Secret Empires: How the American Political Class Hides Corruption and Enriches Family and Friends, by Peter Schweizer
orruption in and of the political class has evolved over the years. Gone are the days when Louisiana congressman William Jefferson was found to have stashed "$90,000 in bribes in his freezer", or "Congressman Randy “Duke” Cunningham who created a “bribery menu” that netted him $2.4 million." The reason for this evolution is that "Politicians are like the rest of us in that they avoid overtly criminal or publicly embarrassing behavior." In India, politicians are refreshingly less concerned with embarrassing behaviour, and usually place the fear of public embarrassment secondary to the pursuit of pelf. In the United States, political corruption has evolved to avoid such public embarrassments and taken on two indirect forms - one is what the author calls "corruption by proxy" and the other is "smash and grab."
Peter's book is a fact-laden ride through the morass of political corruption in the United States, and the picture on both sides of the political aisle is not pretty at all.
Like most enterprising people, and politicians are nothing if not entrepreneurial by nature, politicians too have adopted several ways of exponentially increasing their personal wealth by leveraging their political office, while at the same time avoiding disclosure rules put in place that would attract negative public scrutiny. While American media has spent the better part of 2017 and 2018 in a manic exercise to uncover venality in the Donald Trump administration, this book gives us a look at some rather curious coincidences that occurred during the tenure of President Obama.
From among all the examples the author cites, let's look at four.
One
The Vice President of the United States arrives in China, is welcomed by "Chinese children carrying flowers", and has intense discussions with his Chinese counterparts, including the Chinese Vice-President and President, and which involves a marathon five-hour session with Xi, the Chinese President. Hawkish Chinese posturing in the East China Sea is not once discussed in those five hours.There is nothing amiss in this, right? Absolutely not, so far. Let's continue. The Vice-President is accompanied by his son, who is a co-owner of a “a $2.4 billion private equity firm". The other co-owner of this billion-dollar private equity fund is the stepson of the Secretary of State of the United States. Less than two weeks after the Vice President's trip, the son secures an exclusive and unprecedented deal with the Chinese. His private equity firm announces the setting up of a joint venture with the Bank of China to create an investment fund formed in the Chinese government’s Shanghai Free-Trade Zone. "[B]y operating from the Shanghai Free-Trade Zone they could take Chinese government funds and invest there, or take them out of the country and invest them in the United States or elsewhere. No one else had such an arrangement in China." [bold emphasis mine]
"The Chinese government’s deal in December 2013 with the sons of America’s vice president and secretary of state occurred in lockstep with aggressive territorial claims it was making in the Pacific."
Shocking? Or Not? The carrot of an unprecedented financial arrangement with the sons of the most powerful people in the US President's cabinet ensured escape from the stick, right? Who were these people? Who was the president?
Hunter Biden, son of United States Vice President, Joseph Biden, was one of the co-owners of Rosemont Capital, the billion-dollar investment fund.
You see, the reason all this was supposedly legal was that "the FCPA prevents American corporations from hiring or doing special business deals with the children of foreign officials. It does not prevent foreign entities from hiring or doing special deals with the children of American officials." What a fascinating and convenient loophole.
Obviously, the people involved strongly denied any wrongdoing and suggestions that the Vice President or the Secretary of State had in any way influenced the first-of-its-kind partnership between the Bank of China and an investment fund co-owned by his son.
As Peter writes, "if a politician or a politician’s spouse directly gets a big payday, it would be illegal to hide. Failing to report it would be a violation of federal law. Yet failing to report that their adult child or friend got a big payday as a result of the politician’s policy actions is not against any law. It is “offshore.”"
Hunter Biden, son of United States Vice President, Joseph Biden, was one of the co-owners of Rosemont Capital, the billion-dollar investment fund.
You see, the reason all this was supposedly legal was that "the FCPA prevents American corporations from hiring or doing special business deals with the children of foreign officials. It does not prevent foreign entities from hiring or doing special deals with the children of American officials." What a fascinating and convenient loophole.
Obviously, the people involved strongly denied any wrongdoing and suggestions that the Vice President or the Secretary of State had in any way influenced the first-of-its-kind partnership between the Bank of China and an investment fund co-owned by his son.
As Peter writes, "if a politician or a politician’s spouse directly gets a big payday, it would be illegal to hide. Failing to report it would be a violation of federal law. Yet failing to report that their adult child or friend got a big payday as a result of the politician’s policy actions is not against any law. It is “offshore.”"
The name of the investment firm was BHR (Bohai Harvest RST ). "Bohai (or Bo Hai), the innermost gulf of the Yellow Sea, was a reference to the Chinese stake in the company. The “RS” referred to Rosemont Seneca."
"In 2015, BHR joined forces with the automotive subsidiary of the Chinese state-owned military aviation contractor Aviation Industry Corporation of China (AVIC) to buy American “dual-use” parts manufacturer Henniges. ... AVIC owns 50 percent of the military arms business of CATIC—the China National Aero-Technology Import and Export Corporation ... and produces a wide array of fighter and bomber aircraft, transports, and drones—primarily designed to compete with the United States."
The investment saga continued. In December 2014, "the Biden-and-Kerry-linked BHR became, in Bohai’s words, an “anchor investor” in China General Nuclear Power Corporation..."
"In 2015, BHR joined forces with the automotive subsidiary of the Chinese state-owned military aviation contractor Aviation Industry Corporation of China (AVIC) to buy American “dual-use” parts manufacturer Henniges. ... AVIC owns 50 percent of the military arms business of CATIC—the China National Aero-Technology Import and Export Corporation ... and produces a wide array of fighter and bomber aircraft, transports, and drones—primarily designed to compete with the United States."
All this happened under then President Barack Obama's watch. It does make you wonder why you didn't hear any outrage in the American media about these very, very, very blatant conflicts of interest, why you didn't hear talk-show hosts make a hue and cry about crony capitalism, and so on. It does.
Two
The enterprising ventures of the Vice President and the Secretary of State were not restricted to China. In three years, between 2014 and 2017, the US Vice President Joe Biden made five trips to Ukraine, in addition to consulting "regularly with the Ukrainian president by telephone."Why, you may wonder. Why, I ask.
Peter writes that both "Joe Biden and John Kerry championed $1.8 billion in taxpayer-backed loans to be given to Ukraine courtesy of the IMF." The money would be used to "keep the country’s financial markets liquid" and most of that $1.8 billion "would go through Kolomoisky’s PrivatBank. And more than $1 billion from Privat just simply disapppeared." [bold emphasis mine]
No, no, no, no, no - this is not India we are talking about, this was not some businessman we are talking about who scammed the Indian financial system of thousands of crores of rupees and then brazened it out, confident in the knowledge that the Indian political and legal system would bend over backwards to protect him. No. This is Ukraine we are talking about.
First off, who is Kolomoisky and what is PrivatBank?
No, no, no, no, no - this is not India we are talking about, this was not some businessman we are talking about who scammed the Indian financial system of thousands of crores of rupees and then brazened it out, confident in the knowledge that the Indian political and legal system would bend over backwards to protect him. No. This is Ukraine we are talking about.
First off, who is Kolomoisky and what is PrivatBank?
Peter writes that Devon Archer (Devon who? Devon Archer was Managing Partner of Rosemont Ventures. Now you get it!) visited the White House on April 16, 2014 for a private meeting with US Vice President Joe Biden. Six days later, on April 21, "Vice President Joe Biden landed in Kiev for a series of high-level meetings with Ukrainian officials. The vice president was bringing with him highly welcomed terms of a United States Agency for International Development (USAID) program to assist the Ukrainian natural gas industry, and promises of more U.S. financial assistance and loans." The next day, on April 22, "there was a public announcement that Devon Archer had been asked to join the board of Burisma. Three weeks after that, on May 13, it was announced that Hunter Biden would join, too." Peter writes that Hunter Biden had little or no experience in Ukranian law or the energy business. Curious, innit? Peter writes that even in a country as corrupt at Ukraine, Burisma stood out for its corruption.
What happened to that money, and how did it disappear?
It seems that "more than forty Ukrainian firms owned by fifty-four offshore entities registered in Caribbean, American, and Cypriot jurisdictions and linked to or affiliated with the Privat Group of companies, took out loans from PrivatBank in Ukraine to the value of $1.8 billion.
...
By December 2016, Ukrainian authorities were forced to nationalize Kolomoisky’s PrivatBank when it was discovered that the bank was collecting savings from Ukrainians."
By December 2016, Ukrainian authorities were forced to nationalize Kolomoisky’s PrivatBank when it was discovered that the bank was collecting savings from Ukrainians."
The Ukranian authorities made an effort, or a pretence - it is difficult to say which - to bring Burisma's founder, Mykola Zlochevsky, to book. In April 2016, they seized his property, and Zlochevsky fled the country, after which he was placed on Ukraine’s wanted list. "The Ukrainian Prosecutor General’s Office actually seized Burisma’s gas wells. Tax authorities began investigating him for suspicion of tax evasion." But then, like all investigations into allegations of corruption against the high and mighty in highly corrupt countries, like Ukraine, the investigations came to a grinding halt. How so? In January, 2017, US Vice President Joe Biden was scheduled to land in Ukraine. "Four days before Biden arrived, Burisma made a dramatic announcement: the Ukrainian criminal investigations into the company and its founder had been ended by Ukrainian government prosecutors."
Does this saga sound familiar to Indians? Any resemblance to the almost infinite scams perpetrated in India, including the latest escapade between Nirav Modi and the Punjab National Bank are complete coincidences. Every single case of corruption against the high and mighty has followed a template similar to the Ukranian tale you read above. Whether it is media moghuls, or liquor barons, or jewelry tycoons, investigations into corruption inevitable stall, and years later, the corrupt walk free as ever, their heads held high, unburdened by the guilt of their crimes. If some Indian politicians are rumoured to have a soft corner for high-priced Uzbek call-girls and boys, their business practices seemed closer to that of Ukranian oligarchs.
Three
Senator Mitch McConnell has been the Senate majority leader in the United States since 2015, is the longest-serving U.S. Senator in Kentucky history - in summary, a formidable politician. Almost three decades ago, in 1989, "just after the Tiananmen Square massacre, McConnell gave a hard-line speech at the University of Louisville."Four years later, McConnell married Elaine Chao. Elaine Chao is the daughter of Chinese immigrant James Chao, who came to the United States in 1958. Elaine Chao made a career in Washington, and became a White House fellow during the Reagan administration and later chairman of the Federal Maritime Commission. She is currently the Secretary of Transportation in the Donald Trump administration.
In 2000, McConnell cosponsored S.2277, which aimed to "get rid of a requirement that Congress had put in place following the Tiananmen Square massacre for annual certification that the country was making progress on human rights to retain its trade status."
In December 1993, "Senator McConnell found himself in Beijing for a series of private meetings with the most senior officials in the Chinese government. ... The meetings were arranged by McConnell’s new father-in-law, James Chao, and came at the invitation of the China State Shipbuilding Corporation (CSSC)."
In 1999, when the Senate Committee on Foreign Relations chairman Senator Jesse Helms introduced the Taiwan Security Enhancement Act, to show "support for a Taiwan independent of Chinese control", the bill had "twenty-one cosponsors and heavy Republican support. But McConnell was not on the list."
In September 2011, "when the the Currency Exchange Rate Oversight Reform Act (S.1619) was introduced in the Senate," to punish "countries with “fundamentally misaligned currenc[ies]” by tacking on import duties", everyone knew the bill was aimed at China. Senator McConnell was "adamantly opposed to the bill."
But he did more than just oppose the bill. "On October 6, 2011, he attempted to waylay the senate majority leader, Senator Harry Reid, from taking the bill to a vote, by suspending rules on the Senate floor and introducing amendments. ... Reid then used a version of a rare procedure called the “nuclear option” to change the Senate rules that passed by the Democratic majority of the Senate and left McConnell “fuming.” On October 11, 2011, the bill passed with a 63–35 vote. McConnell voted against the measure."
Obviously, it would be difficult to argue for anyone that Senator Mitch McConnell's change in his positions on China were coincidental and not related in any way to his marriage to Elaine Chao. Strangely enough, McConnell has escaped the kind of sharp scrutiny that's been par for the course for Donald Trump and his family.
Four
With Barack Obama himself, Peter suggests that the Democrat President's tenure was marked by a form of corruption he calls "smash and grab".In his words, this is how "smash and grab" in government works:
"Say there is a particular company or industry with large assets. The government, by their words or policies, “smashes” the industry on the grounds that it is bad, destructive, or dangerous. This is often done because an industry or company is deemed harmful to the environment or damaging to public health, or it exploits vulnerable people. Once “smashed,” the valuation of that industry or company drops dramatically. But then something else happens. Investors or financiers closely tied to that politician suddenly buy the company or buy into the industry for pennies on the dollar. The company or industry is then resurrected to its previous luster and its valuations rise dramatically under new owners who have close ties to the politicians."And how did the "smash and grab" work with Obama's patronage?
One particularly egregious example is the case of for-profit schools, that received as much as $32 billion a year in federal student aid. In 2011, during the first term of the Obama presidency, when the "Department of Education announced implementation of a so-called gainful employment rule, which would require for-profit schools to track the performance of their graduates in the job marketplace. Those programs that did not deliver good outcomes would be cut off from federal grants and federally backed student loans." The curious case is that even as this was happening, "senior Department of Education officials were actively communicating with hedge fund investors that were “shorting” (betting that prices would go down) for-profit college stocks based on the new rules."
By October 2015 the Department of Defense put the University of Phoenix on probation for "potential deceptive advertising, sale or marketing of its services to students". Even though fifteen schools were alleged to have committed similar offences, only four, including the Apollo Education Group that ran the University of Phoenix, were suspended. Peter Levine, acting undersecretary of defense would later call the process "crappy."
The results were immediate - "the company's stock price declined from $11.29 a share in October 2015 to $6.38 by January 2016. The price in January 2016 was off over 90 percent from where the company’s stock was in January 2009 when Obama took office." This was the smash.
The grab followed soon after - a group of investors swooped down to the rescue, and "on February 8, 2016, the holding company for the University of Phoenix (Apollo Education Group) announced that it was being sold. The transaction was valued at $1.1 billion. ... It is worth restating that the company, before the regulatory onslaught during Obama’s tenure, had been worth almost nine times that price."
Where did Obama figure in all this, would be the natural question.
Included in the group of investors that bought the Apollo Education Group was "President Obama’s best friend." Another smaller player in the group was the Vistria Group. Why? Before the sale required the approval of the Department of Education where, of course, Vistria’s Tony Miller used to be the number two official in the Department. And what about the suspension of funds to the University? A short but successful lobbying campaign with the Pentagon saw that suspension being lifted. After the sale, Tony Miller became the chairman of the board. Just like that.
Then there is the sordid saga of John Rogers, George Soros, Tom Steyer, Heather Zichal and Cheniere, and Penny Pritzker.
As the book makes clear, Peter's scrutiny is not exclusive to the Democrats. Republicans too get their share of the spotlight. But, the point to be made, in Peter's words, is that "the current level of media attention stands in sharp contrast to the lack of reporting by many of the same news outlets over the previous eight years on transactions involving Trump’s predecessors or senior members on Capitol Hill. This yawning gap is unhealthy. My frustration is not that the solid reporting on Trump has been too tough but that the reporting on the Obama administration was way too soft or in some cases nonexistent." [bold emphasis mine]
Peter Schweizer's detailed and well-researched book is a stinging indictment of both Republicans and Democrats in the United States.
For me, the parallels one can draw with politicians in India are blindingly obvious. As India's economy adds a trillion dollars to its GDP every few years or so, the scope and opportunities for avaricious politicians to line their pockets with tens of millions of dollars also grow commensurately. Unlike the United States, Indian investigative agencies have long abandoned any pretence at being interested in cracking down on political corruption. Bleak as the outlook is for the United States in tackling such political corruption, the prognosis for the Indian republic is much worse, and with no hope in sight either.
The book could well have been named "Secret Empires: How the Indian Political Class Hides Corruption...". One waits for an intrepid and honest journalist to write that book on the connections between Indian politicians and businessmen. One waits.
Correction: This article has been updated to correct an apparent error in the book to which the reviewer was contacted about - that only Hunter Biden was a managing partner of Rosemont Seneca Partners. In addition, Heinz was not involved with Rosemont Seneca Bohai, which managed the Chinese funds.
