In 2016, JPMorgan Chase agreed to pay $264 million as part of a settlement with the federal government. The reason? An Asian subsidiary of the company had hired the children of Chinese government officials in the hopes of currying favor with their powerful parents — a violation of the Foreign Corrupt Practices Act.
Had the same thing happened with a foreign company and an American politician’s family, however, no violation would have occurred — because no equivalent American law prevents a foreign company or government from hiring the family members of American politicians.
This glaring loophole provides political families with an opportunity to effectively “offshore” corruption and cronyism. It gives the politically connected class enormously tempting opportunities for self-dealing, the sort of thing that is blatantly illegal in almost any other context.
Consider two Washington power families: the Bidens and the McConnell-Chaos.
As vice president, Joe Biden served as point person on American policy toward China and Ukraine. In both instances, his son Hunter, a businessman, landed deals he was apparently unqualified to score save for one thing: his father.
In December 2013, Joe and Hunter Biden flew aboard Air Force Two to China; less than two weeks after the trip, Hunter’s firm, Rosemont Seneca Partners, which he founded with two other businessmen in June 2013, finalized a deal to open a fund, BHR Partners, whose largest shareholder is the government-run Bank of China, even though he had scant background in private equity. (Representatives of the fund claim that the timing of the deal and the Bidens’ trip to China was coincidental.) Thus far, the firm has invested about $2.1 billion, according to its website.
In trying to disprove a link between the father’s powerful position and the son’s surprising success, Hunter Biden’s lawyers claim he did not take an equity stake in BHR Partners until after Joe Biden left office. Hunter, whose company, according to its financial records, held an equity stake in the fund, took a board seat when it was founded, in December 2013. At the same time, his business partner, Devon Archer, was vice chairman.
With the Russian invasion of Crimea in 2014, Joe Biden became point person in Ukraine as well. That same year, Hunter Biden landed a board position with the Ukrainian energy giant Burisma Holdings. Despite having no background in energy or Ukraine, the vice president’s son was paid as much as $50,000 a month, according to financial records. (He left the board in early 2019.)
Why would someone with so little experience be able to command such enormous payments? Joe Biden recently claimed, “I have never spoken to my son about his overseas business dealings.” But Hunter Biden admitted to The New Yorker that on one occasion, they had in fact discussed his work for Burisma: “Dad said, ‘I hope you know what you are doing,’ and I said, ‘I do.’” Moreover, a representative for BHR Partners has said that Hunter Biden introduced his father to one of the company’s founders during their December 2013 China trip.
The Bidens are hardly alone. President Trump’s transportation secretary, Elaine Chao, and her husband, Senator Mitch McConnell, are being accused of having profited from their commercial ties to Beijing. In 2004, the two had a net worth of about $3.1 million, according to public disclosures. Three years later, the range was $3.1 million to $12.7 million. The next year, their net worth rocketed to $7.3 million to $33.1 million.
What changed? In 2008, Ms. Chao’s father, James Chao, gave the couple a “gift” of $5 million to $25 million (politicians are required to report money in ranges, not exact amounts). Certainly, their wealth has continued to grow.
Mr. Chao’s generosity was made possible by the fortune he has amassed through his shipping company, Foremost Group, which has thrived in large part because of its close ties with the Chinese government. In late 1993, Mr. Chao and his son-in-law, Mr. McConnell, traveled to China as guests of the state-owned shipyard conglomerate and military contractor, China State Shipbuilding Corporation. There they met with an old classmate of Mr. Chao’s, the former Chinese president Jiang Zemin.
Mr. McConnell’s once hard-line condemnations of China softened in the years to follow. For example, as The New Republic has noted, Mr. McConnell went from telling University of Louisville students that America would never forget Tiananmen Square, in the late 1980s, to hosting the Chinese ambassador at the same school several years later, even as the ambassador publicly defended the regime’s suppression of the Falun Gong.
All along, the Chaos continued to gain influence. Mr. McConnell’s sister-in-law, Angela Chao, and James Chao sat on the board of the holding company for China State Shipbuilding. While Elaine Chao was secretary of labor under George W. Bush, Foremost Group ordered several enormous cargo ships from a subsidiary of China State Shipbuilding. Secretary Chao and her father also appeared in several tandem interviews with Chinese media, and it at least one, they sit in front of the Department of Transportation’s emblem and alongside images of a book written by Mr. Chao. Today, Angela Chao sits on the board of the Chinese government’s Bank of China.
Last month, the House Oversight and Reform Committee started an investigation into whether Secretary Chao has leveraged her government positions to benefit her family. But so far there is no investigation into Joe and Hunter Biden. Defenders claim there must first be proof that a law was broken to open an investigation. That’s exactly backward. Congress can and should conduct an inquiry to determine whether anything illegal occurred.
The problem more broadly is that we rely on a hodgepodge of laws that lack the clarity and bright ethical lines found in the Foreign Corrupt Practices Act. That needs to change. International bribery laws clearly state that if a person or entity pays a politician’s family member and gets favors in return, it’s an act of bribery; it’s no different from the politician taking the money himself.
Obviously, the immediate family members of high-ranking politicians have to work — no one is saying otherwise. But given their unparalleled access, they should also be required to be transparent about what they are doing.
At a minimum, we need to strengthen American disclosure rules. Joe Biden and Elaine Chao have to report when someone sends them a $500 campaign donation, or when they make a $5,000 investment in a stock. But when their family members strike lucrative deals with a foreign government or oligarch, the reporting requirements are vague. The personal financial disclosure rules for American public officials should be expanded to include details concerning all their immediate family members (and not just their spouses, as the law currently states), and any dealings with foreign governments.
To the public, closing a loophole this glaring seems anodyne, a no-brainer. But lawmakers set the system up this way for a reason; they will not stop the foreign cash influence game voluntarily. That’s why we need a Washington Corrupt Practices Act, one that clearly shuts down foreign influence and self-enrichment for some of America’s most powerful families on both sides of the aisle.
