Pacific Whim

By

Later this spring, if all goes according to plan, Taiwanese
President Chen Shui-bian will receive a most unwelcome visitor: Mr.
Douglas H. Paal. Just over a year ago Paal, a former East Asia and
China policy adviser to the first President Bush, publicly
lambasted Chen for a litany of failures. Chen had "stumbled" in his
first months in office, Paal wrote in a widely noted column in the
International Herald Tribune. His inability to "assemble a working
coalition" had left him "floundering for a strategy to rebuild his
authority. The ineptitude of his administration had the misfortune
of coinciding with a downturn in the global market for Taiwan's
high technology goods."A few months later Paal was at it again. During last April's EP3
spy-plane standoff, President Bush had cheered Taiwanese officials
and China hawks in Washington by pledging to do "whatever it took"
to defend Taiwan from attack by mainland China. But, in mid-May,
Paal beamed a teleconferenced speech to a Shanghai conference, in
which he pooh-poohed the apparent stiffening of U.S. policy, saying
the president had "misspoke." He was equally dismissive of the
president's tough talk on China during the election, describing it
as "bumper stickers" and "campaigning slogans."

All of which makes Paal's impending arrival in Taipei somewhat
surprising. Because if things go as planned, Paal will be there as
director of the American Institute in Taiwan--America's de facto
ambassador, given our unofficial relationship with the island
nation. "I've been in this business for over thirty years, and I
don't know of another instance where we sent someone out as a chief
of mission who had publicly attacked the host country's chief
executive, " says Bill Triplett, a former chief Republican counsel
to the Senate Foreign Relations Committee. "We're clearly plowing
new ground here."

If Paal's appointment seems a bit awkward, it's likely because it
was the best the State Department could make of a bad situation.
After the 2000 election Paal touted himself for a major foreign
policy position. And why not? Paal's associates from the first Bush
administration are strewn across the second--national security
adviser Condoleezza Rice, Assistant Secretary of State for East
Asian and Pacific Affairs James Kelly, and Under Secretary of State
for Global Affairs Paula Dobriansky, to name just three. "There are
a group of people who worked with [Paal] on Bush I," says one
Senate staffer, "who tout him as being a real insider on [East
Asia] issues." Perhaps more important, Paal enjoyed the strong
support of the first President Bush, to whom he'd grown close as
the chief East Asia staffer at the National Security Council (NSC).
"If you wanted to get word to the president, Doug was the channel
you went to," says another Senate staffer who dealt with Paal on
China policy in 1990-1991. "The rest of the people in the
administration gave him a very wide berth well beyond his rank."

But, despite such connections, Paal was passed over for position
after position--assistant secretary of state for East Asia,
ambassador to South Korea- -in the new Bush administration. When
the appointment to Taipei was first floated last summer, according
to sources close to Paal and sources close to the State Department,
Paal was initially reluctant to accept it. (Because Taiwan hasn't
enjoyed formal U.S. recognition since 1979, the job is seen as
second tier despite its diplomatic importance.) Eventually, friends
in and out of government convinced Paal that the posting could be a
stepping stone to a better appointment in a Bush second term, so he
agreed. But though the appointment has been considered a done deal
in diplomatic circles for months, it has still not been officially
announced.

Foreign policy hands say there is no shortage of reasons why Paal
might have had trouble getting a high-profile appointment. As the
man most identified with the first Bush administration's
pro-China-engagement stance, Paal was bound to run afoul of China
hawks inside and outside the administration--even before the 2000
Herald Tribune op-ed and Shanghai speech. Personality may also have
been an issue. Paal is a big man with a big ego, as even friends
concede. In his years out of government he adopted the trappings of
a big-time Washington player, with $2,000 suits and a bearing to
match. "When you look up 'fat cat' in the dictionary, you see
Doug's picture," says one Republican Senate staffer. "Every time
you see him, the cuff links are bigger."

Over the years Paal's sometimes abrasive manner earned him a number
of enemies. One of these, Rice--whom Paal repeatedly slighted when
both were on the NSC--is said to have frozen him out of the select
group of foreign policy hands (the "Vulcans") who advised Bush
during the campaign. "Condi is widely known for loathing Doug
Paal," says one Republican congressional source.

But, given the prevalence of Bush I officials in the Bush II
administration and the strong support of George H.W., it's unlikely
that ideology and personal pique alone could have kept Paal out of
the administration for so long. The real problem for Paal was that
even his friends and former colleagues had questions about just
what he had been up to during his years out of government.
Specifically, they wondered about the Asia Pacific Policy Center
(APPC), a boutique think tank Paal had spent his time out of
government running. The APPC was exquisitely well financed. But
under its think-tank veneer, it seemed to function more like a
consulting or lobbying firm on the sly. Most of its funding,
moreover, apparently came from foreign governments and
corporations, some with rather questionable reputations. Which
suggests one final reason Paal may have been tapped for Taipei:
Unlike virtually any other diplomatic appointment, it requires no
Senate hearings and no confirmation.

Doug Paal founded the APPC in 1993 with Anthony Stout, a storied
Washington lobbyist-cum-entrepreneur with a reputation for running
through other people's money in sometimes successful, more often
disastrous, ventures. In the former category was the influential
Washington weekly National Journal, which Stout founded in 1969 and
sold for between $12 million and $15 million in 1986; in the latter
were failed undertakings like the International Reporting
Information Systems (IRIS), a much-hyped "private CIA" that swirled
into bankruptcy in 1983; and the Battle of Normandy Foundation, a
splashy charity devoted to inscribing the names of World War II
veterans on a memorial in Normandy--which fell apart in 1993 when
The Washington Times revealed that $7.6 million of the $8.2 million
the foundation had raised was spent on travel, dining, and
fund-raising or diverted into the coffers of Stout's investment and
lobbying company, GIM Corp. (The foundation's wall was never built.)
Stout, who had a record of using his association with prominent
politicians to lubricate his business ventures, wanted someone with
foreign policy credentials and government access to help him launch
a new venture, capitalizing on the go-go economies of 1990s Asia.
Paal, meanwhile, wanted help funding a group that would pay him
well and enable him to continue working on East Asia issues. So
Stout provided the start-up money for the center and housed it under
the same roof as his company offices, just as he had the Battle of
Normandy Foundation, which was skidding into scandal just as he and
Paal were getting the APPC off the ground.

The APPC's stated goal was "educating opinion leaders, students,
business and organization executives and government officials
worldwide on the US economic, political and security roles in the
Asia and Pacific regions." And, on the surface, the center looked
no different from the capital's countless other small think tanks.
Paal made occasional appearances on respected interview shows like
PBS's "NewsHour," penned op-eds, and appeared on panels at foreign
policy conferences and symposia. But, over time, people in Paal's
East Asia policy circles began to wonder whether the APPC might not
be quite what it appeared. Although the center had a big budget and
posh offices in downtown Washington, it appeared to do few of the
things think tanks normally do: It published no studies; it issued
no public reports or opinion briefs; and it hosted no
conferences--at least none that were open to the public.

Indeed, on the inside the center functioned less like a think tank
than a high-end consultancy or even a lobbying firm. According to
former employees, the center's work was almost entirely geared to
servicing the needs of its governmental and corporate funders--or
"clients," as they were apparently often called. These funders
received a weekly two-page newsletter on happenings in East Asia;
they could also request more detailed reports on particular topics,
meet with Paal to discuss important developments, or get
introductions to key government leaders. Jonathan Clarke, who
worked at the center for several months in 1994, described the APPC
as a combination think tank and consulting firm. Clarke describes
the attraction Paal held for funders this way: "We want you to be
able to make public speeches because we think you endorse a line
that we approve of. And we want you to be able to conduct that in
the public domain. So we will sponsor you sufficiently so you can
have an office and put out policy papers. And in the meantime you
can also keep us informed in the classic consultancy type of role
... tending more in the consultancy direction, but sort of a
hybrid." Only the APPC didn't publish policy papers. Its entire
existence seemed geared to arranging private meetings and giving
advice, with the nexus between services rendered and money paid
drawn exceedingly tight. "Members were paying for that information
through their membership," remembers another former employee.
"There were guidelines ... there was a fee structure."

Paal, in other words, was doing much the same work as countless
other former government officials: advising clients on U.S.
government attitudes and policy; advocating their interests with
important people in Congress and the executive branch; and using
his clout and connections with powerful people to provide access
for those who paid him. The difference was that Paal was doing this
from behind the front of a publicly subsidized, nonprofit
educational institution-- what the IRS calls a 501c3. Running a
nonprofit like a business--with clients and services and
fees--pushes the envelope but doesn't itself violate the law. But a
nonprofit must provide some service or information to the public.
"You have to have some kind of public purpose, some sort of public
undertaking," says Jack Blum, a tax attorney and white-collar-crime
expert in Washington. Paal's center arguably had none.

A nonprofit organization such as the APPC is also required to have a
board of directors that oversees its activities and finances. But,
in the case of Paal's center, that oversight seems to have been lax
if not nonexistent. The APPC's 2000 tax filing lists four
"directors" of the organization: former Indiana Governor and
onetime Ambassador to Singapore Robert D. Orr; former Secretary of
Defense Frank Carlucci, now chairman of the Carlyle Group; former
Congressman Dave McCurdy; and Brent Scowcroft, now president of The
Scowcroft Group and Paal's onetime boss at the NSC. But, of the
four, only Orr appears to have been aware that he was listed as
sitting on the board of directors. Contacted in January, Carlucci
said he thought he was merely on an advisory board for the APPC,
adding "I don't think we've ever had a meeting." Scowcroft declined
repeated requests for an interview, but his spokesperson said she
did not believe Scowcroft sits on the APPC board. And McCurdy, who
also declined repeated requests for an interview, said through a
spokesperson, Kerry Fenelly, that he had told Paal "three or four
years ago" that he could no longer be involved with the center.
"[McCurdy] thought they had disbanded," said Fenelly. The rules for
how often nonprofit boards must meet are somewhat hazy. But the
fact that three out of four board members were apparently unaware of
their status raises the question of whether the part of the APPC's
tax filing naming them as board members was in fact untruthful.

At various points over the course of the '90s Paal rubbed up against
others in foreign policy circles who got a sense of what his real
business was. In 1995 Paal had preliminary discussions with the
heads of the Nixon Center--a smallish D.C. foreign policy think
tank founded as an offshoot of the Nixon presidential library--who
were interested in hiring him as a China policy expert. Paal wanted
to bring his center and its funding with him. But the Nixon Center
balked after finding out more about the APPC's mission and
finances. Dimitri Simes, president of the Nixon Center, said they
opted against the merger because Paal's organization was "much more
involved in the consulting business" than the Nixon Center was. The
APPC's work was "more commercial" than the Nixon Center was
comfortable with, said another source close to the discussions.

And if these questions about the APPC's activities weren't troubling
enough, there were even bigger questions about its funding. In
Washington foreign policy circles, many believed that Paal took
much if not virtually all his money from foreign
entities--governments and corporations--eager to purchase his
services. (Foreign funding also concerned the Nixon Center.)
"Anybody that says that--unbeknownst to them--[Paal] was on the
payroll of the Malaysian businessmen ... the Singaporeans, is
stupid," says one senior Foreign Relations Committee staffer who
worked in the Senate in the '90s. Paal wasn't as crass or as blunt
as your run-of-the-mill foreign lobbyist. "He was a bit more
intellectual and sophisticated," adds the staffer. "He would explain
why the Singaporeans deserve less criticism."

The APPC's funding history remains shrouded in secrecy, since 501c3s
are not required to disclose the sources of their support, and Paal
has generally declined to do so. (Paal did not respond to repeated
requests for an interview for this article.) The only public
documents in which any disclosure details are available are the
center's IRS filings from 1998, 1999, and 2000. (Nonprofits are
required to make their last three years of filings available to
anyone who requests them.) In 1998 and 1999--years in which the
center said it raised $484,000 and $362,000 respectively--it cited
only one "substantial contributor" on its filings: the Embassy of
Singapore. In neither case was an amount disclosed. In 2000,
however, the APPC's filings were a good deal more transparent, and
they showed that the overwhelming majority of its funding came from
foreign sources. That year, with contributions apparently drying up,
the APPC raised just $166,000; listed on the filing as "substantial
contributors" were four entities and the amounts of their
contributions: the Embassy of Singapore ($48,000); a Japanese
company called Mitsui Marine Insurance ($30, 000); the American
subsidiary of another Japanese company, Itochu Corporation of
America ($30,000); and the Japan External Trade Organization
(JETRO), a quasi-governmental entity run by the Japanese Ministry
of Economy, Trade and Industry (METI), a rough equivalent of the
U.S. Commerce Department ($30,000).

Tadao Yanase, a METI representative who works out of the JETRO
office in New York, confirmed to The New Republic that he had
arranged for JETRO to pay the center $30,000 per year in 1999,
2000, and 2001 for the "opportunity to exchange views with Doug
Paal" and to receive the center's newsletter and the occasional
specially prepared paper. Yanase declined to comment about any
payments prior to his arrival in New York in 1999. But another
source familiar with the center's relationship with METI said the
arrangement had been carried on by Yanase's predecessors going back
to the APPC's 1993 founding. (The Embassy of Singapore declined
repeated requests to discuss its funding of the APPC.)

Under the Foreign Agents Registration Act, individuals who represent
or advocate on behalf of foreign entities--be they governments,
individuals, or corporations--must register with the Justice
Department as foreign agents. Individuals whose activities are
directed by or done on behalf of a foreign entity must register.
But the Justice Department also uses substantial dependence on
foreign funding as one key factor in determining the existence of
direction and advocacy. In a private briefing during the campaign
finance/ foreign donor scandal in 1997, Justice Department lawyers
told Senate staffers that the Justice Department used 25 percent of
funding as a benchmark for making this determination. In the year
2000, at least, Paal's center was clearly substantially dependent
on foreign funding. And according to congressional staffers and
other sources who observed Paal's activities in Washington in the
'90s, he should have fallen under the representation and advocacy
definition as well. Nonetheless, Paal has never made a foreign
agency registration.

The foreign relationships that have raised the most questions
concerning the APPC, however, involved political and business
elites in Malaysia. Even before he helped Paal found the APPC in
1993, Tony Stout had been pursuing business opportunities in
Malaysia. He had a particular interest in the country's massive
state pension fund, the Employees Provident Fund (EPF)--which
Malaysian law had required to be invested within the country. Stout
was lobbying Malaysian officials to open the fund to investment
outside the country and, hopefully, to give him authority to manage
one of the accounts. But Stout's real aim was grander still. As
Stout described it to one senior American diplomat in the region,
he wanted an arrangement in which he and his investors got
privileged access to business opportunities with Malaysia's
wealthiest ethnic Chinese industrialists and financiers. In
exchange he would bring influential American politicians to spend
time with them in Malaysia. "He wanted basically, as far as I knew,
to get his hands on big bucks," remembers the American diplomat.
"The first thing he went after was, as he put it, the `Chinese
money' ... the largest Chinese business people [in Malaysia].... It
was always, however, at the same time this idea of bringing over
senators ... and doing this policy kind of stuff. That was built in
from the beginning."

Stout and Paal began discussing Stout's plans even before Paal left
the government. And, almost as soon as Stout and Paal founded the
APPC, they began organizing a series of annual conferences called
the Pacific Dialogues, which would bring a delegation of U.S.
senators to Malaysia--something that looked very much like the plan
Stout had been hawking in Malaysia beforehand. Roughly once a year
from late 1994 to early 1998, in conjunction with two government-
affiliated Malaysian think tanks, the center organized elaborate
three-day conferences that brought together the prime minister and
deputy prime minister of Malaysia, various government ministers
from other East Asian countries, and a delegation of U.S. senators
and American CEOs.

Paal hired a recruiter, James F. Kuhn, who aggressively worked the
Senate each year putting together a delegation of a half-dozen or
more senators to attend the conference. He also had key assistance
from then-Senator William S. Cohen, the politician most associated
with the venture. Stout had a reputation for junketing politicians,
and Cohen was the most conspicuous example. Earlier, the Maine
senator had co-sponsored a bill that gave $3 million to the later-
disgraced Battle of Normandy Foundation, and he accompanied Stout on
at least one of the trips Stout made to the region in the early
'90s--a conference Stout organized in Australia--to lay the
groundwork for his Asian ventures. After 1993 Cohen's close
connection to Stout passed seamlessly over to the APPC and Paal.
When the APPC opened, Paal hired Cohen's son as the center's
program director, and Cohen played a key role in persuading other
senators to attend the conferences. Reflecting back on why he
attended the November 1996 Pacific Dialogue, former Republican
Senator Slade Gorton of Washington said, "I went to that conference
because of Bill Cohen."

The conference's stated purpose was to foster ties of mutual
understanding between the United States and Malaysia. And,
according to various participants, the meetings had all the
trappings of a high-minded affair. They showcased Deputy Prime
Minister Anwar Ibrahim, who was then widely seen as the successor
to Prime Minister Mahathir Mohamad. Attendees might take in a panel
co-chaired by Cohen, Henry Kissinger, or Anwar on topics like
Pacific security or global currency markets, or rub elbows with
Paul Wolfowitz. Stout and his business associates, of course, were
also attendees.

But, even for those unaware of the Stout connection, the Pacific
Dialogues raised eyebrows. International conferences where
political and corporate types get together for high-minded chitchat
are not uncommon. But these were unique. Like the rest of the
APPC's work, the Dialogues were conducted in an atmosphere of
exclusivity and secrecy. According to then-U.S. Ambassador John
Malott, Paal not only barred the press from covering them; he even
barred Malott himself from attending--something another senior
American diplomat called "unbelievable. "

In Malaysia it was widely believed the conferences were a vehicle,
funded by Anwar and his wealthy associates, to get intimate access
to U.S. senators and burnish his image in Washington. As far back
as the early '90s friends of Anwar had been looking for a
politically connected American to represent the deputy prime
minister in Washington, and Paal seemed to have become that man.
"There's no getting away from the fact that these [conferences]
were a vehicle for Anwar Ibrahim," says one Malaysian close to the
country's government and business leaders. And in the U.S. Congress
the perception was much the same. "They were co-hosted by Anwar
Ibrahim," said another senior Senate Foreign Relations staffer. "It
was no secret that the government of Malaysia was funding [these
events]."

Eventually, allegations arose suggesting that the APPC may have
received more funding from the Malaysians than virtually anyone
imagined. By the late '90s Anwar was growing impatient for his old
mentor Prime Minister Mahathir to step aside, and so began a subtle
campaign to nudge him into retirement using the banner of economic
liberalization and democratic reform. The aging Mahathir sensed
what was afoot and struck back with a vengeance, sacking Anwar from
his posts as deputy prime minister and finance minister; later he
had him arrested on charges of corruption and sodomy. In late 1999,
after one year of legal proceedings against Anwar, one of the
witnesses against him--a former state bank executive named Abdul
Murad--accused of him of controlling a series of private slush
funds used for patronizing friendly organizations, settling the
debts of political friends, and, of course, enriching himself. Murad
alleged in his affidavit that he had been "responsible for
arranging USD 10 million in contributions to APPC and Douglas H.
Paal on ... Anwar's instructions." Murad said he believed that
businessmen friendly to Anwar had also donated an unspecified
amount to Paal and the center. "Although I cannot ascertain the
exact quantum of their contributions," he continued, "I am convinced
they ran into millions of US Dollars. Appc and Douglas H. Paal are
one of the main vehicles used by ... Anwar Ibrahim to promote his
image in the Western countries, mainly in Washington, USA and the
United Kingdom and other European nations. Appc also lobbied
strongly for ... Anwar Ibrahim with the international media
organisations." Finally, Murad leveled yet another charge that tied
Paal's center back to Stout's earlier efforts to get access to the
EPF. Anwar had, according to Murad, "insisted that APPC should
manage [Murad's bank's] reserves of RM50 billion [between $12
billion to $16 billion] and the EPF fund in return for the services
provided to him by APPC. Alternatively a hefty fee of USD 3 million
was to be paid annually to APPC for the cost of running the Centre
in Washington."

Anwar's trial was a thoroughly political affair, and Murad's own
credibility is suspect. (He was himself trying to escape punishment
for a series of alleged financial improprieties, though these
charges were arguably as politically motivated as those against
Anwar.) But, whether or not Murad's charges are true, they could
open an uncomfortable line of questioning for Paal. Although Paal
has publicly discussed his financial relationship to Anwar on a
couple of occasions in the last few years, he has avoided the kind
of detailed examination that would likely accompany, for example,
an appearance before a Senate confirmation committee. Midway
through Anwar's legal ordeal in June 1999, in testimony before
Congress defending the former deputy prime minister against the
charges being leveled against him in Kuala Lumpur, Paal conceded
that the Pacific Dialogue conferences had "generated revenues for my
Center and others through donations from Malaysian, as well as
American, Japanese, and other corporations." He didn't say,
however, how much money the Dialogues had brought in. When
questioned about Murad's charges by the Malaysian National News
Agency, Paal "disputed the amount cited by Murad claiming that the
sum he had received from Anwar and friends was far less than US $10
million." But he again declined to say just how much he received.

Whatever the details of the APPC's relationship with Anwar and his
supporters, the deputy prime minister's fall from grace clearly
helped bring the APPC's high-flying days to an abrupt end. A Fifth
Pacific Dialogue, planned for December 1998, was canceled as
funding for the conferences dried up. In 2000 Paal's center took in
just $166,000 in contributions--about one-third as much as two
years before. During that year, as in others, the APPC produced no
publicly available reports, publications, or events. The center had
provided Paal a convenient sinecure but left him ethically suspect.
"I'm not saying he consciously set out to break the rules," says
one Washington-based Asia policy expert who has known Paal for
years. "I think the guy set out to build an institution and found
the only ones who were willing to pay him were those people he was
willing to provide access to and provide special favors for and to
represent.... But when you [want to return to government] and
you've violated key fundamental rules, it forces fundamental
questions about your judgment."

Knowledge of Paal's ethical problems has been largely confined to
the Asia policy analyst community and his circle of friends from
the first Bush administration. When Paal was first floated for the
Taiwan assignment last summer, the choice was controversial mostly
because of his soft-line stance on China and questions about his
loyalty arising from the Shanghai speech in which he'd implicitly
criticized the president. China hawks in Congress complained to the
State Department and the office of the vice president, while others
from outside government went to presidential adviser Karl Rove, who
placed an informal hold on the nomination. But ultimately Rove
backed off under pressure from Assistant Secretary of State for
East Asia James Kelly and Stephen Hadley, Rice's deputy at the NSC.
"Kelly went to Hadley and convinced Hadley," explained one
Republican congressional source. "And Hadley went to Rove and said,
`You're going to have to fight this one to the death.' And Rove
decided that he wanted to fight on other things another day."

By late January, Asia-watchers in Washington were as perplexed about
why Paal's appointment was taking so long to be announced as they
had been about why he had been chosen in the first place. There
were rumors of difficulties with Paal's background check. But most
assumed that Kelly, who had worked with Paal at the NSC, would
force the appointment through. "The only thing I know for sure is
that Kelly won't take no for an answer," says one congressional
opponent of Paal's appointment. Kelly's reasons, however, appear
more complex-- a response to pressure emanating from the
president's father and concern by officials at the State Department
that, if the Taiwan posting doesn't go through, Paal might be
forced on them in some other diplomatic capacity. "I don't think
really that [Deputy Secretary of State Richard] Armitage and Kelly
were enthusiastic about [Paal's appointment]," says another
Republican congressional source close to the key players at State.
"Kelly is afraid that forty-one is going to go to forty-three and
impose Doug on him as ambassador somewhere [else] in the region....
He's scared to death.... Suppose you put him in front of a
committee and have them asking him unfortunate questions."

As of late February, however, it seems Kelly will never have to.
According to the latest report available, Paal is scheduled to take
up his post as President Bush's chief representative in Taiwan this
spring.

By Joshua Micah Marshall

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