recollection of talking with Stanford about the money-laundering legislation, Speed said. "Martin doesn't recall anything but [Stanford] mentioning it in passing."
Stanford's 527 and party soft money contributions appear well-timed. He gave $50,000 to 527 groups between July 1 and September 30, 2000 as President Clinton's Treasury Secretary Lawrence Summers worked to pass H.R. 3886 and S. 2972.
These bills featured strong know-your-customer rules that would have required banks to confirm a depositor's identity and determine the source of his or her money. H.R. 3886 enjoyed strong bipartisan support in the Republican-led House Banking Committee and it passed the committee by a 31-1 vote on July 11, 2000. "We felt we would win any time there was a vote," said one former Treasury Department official. "Nobody was going to vote against an anti-money-laundering bill." 54
The hard part was getting the legislation to another vote. Between late June and late September 2000, Stanford contributed another $188,000 in soft money to Republican and Democratic party committees, with $75,000 of that almost evenly divided between the GOP and Democratic fundraising committees for the Senate, where the money-laundering legislation was soon dealt a crippling blow.
Senate Banking Committee Chairman Phil Gramm (R-Texas) refused to take up the Senate companion bill of H.R. 3886 in his committee, where it was referred on July 27, 2000.55 Indeed, Gramm later publicly boasted to a group of bankers that, "I killed the administration's anti-money-laundering legislation."56
Neither Republican nor Democratic senators publicly protested Gramm's inaction. Advocates considered pushing the bill to a vote in the full House as a way of pressuring Gramm, but were stymied by GOP House Majority Leader Dick Armey and House Majority Whip Tom DeLay.57 "They were the ones who killed it," former Deputy Secretary of Treasury Stuart Eizenstat told Public Citizen. "It's not coincidental that Gramm, Armey and DeLay are all from Texas."58
Texas bankers were said to be the harshest critics of the proposal "because of their proximity to the Mexican border, (they) finance many cross-border projects, and are believed to be a favorite repository for Mexican fortunes whose owners sometimes don't welcome scrutiny."59
There is no public record of Daschle or Frost ever complaining about Republican obstacles in the Senate and House; nor is there any record of them speaking in support of the money-laundering legislation. Stanford kept up its contributions and lobbying in the first half of 2001, as it apparently tried to keep the money-laundering bill at bay in the new Congress. Stanford gave another $20,000 to Daschle's 527 and $25,000 to Frost's Lone Star Fund. Stanford also pumped $135,000 into Democratic and Republican Senate and House committees between late March and late June 2001. "In that situation you need to give money to friends and those you want to be friends. You need to spread it around the Enron way," said one former Treasury Department official.60
Stanford gave an additional $100,000 to the Bush Inaugural Committee - as the new administration prepared its own money laundering strategy. More stringent controls were not proposed. Instead, the Treasury Department went to work watering down reporting requirements that are considered burdensome by many (including Stanford) in the financial services industry.61 In August, Treasury changed its tax shelter regulations to allow corporations to avoid some reporting requirements in an attempt to "ease tax administration."62
Then September 11, 2001 came and everything changed. Daschle stepped forward to become a champion - perhaps the key advocate in Congress for money-laundering legislation.63 Gramm relented, as did the Bush administration. The legislation sought by the Clinton administration and the Republican-controlled House Banking Committee (renamed the Financial Services Committee January 2001) was finally enacted.64
In the end, it appears that Stanford may not have needed help from Daschle and Frost - or for that matter, from Senate and House Democrats - to kill the money-laundering legislation prior to September 11. Texas Republicans Gramm, Armey and DeLay took care of that. But it seems clear that Stanford's 527 soft money contributions were aimed at killing the bills, and enabled him to get access at least to Martin Frost and the Texas Democratic delegation. And it seems clear from a search of public records that Daschle and Frost never spoke, or acted in any way, to advance the money-laundering legislation until the tragedy of September 11, 2001.
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