As Republicans convene hearings on foreign contributions to the Clinton campaign, attention has drifted away from big domestic donors and what they might have gained from their investments — apart from a coffee or a (reportedly bad) night’s sleep at the White House.
And while everyone knows that political donors often “happen” to receive impressive diplomatic appointments, or their firms wind up with lucrative government contracts, Mother Jones has discovered an even more direct way the politically well-connected can cash in: multimillion-dollar overseas investments backed by taxpayer dollars. These private investments, set up through the government’s Overseas Private Investment Corp., are often made in developing areas expected to become boom markets — such as Eastern Europe, southern Africa, and India. “The idea behind the funds is to replace direct foreign aid,” says Mildred Callear, OPIC’s acting president.
To do that, OPIC has launched 24 “private” investment funds that, on average, are matched 2-to-1 by OPIC in guaranteed loans. Many of these funds are insured against loss. As OPIC’s then- president Ruth Harkin said in 1995, when the funds started taking off, “If you’re an investor in an OPIC-supported fund, the worst you can do is get your money back at the end of 10 years.”
For the past two decades, OPIC has been one of the government’s best-kept secrets. Before Clinton, the agency was little more than a small insurance company for U.S. firms willing to set up shop in countries with unstable regimes or fledgling markets. As late as the Bush administration, the agency’s venture funds totaled less than $100 million. By 1996, however, OPIC’s investment funds had ballooned to $3 billion.
So who exactly gets in on these “private” deals? Even though these investors are in partnership with a government agency, OPIC maintains that revealing their names would violate both their privacy and the Trade Secrets Act. But a Mother Jones investigation of some of these equity funds suggests another possible reason for OPIC’s silence: The funds appear to benefit not only corporate heavyweights, but also people linked to President Clinton and at least two Republican senators.
Not surprisingly, when we looked at these OPIC deals, we found a connection to at least one character at the center of the Democrats’ fundraising scandal: former White House administrative aide Mark Middleton, who has been alleged to have peddled his Democratic connections in order to set up his own foreign investment deals. Evidence suggests that Middleton also may have had his eye on OPIC’s cash-rich foreign investment opportunities, having forged ties to a financier and friend of Clinton’s who was setting up a $240 million fund.
It’s impossible to know just how big a part political nepotism plays in getting OPIC deals, since the agency won’t disclose all of its investors. Still, we decided to do some digging.
How good a deal are OPIC’s exclusive investors getting? One private equity fund investing in Africa reportedly has had earnings that would make the most buttoned-down broker’s head spin: a $9.50 return on every $1 invested. Meanwhile, projects financed by a Russian fund reportedly provided returns in the 30 to 50 percent range. That sure beats current CD rates of 5.7 percent.
In order to see what it takes to get a piece of this kind of action, we dressed up in our high-finance best and made several house calls to Washington, D.C., firms managing OPIC funds. Along the way, we found several notable political connections:
• The contact for the South America Private Equity Growth Fund, which landed $100 million in OPIC-guaranteed loans in 1995, is WestSphere Equity Investors’ John Lugar, son of Sen. Richard Lugar (R-Ind.). Lugar was put off by our visit, grilling us repeatedly about the nature of this article. He refused to share a copy of the fund’s annual report, saying that the fund had stopped accepting investments in 1995 — and had been open only to “sophisticated” investors anyway.
• At the address for the Poland Partners Management Co., we discovered the law firm Landon Butler & Co., which runs the fund. According to the man answering the door, the Poland Partners fund closed to further investment three years ago. “The minimum investment,” he added with a sneer, “[was] $1 million.” He also said that although he knew who the investors were, it was privileged information. And he refused to provide an annual report, saying it was only available to investors in the $65 million fund, which has received OPIC loan guarantees. (OPIC acting president Callear later informed Mother Jones that the fund’s initial investors included the pension funds of the AFL-CIO and other unions — big Democratic heavyweights.)
• Neither the Bancroft Eastern Europe Fund nor its manager, the Bancroft Group, was in the directory of the building listed as the fund’s address in the phone book. A concierge directed Mother Jones to the eighth-floor offices of the law firm Perkins Coie. According to a receptionist, the Bancroft Group had moved to Italy; OPIC’s address for Bancroft is in France. The fund received $70 million in OPIC financing in 1995.
Mother Jones later learned that Bancroft’s president is Fred Martin, who founded the group in 1989 — right after serving as campaign manager for Al Gore’s 1988 presidential bid. Martin also served as a special assistant to Walter Mondale during Mondale’s vice presidency.
• Locating Newbridge Andean Partners was even more confounding. The address, “1429 G St. N.W., Suite 410,” turned out to be a Mail Boxes Etc. store. When asked for directions to “Suite 410,” a helpful clerk pointed to one of the small mailboxes lining the wall.
ACON Investments, the fund’s manager, requires a minimum investment of close to $1 million. ACON’s chairman is Bernard Aronson, another longtime politico, who has connections to presidents Bush and Clinton (assistant secretary of state from 1989-93) and was a speechwriter for President Carter (1977-79).
Each of the other funds we visited (Global Environment Emerging Markets Fund II, Aqua International Partners) cited enormous minimum investments ($2 million and $5 million, respectively) that would prohibit all but the wealthiest people and institutions from investing.
Since these OPIC investments are shrouded in secrecy, few of us will ever even hear about them. Because the deals are set up as private placements — limiting public involvement — the funds are exempt from much oversight by the Securities and Exchange Commission, as well as from public disclosure requirements.
The companies that manage these funds have a serious reason to keep a low profile: competition from other potential fund sponsors. Agribusiness Partners International, for example, generated more than $3 million in commissions from sales to 15 investors. Apax-Leumi Partners Inc., the general partner of the Israel Growth Fund, collects an annual investment advisory fee of 2.5 percent of the fund’s gross proceeds, and the first installment totaled $1 million. With such staggering proceeds, why let others in on the secret?
The more we looked at the funds, however, the more we found that many of those who were in on the secret had one notable qualification in common: powerful political ties. The $150 million South Asia Integration Fund, for example, is run by Ziff Bros. Investments, whose co-chair, Dirk Ziff, is one of the largest Democratic contributors in the country (No. 6 on the Mother Jones 400; see May/June). Another Democratic contributor, Maceo Sloan, received $120 million in guaranteed loans from OPIC for his New Africa Opportunities Fund. The North Carolina millionaire also received help from his senator, Republican Jesse Helms, who, according to a September 1996 Barron’s report, asked OPIC officials about Sloan’s application.
And when we took a close look at one of OPIC’s largest private equity funds, we found businessman Steven J. Green, a close friend of Bill Clinton’s who seems to have mastered the use of government access for professional gain.
Green was a crucial early supporter of Clinton. As a result, he has enjoyed the conventional presidential perks (he and his wife spent the night of their 28th wedding anniversary in the Lincoln Bedroom) without having given the Democrats enormous amounts of money recently ($11,000 to the DNC in 1995-96).
Green sits on the influential President’s Export Council, along with 10 members of Congress and the secretaries of Commerce, Labor, Agriculture, State, and the Treasury. The council advises the president on government policies and programs that affect trade. Green’s right-hand man, Noel Gould, serves as national director of the Virtual Trade Mission Program, a project launched by the council and Clinton’s special adviser Mack McLarty to educate high school and junior college students about trade issues.
Green’s business ventures have been flying high — with considerable help from the Clinton administration. Green or other executives from his Astrum conglomerate, which included Samsonite luggage and Culligan Water Technologies, flew on three of the late Commerce Secretary Ron Brown’s overseas trade missions, including trips to Russia and the Middle East. Green also traveled on four overseas OPIC investment missions. Deals blossomed along the way, leading to a development in Russia and a water-bottling contract for Culligan in the Gaza Strip.
Then Green went into business with OPIC, setting up the Central and Eastern European Newly Independent States fund (CEENIS). The fund needs to raise $80 million in order for OPIC to finance $160 million in double-matching funds. Green’s real estate firm, Auburndale Properties — which has offices in Florida, Massachusetts, New Jersey, Washington, D.C., Bucharest, and Warsaw — is the fund’s manager and a primary investor.
In the fall of 1994, before he secured OPIC’s approval for the fund, Green reportedly went scouting for investors among some of his big-name former business partners — including media baron Rupert Murdoch and convicted S&L swindler Michael Milken’s family trust. He also attracted the attention of Mark Middleton, who at the time was a White House administrative aide looking to branch out on his own.
Nicknamed the “Aryan Rotarian” for his blond good looks and business acumen, Middleton, a 34-year-old Clinton fundraising star, came to Washington to become the protégé of Mack McLarty, a boyhood friend and former right-hand man of President Clinton. After McLarty stepped down as Clinton’s chief of staff in mid-1994, Middleton reportedly decided against a run for Arkansas attorney general and prepared to move to the private sector.
He subsequently has been connected in news reports to virtually every aspect of the Democratic National Committee’s fundraising scandal. It was Middleton who apparently passed out his White House business card to Asian businessmen during trips overseas — months after resigning from his post. The card listed his still-active White House voice-mail number — which also allowed callers to leave messages for McLarty. Most controversially, during one of these trips Middleton is alleged by foreign reports to have received an illegal $15 million campaign pledge from the chief financial officer of a conglomerate run by Taiwan’s ruling party.
Middleton has also been tied to the Indonesian Riady family, which gave hundreds of thousands of dollars in questionable contributions to the Democrats; to Charlie Trie, an Arkansas restaurateur suspected of funneling campaign money from China; and to disgraced former associate attorney general and Clinton friend Webster Hubbell.
But before the controversies — before Middleton had even left the White House — he managed to secure a job with Steve Green. According to a close associate of Green’s, Middleton approached Green in November 1994 and asked to discuss job opportunities. “He pretty much said, ‘I want to be just like you when I grow up,'” says the associate.
In January 1995, President Clinton announced OPIC’s approval of CEENIS. It appears that around the same time, Middleton may have been prematurely representing Green. According to a source close to the congressional investigation into Democratic fundraising, Middleton received at least one letter addressed to him as a representative of Green’s Astrum conglomerate in January 1995 — before he left the White House on February 17.
It also appears, from what Middleton has told the press, that he wanted in on Green’s OPIC deal. Just before leaving the White House in February, Middleton told the Arkansas Democrat-Gazette that he was going to work for Green and would be “putting together large international infrastructure deals in emerging countriesÉsuch as central and Eastern Europe.” Green adviser Noel Gould confirms that Middleton went to work at Auburndale.
By March, Middleton had escorted Green to the White House. And by June, Green had formally secured enough funding for CEENIS to begin operations.
But there is no evidence Middleton ever actually got in on the CEENIS deal. Both Gould and OPIC officials say he was not involved. And a former Astrum associate maintains that Middleton took advantage of the company. When Middleton went to work for Green, according to the source, he asked for a salary advance to take a foreign vacation — which was the start of Middleton’s now-controversial trips to Asia. When he returned, the source says, Middleton told Green he had found clients for his own fledgling overseas investment firm, CommerceCorp International, which he intended to pursue while working for Green. Feeling used, the source says, Green asked Middleton to leave.
Middleton, who has refused to testify before House investigators, declined to be interviewed for this story.
Astrum has since broken up into several separate companies, and Green now appears to be focusing solely on his real estate ventures, including CEENIS. CEENIS has yet to formally begin any of its projects, and it remains cagey about its investors. Initially, CEENIS managers told Mother Jones that there were no private investors, only corporate ones, including MCI and Bank Boston. But Gould says that the initial backers also included Green’s Auburndale and “two to three private investors” who were longtime Green associates.
Green, according to his agreement with OPIC, can invest up to $40 million of his own money in the project. Since January, Gould says, Auburndale has opened the fund to new investors.
OPIC maintains that anybody can apply for the private funds and that it doesn’t play favorites. “Lots of times we would meet with people and it didn’t go anywhere, even if they invoked the names of very important members of Congress,” says Susan Levine, a former OPIC senior vice president for investment development and policy and a former friend of the Clintons’. But she concedes, “Odds are that knowing people helps you get in the door.”
The OPIC deals continue. In April, a bipartisan bill in the House, the Africa Growth and Opportunity Act, proposed that OPIC back new funds in Africa valued at $650 million. Unless OPIC can be prodded into opening its books, investors can continue to escape public scrutiny — while walking away with millions.
Rachel Burstein is a Mother Jones investigative reporter. Janice C. Shields is a researcher and coordinator of the Corporate Wealthfare Project & TaxWatch. Romesh Ratnesar also contributed reporting for this story. All are based in Washington, D.C.