"Once more into the breach!” shouts steelmaker Nucor, as it rallies troops to fight China’s trade abuses. But in its zeal, Nucor has been criticized for another kind of breach: of ethics.
Now the big Charlotte, North Carolina company is marching its troops through San Diego by plunking $1 million into a China-bashing documentary. That is its right. But the circuitous route of this financing is puzzling, to say the least.
Late last year, Nucor donated money to MSNBC’s Dylan Ratigan Show for an unusual bus trip around the United States, focusing on such things as jobs and innovation. At various stops, Ratigan’s shows would hit on these themes. Critics wondered if this was an unholy alliance. Would Ratigan tout Nucor?
“I won’t talk about Nucor on the air, absolutely not,” Ratigan vowed. Then he broke the vow: in a five-minute segment of one show, Ratigan toured a Nucor plant, loudly praising the company’s “incredible” steelmaking process and “family” atmosphere that enhances productivity.
The Associated Press cocked an eyebrow. So did TV networks, critics, and bloggers. MSNBC was giving editorial plugs to its sponsor. The rave reviews should have been in a paid ad.
“We were hit hard by competing media outlets for our support of the Dylan Ratigan Show,” says Patrick McFadden, executive director of Nucor Public Affairs. But the company’s war with China continues.
An academic who has been blasting China’s unfair trade tactics is Peter Navarro, business professor at the University of California Irvine. This is the Navarro who lost five elections in San Diego — for mayor in 1992, city council in 1993 and 2001, county supervisor in 1994, and Congress in 1996.
In books, TV shows, seminars, and the like, Navarro has been strafing China for such practices as keeping its currency artificially low, subsidizing its manufacturers, paying very low wages, polluting the environment, and shipping dangerous products.
Navarro and Greg Autry, a PhD candidate at UC Irvine, recently coauthored a blistering attack on Sino-cheating, Death by China. The book calls China the biggest threat to global peace since Nazi Germany. The tome scalds China’s “ruthless rulers,” “thugs,” “frighteningly amoral society,” and “deadly consumer products,” attacking “America’s policy of appeasement” toward China.
And that’s why Navarro and Dan DiMicco, Nucor chief executive, have formed a bond. Death by China urges business executives “to be like Nucor.” Enthuses the book, “If American corporate executives want to better understand the art of fighting back against Chinese mercantilism and protectionism, they need look no further than Nucor…and the example set by its [chief executive officer], Dan DiMicco [who] spends considerable time in the public arena lobbying for real trade reform with China.” This contrasts with “naive or even turncoat” approaches by other chief executives.
It’s little wonder that DiMicco has high praise for Death by China. He has also heaped kudos on other Navarro books. Navarro and DiMicco have cowritten online op-eds slamming China for both Barron’s and the Wall Street Journal.
So when Navarro wanted to do a documentary based on Death by China, he turned to Nucor. “We were approached by Peter Navarro to support his film, which we felt was important work and needed to be done,” says McFadden.
But then came the mystifying twists and turns. Navarro wanted the deal done through Utility Consumers’ Action Network (UCAN), the San Diego nonprofit that fights utilities. Navarro has done extensive work for the organization on telecom issues, and he and Michael Shames, head of the organization, are friends. “UCAN was suggested by Peter as being the best vehicle for the film, so we made the contribution as requested,” says McFadden.
Internal UCAN paperwork supplied to me by a whistle-blower shows the money trail. In March, Michael Shames entered into a consulting agreement with Death by China Productions LLC. The California secretary of state lists the address of this firm as the same as the accountant who registered it — obviously, not true. However, one contract signed with UCAN puts the address at a fixer-upper home near the ocean in Laguna Beach. Navarro told the accountant not to reveal the address or ownership information to me.
UCAN agreed to pay $1 million to the production company in three installments, the last of which will be January 15 of next year. According to an internal document I have received, UCAN has deposited two checks from Nucor — one for $600,000 and one for $400,000.
On March 7, Shames wrote McFadden, “This is to acknowledge receipt of $600,000, the full sum of which will be used to fund the production of documentary film work under the direction of Peter Navarro.”
So, UCAN gets $1 million from Nucor and passes it through to Death by China Productions LLC. But why? Is there a tax advantage for Nucor to run the money through a nonprofit organization?
In interviews, lawyers and accountants specializing in corporate taxation have differing views. The question is whether Nucor could have paid the production company directly and written it off as an ordinary or necessary business expense, or gotten a better tax deal paying it to a nonprofit organization first.
“It seems somewhat deceptive,” says one attorney, wondering if going through a charitable organization “might be easier to explain to shareholders.” All told, he thinks that Nucor could get the write-off either way — also the opinion of a second attorney.
“The corporation may be more likely to get a tax deduction if it goes through a nonprofit,” says another attorney. Still another flatly says Nucor would get the bigger write-off running the money through a nonprofit.
“There is a concept that running money through a charity looks better; there is a cachet or aura about using a nonprofit — an aura of goodness,” says an accountant.
“We have no preference regarding for-profit or nonprofit associations and contribute to both,” says McFadden. “We have no idea if Peter plans on mentioning Nucor in the film or not.”
An unanswered question is who owns Death by China Productions LLC. Is it Peter Navarro? I could not get the answer through state records or the accountant who registered the production firm. Possibly Navarro gets a tax break if the money goes to UCAN first.
The information sent to me from inside UCAN includes emails between board members. One asks another if the deal is essentially money laundering. The other questions that description. Replies the first, “It doesn’t smell right.”
The two board members agree that Shames did not discuss the matter with the board before signing the contract, and that was a mistake.
Shames, Navarro, and Autry refuse to answer questions.
The subject matter is controversial. Many if not most economists would not get too tough with China. Trade wars bring international instability. China holds 26 percent of United States Treasury debt held by foreigners. Moreover, Nucor may have a tough time claiming that it is being wounded by Chinese competition. China is the world’s largest steel producer but consumes most of it domestically; American companies fear the excess will be exported at cheap prices. Nucor’s revenues zoomed 42 percent last year and should rise 28 percent this year, according to Standard & Poor’s.
I believe UCAN, which collects money from the public, and Navarro, a respected scholar, have a duty to come clean on this matter.