Extortion (6 page)

Bill Young is the chairman of a very powerful and important subcommittee, the House Appropriations Committee’s Subcommittee on Defense. Members of Congress who sit on the appropriations committees have extraordinary power. Those who are subcommittee chairmen, like Young, are sometimes called “Cardinals” because they wield so much power. Politicians love committees like Appropriations. As then-Congressman Ray LaHood indelicately told the
Peoria Journal Star
, “The reason I went on the Appropriations Committee, the reason other people go on the Appropriations Committee, is they know that it puts them in a position to know where the money is at, to know the people who are doling the money out, and to be in the room when the money is being doled out.”
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All defense spending essentially goes through Young’s subcommittee. In the early months of 2012, Young’s subcommittee was piecing together its report on defense spending for fiscal year 2013. The pie they were preparing to cut up and divide among programs and contracts: how to spend approximately $519 billion in non-war-related defense spending. The committee would essentially establish the foundation for where defense dollars would be spent.
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This is the sort of document that can make or break the programs of defense contractors, both large and small. Writing checks when asked during these critical early months can be particularly important. The document was set to be released on May 7 by Young’s subcommittee.
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So, as the document was being hammered together, Young’s fund-raisers went to work (as can be seen by his campaign’s hefty dinner tabs for the time period).
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On March 30, Young collected thirty-seven checks totaling over $30,000, mostly from defense contractors, employees of defense contractors, and lobbyists who worked for defense contractors.
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During the two weeks preceding that date, he had already collected another fifty-two checks totaling over $58,000 from a similar group.
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For Young, the tollbooth is an important component in the extraction of contributions. In those first three months of 2012, he collected $181,452 in donations.
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In the final nine months of the year, he collected only $72,850.
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But paying a “toll” to Young doesn’t just mean writing checks. It can also mean hiring former staffers who became lobbyists and now represent defense contractors before their former boss. Many of them gather and work at a lobbying outfit called Van Scoyoc Associates. Young’s former chief of staff Doug Gregory, former legislative aide Bryan Blom, and former district director David Jolly have all been employed there.
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The firm represents large firms like Lockheed Martin, but also a large number of smaller defense-related firms you have never heard of: DRS Technologies, SGT, Inc., and AeroVironment, Inc., to name just a few.
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Young’s daughter-in-law, Cindy Young, is also a lobbyist, who has represented (what else?) defense contractors large and small. Miss Young has represented half a dozen defense contractors.
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Defense contractors know the power of Young’s purse. Having received $45 million in earmarks from Representative Young since 2004, top-ten defense contractor Science Applications International Corporation (SAIC) had a vested interest in staying in the congressman’s good graces.
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When his twenty-year-old son received his GED and started working in the defense contracting business, SAIC made sure to offer him a plum job. The National Forensic Technology Center probably had a similar idea when it hired Young’s other son. Congressman Young had steered $28.6 million to the nonprofit over the previous decade.
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Tax extenders are essentially the Washington, D.C., version of the “mob tax”: paying members of Congress to do something that they are supposed to be doing in the first place. Those who wonder why the American tax code is so complex, convoluted, and constantly changing fail to appreciate what a wonderful tool it is for extortion. When you start seeing it as a source of enrichment for the Permanent Political Class, you will realize why we have the tax system we have.

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Protection: for a Price

I have built my organization on fear.

—
AL CAPONE

I
T’S ONE OF THE OLDEST
and most effective forms of extortion: the protection racket. Pay me money and I will promise to not make your life miserable. Fail to pay and bad things will happen to you.

Protection money has been the Mafia’s bread and butter for centuries. In the city of Palermo on the island of Sicily, 80 percent of the businesses pay protection money (
pizzo
) to the Mafia.
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If you fail to pay, you will be harassed, you might have your business burned down, and you might even lose your life.

In one famous case, a Palermo businessman named Libero Grassi refused to pay protection money and wrote an open letter to the mob in the local newspaper,
Giornale di Sicilia
. He addressed the letter “Dear Extortionist.” Nine months later, in August 1991, he was killed by the Mafia.
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The Permanent Political Class in Washington plays the protection racket too. Failure to pay will not get you killed—but it could kill your business. It might even make a difference in whether you will end up in jail. If protection money paid to the mob keeps them from literally burning down your business, protection money paid to the Permanent Political Class prevents them from figuratively burning down your business.

Current CEOs are loath to talk about it. They face regulatory and legal jeopardy and don’t want to make themselves a target for retribution. But former executives who are freer to speak out say it happens much more often than you might think. John Hofmeister, former president of Shell Oil, told me that while it didn’t happen to him during his tenure, he is familiar with the practice. “Anytime you are vulnerable to legal or regulatory compliance you can expect them to come after you with requests for money,” he said. “It’s like clockwork.”

Ray Plank, the founder and longtime CEO and chairman of Apache Corporation, is even blunter. “They basically come to you and say, ‘We are going to shove this bat up your ass and give you an enema. You better play ball.’ We saw a great deal of it. It’s an insidious blight.”

Companies large and small, as well as professionals like doctors, accountants, and lawyers, face a myriad of rules and laws that they are required to comply with every day. Undoubtedly, some of these laws are good. But many of them are complex and difficult to understand. Professor Alan Dershowitz estimates that today the average professional commits three felonies a day without realizing it, thanks to the complex layers of regulation and legal requirements that have been built up over time.
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And then there are the subjective legal actions that the federal government can take that might put you or your company in real legal jeopardy. This is precisely what happened when the Justice Department went after Microsoft in the 1990s on the grounds that it was engaged in anticompetitive activities. More recently, the Justice Department went after Apple and five book publishers over ebook pricing decisions. Fighting these cases costs tens and even hundreds of millions of dollars.

When Microsoft and other wealthy companies experience legal action that involves the threat of large fines (or perhaps even jail time for executives, depending on the charge), that makes them a prime target for financial shakedowns. Politicians and members of the Permanent Political Class are all too willing to offer some form of “protection” for the right price.

Indeed, consider the realities and the decisions that businesses must make when they are being investigated for possible criminal conduct by the Justice Department and then the president’s staff solicits them for donations. Or consider a lucrative industry under heavy political attack that is then asked to donate or hire individuals as consultants to make the problem go away.

As we saw earlier, Richard Nixon famously tied the actions of the Department of Justice (DOJ) and other regulatory agencies to his campaign fund-raising activities. Since then, the practice has become more subtle and less explicit. Being politically active and giving to candidates, as well as hiring the right lobbyists, does offer some protection. And the merging of law enforcement and political fund-raising has grown even closer in recent years. Indeed, when President Obama established his Justice Department staff after the 2008 election, something unprecedented happened. For the first time, at least half a dozen senior positions were occupied by individuals who had been campaign bundlers (fund-raisers) for a presidential candidate, including not only Attorney General Eric Holder but also senior officials who dealt with criminal and civil prosecutions: Associate Attorney General Thomas Perrelli, Deputy Associate Attorney General Karol Mason, and Associate Attorney General Tony West.
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Presidents have always selected Justice Department officials who share their views on legal issues. But seeking out individuals who actively raised large sums of money for the presidential campaign and then putting them into law enforcement positions—that is new in American politics. If an attorney general and his top lieutenants raised large sums of money from certain companies and industries, can we trust that they will judge those firms and industries impartially? If senior law enforcement officials are motivated enough to raise $500,000 for a candidate, can we be certain that politics won’t be part of their legal decision-making?

OBAMA CAMPAIGN BUNDLERS INSIDE THE DEPARTMENT OF JUSTICE
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a. Attorney General Holder was a campaign co-chairman for the Obama campaign.

b. Deputy Associate Attorney General Chun advised Tom Perrelli.

In recent years few industries have been as under the gun as Wall Street and the financial industry. With the 2008 financial crisis, fraudulent mortgages, complaints of excessive compensation, large profits, and taxpayer bailouts, it is hard to have any sympathy for Wall Street. Yet the Obama administration has not filed any criminal charges against any major Wall Street investment banks or their officers. Could there be a simple reason? Could the Washington discussion about whether or not to investigate, whether or not to bring charges, be a cover for something else? Is it possible that Nixon’s methods are being replayed again in a new form?

While the Permanent Political Class debates how to deal with the problems in America’s financial sector, they are distinctly bipartisan about one thing: extracting as much money out of Wall Street as possible for their own benefit. Politicians on both sides have played the extraction process perfectly. President Obama raised record sums from Wall Street in 2008 and then declared on
60 Minutes
, “I did not run for office to be helping out a bunch of fat cat bankers on Wall Street.”
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On the other hand, Obama privately positioned himself as the one politician who could protect the “fat cats” from the mob. Conversely, Republican congressional leaders publicly decried the verbal and regulatory attacks on capitalism, but privately relished the opportunity to seek out and receive “protection money.” They knew they could use the Democrats’ threats to raise money for themselves.

In early 2009, there were cries for aggressive legal actions against Wall Street firms. CNN predicted that some bankers could very well end up in jail.
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Commentators like Tom Gardner of The Motley Fool financial news service declared that “hundreds [of bankers] should go to jail.”
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It was amid that public clamor that President Obama, in April 2009, gathered twenty-five finance executives to the White House for a frank discussion. As ABC News reported, the president told them: “My administration is the only thing between you and the pitchforks.”
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One individual who attended the meeting told
Politico
, “The signal from Obama’s body language and demeanor was ‘I’m the president, and you’re not.’”
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