Republicans Feel Heat of Donor Probe

The Senate’s campaign fund-raising hearings placed Republicans on the hot seat Wednesday, examining a money trail in which $1.6 million from a Hong Kong business ended up in party coffers in the critical final weeks of the 1994 congressional elections thanks to timely work by former GOP chairman Haley Barbour.

Stung by scandals within their own ranks, Democrats seized on the complicated financial transaction between a Hong Kong real estate company and an offshoot of the Republican National Committee to show that both political parties apparently looked overseas to feed their voracious appetites for campaign money.

“The pursuit of political money . . . has reached obscene and corrupting levels,” said Ohio Sen. John Glenn, ranking Democrat on the Senate Governmental Affairs Committee. “Both parties are deserving of harsh criticism.”

Although Republican officials sought to downplay their ties to foreign funds, testimony and documents from Wednesday’s hearings clearly put the party on the defensive.

The embarrassing episode dates back to the heat of the 1994 congressional elections, when Barbour sought out financial support from Ambrous Tung Young, a wealthy Hong Kong businessman and Republican Party loyalist.

Barbour arranged a $2.1-million loan guarantee from Young Brothers Development USA, the Florida-based subsidiary of Young’s Hong Kong-based real estate and aviation company, to support the National Policy Forum, a GOP think tank created by Barbour in 1993 to promote the Republican philosophy.

The Forum took out a $2.1-million commercial bank loan, guaranteed by certificates of deposit purchased with funds provided to Young Brothers Development by the parent company in Hong Kong. The Forum then immediately sent $1.6 million to an RNC account.

Barbour ran both the policy group and the RNC, a dual role that the Democrats say effectively merged the two organizations into one. The policy group sought tax-exempt status that would allow it to accept foreign funds. The RNC, however, was prohibited by U.S. law from taking foreign donations.

Republicans said that the $1.6 million was simply the repayment of a previous RNC loan to the Forum that had nothing to do with the 1994 campaign. Republican officials said that the money was then used to support the party in state races, not congressional campaigns. But Democrats--noting that the election culminated in the GOP taking control of both houses of Congress for the first time in 40 years--say House and Senate contests were affected, since the money was used to urge voters to support the GOP.

“In a nutshell, it was a foreign campaign contribution for the benefit of the RNC,” said Alan I. Baron, the Democrat’s chief counsel on the investigative committee.

The Republican Party already has returned $122,400 that it received directly from Young’s Florida company--funds that originated in Hong Kong and were separate from the loan. Democrats say the party ought to go further and return all foreign donations to the National Policy Forum, since its tax-exempt status was ultimately denied.

Barbour will appear before the committee today and is expected to offer a spirited defense of the loan arrangement. He will argue that the National Policy Forum--organized as a tax-exempt group that would not involve itself in partisan politics--was not part of the RNC.

In his deposition over the weekend, according to sources, Barbour also said he had no idea until recently that the money for Young’s loan originated in Hong Kong--an account that other participants have disputed.

Documents unveiled at Wednesday’s hearings show a close relationship between the party and the policy forum, and a clear awareness by all parties that the loan guarantee from Young, a Taiwanese citizen, would ultimately end up aiding Republican campaigns.

“We are willing to consider the support of $2.1 million, which is the amount you have expressed to me that is urgently needed and directly related to the November election,” Young wrote in a September 1994 letter to Barbour.

Months before that, Michael Baroody quit as president of the National Policy Forum and complained in his resignation letter of Barbour’s “fascination” with raising foreign money, an account he repeated in testimony Wednesday.

Baroody also complained that the policy forum and the RNC were not being run as separate organizations. “It has become increasingly difficult to maintain the fiction of separation,” he said in his memo to Barbour.

Democrats released a ruling from the Internal Revenue Service denying the National Policy Forum’s application for tax-exempt status. “Based on the information you submitted, it appears that you are a partisan issues-oriented organization,” the IRS ruled earlier this year, after the policy forum had shut its doors.

Soon after the 1994 election, Young’s loan arrangement fell apart as Barbour sought his permission for the National Policy Forum to default on it--and turn the $2.1 million into a gift. Young entertained the idea, according to documents, but never went along. Nonetheless, the National Policy Forum defaulted on the loan, which prompted Young to mull legal action.

Benton L. Becker, Young’s attorney and the first of the two witnesses at Wednesday’s hearing, said Young eventually reached a settlement with the RNC in which Young’s company took an $800,000 loss. On Wednesday, Becker urged the RNC to fully compensate Young, while acknowledging that the party may not have an obligation to do so.

Next week the Senate committee intends to focus on the activities of controversial Democratic National Committee fund-raiser Yah Lin “Charlie” Trie, a former Little Rock restaurateur who left the United States after the fund-raising affair broke.

Times staff writer Mark Gladstone contributed to this story.