Shield Between Politics, Foreign Funds Is Flimsy

Lalit H. Gadhia was the sort of man the American system apparently cannot live without: one who patiently masters the art of being helpful to politicians. “He started as an outsider. He became an insider,” as a federal judge put it before sending him to prison.

Gadhia, an Indian American lawyer, had a talent for fund-raising, particularly gathering modest contributions from scores of ordinary people. In one such burst of energy, he and some friends canvassed waiters, busboys and kitchen helpers at Indian restaurants in the Baltimore area in 1994 and emerged with checks totaling $46,000--all destined for congressmen considered sympathetic to India on such things as trade and military assistance.

Giving contributions in hopes of favorable consideration is standard operating procedure in American politics. It’s how politicians raise the vast sums needed for successful campaigns. The problem was that this money actually came from an official at the Indian Embassy in Washington. As each modest check was written, Gadhia and his associates handed over an equivalent amount of cash to the service workers. That made the contributions illegal.

“The message must go out that these kinds of shenanigans simply cannot be tolerated,” Assistant U.S. Atty. Joseph L. Evans declared in demanding jail time for Gadhia.

As the recent avalanche of revelations about foreign contributions to this year’s campaign cycle suggests, however, the message has not always been heard or heeded. Not only in federal elections but in state and local campaigns as well, there is scattered but disturbing evidence that money from foreign interests is still flowing into the American electoral process.

And while no one has a clear sense of the size of the torrent, many watching it believe the problem could grow more acute in the years ahead because it is being driven by one of the strongest trends in recent history: the global reach of economies around the world, especially the U.S. economy.

Never before have so many foreign governments, foreign corporations and individuals had such stakes in the myriad decisions made by the U.S. political system. From federal policies on trade, labor, finance and the environment to local actions on zoning and real estate development, foreign interests are increasingly affected by what U.S. politicians think and do--or do not do.

Consequently, there are huge incentives to try to influence those decisions in any way possible, including the time-honored practice of making political contributions. Moreover, there is universal agreement that neither federal nor local watchdogs are equipped to detect violations of campaign laws that are pocked with loopholes.

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“The problem is that noncitizens should have no influence on American election outcomes, just as Americans should not have influence on foreign election outcomes,” said University of Virginia political scientist Larry J. Sabato, a specialist in U.S. electoral politics. “I think that any society has the right to preserve the purity of its election process. And that purity includes making sure that only citizens participate. . . .

“But in this case, you’ve got hundreds of thousands, probably millions of dollars being funneled in from foreign interests. And that’s outrageous, and people are right to be upset about it.”

Ernest H. Preeg, a specialist in international business at the Center for Strategic and International Studies in Washington, said foreign companies and governments are “very actively engaged” in trying to shape decisions in the executive branch and Congress.

“Certainly we are in an international marketplace,” he acknowledged, and they “have to make their views known too.” But, he noted, such lobbying is not supposed to take the form of campaign contributions.

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The effect of the global economy on politics is especially great in the United States for several reasons:

* As the largest, most open market in the world, this country is a magnet for businesses and investors, particularly from the booming, export-driven nations of Asia. It is not a coincidence that Japan, Korea and Taiwan do more export business with the United States than they do with any other country and also are among the biggest players in U.S. politics.

The largest penalty ever levied against a foreign company accused of illegal campaign contributions was the $895,000 imposed in 1993 against a Taiwan-based company. The shipping firm allegedly “laundered” nearly $200,000 in donations to officials in Los Angeles and Sacramento.

* The U.S. political system is at once insatiably hungry for campaign money and woefully unprepared to enforce even the relatively modest rules that exist for keeping fund-raising honest.

So far as politicians’ need for money is concerned, a typical House race costs more than $400,000, the average Senate race weighs in at $4.4 million and this year’s major presidential contenders have raised more than $125 million in addition to their allotments of public funds.

Technically, it is illegal for foreign governments, corporations or citizens to contribute money to American political campaigns. But an exception is made for the U.S. subsidiaries of foreign businesses, so long as their giving does not exceed what they have earned in this country, and for foreign citizens legally residing in the United States, so long as the money is their own and they are not conduits for foreign funds.

As a practical matter, those rules are extremely difficult to enforce, experts said. Witness the current controversies over funds given to the Democrats by Korean-owned Cheong Am America Inc., which was found not to have earned revenue in the United States yet, and by Arief and Soraya Wiriandinata, Indonesian citizens with ties to the Lippo Group conglomerate who were legal residents here but have since returned to Indonesia.

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For one thing, U.S. election laws have not been updated to meet changing economic and political realities. “There actually have been no rules changes since 1974,” said Ellen Miller, executive director of the Center for Responsive Government, a nonpartisan watchdog group. “There have been attempts throughout the various Congresses to pass new laws, to tamp down here and clip back there, but there really hasn’t been any attempt at systemic reform. I think the system is wearing thin. It is so thin, and you can see through the cloth.”

Moreover, said Trevor Potter, who chaired the Federal Election Commission from 1991 to 1995, “while it’s possible most of the time to discern whether a company is a subsidiary of a foreign-owned parent, it’s virtually impossible to figure out whose money” has been donated.

“These investigations take enormous government resources and are therefore few and far between,” Trevor said.

Attorney Jerome C. Roth of San Francisco, who successfully defended a Korean businessman charged with giving illegal contributions to Southern California Rep. Jay C. Kim (R-Diamond Bar), shares that assessment of the enforcement problem. “This stuff is very, very hard to prove.”

For instance, in 1994 the FEC established that 26 Japanese businesses, individuals and a government entity had made more than $300,000 worth of illegal contributions to more than 140 political campaigns in Hawaii. The federal agency announced $162,225 in fines against a list of individuals and companies that included All Nippon Airways Co. Ltd.

Tellingly, though, the inquiry had taken a full five years.

* Particularly in Asia, soaring rates of economic growth, along with such political changes as Great Britain’s impending return of Hong Kong to China, have created enormous fortunes that need investment homes. At the same time, some analysts argued, many foreign business concerns interested in the United States are rooted in cultures in which the secret use of money to smooth relations with governments and politicians has long been considered normal.

“The political culture in other countries is so different that this stuff is not intuitive to foreigners,” defense attorney Roth said. In their own countries, he declared, “they dump as much money as secretly as they can to whomever they want, and the notion that it’s illegal is unheard of.” As a result, both Roth and some investigators believe, some foreign contributors know they are breaking U.S. law while others think they are acting legally.

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“They will do this as a means of getting close to the power structure,” said Pat Choate, a longtime critic of foreign influence in U.S. politics and now Ross Perot’s vice presidential running mate on the Reform Party ticket. While the Japanese are leading practitioners, he said, “standing right behind them are the Europeans.”

“You have the major companies, Shell and BP [British Petroleum], putting money in, soft money, to both parties. What you’re also finding is the Asians understand the whole concept” of spreading money around to officials and their friends, Choate said. “This is how their society operates, and for the American politician in search of campaign money, they’re a ready source. It’s just another expense of business, like labor or advertising.”

One California lawyer with broad experience in campaign finance said there is no doubt in his mind that increasing numbers of foreign nationals are funneling money into American campaigns at the local, state and federal levels.

This lawyer said that his firm has “fired” two overseas clients because they were intent on subverting the prohibitions of U.S. election law. “We fired them because they will not play by American rules,” said the lawyer, who spoke on condition of anonymity. “I said, ‘I’m going to quit; this is Hong Kong money, not American money.’

“There’s a ‘cost of doing business’ mentality,” said the lawyer.

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American history and culture also are filled with examples of corporations and wealthy individuals using money to influence politicians. Indeed, some historians note a parallel between today’s problem with foreign money and the heavy-handed way that newly minted U.S. industrial tycoons played politics in the late 19th and early 20th centuries.

Besides, Sabato said, what happens in other cultures is irrelevant: “These are our elections. They can do what they please within their borders.”

Former Rep. Bill Frenzel (R-Minn.) said that the current problems are “more than anything an indication that the law is old and that our society and economy are moving forward at a very rapid rate.”

“It’s pretty clear the law needs to be revisited.”

* DOLE HAMMERS CLINTON

GOP nominee attacks president’s silence on donations. A20