To ‘drain the swamp,’ start with the Washington swamp’s power couple

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The “Enemy of The People,” Senate Majority Leader Mitch McConnell, and his wife Elaine Chao, the current Secretary of Transportation, are unrivaled as the Washington swamp’s power couple.

We’ll get back to “The Grim Reaper,” Mitch McConnell, whose Senate is the graveyard of legislation under his policy of “total obstruction” another time.

Last month, a Wall Street Journal report (subscription required) found that Transportation Secretary Elaine Chao skirted her own ethics pledge by failing to divest her stake in Vulcan, the nation’s largest construction materials supplier, and a company that lobbies her department, despite having promised over a year ago to divest from the company, on whose board she sat.

Last week, the New York Times took a deep-dive look at Elaine Chao, and today there is additional reporting from other news media.

The Times reported, For the Chao Family, Deep Ties to the World’s 2 Largest Economies:

Through interviews, industry filings and government documents from both countries, The New York Times found that the Chaos, and by extension Mr. McConnell, prospered as the family’s shipping company developed deeper business ties in China. Along the way, one of the company’s boosters was Ms. Chao, who now oversees efforts to promote America’s own maritime industry, which is in steep decline as China’s shipping sector rises in global dominance. Here are five takeaways (sectional summary – see report):

1. The Chao family’s connections to the Chinese state go back decades

2. The family shipping company is centered on China

3. As budget cuts have targeted America’s shipping sector, the Trump administration’s commitment under Ms. Chao has been questioned

4. Ms. Chao’s family ties to the shipping company and her dealings in China raise ethical issues

5. Mr. McConnell benefited from his marriage into the Chao family

(Excerpt):

Elaine Chao hasn’t held a formal position at [her father’s company] Foremost since the late 1970s, but she has repeatedly used her connections and status to boost the company’s reputation and visibility.

As transportation secretary, she attended a Foremost contract-signing ceremony in New York in 2017. The other party to the contract, the Sumitomo Group of Japan, was subject to Transportation Department oversight for transit projects. Two months later, she canceled a China trip after officials at the American embassy in Beijing raised ethical concerns when her office asked to have family members from the shipping company participate in events.

The Transportation Department provided no reason for the trip’s cancellation, though a spokesman later cited a cabinet meeting President Trump had called at the time.

At her confirmation hearing, Ms. Chao did not mention her family’s extensive ties to the Chinese maritime industry. She also did not disclose several accolades she had received in China — including a role as an international adviser to the city of Wuhan — though the Senate questionnaire requires nominees to list all honorary positions. An agency official described that as an oversight.

Marilyn L. Glynn, a former general counsel at the Office of Government Ethics, said Ms. Chao should recuse herself from decisions that broadly impacted the shipping industry. “She might be tempted to make sure her family company is not adversely affected in any policy choices, or it might even just appear that way,” Ms. Glynn said.

The department spokesman denied the existence of any conflict, saying that “the family business is not in U.S.-flag shipping.” Angela Chao, Foremost’s chief executive, said her sister Elaine attended Foremost events “as a family member.”

In a companion piece, the Times reports A ‘Bridge’ to China, and Her Family’s Business, in the Trump Cabinet:

The email arrived in Washington before dawn. An official at the American Embassy in Beijing was urgently seeking advice from the State Department about an “ethics question.”

“I am writing you because Mission China is in the midst of preparing for a visit from Department of Transportation Secretary Elaine Chao,” the official wrote in October 2017.

Ms. Chao’s office had made a series of unorthodox requests related to her first scheduled visit to China as a Trump cabinet member, according to people with knowledge of the email. Among them: asking federal officials to help coordinate travel arrangements for at least one family member and include relatives in meetings with government officials.

In China, the Chaos are no ordinary family. They run an American shipping company with deep ties to the economic and political elite in China, where most of the company’s business is centered. The trip was abruptly canceled by Ms. Chao after the ethics question was referred to officials in the State and Transportation Departments and, separately, after The New York Times and others made inquiries about her itinerary and companions.

“She had these relatives who were fairly wealthy and connected to the shipping industry,” said a State Department official who was involved in deliberations over the visit. “Their business interests were potentially affected by meetings.”

The move to notify Washington was unusual and a sign of how concerned members of the State Department were, said the official, who was not authorized to speak on behalf of the agency.

David H. Rank, another State Department official, learned of the matter after he stepped down as deputy chief of mission in Beijing earlier in 2017. “This was alarmingly inappropriate,” he said of the requests.

Ms. Chao has no formal affiliation or stake in her family’s shipping business, Foremost Group. But she and her husband, Senator Mitch McConnell of Kentucky, have received millions of dollars in gifts from her father, James, who ran the company until last year. And Mr. McConnell’s re-election campaigns have received more than $1 million in contributions from Ms. Chao’s extended family, including from her father and her sister Angela, now Foremost’s chief executive, who were both subjects of the State Department’s ethics question.

Over the years, Ms. Chao has repeatedly used her connections and celebrity status in China to boost the profile of the company, which benefits handsomely from the expansive industrial policies in Beijing that are at the heart of diplomatic tensions with the United States, according to interviews, industry filings and government documents from both countries.

Now, Ms. Chao is the top Trump official overseeing the American shipping industry, which is in steep decline and overshadowed by its Chinese competitors.

Her efforts on behalf of the family business — appearing at promotional events, joining her father in interviews with Chinese-language media — have come as Foremost has interacted with the Chinese state to a remarkable degree for an American company.

the company’s primary business — delivering China’s iron ore and coal — is intertwined with industries caught up in a trade war with the United States. That dispute stems in part from the White House’s complaints that China is flooding the world with subsidized steel, undermining American producers.

Foremost, though a relatively small company in its sector, is responsible for a large portion of orders at one of China’s biggest state-funded shipyards, and has secured long-term charters with a Chinese state-owned steel maker as well as global commodity companies that guarantee it steady revenues.

In a rarity for foreigners, Angela and James Chao have served on the board of the holding company for China State Shipbuilding, a state-owned enterprise that makes ships for the Chinese military, along with Foremost and other customers. Angela Chao is also on the board at the Bank of China, a top lender to the shipbuilder, and a former vice chairman of the Council of China’s Foreign Trade, a promotional group created by the Chinese government.

* * *

Since Elaine Chao became transportation secretary, records show, the agency budget has repeatedly called to cut programs intended to stabilize the financially troubled maritime industry in the United States, moving to cut new funding for federal grants to small commercial shipyards and federal loan guarantees to domestic shipbuilders.

Her agency’s budget has also tried to slash spending for a grant program that helps keep 60 American-flagged ships in service, and has tried to scale back plans to buy new ships that would train Americans as crew members. (In China, Ms. Chao’s family has paid for scholarships and a ship simulator to train Chinese seamen.)

Congress, in bipartisan votes, has rejected the budget cuts, some of which have been offered up again for next year. One opponent of the cuts has been Representative Alan Lowenthal, a California Democrat whose district includes one of the nation’s largest cargo ports.

“The Chinese government is massively engaged in maritime expansion as we have walked away from it,” he said in an interview. “There is going to come a crisis, and we are going to call upon the U.S. maritime industry, and it is not going to be around.”

Elaine Chao declined to be interviewed[.]

* * *

The Chao family’s ties to China have drawn some attention over the years. In 2001, The New Republic examined them in the context of the Republican Party’s softening tone toward the country. When Ms. Chao was nominated as transportation secretary, ProPublica and others highlighted the intersection of her new responsibilities with her family’s business. And in a book published last year, the conservative author Peter Schweizer suggested the Chaos gave Beijing undue influence.

The Times found that the Chaos had an extraordinary proximity to power in China for an American family, marked not only by board memberships in state companies, but also by multiple meetings with the country’s former top leader, including one at his villa. That makes the Chaos stand out on both sides of the Pacific, with sterling political connections going to the pinnacle of power in the world’s two biggest economies.

* * *

Though Ms. Chao’s financial disclosure statements indicate she receives no income from Foremost, she made at least four trips to China with the company in the eight years between her job as labor secretary during the George W. Bush administration and her confirmation as transportation secretary in January 2017. And her father accompanied her on at least one trip that she took as labor secretary, in 2008, sitting in on meetings, including with China’s premier, one of the country’s top officials.

Public records show that she has benefited from the company’s success. A gift to Ms. Chao and Mr. McConnell from her father in 2008 helped make Mr. McConnell, the Republican majority leader, one of the richest members of the Senate. And three decades worth of political donations have made the extended family a top contributor to the Republican Party of Kentucky, a wellspring of Mr. McConnell’s power.

“This is a family with financial ties to a government that is a strategic rival,” said Kathleen Clark, an anti-corruption expert at Washington University in St. Louis. “It raises a question about whether those familial and financial ties affect Chao when she exercises judgment or gives advice on foreign and national security policy matters that involve China.”

Forbes Magazine explains A $59 Million Will Sheds Light On Shipping Fortune Connected To Elaine Chao And Mitch McConnell:

In the heart of the Great Recession, Mitch McConnell suddenly got richer. According to his 2009 financial disclosure, while other senators’ fortunes were falling, McConnell’s jumped, thanks to a multimillion-dollar gift from his father-in-law, James Chao, to him and his wife, Elaine Chao, who now serves as President Trump’s Secretary of Transportation.

Federal financial disclosures list assets in wide ranges. The totals in McConnell’s disclosure jumped from a range of $3.1 million to $12.7 million in 2007 to $7.3 million to $33.1 million in 2008. The big reason for that increase: a $5 million-to-$25 million gift from the elder Chao in memory of Elaine’s mother, Ruth, who died at age 77 in 2007.

Forbes has since obtained a copy of Ruth Chao’s will and supplementary documents, and is unveiling their contents for the first time.

Forbes published the documents and provides an analysis.

POLITICO in a lengthy report today adds, Chao created special path for McConnell’s favored projects (excerpts):

The Transportation Department under Secretary Elaine Chao designated a special liaison to help with grant applications and other priorities from her husband Mitch McConnell’s state of Kentucky, paving the way for grants totaling at least $78 million for favored projects as McConnell prepared to campaign for reelection.

Chao’s aide Todd Inman, who stated in an email to McConnell’s Senate office that Chao had personally asked him to serve as an intermediary, helped advise the senator and local Kentucky officials on grants with special significance for McConnell — including a highway-improvement project in a McConnell political stronghold that had been twice rejected for previous grant applications.

Beginning in April 2017, Inman and Chao met annually with a delegation from Owensboro, Ky., a river port with long connections to McConnell, including a plaza named in his honor. At the meetings, according to participants, the secretary and the local officials discussed two projects of special importance to the river city of 59,809 people — a plan to upgrade road connections to a commercial riverport and a proposal to expedite reclassifying a local parkway as an Interstate spur, a move that could persuade private businesses to locate in Owensboro.

Inman, himself a longtime Owensboro resident and onetime mayoral candidate who is now Chao’s chief of staff, followed up the 2017 meeting by emailing the riverport authority on how to improve its application. He also discussed the project by phone with Al Mattingly, the chief executive of Daviess County, which includes Owensboro, who suggested Inman was instrumental in the process.

“Todd probably smoothed the way, I mean, you know, used his influence,” Mattingly said in a POLITICO interview. “Everybody says that projects stand on their own merit, right? So if I’ve got 10 projects, and they’re all equal, where do you go to break the tie?”

“Well, let’s put it this way: I only have her ear an hour when I go to visit her once a year,” he added of Chao and Inman, a longtime Bluegrass State operative who had worked as McConnell’s advance man. “With a local guy, he has her ear 24 hours a day, seven days a week. You tell me.”

The circumstances surrounding the Owensboro grant and another, more lucrative grant to Boone County, highlight the ethical conflicts in having a powerful Cabinet secretary married to the Senate’s leader and in a position to help him politically. McConnell has long touted his ability to bring federal resources to his state, which his wife is now in a position to assist.

Chao’s designation of Inman as a special intermediary for Kentucky — a privilege other states did not enjoy — gave a special advantage to projects favored by her husband, which could in turn benefit his political interests. In such situations, ethicists say, each member of a couple benefits personally from the success of the other.

“Where a Cabinet secretary is doing things that are going to help her husband get reelected, that starts to rise to the level of feeling more like corruption to the average American. … I do think there are people who will see that as sort of ‘swamp behavior,’” said John Hudak, a Brookings Institution scholar who has studied political influence in federal grant-making.

In fact, days after launching his 2020 reelection campaign McConnell asked Owensboro’s mayor to set up a luncheon with business and political leaders at which the senator claimed credit for delivering the grant.

“How about that $11 million BUILD grant?” McConnell asked the crowd rhetorically, according to the Owensboro Times. He then recalled his role in securing earlier grants to the city, adding, “It’s done a lot to transform Owensboro, and I was really happy to have played a role in that.”

McConnell’s role — along with Chao’s and Inman’s — was also celebrated by local officials when the $11.5 million grant was approved — to much local fanfare in December 2018.

* * * *

Owensboro wasn’t the only beneficiary of Inman’s assistance. He also communicated with McConnell’s office about multiple requests from county executives to meet with Chao to speak about potential projects in Kentucky, according to emails which, like the others, were obtained under the Freedom of Information Act by the watchdog group American Oversight.

One of those executives, Boone County Judge/Executive Gary Moore, met with Chao in December 2017. Moore’s request, a $67 million discretionary grant to upgrade roads in rural Boone County, another McConnell stronghold northeast of Louisville, was ultimately approved in June 2018.

Chao declined to comment for this story, and neither she nor Inman addressed questions about his role as intermediary between the department and Kentucky.

* * *

[O]ne former career official who was involved in the grant review process under multiple administrations, said that once the findings of the professional staff are presented to the secretary’s office, politics often plays a role in who gets the money.

Putting a thumb on the scale for a favored project, the official said, “is really, very common, I would say across parties.”

“It’s always going to be political,” the former official, who spoke without attribution for fear of reprisals, added. “We have a merit-based process that we essentially ignore, [and] it’s really detrimental to meeting national transportation needs and having people feel like the process is worth engaging in.”

Virginia Canter, a former White House associate counsel under Presidents Barack Obama and Bill Clinton and current ethics counsel for the Citizens for Responsibility and Ethics in Washington, said showing political favoritism in awarding grants violates ethical standards. And when a potential beneficiary is a spouse, there’s an extra level of concern.

“There’s a standard for government employees; they’re expected to be impartial,” said Canter. “When you have a spouse who’s the head of an agency and the other spouse is a leading member of Congress — and their office is referring matters to the department, and they’re flagging things from donors, from people with particular political affiliations, who are quote-unquote ‘friends’ — it raises the question of whether the office, instead of being used purely for official purposes, is being used for political purposes.

“The fact that they’re both in these very important positions gives them the opportunity to be watching out for each other’s political and professional interests,” Canter said. “Anytime a member of Congress can bring home funding to his or her community it could make a difference. It shows the member is being responsive.”

* * *

“Cabinet members are known to be preferential to their own home state,” said Hudak, the Brookings scholar who has studied political influence in federal grant-making, adding that they tend to prioritize the home states of congressional leaders as well, “so you can have a sort of doubling effect.”

“There’s nothing illegal about her steering those funds to her husband’s home state, and her home state, as long as things are aboveboard,” Hudak said. “The question though is, how do you deal with conflicts of interests? And this is a clear conflict. … Even if it’s not legally so, these are political offices, so the optics of this are important. In a business setting, you would put firewalls up to prevent those types of bad optics.”

This Washington swamp power couple has to be removed from power.




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