In 2010, for the Shanghai World Expo, the State Department beta-tested a scheme to privatize its public diplomacy functions. Based on a 2006 plan conceived by the Bush Administration, Secretary Hillary Clinton raised more than $80 million from multinational corporations for a US pavilion and a private program that introduced CEOs to Chinese trade officials. A disinterested, gullible press and lack of Congressional oversight left the US people largely uninformed.
The money was handed over to a private, tax-exempt company set up to run the pavilion with help from the US Consulate and AmCham Shanghai, an affiliate of the US Chamber of Commerce. Half the money went for a pavilion. The other half remains unaccounted for. The scheme was plagued by problems including allegations of criminal violations of the Foreign Agent Registration Act (FARA), tax fraud, money laundering, and campaign-funding irregularities. A Federal investigation may be underway. But the template was in place.
One year later, hoping that the same "out of sight, out of mind" thinking, State is prototyping the same scheme, refined and streamlined, to fund the US presence at the Yeosu, Korea World Expo. Once again, problems have plagued the process. More important, however, is the threat to the separation of powers, the basis of the US Constitution, that this scheme poses. It is a template for unconstitutional government operations on an unprecedented scale.
Shades of Ollie North and Iran-Contra, the 1980s Reagan Administration scandal when North illegally sold arms to Iran in order to illegally finance buying weapons for counter-revolutionaries in Nicaragua. If Executive branch agencies -- including the President -- can use tax-exempt companies that they themselves create and employ to raise money and spend it according to their own plans, or to hand the money back to the agencies as may have happened in Shanghai, they no longer will need Congressional appropriations to carry out their plans, a direct contradiction of Article I of US Constitution. This is the story of this threat, and how it came to be.
With the remote killing of Third World dictators alleged terrorists, and civilians having become old hat, the Clinton State Department is visibly hard up for good news on the foreign policy front.
So it spent last week generating a hundred online mentions about the US exhibition at the forthcoming 2012 Yeosu (Korea) World Expo, a modest but innovative affair, and the exhibition's lead producers, marine-activist media star Philippe Cousteau, Jr., grandson of the great oceanographer and scuba pioneer Jacques Cousteau; and theme-park veteran Bob Ward. According to the official State Department "Dipnote" issued October 13, 2011:
Philippe's team will help us create a space that will not only represent the best of the American people, our values and achievements, but will also demonstrate the innovation and creativity of U.S. companies, and how we can work collaboratively to solve our common global environmental challenges.
Where have we heard that cant before? Could it be, Shanghai? Ah, always, "the companies...."
The Dipnote continues,
As we learned from previous expos, the USA Pavilion is a partnership on many levels. It is not only a partnership between the Republic of Korea and the United States, but also a public-private partnership between the United States and our USA Pavilion 2012 corporate sponsors.
"We" - the State Department and its cronies - certainly did learn about partnerships. It shared a Shanghai bed with some of the best. Moreover, it's still learning. The Yeosu Expo effort, the quality of the production team notwithstanding, is already tarnished with secretive corporate fundraising by the State Department, the rumored illegal distribution of cash by the State Department to Cousteau et al, and a "US pavilion" that is that only in name, with corporations its only substantial contributors. Ironically, the Yeosu Expo is all about protecting the world's oceans, but few if any of the corporations on the Yeosu roster are champions of oceanic protections : Chevron, Citi, Boeing, Corning, Hyundai, Kia, Lockheed Martin, Samsung America, Becton Dickinson, and GE. Moreover, the State Department illegally transferred money contributed to a private firm for another purpose to fund the US installation at the Yeosu Expo in direct defiance of Congressional statutes. When an Executive agency can flaunt the law of the land. Very serious.
Some background....
The State Department under Condoleezza Rice was determined to privatize its public diplomacy function for political favors and private enrichment. It first experimented with a mediocre US pavilion at the Aichi 2005 Special Expo, paid for entirely by Toyota after considerable Bush Administration arm-twisting. The pavilion went up, but the process didn't produce a political payoff, no trading of cash for political favors.
State went back to the drawing board and in 2006 produced the "Action Plan." The Action Plan resulted in a totally botched US presence at the Shanghai 2010 World Expo - a six-month corporate infomercial posing as the US national pavilion, without any public participation. It created numerous opportunities for American CEOs to meet in private with Chinese officials, at the American taxpayers' expense. The Action Plan also enabled the US Chamber of Commerce, working through its affiliate American Chamber in Shanghai, to allegedly divert tens of millions of dollars for illegal political spending in the 2010 midterm elections. The process was wholly corrupted and corrupting.
The Shanghai journalist Adam Minter and I wrote about this astounding turn of events in a series of articles published in Foreign Policy, the Huffington Post, and the Daily Kos (Minter's is the first, the rest are mine):
A Sorry Spectacle: The uninspiring saga of the United States' World Expo pavilion in Shanghai
Foreign Policy, March 8, 2010
'Blackwatering' Public Diplomacy: The US Pavilion at the Shanghai World Expo
Huffington Post, May 3, 2010
US Pavilion A Stalking Horse for Privatization? Complaint to IRS Challenges Tax ExemptiHu
Huffington Post, May 18, 2010
Are "USA Pavilion" & Shanghai AmCham Implicated in US Chamber election scandal? Was Hillary used?
Daily Kos, October 8, 2011
(Adam also covered the story in his well-regarded blog, Shanghai Scrap.)
State learned, for example, how to lie about its legal obligations regarding the sponsorship of overseas exhibitions, not once but repeatedly over during the four years, 2006 through 2010. It claimed a 1991 law prohibited it from spending public funds to create a pavilion, forcing it to privatize the pavilion effort, an interpretation shared by no one else except a gullible press. It learned to create a bogus tax-exempt shell company, Shanghai Expo 2010, Inc. (SE2010), to which it secretly sole-sourced the job of of fundraising for the US pavilion, without public comment or review. (Actually, the assignment preceded the company.) State then persuaded a barely solvent herbal pharmaceutical company with ties to China to seed SE 2010 with $500,000. If as has been alleged China was behind this gift, it constitutes a violation of the Foreign Agent Registration Act (FARA), possibly criminal because of the size of the cash intervention.
When, six months later, SE2010 failed to raise a dime, the Consulate and AmCham arranged a "loan" - still unpaid - of unknown amount to SE2010, got the Chinese to fully redesign and start building the US pavilion, and eventually dragged the newly confirmed Secretary of State back into the fundraising business. Meanwhile, State's unofficial legal arm and SE2010's counsel, the giant law firm Covington & Burling - the largest contributor to Clinton's failed presidential campaign - applied for "expedited" IRS confirmation of SE2010's tax-exempt status even though the company's corporate charter was in arrears and the company fulfilled no evident charitable purpose.
So State learned how to hustle corporations for contributions in return for what the IRS calls "excess benefit transactions," gift-giving that results in a corporate contributor getting back more value than the contribution it gives. For a relative pittance, corporate "marketing partners" were provided six months of advertising to captive audiences totaling at least eight million persons; plus the right to "adjust" the US pavilion's message to suit corporate goals. Mental images of Hillary Clinton begging corporate CEOs to become "marketing partners" and make contributions, her virtual coin cup ching-chinging! are unseemly - but that's what happened in Spring 2009.
To avoid the appearance of shilling for SE2010, the Consulate, and AmCham Shanghai, Clinton set up a new "Global Partnership Initiative" modeled on husband Bill's Clinton Global Initiative and appointed as official bagwoman and bagman Special Assistant and former Ambassador Elizabeth Bagley and San Antonio lawyer and Expo US Commissioner General Jose Villarreal. It was their job the rest of the year to arrange for this boodle's deposit it into the private SE2010's account, perhaps as much as $80 million.
Another $12 million may have been invested by the Chinese government under the table, not including the Chinese role in thoroughly redesigning the US pavilion and beginning its construction. SE2010's Form 990 tax return is ambiguous on this point (as it is on most points). Officially unreported, accepting this "loan" may constitute SE 2010's second violation of FARA.
Unfortunately, State's ability to raise money was not matched by an ability to diligently monitor how money was actually spent. SE2010 claimed that the US pavilion cost $40 million. So where did the other $30-40 million go? SE2010's tax returns, each submitted six months to one year late, are so heavily redacted and data-poor that from them one cannot determine how much was spent, for what, and what was gained. The tight integration of the US Consulate in Shanghai with AmCham Shanghai may even have proven a secure conduit for money flows resulting from excess benefit transactions or outright skimming of tens of millions of dollars.
It has been alleged that substantial cash flows between AmChams around the world and the US Chamber were commonplace in 2010, and that the lion's share became "black money" used by the Chamber in the midterm elections. Without access to SE2010's books - these are sequestered in Shanghai, although SE2010 is chartered in DC and lists California as its physical headquarters -- it's difficult to disavow that this took place in Shanghai, the largest AmCham.
These and the other allegations may be the subject of parallel, ongoing IRS civil and criminal investigation following the filing of a formal Complaint in May 2010 with the IRS Exempt Organizations Examination unit, IRS Criminal Investigations, and TIGTA, the Inspector General for Tax Administration. (The IRS never confirms or denies that companies are under investigation. But the Complaint is still open, 18 months later.)
It was also an embarrassment for Clinton, who reportedly was startled by the starkly commercial US pavilion that her taxpayer-underwritten hawking had produced. Moreover, she now may be implicated in the alleged tax dodge that was at the center of the US Expo effort in 2010.
Which brings us to the present situation.
Stung by the Shanghai debacle, State in January 2011 issued an RFP that modified the funding process. Gone was the tax-exempt shell company posing as a public charity. out of the picture and trying to follow Clinton's 2009 example, tried to raise the corporate contributions itself. Even this simplified scheme failed; $10 million was needed to create the US installation, but State could raise only $5 million.
What happened next is truly alarming, because it entailed nothing less than State undoing the Constitution of the United State of America.
What did State do? It went and robbed the piggybank of monies left over from the Shanghai Expo - after expenses, taxes, and alleged illegal campaign funds were paid out - and simply gave the money to the Cousteau team. What the State Department apparently has done is to take funds from the defunct SE2010, Inc.'s bank account -- which it may now have in its possession per the Memorandum of Agreement it signed with the bogus tax-exempt company -- and transfer these funds to the Cousteau et al company's bank account. (See on the 2012 USA Pavilion website, the footnote, "Support from USA Pavilion sponsors of Expo 2010, Shanghai.")
State has in effect used SE2010 as a bank, to collect and store money, and to withdraw and spend money -- with the goal of foiling the Congress and its intent in passing the 1991 law that sets conditions for State's use of Federal money at Expos. By self-funding itself with private money (money stolen from contributors who gave it for another purpose), State is rewriting the Constitution. It is becoming self-sufficient, autonomous from the Congress. Here is the law it is trying to end-around, hoping Congress won't notice:
Except as provided in subsection (b) of this section and notwithstanding any other provision of law, the Department of State may not obligate or expend any funds appropriated to the Department of State for a United States pavilion or other major exhibit at any international exposition or world's fair registered by the Bureau of International Expositions in excess of amounts expressly authorized and appropriated for such purpose....
No funds made available to the Department of State by any Federal agency to be used for a United States pavilion or other major exhibit at any international exposition or world's fair registered by the Bureau of International Expositions may be obligated or expended unless the appropriate congressional committees are notified not less than 15 days prior to such obligation. Title 22, Ch. 33 § 2452b
How smooth. By using only private contributions, State buys itself immunity from Congressional attention and oversight. (That's how privatization works.) However, State is funding one cause with tax-exempt contributions made for another purpose. This almost certainly violates tax law and IRS regulations. Additionally, it proves the State Department's deliberate intent to thwart the will of the Congress. Moreover, it creates a new precedent: the creation and use of tax-exempt shell companies as repositories for corporate money (though it could as well be yours and mine) that an Executive agency can employ to avoid dealing with Congress entirely. If Executive agencies do this and are not challenged, then the Imperial Presidency is de facto a reality. When the Executive branch can and does raise and spend money on its own, without recourse to Congress, the Constitution comes apart at its seams.
Here is Article I, Section 7 of the Constitution:
All bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other Bills.
And here is Article I, Section 9:
No money shall be drawn from the treasury, but in consequence of appropriations made by law; and a regular statement and account of receipts and expenditures of all public money shall be published from time to time.
There is no legal authorization I know of, though Covington & Burling will surely invent one, for State to attempt such a bald usurpation of Congressional power, at least not to my knowledge. However, because citizens have no grounds for filing complaints, and because the Justice Department may be unwilling to prosecute a fellow Cabinet-level Department and the Supreme Court to rule on it, we are in danger of having a bad idea turn into a terrible, irreversible precedent, one that could endow other agencies and the Presidency itself with powers heretofore delegated to the Congress. What discipline could the Congress deploy?
But Congress seems more intent on banishing birth control and waging war on the middle class. Perhaps it is willing to concede the power of the purse to the Executive, as the Roman Senate did to the Emperor, in hopes that the next President will be a Republican who will wield that power mercilessly.
The current blow to the Constitution's essential structure may seem mall, even trivial - in monetary terms, only a few million dollars - but if an Executive branch agency can this easily get and spend private money, corporate money, in secret shield by the protections afforded a bogus tax-exempt shell corporation, without Congressional involvement and at its Secretary's discretion, then the only thing standing between us and dictatorship is the IRS.
Ironically, the law about Expos that the State Department now is working so hard to circumvent is the very same law that it first invoked in 2006 (and then continuously in 2007, 2008, 2009, and 2010, parroted by the press) to justify privatizing the US pavilion in the first place. What a difference five years, two Administrations, a hundred-million dollars under the table, and a landslide election makes.
Regrettably, by not taking quicker action to examine and react to the Shanghai deal, the IRS left open this wormhole for the Administration to climb into and become Lord of the Universe. Now it's up to the IRS to close it. If the IRS doesn't take action to defeat this misuse of the tax codes and the resulting unconstitutional theft of funding authority from the Congress by the Executive becomes legitimate, then all really is lost.
* * *
SOME FINAL WORDS ABOUT THE YEOSU EXPO ITSELF. The Expo's theme, "The Living Ocean and the Coast," couldn't be more timely, especially as great underwater swathes of the ocean are dying and the coasts are being buried in one tsunami of toxic runoffs from the land and another of plastic throwaways from the sea. Coral reefs are dying, species are nearing extinction, and - an amazing figure - today's fish stocks are now only 10 percent of what they were 50 years ago, and declining. It's ambitious and brave for a relatively small nation like Korea, albeit one absolutely dependent on keeping the oceans alive, to tackle this problem and come up with any sensible solution short of population control, altered patterns of consumption, and a new respect for the ocean. Bravo.
Yeosu thus must come to grips with its own demon, Korea's largest petrochemical refinery, just around the bend from the Expo. A picture of the beyond the headlands typically features a dozen or more major oil tankers bringing in crude and departing with high-grade combustibles, leaving behind clouds of airborne molecules that are healthy for no one. Each day nearly 800,000 barrels come and go, creating trails of pollution where the oil originated, where it is destined for, and every place in between. The owner of the refinery, CG CalTex -- half-owned by Chevron, a US exhibition sponsor -- may be doing what it can to mitigate the consequences. But let's be real: there is no safe way to burn petrochemicals, no way to avoid putting more carbon into the atmosphere. Climate change may deliver the coup d'grace to the oceans. How sad and ironic if the destruction originates from the Expo's home. Go green, Yeosu, if Chevron will let you. Or if it won't let you, break free. It is the only way.
Philippe Cousteau, Jr., is leader of the US production team headed for Yeosu. That team, let me make clear, is in no way responsible for the State Department's shenanigans. It is nevertheless something of a State Department pawn, as SE 2010 was in Shanghai. Watch your backs, guys and gals.
Cousteau had this to say on receiving State's imprimatur to create the exhibition, which will reside in a really weird, oddly thrilling pavilion that seek to mirror the sea in every way:
To me, the Expo is about facing the challenges of ocean conservation in the 21st century in an honest but empowering way. The USA Pavilion will be an energetic and immersive celebration of America's relationship to what my grandfather called our water planet. It will recognize that while climate change, overfishing, development and pollution threaten the future of our oceans, the life support system of this planet, there is still hope that if we come together as a global community we can chart a new future of hope and sustainability to pass on to future generations.
Inspiring. Cousteau was a good choice to put a good face on, and possibly salvage, the State Department's hitherto bumbling, ultimately self-defeating efforts to pull off a successful US Expo presence by first privatizing it. But he is too polite. Otherwise he would have lamented at least in private that the Clinton State Department is so ideologically wed to privatizing every aspect of public diplomacy that it was willing to put the financial squeeze on his high-class team rather than go to Congress and ask for $5 million, one US minute in Afghanistan, to enable his team to, as he puts it, create an exhibition that is "honest and empowering."
And I might add, representative of what the American people truly feel and believe, rather than a podium for Big Business and Big Government as the US pavilion turned out to be in Shanghai.
It will not do for Cousteau to be overly polite regarding the Expo hosts, however. An Expo devoted to keeping healthy the oceans and presumably everything that lives within them cannot honestly tolerate keeping large, sentient marine mammals - in the case of the new Yeosu Aquarium, a pod of Beluga whales, arctic beings renowned for their migratory habits. In no way is this acceptable, a case already made to the Yeosu Expo hosts by Sea Shepherd Captain Paul Watson. For the animals' own safety and to avert the twisted lessons that their captivity will teach children about the proper way to relate to the oceanic realm and other living things, the Beluga whales should be let go. Keep the rays, they won't mind (as much).
As long as the whales are present in the Aquarium, suffering in an environment that for them is equivalent to a SuperMax prison for us - that has killed them elsewhere -- the Expo will remain a Big Lie. Cousteau should say so in the spirit of empowerment and honesty.