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Diplomacy, it has been said, is the sane alternative to war, and public diplomacy -- diplomacy conducted out in the open, to win "hearts and minds" -- is critical to diplomatic success.

So it should be of broad public concern that the State Department is barreling ahead with plans to privatize its public diplomacy functions -- functions that might have averted some of the tragedies taking place in the Middle East -- using corporate funds that all but guarantee an American public diplomacy that serves multinational business but not the American people.  In an RFP issued earlier this year -- a prototype, I contend, for future privatization -- State has recruited contractors to create the US exhibition at the Yeosu (Korea) 2012 World Expo.  The selection process technically is being run by the Bureau for Educational & Cultural Affairs, a State Department backwater.  More important is the involvement as chief corporate fundraiser of the Global Partnership Initiative created in 2009 by Secretary Clinton as a clone of her husband Bill's Clinton Global Initiative.

To pay the contractor selected to carry out this formerly public function, State is officially passing the bag among corporate contributors, in effect giving them de facto influence over whom State selects as exhibition contractor. Then this contractor, to cover for the corporations (who are in it for their own self-interest, financial and/or political), must deceitfully apply for and receive tax-exempt status.  In one fell swoop, the State RFP process implicates the corporate contributors, the contractor, and the IRS in a devious scheme to privatize this public-diplomacy initiative -- not because it's important, but because State must maintain the fiction that privatization is the only way to get things done.  This is how its Secretary wants it, for reasons I will later explain.

I covered this story last year in a series of lively conversations I published on the Huffington Post last year and on DK regarding the exclusively corporate, commercial US presence at 2010's historic Shanghai World Expo:  a glaring example of privatized public diplomacy.  The so-called "USA Pavilion," a sorry architecture enclosing mediocre promotional contents, appeared to many as an anomaly given the high quality of US pavilions at Expos in the last century.  

Not so.  The State Department's unrelenting effort to spin off its public diplomacy functions and outsource them to private companies, though unsuccessful in the past -- consider Blackwater, to which State outsourced its security functions, only to have them end in fatal disasters -- continues as one of Foggy Bottom's central strategic policies.  State's Global Partnership Initiative (GPI), a public clone of President Bill Clinton's Clinton Global Initiative, likes to tout its minor humanitarian efforts overseas, but the GPI has loftier goals, including directing massive "impact investing" to shape global markets.

But let us return to the Expo situation, because it is simple and immediate, a fractal of the larger privatization initiative.

Earlier this year, the State Department issued a Request for Proposals (RFP) to create the US exhibition at the 2012 Yeosu (Korea) Special Expo.  It requires State to call upon private entities (corporations) for pledges of support for the exhibition.  According to the RFP, State will turn over the pledges to a tax-exempt organization that it selects, that has the dual role of creating the exhibition and collecting money to pay for it.  Readers will recognize this as a variation on the scheme that may land State and Shanghai Expo 2010, Inc. (SE 2010), the tax-exempt private company it selected to raise funds for, build, and operate the US pavilion at the 2010 Shanghai World Expo, in serious hot water.

Between 2008 and 2010, as much as $100 million was funneled through SE 2010.  (The exact amount is uncertain, as the transactions are cloaked by questionably applied tax law.) Most of this flood of money was received from American and Chinese corporations, although as much as a tenth may have been handed over by the Chinese and Shanghainese governments.  There are allegations that a substantial portion of these funds may have flowed back to the USA and a kitty kept by Big Business to influence the midterm elections (an illegal use of tax-exempt contributions), not to mention also nefarious and anti-democratic).  

SE 2010's law firm, the giant Covington & Burling was there all the way, in the person of Ellen Eliasoph, a C&B senior partner and one of SE 2010's co-founders and board members.  It was C&B that rushed through expedited approval of SE 2010's tax-exemption application by the IRS.  Not surprisingly:  C&B is referred to in Washington, DC, as "the shadow State Department."  

Others implicated in this big story given short shrift in the domestic press -- though plenty overseas -- include AmCham Shanghai, a US Chamber of Commerce franchisee operating in Shanghai that apparently concocted the scheme in early 2008; and the US Consulate in Shanghai.  In the absence of leadership that characterized the Rice State Department, Consul General Bea Camp was able to wield inordinate independence, freewheeling her way in an ever more dubious affair.  After Secretary of State Hillary Clinton was confirmed, she too was drawn into the emerging scandal, putting her personal prestige on the line by raising $60-70 million-plus for SE 2010, a private company, even before it was vetted by the IRS and while its DC corporate registration was in arrears.

The methods by which the US pavilion was outsourced and its development "managed" -- or more accurately, mangled -- are controversial and may have been illegal.  As the situation became known throughout the global diplomatic community participating in the Expo -- virtually every nation in the world -- America's reputation suffered.  Worse in concrete terms, American taxpayers are now forced to make up tens of millions of dollars of tax revenues unpaid by 60-plus American and Chinese multinationals whose investments bought six months of cheap promotion in Shanghai.  These investments -- and knowledge about how they were spent -- are now hidden behind tax laws that shield them from discovery.  It is the height of cynicism perpetrated by bad actors, many of whom are behind the nation's desperate economic condition.

Equally troubling, in the process of collecting funds to support the privatized US pavilion, SE 2010 with the aid of the Shanghai Consulate may have violated the Foreign Agent Registration Act or FARA, a law intended to prevent foreign influence over American institutions, not just once but several times.  It's alleged that China provided SE 2010 with $450,000 in seed capital and an additional $12 million in cash and kind in late 2008, when SE 2010 was floundering.

I've accumulated a fair share of knowledge regarding this scheme -- at least several boxes -- as a result of FOIA requests, documents acquired through more conventional channels, and SE 2010's tax returns -- delinquent, redacted, but informative nonetheless.  

I've shared this information with investigators in what I call, paraphrasing Poe, "The Case of the Purloined Pavilion."  My sense is that the scheme, a candidate for RICO treatment, is right in front of us if the agencies will obtain the evidence, much of it protected behind a veil of tax law and regulations, needed to indict the perps and bring them to justice.  

New revelations that appeared since my articles were published in the HuffPost this time last year help us to appreciate why the State Department is taking a more streamlined approach this time, still pushing privatization but hoping to avoid big problems this time.  In vain, I believe.

  1. When in June 2009 Covington & Burling applied to the IRS for expedited treatment of SE 2010's application for tax-exempt, charitable status, the IRS responded in unprecedented fashion, not only approving the request for expedition but doing so in a record two weeks despite the fact that SE 2010's corporate standing was in arrears and its application incomplete.  The reason:  Secretary Clinton had by then had raised between $30 million-$50 million for SE 2010; tax-exempt status was needed to cloak these semi-political contributions behind a veil of IRS privacy regulations.  A tax law expert, on learning of this sequence of events, shared with me his concern that SE 2010's law firm or one or more of its political connections may have exerted undue influence on the IRS examiners.
  2. In June 2010, SE 2010 co-founder and CEO Nick Winslow resigned his position under fire for allegations that he violated numerous conflict-of-interest rules to the tune of tens of millions of dollars.  The well-respected expat blog Shanghai Scrap reported that in early 2008, to gain the State Department's business, Winslow had offered the $23 million contract to produce the pavilion's scant permanent cultural attraction -- three short films totaling 15 minutes in length costing about $1.5 million a minute -- to a former employer, BRC Communication Arts.  Winslow supposedly agreed to this under the table deal in January 2008.  In return, BRC, a regular at Expos, allegedly loaned its imprimatur to Winslow and his partner Eliasoph, neither of whom had appreciable prior experience, when they first pitched the State Department in February 2008.  
  3. Winslow's leadership role was taken by Frank Lavin, a newly-appointed global executive with Edelman PR and former Under Secretary of Commerce in the George W. Bush administration.  (Lavin reportedly also is a close friend as well as a political confidant of Karl Rove.)  Lavin may have been present when State developed its mysterious 2006 "Action Plan" to privatize the US presence at the Shanghai Expo.  As chairman of SE 2010's "steering committee" -- its board of directors? -- he championed SE 2010's cause in many forums, occasionally repeating the debunked canard that "US law prevents public support of a US presence at Expos."  Lavin's close coordination with the Shanghai Consulate and AmCham Shanghai, given the alleged possible misuse of SE 2010's considerable financial assets for political purposes, is troubling.
  4. SE 2010's Form 990s (tax-exempt organization tax returns) for 2008 and 2009, prepared by Deloitte (also an SE 2010 "Marketing Partner," raising further conflict of interest concerns), were not filed until August 2010, when its 2010 Form 990 was already due.  The publicly available versions submitted to GuideStar, the philanthropy watchdog, are heavily redacted.  Whole sections are missing.  The 2009 return, as if to thumb its nose at interested members of the public, concludes, "The organization does not make its governing documents, conflict of interest policy and financial statements available to the public." One might expect that an organization endowed with tax-exempt and charitable status by the IRS on grounds that it operates "on behalf and for the Government of the United States of America," should be more transparent.  Why the disconnect between the American public and its Government?  Because a privatized public-diplomacy function serves no public, only its sponsors and itself.
  5. Ensuring a strong US presence in Shanghai was seen as critical to China's investment, production, and export schemes.  The Chinese involvement with the "USA Pavilion" was tightly integrated with the operations of SE 2010:  its financial contributions may have been ten times greater than press estimates in 2009.  However, no accounting other than a single entry on SE 2010's 2008 tax return has been provided to explain the initial $450,000 seed capital provided to SE 2010 (according to the Los Angeles Times) by a small Connecticut firm.  The firm, which imports medicinal herbs, apparently has most of its operations in Shanghai and maintains business ties with companies owned by Shanghai's overseas investment corporation.  Similarly, SE 2010's 2009 tax return indicates an "asset" of $11 million not accounted for as an anonymous 'contribution" associated with the "USA Pavilion's" construction.  Where did this money come from and on what terms?  Winslow himself told me that the arrangement was orchestrated by the Shanghai Consulate and AmCham Shanghai, who publicly passed off the whole affair as a simple matter of "a loan."  These contributions may involve violations of the Foreign Agent Registration Act, or FARA.
  6. Many of the most substantial activities that took place in Shanghai under the aegis of the "USA Pavilion" actually were organized and managed by AmCham Shanghai.  These were the by-invitation-only meetings, presentations, and personal exchanges between American corporate executives and Chinese government officials and businessmen that occurred at a rapid clip.  These activities, worth a great deal more to SE 2010's "Marketing Partners" than the meager investments they made in the pavilion, were the the "USA Pavilion's"  main purpose.  Whether AmCham Shanghai also shared its excessive income from the pavilion activities with the US Chamber of Commerce for political purposes remains a mystery.
  7. State's Memorandum of Agreement (MOA), the formal contract engaging SE 2010 to actually build and run the US pavilion, was signed in August 2009.  Like other documentation pertaining to State and SE 2010, this too is heavily redacted.  Its entire financial section, in which SE 2010 supposedly demonstrates it has the means to finance the US pavilion -- a condition of the contract demanded by State in March 2008, when it authorized SE 2010 to pursue funding -- is missing in the copy provided to me.  It would reveal, I believe, how much public effort went into the State Department and Secretary Clinton's campaigns to gin up investments in SE 2010, possibly breaking the law pertaining to Federal agencies raising money for private companies.  Corporations ponied up modest amounts of cash in return for substantial "excess" benefits (the term the IRS uses for "profits").

I have reason to believe that these questionable situations are under investigation now.  If so, SE 2010's undeserved tax-exempt and charitable status -- crucial to the working of the scheme -- will be found wanting and be reversed.  If so, it creates an insurmountable obstacle to the privatization plan embodied in the Yeosu Expo RFP, which depends on a grant of tax-exemption to what is, in most regards, a primarily commercial operation.

Which brings us back to the question at hand:  given the massive headaches and alleged illegalities that the US presence at the Shanghai Expo incurred, why do it the same way again?  Why issue a new RFP -- albeit one more streamlined, one in which the State Department exclusively takes on the role of bagman -- based on the same discredited Action Plan that resulted in the Shanghai debacle?  By formally assigning primary fundraising responsibilities to the State Department, the new RFP may transgress Federal law governing agency solicitations; it certainly violates the law's spirit.  Moreover, it gives the corporate contributors, who provided the funding to State prior to its selection of a pavilion producer, ample opportunity to sway the theme of the US pavilion, the choice of its producer, and how the producer operates.  This makes a mockery of the RFP process and leaves the parties open to legal action by the RFP's other respondents.  

A recent report issued by Senator Richard Lugar (R-Indiana), ranking member of the Senate Foreign Relations Committee, argues that more, not less public support for a US presence at Expos is required lest private sponsors end up speaking for the rest of us at every global gathering.  He also warns about extending the model to other venues which, after all, occur more frequently than Expos.  Sen. Lugar grasps the essential issue:  American public diplomacy, especially in light of our nation's penchant for cutting taxes and services with them, is in peril of being privatized, top to bottom.  (He also has some interesting observations regarding Chinese public diplomacy, a centrally managed function that is very well funded.)

Here are some immediate concerns that the State Department must answer to the Congress and the American people before it selects a "winner" in its current Yeosu Expo RFP:

  • The privatization process as expressed in the Yeosu Expo RFP arrogates near-total financial power to the State Department and its corporate benefactors -- making the pavilion contractor completely dependent on State and its corporate penumbra for direction.  I spoke last week with a representative of America's leading developer of exhibitions and pavilions.  I asked why he didn't respond to the RFP.  "We couldn't tell whom we'd be working for," I was told.  "The American public, the State Department, or the corporations paying for what is ostensibly a public expression?  It's just too creepy."  Creepiness, it should be remembered, is a quality of America's diplomatic service.  Wikileaks proves this with each release of a new State Department cable.
  • The RFP requires applicants to have prior experience creating a pavilion at an Expo.  This is a giveaway to the State Department's past partners in crime.  The qualified pool of candidates is limited to one, since the last international Expo not perverted by privatization was in 1998.  The RFP preordains that only the individuals who worked on the bizarre US pavilion at the Aichi 2005 Expo (for which the US Government extorted Toyota's support) and the crooked "USA Pavilion" are qualified to manage the US presence at Yeosu.  It's been rumored that the PR firms and contractors who managed the "USA Pavilion" have been lobbying hard for the establishment of a permanent, insider-run pavilion "US" production house that they will run.   With the State Department raising the corporate cash, it's a no-brainer.  Milan 2015 will be a killing!  Plus, there's always the chance to siphon off money for nefarious purposes.  Win-win for State and the corporations, lose big for the American people.  
  • Yeosu is a small Expo.  The US exhibition is budgeted for $10 million.  However, as late as mid-February according to the Lugar report,  only $5 million had been raised by State.  To raise the last $5 million, State may have to make more concessions to corporate funders in terms of controlling pavilion messaging and operational control.  If privatization isn't stopped, the situation could be substantially worse in subsequent years.  For example, a contractor must be chosen in 2012 or 2013 to create the US presence at the substantial 2015 Milan Universal Expo (on a par with Shanghai).  How much control will State give away then?  Will there be even a semblance of a public voice in the resulting US pavilion?  Not likely.

The bigger problem here is that the privatization model employed to privatize the US presence at Expos can be applied to any public-diplomacy function.  Driving this diversification is State Department Secretary Clinton, inspired by her husband's post-presidency success with the Clinton Global Initiative (CGI) [video link].  It's only natural that Bill Clinton, the world's most powerful political actor, and Hillary Clinton, America's most influential woman politician should want to combine forces to expand Bill's global operation and better serve the world needs that they together perceive, including enriching themselves and increasing their power.  Recently, MSNBC produced a gushy salute to Bill Clinton, "President of the World" describing Clinton's remarkable network of powerful individuals and money.  His CGI often functions as a surrogate for the US government.  Occasionally, CGI's activities are commendable; mostly, however, they are commercial, supporting a political status quo.  They are not planned publicly or implemented democratically.  CGI is a textbook example in how to privatize diplomacy.  So when Secretary Clinton created her Global Partnership Initiative (in response to the "USA Pavilion" debacle), she modeled it on Bill's CGI. [video link]  CGI.  CPI.  Shall we dance?

There is today a well-founded skepticism regarding American public diplomacy.  A better solution than privatization to retaining a truly public public diplomacy would be an independent authority -- let's call it the Corporation for Public Diplomacy -- that's responsibly constituted per law, adequately funded by Congress and individual contributor, subject to serious public oversight; that comprises experts and citizens as well as diplomats; and that works within a framework that requires competition and open selection of contractors who work for, not in place of government.  

Public diplomacy activities that are competently administered, successfully run, and that sincerely represent the voice of the American people (not the cynicism of multinational corporations and their political stand-ins) would go a long way toward rebuilding Americans' faith in their diplomatic corps and the diplomacy it practices.

The immediate goal of the US Government should be restitution of tax revenues that were improperly denied to the US Treasury as a result of State Department intrigues related to the "USA Pavilion" prior to, during, and following the Shanghai Expo.  This just act would discourage further gaming of the nation's tax laws to protect State's bizarre schemes for funding privatization of public diplomacy with corporate funds.  Settling that score would clear the table for more meaningful and productive conversations about the future of American public diplomacy.

*      *      *

Bob Jacobson is an urban planner, innovation-management consultant, and experience designer practicing in Scandinavia and on the US West Coast.  He has been covering State's privatization efforts for the last three years.

Originally posted to Cyberoid on Mon Apr 04, 2011 at 03:24 PM PDT.

Also republished by Foreign Relations.

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Comment Preferences

  •  Tip Jar (5+ / 0-)
    Recommended by:
    Justina, TBug, koNko, Loli, marina

    Bob Jacobson, Tucson, Arizona | "The spirit is to win in the heart of the enemy." -- Sun Tzu, Art of War, 6th BCE

    by Cyberoid on Mon Apr 04, 2011 at 03:24:16 PM PDT

    •  Hi Bob (2+ / 0-)
      Recommended by:
      marina, Cyberoid

      Greetings from Shanghai.

      Today is Ching Ming so I have to go out but I will republish this to Foreign Relations to get you more exposure and come back later to comment.

      What about my Daughter's future?

      by koNko on Mon Apr 04, 2011 at 07:25:29 PM PDT

      [ Parent ]

      •  Thanks, Ching Ming. (0+ / 0-)

        I bet that will get some attention.  Interestingly, many scholars of public diplomacy in the USA who are familiar with the story are upset but not surprised.  They have been fighting this fight ever since the Reagan days, when Ollie North was privatizing diplomacy with weapons from Iran for the Contras in Nicaragua.  You might say he was the Father o of Privatization.  And it's never stopped since.

        Bob Jacobson, Tucson, Arizona | "The spirit is to win in the heart of the enemy." -- Sun Tzu, Art of War, 6th BCE

        by Cyberoid on Thu Apr 07, 2011 at 03:06:36 AM PDT

        [ Parent ]

  •  We're Now U.S.A, Inc. a Consortium of Corps! (3+ / 0-)
    Recommended by:
    koNko, marina, Cyberoid


    Convict Bush, Cheney and their torture cabal. Support single-payer health care,unions, and WikiLeaks.

    by Justina on Mon Apr 04, 2011 at 04:59:31 PM PDT

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