The Breadth Of The Kleptocracy

Rampant corruption is one sign of a failing democracy and becomes all-pervasive in an autocracy. With that in mind, let’s look at a couple of stories that might have fallen under the radar in all the hoopla of the release of the redacted Mueller report.

The New Yorker had a fascinating article on how the non-profit National Rifle Association (NRA) has become virtually bankrupt primarily because its for-profit public relations firm managed to effectively take over the non-profit and turn it into an almost entirely self-dealing enterprise on their behalf. The public relations firm in question is a company called Ackerman-McQueen (A-M) and it has worked for the NRA, or more accurately, in the last few years, the NRA has worked for them, since the 1977. That was the same year that Wayne Lapierre started working for the NRA as a lobbyist and, as such, he worked closely with Ackerman-McQueen’s CEO at the time, Angus McQueen, who stated they were in daily contact. It was A-M’s work that turned the reportedly reticent Lapierre into the cultural warrior he has become.

In 1991, Lapierre became the executive vice president of the NRA, the non-profit’s top position. But, by 1996, the NRA was hemorrhaging money and, according to the minutes of the board meeting that year, “has been technically insolvent for several years” and “has incurred substantial debt”, much of which was the result of Lapierre’s cozy relationship with A-M. The public relations spending was massively over budget and there were apparently no written agreements with vendors, especially A-M. The attempts of some board members to deal with this situation failed when A-M managed to replace those board members with allies of A-M, which allowed A-M to continue get massively overpaid for increasingly high-priced projects that failed to generate needed revenue for the non-profit.

These issues finally came to a head in 2017 with a full report to the board that exposed how the NRA had basically become controlled by A-M and the extent of self dealing that occurred. In that year, 12% of the NRA’s total expenses went to A-M and its affiliates, to the tune of nearly $41 million. There appeared to be substantial double billing by A-M’s affiliates, with money going to one affiliate and other money going to another that had virtually the same staff as the first. According to one auditor, it appeared that the NRA had “owed more money to others than it had at its discretion to spend” in seven of the prior ten years.

One quarter of the NRA staff was managed by former employees of A-M, creating clear problems of conflict of interest. The treasurer of an outside production company paid by the NRA was a senior NRA employee. Another outside vendor had been paid $360,000 per year since 2008, regardless of the amount of work actually performed for the NRA. That consultant managed to bill $240,000 in undocumented expenses in 2017. One senior employee managed to quit the NRA and set up a consulting business which was paid $450,000 by the outside firm he oversaw at the NRA. At the same time, the NRA paid him for a full year’s salary despite his resignation in January.

Conflict of interests abound. Lapierre’s wife worked for A-M in the 1990s and still runs an NRA affiliated Women’s Leadership Forum which is promoted by A-M. One senior NRA staffer had his wife working on NRA business for a fund-raising company that the NRA used. His father became a photographer for the NRA. And he attempted to get a job at the NRA for a woman he was having a sexual relationship with. Lapierre’s contract has a unique clause that requires him to be paid for consulting services and personal appearances at his base rate, which is currently over $1 million per year, even after he leaves the organization. And the new head of the NRA, Oliver North, has his own undocumented agreement with A-M in addition to what he is paid by the NRA.

As the former head of the IRS division that oversees tax-exempt organizations noted, “The litany of red flags is just extraordinary. The materials reflect one of the broadest arrays of likely transgressions that I’ve ever seen. There is a tremendous range of what appears to be the misuse of assets for the benefit of certain venders and people in control”. And it is likely to get even uglier as the NRA has sued Ackerman-McQueen in a desperate bid to blame them for criminal violations that may result in the NRA losing its tax-exempt status.

Of course, the reason this has gone on for as long as it has is that the IRS has effectively abdicated oversight of non-profits entirely, despite massive amounts of evidence that they are being consistently abused for self dealing and illegal political coordination. When it comes to regulating 501(c)(4)s which allow for dark money independent political expenditures and which is what the largely insolvent NRA used to back Trump to the tune of $50 million in 2016, virtually any enforcement has been abandoned. This ProPublica article can explain all the reasons why, but suffice it to say, it has become the wild west where anything goes for these non-profits.

What happened at the NRA is hardly new, especially with politically connected activity. The Trump campaign was basically a grift to funnel donor money to Trump and his cronies. That realization was so prevalent that Trump had to finally promise to pony up $50 million to his campaign before other donors would contribute. On all sides of the political spectrum, there have been plenty of campaigns that funneled most of their donor money to the political consultants associated with those campaigns.

As Daniel Nexon points out, what happened at the NRA looks remarkably similar to what vulture capitalists and private equity firms do to for-profit companies. Just look at Eddie Lampert at Sears; Bain, KKR, and Vornado at Toys R’ Us; Cerberus at Albertsons and the retail sector in general; and Digital First Media at the Denver Post and elsewhere, and the destruction of local American journalism.

It is all the legalized looting of American business to put a few more dollars in the pockets of people who are already wealthy, even by US standards. And, of course the looting of American business is also the destruction of the American middle class, largely abetted by government actions and policies. At Fannie Mae and Freddie Mac, still under government supervision since their bailout during the financial crisis, CEO pay is limited to $600,000 per year. But such a thing as a simple government regulation wouldn’t stand in the way of ensuring that the leaders of these companies get the big bucks they feel entitled to. So, instead of calling the person in charge the CEO, the firms created the position of president and plan to pay them around $3 million per year. Needless to say, the Treasury Department was alerted to this change last year and basically signed off on it. Last year, five executives at Fannie Mae made over $2 million and four at Freddie Mac made over $3 million. Executive pay at Freddie Mac increase by over 30%.

Now, the people supporting these increases tell us that the private sector pays almost ten times more for similar positions at other large financial firms and that it was hard to find a qualified applicant for the mere $600,000 pay. A compensation consultant who consulted with Fannie Mae in the past gave the game away, however, when he declared that qualified candidates would consider taking the job at $600,000 as a “public service”, adding, “The job itself, that doesn’t feel like a lot of fun. If something goes wrong, you are going to get blamed”. That statement just reeks of privileged entitlement. Maybe I’m just old-fashioned, but working for the government used to be called “public service” and it used to be an honorable thing. And the idea that you can’t find a qualified employee for $600,000 is also laughable. And I’m pretty sure that every worker in America faces the possibility that they are going to get blamed when they do something wrong. Moreover, it is the entire fraud of the compensation consulting industry that creates the fictional rationale for ever higher CEO pay and ever more inequality.

Meanwhile, of course, Donald Trump is pocketing millions of dollars by violating the Emoluments Clause and using his properties as political tools. His administration is choked with officials violating ethics rules at the behest of corporations with which they have financial conflicts of interests. Today, at least six Interior Department employees are being investigated for such conflicts and that does not include the new Secretary of the Interior who managed to trigger a similar investigation after just days on the job. The new tax law sent another $2 trillion over the next decade primarily to executives and shareholders while forcing Gold Star families with children to pay more in taxes. As one pundit noted, it is just another example of the post-Reagan Republican party’s policies, which have reached their apotheosis under Trump, to “loot and redistribute”, take from the American middle class and spread that wealth upward. Soon, like the NRA and all those companies now bankrupted by the vulture capitalists, there won’t be anything left to take.