San Diegans are understandably upset that local politicians appear to have accepted big bundles of money in laundered Mexican money in recent elections. But dirty money in politics goes back a long way.
Mining-moneybags Mark Hanna, a U.S. senator, put William McKinley in the White House and then told him what to say and do. Reflected Hanna, “There are two things that are important in politics. The first is money, and I can’t remember what the second one is.” McKinley was assassinated in 1901, and Teddy Roosevelt, the vice president, replaced him. There was talk that Hanna would run against Roosevelt in 1904. So, Teddy had to appease the Big Money interests that Hanna represented. Teddy promised to leave corporations and railroads alone if they would just feed him campaign money.
The robber barons poured bucks into Teddy’s coffers. But, as president, he began to bust the trusts, enraging Wall Street. Growled industrialist Henry Clay Frick, “We bought the son of a bitch, and then he wouldn’t stay bought.”
Just last month there was another incident that will make history. New York representative Michael Grimm, a former Marine and undercover FBI agent, is being investigated for taking prohibited campaign contributions from foreign donors. After Grimm commented on the State of the Union address, a reporter tried to ask him about the probe. He wouldn’t talk. Then Grimm, unaware the camera and microphone were on, got in the reporter’s face and hissed, “You ever do that to me again, I’ll throw you off this fucking balcony.... I’ll break you in half. Like a boy.” At first Grimm wouldn’t apologize but later did.
Before the San Diego story broke, California’s Fair Political Practices Commission was wrapping up a case against a secretly interconnected group of super PACs, or political action committees, which can support and endorse a candidate but cannot coordinate with one. Financial contributions from corporations, labor, and individuals are unlimited. The super PACs in question were set up by the conservative billionaire brothers Charles and David Koch.
Initially, the commission referred to the network as a “money laundering” operation. But after it got confessions from some of the super PACs, the commission said the network had been shuffling “dark money.” There is a distinction. Money laundering is the process of concealing sources of money. Dark money refers to political spending by tax-exempt organizations that do not have to reveal their individual donors and often do not report donations until after people have voted. Dark money burgeoned after the 2010 Citizens United decision by the Supreme Court that prohibited the government from restricting political expenditures by corporations, associations, and labor unions.
The Center for Responsive Politics estimates that $6.3 billion was spent on 2012 federal elections, and $300 million of that was dark money. I called several groups that track money in politics and could not get an estimate of how much laundered money went into the 2012 election.
Here’s how the Koch daisy chain worked: in that 2012 California election, the brothers opposed one proposition to raise taxes to boost school funding and supported another to thwart union power in elections. Arizona’s Americans for Responsible Leadership nonprofit donated $11 million and refused commission demands to reveal the source of money. The state sued, the group fessed up, but it turned out that the lucre came from Americans for Job Security in Virginia, which had funded the $11 million through a third nonprofit, the Center to Protect Patient Rights. Another $4.08 million had come in through a group that, similarly, had been funded by still another.
The groups were fined $1 million and the campaign committees told to pay the $11 million plus $4.08 million to the state’s general fund. The Sacramento Bee doubts the commission will see most of that money. The group that the Fair Political Practices Commission refers to as “the Koch Brothers Network of dark money political nonprofit corporations” has coughed up $300,000, but some elements of the network have already shut down. The paltry sum is “a win for California” and a significant deterrent from further cheating, declared the commission’s enforcement chief, Gary Winuk. Whom is he kidding? Each Koch brother is worth $36 billion, according to Forbes magazine.
“It’s pocket change,” says Sheryl White of La Jolla, president of Statecraft, which provides campaign-reporting software.
I asked Richard Hertz of the commission why the Kochs’ caper was initially called money laundering and then called dark money. The commission has “nothing further to add on this,” he replied. The Center for Responsive Politics says 25 percent of dark-money dollars in 2012 had Koch links. However, “Democratic-leaning groups are coming on strong,” says the center.
Indeed, both parties are involved in money laundering and dark money. Federal prosecutors charged that employees of a Washington DC accounting firm were basically an “assembly line for illegal campaign contributions.” Over ten years, they gave $500,000 to federal candidates and committees, including $50,000 to Hillary Clinton’s presidential campaign in 2008.
Her earlier United States Senate campaign had to give back $850,000 of donations. The source was a Californian, convicted Ponzi schemer and onetime fugitive Norman Hsu. He was a big fund-raiser for Democrats and had given so much to Hillary that he had risen to the status of “Hillraiser.” He was convicted in 2009 of reimbursing hundreds of thousands of dollars to people who gave money to his favorite Democrats, particularly Hillary. Hsu’s trial featured a voicemail from Hillary lauding his efforts to raise money for her.
In the 1996 presidential election, there was a scandal some called Chinagate. There were several investigations into whether the People’s Republic of China had sought to direct contributions from foreign sources into the Democratic National Committee. In the end, more than 20 people were convicted of fraud. However, the scandal died down in the wake of Zippergate, which dealt with Clinton’s relationship with a young intern, one Monica Lewinsky.
On the last day of his presidency, January 20, 2001, Bill Clinton made a raft of pardons. One went to fugitive financier Marc Rich, who owed $48 million in taxes and had been charged with 51 counts of tax fraud. His former wife had made fat donations to the Clinton library and to Hillary’s senate campaign.
Still, the secret money going into political campaigns is chump change next to what fat cats stash in offshore tax havens. A study by the former chief economist at the McKinsey consulting firm, an expert on the topic, has concluded that high-net-worth individuals around the world have stashed $21 trillion to $31 trillion offshore. The total annual output of the American economy is $16.6 trillion.