Taiwan money scandal has White House ties

Bush officials under scrutiny in influence-peddling intrigue.

Published April 6, 2002 12:17AM (EST)

An influence-peddling scandal has erupted in Taiwain, and Bush administration officials have been named in leaked Taiwanese intelligence documents as the recipients of financial support. While it's too soon to tell whether the story has the stamina to make it halfway around the world, the U.S. officials named -- including Deputy Secretary of Defense Paul D. Wolfowitz, and two assistant secretaries of state, along with a Clinton Defense Department appointee -- have already clammed up, refusing to talk to the press.

There is no evidence of any lawbreaking, but the scandal does threaten to expose the type of political influence-peddling that Washington is both renowned -- and reviled -- for.

On March 20, two Taiwanese media outlets, Taiwan Next magazine and the China Times, published articles based on secret documents leaked from Taiwan's National Security Bureau (NSB), one of the main arms of Taiwanese intelligence. The leaked documents appear to show the existence of a massive secret slush fund with assets of more than $100 million, which former President Lee Teng-hui used for covert diplomatic and espionage activities abroad. Those efforts included spying in the People's Republic of China, cash donations to developing countries willing to extend diplomatic recognition to Taiwan, and cash payoffs to politicians and foreign policy hands in Japan and the United States.

Taiwanese authorities responded with an ill-advised police raid on the offices of Next, and launched an investigation of the editor of the China Times for endangering national security. But it only added fuel to the fire. In an article published Friday in the Washington Post, Taiwanese officials confirmed the authenticity of the documents. Outside the country, however, the scandal is providing the first tangible proof of what foreign policy experts and China watchers have long suspected: that Taiwan has for decades used covert cash payments to political figures and institutions in Japan and the United States to try and improve its diplomatic standing.

The most serious allegations concern Assistant Secretary of State for East Asian and Pacific Affairs James A. Kelly, America's chief diplomat for Asia and the Pacific Rim. One of the projects described in the secret NSB documents was an effort by Taiwanese officials to provide cash payments to officials of the Japanese government in exchange for their help in bringing Taiwan under a proposed American missile defense shield. In at least one instance Kelly helped NSB officials secretly transfer funds to a vice minister of the Japanese Defense Agency, Masahiro Akiyama, after Akiyama was forced to resign from the government because of a defense procurement scandal.

But, according to Japan policy experts, Kelly's apparent help in facilitating a Taiwanese payoff of a prominent Japanese politician may create an embarrassing situation for American diplomats in their dealings with Japan. Lawrence Korb, a former Reagan administration Defense Department official now at the Council on Foreign Relations, told Salon he didn't think Kelly's actions were "business as usual" but nonetheless defended Kelly's intentions. "Jim Kelly is as honest as the day is long," said Korb. "I'm sure that he was trying to help someone who got in an awkward situation and was trying to get the money where it needed to go."

Others, however, find the revelation more troubling and possibly more damaging to U.S.-Japan relations. According to Steven Clemons, co-founder of the Japan Policy Research Institute, it is understood in Japan that various sorts of gift-giving and influence-peddling routinely occur. And such practices are tacitly accepted -- as long as they don't become public. "But if it comes to the light of day," says Clemons, "then the rules are different. If Kelly did this and it comes to light then it's a huge deal. It would mean he's made himself an agent, a pawn, a fixer for Taiwan in Japan. It would be extremely embarrassing to the Japanese."

According to the documents published in the China Times and Sing Tao Daily, Taiwanese officials gave small cash gifts to senior members of the Japanese government to gain their assistance in Taiwan's bid to be included under America's missile defense shield to protect U.S. allies in East and Northeast Asia. The officials named in the documents are then Prime Minister Ryutaro Hashimoto (who reportedly received $10,000) and Vice Defense Minister Masahiro Akiyama ($2,000). Later, after Akiyama was forced to resign in November 1998, the NSB rewarded him for past assistance with $100,000 to support a two-year fellowship for him to study missile defense issues at Harvard University's Fairbank Center for East Asian Research.

But funneling the money from the National Security Bureau's secret slush funds to Harvard, and concealing its source, was a complicated matter. To do so, according to reports of the documents, the NSB enlisted the assistance of Peng Run-tzu, the president of the Taiwan Transport Machinery Corporation. Peng is a close friend of President Lee, often acting as Lee's personal representative in informal diplomatic contacts in Japan and the United States. On Dec. 15, 1999, the NSB transferred $100,000 to Peng. Five days later Peng transferred the money to the bank account of the Pacific Forum, an adjunct of the Washington-based think tank the Center for Strategic and International Studies. At the time, the Pacific Forum was run by James Kelly. The arrangement to transfer the funds to Harvard to support Akiyama was confirmed when Peng and Kelly met at a Los Angeles restaurant on Jan. 15, 2000.

Kelly declined repeated requests by Salon to comment on this story. Akiyama, meanwhile, in a March 27 interview with the China Times, denied any contact with Taiwanese officials and said his funding came from Harvard. Yet an investigation into the funds transfer between Taiwan, Kelly's Pacific Forum, and Harvard raises further questions about Kelly's role and just what happened to the $100,000 he was reportedly given for Akiyama's support.

On Monday, CSIS spokesman Jay Farrar told Salon that CSIS has no record of any such transaction ever taking place. According to Farrar, CSIS's Pacific Forum has substantial autonomy and is able to earmark for its own purposes funds that it raises. But the two organizations have a single set of books and a single budget. In other words, says Farrar, any transfer should show up on CSIS's books. But apparently they didn't. CSIS did receive roughly $50,000 in general funding support from Taiwan in 1999 but the think tank's account books, Farrar told Salon, "do not show any payments that would correspond" to the transfers of funds described in the Taiwanese and Hong Kong press -- either of money coming in from Taiwan or going out to Harvard.

On Thursday morning, however, Farrar revised his earlier statement. Ralph Cossa, Kelly's deputy in 1999 and the current director of the Pacific Forum, told Farrar that Peng had asked Kelly to assist Akiyama in roughly the manner the NSB documents describe. CSIS records show that Peng gave Pacific Forum $50,000 and that Kelly passed approximately $40,000 to Harvard, keeping $10,000 for the Pacific Forum. Farrar told Salon that the December 1999 payment to Pacific Forum was actually one of four similar payments Peng made to Kelly's organization during the period in question: $25,000 in July 1998, $25,000 in August 1999, and $50,000 in June 2000.

Farrar's revised story is supported in part with an account provided to Salon by officials at Harvard's Fairbank Center on Tuesday. According to Asia expert and onetime Clinton administration appointee Ezra Vogel, who was the head of the Fairbank Center at the time, Akiyama applied and was accepted for a fellowship at the center through the established selection process. Akiyama was then told, however, that the center could not provide funds to support his stay. At this point, Kelly entered the picture. "Other people who knew [Akiyama] gave him some funds" Vogel initially told Salon. "And I believe that Jim Kelly played a role getting those funds." Later, Vogel said that Kelly had "arranged to get the money" for Akiyama's stay at the center but that he was not aware of the ultimate source of the funds Kelly provided.

Vogel then asked Susan McHone, the center's administrator, to review the center's records and McHone confirmed to Salon that Kelly had arranged for a payment of $39,600 from the CSIS Pacific Forum, which Harvard used to pay for Akiyama's apartment and other miscellaneous expenses during the first year of his stay at the center. During his second year at the center, says McHone, Akiyama's expenses were paid by the Arlington, Va., office of the Yamada Corporation, a Japanese defense and aerospace holding company. (A Yamada representative, who declined to provide her name, did not return a call requesting comment on Yamada's funding of Akiyama's fellowship.)

The available evidence raises a number of questions. Did Kelly funnel the funds to support Akiyama through CSIS's Pacific Forum, contrary to the denials of Akiyama? And if the NSB gave Kelly $100,000, but passed only $39,600 along to Harvard, what happened to the remaining $60,400?

There's no clear evidence that Kelly's role in the affair would have violated any American laws. He was not in government at the time. So the transaction would not be covered by any of the panoply of rules and regulations covering campaign finance or government ethics. But such an arrangement might have required Kelly to register with the Justice Department as a foreign agent, under the Foreign Agents Registration Act (FARA), something records show he did not do. Marshall Williams, administrator of the FARA office, declined to "comment on any particulars or hypotheticals" regarding the FARA law. Williams did draw attention to the portion of the law that covers any individual who "disburses, or dispenses contributions, loans, money, or other things of value for or in the interest of [a] foreign principal." But he was also at pains to make clear that such a transaction might be exempted under various other provisions of the statute.

But the issue may be less a matter of lawbreaking than of Kelly's fitness for his job with the Bush administration. In his role as assistant secretary of state, Kelly is now responsible for America's diplomatic relations with both those countries -- as well as relations with Taiwan's arch-rival, the People's Republic of China.

"What's most disturbing," says Clemons, "is that it's a lesson to the Japanese that our rhetoric about transparency is a lot of hot air, that our system is just as embedded in mutual obligation, greasing the wheel, and international nepotism. It lowers our moral edge and raises questions about Jim Kelly's judgment."

The other documents raise intriguing -- if less clear -- questions about the roles played by other U.S. political figures. In documents published in the China Times and Hong Kong's Sing Tao Daily, Carl W. Ford, who is now assistant secretary of state for intelligence and research, is described as a recipient of payments from the NSB in 1999 and 2000. It was already known that when Ford was a consultant to the Washington firm Cassidy & Associates he had worked as a lobbyist for the Taiwan Research Institute, a Taiwanese think tank closely associated with President Lee. At the time, Ford did register as a foreign agent as required under American law. Ford declined comment for this story.

But NSB documents show that the money Ford received actually came from the secret accounts controlled by the NSB. Ford was entertained during visits to Taiwan with money from the NSB secret accounts, and actually visited NSB headquarters on March 20, 2000, to discuss Taiwan's relations with China and his efforts to secure arms sales to Taiwan. According to Hong Kong IMail -- the English-language sister publication of Sing Tao -- a Taiwanese liaison assigned to work with Ford's firm told President Lee at a briefing in December 1999 that "Cassidy & Associates regarded George W. Bush, Texas governor at the time, as the best candidate in the presidential race and that his lobbying outfit intended to recruit some of Bush's friends."

Another set of documents describe how, in 1994, Lee organized a "task force" charged with cultivating foreign elected officials and deepening defense contacts with Japan and the United States. Members of the task force included Lee, Peng, various members of the Taiwanese government and several high-ranking Japanese politicians and military leaders. But the names of Wolfowitz, then a dean of the Paul H. Nitze School of Advanced International Studies, and Kurt Campbell, a deputy assistant secretary of defense in the Clinton administration, also appear on the list as members of the task force.

When the NSB documents first surfaced more than two weeks ago it was widely assumed that they had been leaked by a rogue Taiwanese intelligence agent. Since then, however, many have come to believe that the leaks may be tied to infighting between the country's two main political factions and their disagreements over the country's relationship with the United States and China. In particular, observers say, the release of the documents may be an effort to send a warning to the government, which supports independence from China, and its supporters in the Bush administration who have pressed in recent months for closer military ties to the island.

The leaks, says Asia policy expert Chalmers Johnson, appear to be a way of "reining in the Bush administration. This is a way -- without crossing them or in any way damaging future ties -- of causing them to pull back. This is a way of saying to the Americans, 'Back off. Your policies are far too extreme for what's going on in the world today. And we are not particularly worried about a Chinese military assault against the island.'"

Whatever the reasons for document leaks, the Bush administration has not felt the need to address them, and they have received little attention except small rumbles in the left-wing U.S. media.

By Joshua Micah Marshall

Joshua Micah Marshall, a Salon contributing writer, writes Talking Points Memo.

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