Investigation, Audit Reveal Past Mismanagement by Gore’s Campaign Manager
On May 11, praising “his leadership skills and strategic vision,” Vice President Al Gore named Tony Coelho general chairman of Gore 2000, his presidential campaign organization. “Tony has been a great leader in every endeavor he has undertaken — government, business, and as an advocate for the disabled,” Gore said in the news release announcing the appointment. The release went on to describe Coelho as, among other things, “a successful businessman.”
In just the past week, Coelho has emerged as the point man in the wholesale makeover of Gore’s foundering presidential campaign — beginning with the “lock, stock and barrel” relocation of the campaign headquarters to the vice president’s home state of Tennessee. “I’m packing my bags and learning country music,” Coelho told reporters as the changes were announced.
Gore’s smartest move, however, might be to leave Coelho — and his baggage — behind. A soon-to-be-released audit by the State Department’s Office of Inspector General, obtained by the Center for Public Integrity, points to mammoth cost overruns, gross mismanagement, and potential illegal activity under Coelho’s watch as the U.S. commissioner general of last year’s World Exposition in Lisbon, Portugal — a political appointment that eventually made him “Ambassador Coelho.” (Coelho did not respond to the Center’s request for an interview.)
Among the searing disclosures in the Inspector General’s report:
- Government officials approved numerous “questionable payments initiated by the commissioner general or his staff,” including more than $26,000 in reimbursements to a consultant who was hired by Coelho and worked out of his office in New York City.
- The U.S. government might bear ultimate responsibility for repaying a $300,000 personal loan that Coelho obtained from a Portuguese bank.
- On frequent occasions, Coelho and his closest associates improperly used free airline tickets and upgrade passes that had been donated to the U.S. government by Continental Airlines, Inc.
- Petty-cash funds were inappropriately used to pay for about $800 in charges associated with Coelho’s use of a chauffeur-driven Mercedes-Benz — an “especially troublesome” expenditure, the report notes, because he had at his disposal “a fleet of six vans, which were underutilized.”
- In addition to hiring, at inflated salaries, the two stepsons of Gerald McGowan, the U.S. ambassador to Portugal — one of them as a “senior operations assistant” under a contract that did not identify any duties — Coelho arranged for his own niece to be put on the payroll.
Destruction of records
What’s more, careful readers of the “Report of Audit” by the State Department’s Office of Inspector General might notice an unusual disclaimer up front. “Specific culpability for some deficiencies could not be readily determined because we were hampered by, among other factors, the destruction of certain records,” the report notes. In truth, the Center has learned, the Inspector General’s office was unable to carry out a complete investigation because Coelho ordered many key records to be destroyed before the four-and-a-half-month-long exposition in Lisbon closed on September 30, 1998.
Coelho became U.S. commissioner general to Expo ’98, the last world’s fair of the 20th century, on June 3, 1996, appointed by Joseph Duffey, then the director of the United States Information Agency. “I am pleased to appoint you U.S. Commissioner General . . .” Duffey’s letter to Coelho began. “You will be responsible for securing the necessary nonfederal funding and in-kind support to finance the U.S. Exhibition.”
In fact, it was not Duffey who actually selected Coelho. “The notion came from the White House,” a former USIA official who was intimately familiar with the situation told the Center. “It was essentially a White House decision passed on to USIA.”
Within USIA, it was widely assumed that Coelho’s appointment had more to do with his prodigious track record as a political fund-raiser than with his background as a Portuguese-American. Years ago, Congress put USIA in charge of U.S. participation in world’s fairs, but in the wake of a scandal involving more than $2 million in cost overruns at the 1992 fair in Seville, Spain, Congress barred the agency from obligating or spending federal funds on world’s fairs without its express authorization. The result, for better or worse (and many would say worse), was the presumption that the U.S. role in world’s fairs had been dropped into the lap of corporate America. “USIA acted as the banker,” —, a special projects officer at the agency, told the Center. “The mandate was to raise the money privately.” And who better to raise the money than Coelho?
Resigned amid questions
After all, it was Coelho, the former California congressman and House Majority Whip who, as chairman of the Democratic Congressional Campaign Committee in the 1980s, had harvested bumper crops of “soft money” from agribusiness, the oil industry, savings-and-loan operators, tax-shelter promoters — anyone, everyone, with business on Capitol Hill. He abruptly resigned from Congress in mid-term in 1989 amid questions about his personal financial dealings. He soon landed a job on Wall Street at Wertheim Schroder & Company, an investment banking firm where, drawing mostly on labor-union contacts from his Democratic Congressional Campaign Committee days, he brought in billions of dollars in pension-fund investments. “I had a Rolodex,” he once told a reporter, “and I knew how to raise money.”
Coelho’s formidable reputation preceded him at USIA, where he was designated a “special government employee,” according to Richard Werksman, an assistant general counsel of the agency who served as its chief ethics officer until it was absorbed by the State Department on October 1). Coelho, who drew no government salary as U.S. commissioner general to Expo ’98, did not file with USIA Form SF-278, the public financial disclosure report that thousands of executive branch employees must complete, but instead filed Form SF-450, a confidential financial disclosure report. Why? “It was felt for it to be appropriate,” Werksman told the Center.
(After the Center’s inquiry about the financial disclosure form, Werksman placed a telephone call to Coelho at the Gore 2000 campaign headquarters in Washington — “to alert him,” he later admitted, “that an inquiry had been made.”)
‘Special government employee’
Coelho’s first tour of duty as a “special government employee” officially began on April 20, 1997, and ended on April 19, 1998; his second began the next day, on April 20, 1998, and ended on Oct. 31, 1998. The odd bifurcation of Coelho’s employment was designed, Werksman conceded in an interview, chiefly to get around the rule that to be a special government employee, an individual’s length of service must be determined at the outset to be no more than 130 days in a 365-day period. The distinction was important because special government employees are not constricted by many of the same ethics rules — including those governing self-dealing, for example — that apply to regular government employees.
As it turned out, Commissioner General Coelho was not only the first government employee brought aboard for Expo ’98, but also the last. He chose to hire everyone else for Expo ’98 — by one count, 30 individuals in all — as independent contractors. They included Fred Hatfield, Coelho’s chief of staff on Capitol Hill from 1984 to 1989 and later his business partner; Mark Johnson, the former communications director of the Democratic Congressional Campaign Committee under Coelho; and Debra Coelho, his own niece. She was brought on for the final months of Expo ’98 — “in violation of USIA regulations,” the Inspector General’s report says – as Hatfield’s $2,500-a-month special assistant. (Had she been hired as an employee rather than as yet another independent contractor, the arrangement would have also violated federal nepotism rules.)
From his first months on the job, in fact, it was clear that Coelho aimed to run his own show in his own way. For starters, Coelho started using funds raised for Expo ’98 to pay part of the rent on his own office in New York City. He hired a contractor, New York City-based Rathe Productions, Inc., to design, fabricate and install the U.S. Pavilion at Expo ’98 in a concrete-block building provided by the Portuguese government, but he apparently did so without any written agreement. “Oral contracts are not illegal,” J. Richard Berman, the State Department’s assistant inspector general for audit, told the Center. “The question is, Did he [Coelho] have the authority to bind the U.S. government? It’s questionable whether the Commissioner General had [such] procurement authority.” (Richard Rathe, the company’s president, did not respond to the Center for Public Integrity’s request for an interview.)
Under Coelho, in fact, written agreements were usually an afterthought. After examining 39 employment agreements and modifications for the staff of the U.S. Pavilion at Expo ’98, State Department investigators concluded that 36 of the contracts — 92 percent — had been completed after the individuals started work.
The biggest problem, however, was not how much money Coelho was spending, but how little he was raising. In fact, when it came to rounding up commitments from big U.S. corporations and other private-sector sources — “the necessary nonfederal funding” stipulated in his letter of appointment — Coelho was nothing short of a flop. And so he raised the really big money needed for Expo ’98 in the only way he knew how: by going to friends in high places within the Clinton administration and on Capitol Hill.
First big score
Coelho’s first big score came through Secretary of the Navy John Dalton. “In going to Dalton,” a former high-level USIA official told the Center, “he dealt with a friend.” Coelho secured Dalton’s support, but to complete the deal he needed help from Capitol Hill. He soon got it, in the form of a single paragraph embedded in the Senate-House conference report on the 1998 defense appropriation bill. The paragraph, which would ultimately lead to the Navy’s expenditure of more than $2.5 million on Expo ’98, read:
“The conference understands that the Navy has requested to participate as one of the U.S. Government sponsors of the U.S. exhibit focused on ocean research and technology at the 1998 World Exposition in Lisbon, Portugal. Should the Secretary of the Navy determine that Navy participation is beneficial to the interests of the service, the conferees agree that adequate funds should be made available from the operation and maintenance account to assist in the creation and operation of the U.S. national pavilion. Funds shall be used to exhibit defense capabilities in global oceanography and environmental security to include interaction among NOAA [the National Oceanographic and Atmospheric Administration] and the appropriate entities of the Department of Defense.”
Coelho did even better with Secretary of Health and Human Services Donna Shalala. Her multimillion-dollar pledge filtered down through the HHS bureaucracy, starting with the National Institutes of Health and stopping at the National Institute of Environmental Health Sciences in Research Triangle Park, N.C. As in the Navy’s case, a friendly paragraph soon appeared in the appropriate conference report. It was shorter and mysteriously vague:
“The Committee urges NIEHS to lend its expertise and provide technical assistance in this area to the United States’ exhibit at World Expo ’98 in Lisbon, which relates to the ocean environment. Given the increase provided to NIEHS above the President’s request, the Committee urges the Institute to allocate resources to this project.”
Apparently, the paragraph mystified even the top officials of the National Institute of Environmental Health Sciences. “I don’t know the origin of the idea of our involvement,” Samuel Wilson, the institute’s deputy director, told the Center in an interview. “It’s safe to say it wasn’t an Institute-developed idea.”
It’s also safe to say, apparently, that officials of the National Institute of Environmental Health Sciences weren’t even the ones who decided how much of the agency’s money would eventually be sunk into Expo ’98. “There was a lot of discussion as to how much we were willing to put in,” Wilson told the Center in a follow-up interview. “From the beginning we thought it was meritorious, but we envisioned putting less money in than $4 million.” How much less? “Starting out at $500,000,” Wilson said.
Climb to $4 million
The smaller sum, as it turned out, was the amount that the agency had estimated would be needed to move an existing exhibit from Florida to Portugal for Expo ’98. “It was a canned display,” a source who worked on the U.S. Pavilion told the Center, “something already in the box from the University of Miami.” So how, then, did the National Institute of Environmental Health Sciences’ eventual financial commitment to Expo ’98 climb to more than $4 million? “This determination was made by the commissioner general’s office and his staff,” Wilson told the Center. “This need was also communicated to us in a letter from six members of Congress. This correspondence served to specify the need.”
At least five of the six Capitol Hill lawmakers were members of the Senate and House appropriations committees that have jurisdiction over the National Institute of Environmental Health Sciences: Senators Arlen Specter (R-Pa.), Tom Harkin (D-Iowa), and Harry Reid (D-Nev.); and Representatives Steny Hoyer (D-Md.) and David Obey (D-Wis.). Wilson declined to provide the Center with a copy of the letter.
Even with the letter in hand, however, officials of the National Institute of Environmental Health Sciences were still so skittish about what they were being asked — or directed — to do that it took at least another three months for the financial runway to be cleared. They finally signed an interagency agreement on Feb. 27, 1998, under which millions of dollars in Expo ’98-related bills would go directly to the National Institute of Environmental Health Sciences for payment.
‘Bailout is certainly the word’
By then, with the opening day of Expo ’98 less than three months away, it was clear to everyone involved that Coelho had essentially engineered a taxpayer bailout of the operation he’d been running for nearly a year. “Bailout is certainly the word,” Stanley Silverman, the director of USIA’s Office of the Comptroller, told the Center. “Mr. Coelho knew where to go and how to get things done.” A former high-level USIA official told the Center that there was even serious talk within the agency that the U.S. government might have to back out of Expo ’98. “We had this embarrassment looming,” he said in an interview. “I think it was a fairly late bailout. I don’t know how Tony managed to do it . . . I was more relieved that it was going to happen.”
Coelho also obtained much smaller financial commitments from within some other parts of the federal government, including $75,000 from the Commerce Department’s National Oceanic and Atmospheric Administration, $70,000 from the Energy Department, and another $30,000 from the Transportation Department.
At the time, Coelho was especially well-connected to the Energy Department. He was a director of ICF Kaiser International, Inc., a major Energy Department contractor, and he would become the company’s chairman soon after Expo ’98 ended. (Coelho stepped down as the company’s chairman last June and resigned from its board of directors in September.) His fellow directors at ICF Kaiser included former Energy Secretary Hazel O’Leary. The company also was a major contractor for the other five major federal-government sponsors of Expo ’98, including HHS, the Navy, the Commerce Department’s NOAA and the Transportation Department. According to the Federal Procurement Data System, they collectively paid ICF Kaiser more than $10.2 million in 1998.
To lure corporate sponsors, Coelho and his top aides devised a series of “benefits packages” that borrowed heavily from the menus of perquisites offered to major Democratic Party donors. “Major sponsors” of the U.S. Pavilion at Expo ’98 were offered a 12-item package that included “complimentary membership in the U.S. Commissioner General’s Club,” “a special luncheon reception hosted by the U.S. Commissioner General exclusively for each sponsor and up to 25 company officials or other guests of the sponsor’s choosing,” and “recognition in the Final Report of the U.S. Pavilion to be presented to President Clinton and the U.S. Congress.”
Lesser sponsors — companies that paid a $2,500 membership fee — were enrolled in the U.S. Commissioner General’s Club, whose benefits included “VIP access to the U.S. Pavilion for the duration of Expo ’98,” “five official U.S. pavilion logo pins,” and “a special U.S. Commissioner General’s gift.”
The corporate sponsors included Blue Diamond Growers; Citibank; Continental Airlines; E. & J. Gallo Winery; ICF Kaiser; Kellogg Co.; Joseph E. Seagram and Sons, Inc.; Sheraton Hotels & Resorts; Sony Corp.; Starwood Hotels & Resorts Worldwide, Inc.; and Sunkist Growers, Inc.
Basic rules of conduct
On August 5, Stephen Potts, the director of the Office of Government Ethics, laid out some basic rules of conduct for special government employees in testimony before Congress. “SGEs, like all federal employees, are prohibited from working on matters that will directly and predictably affect their financial interest, including those of their private employer,” he said. “The public deserves to have federal functions carried out by individuals who are free from personal or institutional conflicts. An agency or department that does not make this clear to the individuals whose services they utilize in these circumstances unacceptably exposes those individuals to possible criminal sanctions and subjects governmental processes to potential criticism.”
Coelho, however, was involved in business ventures in Portugal with at least three corporate underwriters of the U.S. Pavilion at Expo ’98:
According to the financial disclosure form he filed in 1998, Coelho held a $500,000-$1 million stake in EuroAmer Sociedade Imobiliaria, S.A., the owner and developer of Portals of Carnide, a $30 million residential apartment project northwest of Lisbon’s city center. The eight-acre development was, by one press account, scheduled to be completed last January. Among other investors in EuroAmer Sociedade Imobiliaria: Frank Carlucci, a former secretary of defense and U.S. ambassador to Portugal (and a partner with Coelho in other business ventures); Alan Kay, a prominent Washington real estate developer; Frederick Malek, the president of Thayer Capital Partners and 1992 campaign manager for President George Bush; Terence McAuliffe, Coelho’s protégé at the Democratic Congressional Campaign Committee, his partner in myriad business ventures, and the guarantor of President and Mrs. Clinton’s Westchester County, N.Y., mortgage.
Bookkeeper installed on staff
Another of Coelho’s government-business intersections in Portugal involved ICF Kaiser, which, at his request, had installed one of its employees, a bookkeeper, on the Expo ’98 staff. Last June 14, while Coelho was its chairman, ICF Kaiser International, Inc., announced that a joint venture of which it was part had been awarded a $19 million contract for work on the $1 billion Oporto Light Rail Transit System in Oporto, Portugal. “We have more projects concentrated in Portugal than in any other European country,” James Maiwurm, the number-two executive to Coelho at ICF Kaiser, said in announcing the contract award. Coelho stepped down as the company’s chairman two weeks later.
The third such intersection came with Service Corporation International, a “death services” conglomerate that, at the end of 1998, operated 3,442 funeral homes, 433 cemeteries and 191 crematoria worldwide. According to the financial disclosure form he filed in 1998, Coelho received more than $283,000 in director’s fees and other compensation from the company in the previous year and also held more than $1 million in Service Corporation stock. Service Corporation‘s European operations have boomed in the 1990s, and Portugal has been one of its prime target markets. Shortly before she died in 1996, British muckraker Jessica Mitford, the author of the best-selling classic, The American Way of Death, wrote an update for Vanity Fair magazine that was published posthumously. In it, she wrote: “Heading the list of the high-priced SCI directors is Anthony L. Coelho, Tony Coelho, former Democratic Congressman from California and member of President Clinton’s inner circle of advisers. Like the Grim Reaper, Coelho is a bipartisan fellow: ‘I have great friends on the Republican side,’ he told The Washington Post.’
In a profile of Coelho published in The Washington Post earlier this year, reporters John Mintz and Charles R. Babcock noted that Coelho “has amassed what he acknowledges as considerable personal wealth.” The wealth, they observed, was reflected in some of Coelho’s properties: “a sprawling home at Bethany Beach in Delaware, a Florida vacation property, an apartment in Portugal, a California vineyard, and a new large riverfront condo in Old Town Alexandria.”
$18,000-a-month luxury apartment
So perhaps it should have been no surprise that, as U.S. Commissioner General, Coelho would also be going in style. When in Lisbon, for example, Coelho generally stayed in an $18,000-a-month luxury apartment that he had personally selected; it was leased for five months and billed to USIA (and, of course, ultimately to taxpayers). One of the small legion of “independent contractors” stayed in the apartment when Coelho was away, a co-worker told the Center, partly, as the co-worker put it, “to make sure that the pool was clean when Tony arrived.” Coelho typically traveled to and from Lisbon on first-class tickets that had been donated to USIA for Expo ’98 by Continental Airlines. He arranged for other first-class tickets donated by Continental to be used by his wife, Phyllis, and on one occasion, according to a knowledgeable source, attempted to bill the Expo ’98 accounts for a limousine he’d sent to the airport to pick her up.
The “Friends of Tony” — the nickname for Coelho’s handpicked crew of Expo ’98 contractors — enjoyed similar comforts. His top deputies, Johnson and Hatfield, stayed in $5,000-a-month apartments in Lisbon that were leased for five-month stretches. Johnson’s contract, which began in December 1997, called for him to receive $10,909 a month for the duration, though sometime the following year Coelho arranged for him to leave early — for a job, it turned out, as his right-hand man at the Census Monitoring Board, where Coelho had been appointed co-chairman by President Clinton. A month before he was to leave Lisbon, Johnson got a raise that others could only dream about: an 83 percent increase, to $20,000 a month. Hatfield’s contract for Expo ’98, at $10,000 a month, ran from June 1 through September 30 of 1998, though Coelho tried, unsuccessfully, to pay him a $5,000 bonus. Even before Johnson’s raise, the salaries paid to Coelho’s deputies became something of an irritant to employees in the American Embassy in Lisbon when they learned that both men were pulling down more than Gerald McGowan, the U.S. ambassador to Portugal.
No one will ever know
It’s likely that no one will ever know how much it cost the U.S. government to be involved in Expo ’98 — and how much of the tab will ultimately be footed by taxpayers. “At one level, the budget for this thing worked out at $9 million,” Richard Berman, the State Department’s assistant inspector general for audit, told the Center. “Our report cites an additional $720,000 that are potential liabilities.”
Was there, in fact, a budget at all? “Not that we’ve ever found,” Berman said.
What’s more, the potential liabilities may climb even higher. A Portuguese company that was retained to fabricate the restaurant in the U.S. Pavilion has sued both Rathe Productions, Inc., and the U.S. government, and because of the lawsuit, Portuguese authorities seized most of the contents of the U.S. Pavilion in October 1998.
Then there’s the matter of “The Wave,” a dramatic stainless-steel and blue-tile sculpture, 8 1/2 feet high and 60 feet long, that sits more than a block away from the building that was the U.S. Pavilion at Expo ’98. The wave-like wall, designed by artist Stephen Frietch and architect Steven Spurlock, both of Washington, was to be inscribed with the names of Portuguese-American families who immigrated to the United States — or at least with the names of those who made contributions of $100 to $5,000 to something called the Luso-American Wave Foundation, which Coelho founded and heavily promoted. “We wanted to leave behind a permanent monument,” Coelho explained at one point, “as a gift to Portugal from Portuguese-Americans.” To pay for the project, Coelho reportedly obtained $300,000 from the president of Banco Espirito Santo, a Lisbon-based bank. The $300,000 initially went into the USIA Trust Funds for Expo ’98 but later had to come out when it was discovered that the $300,000 was a personal loan to Coelho, not a gift. As for the Luso-American Wave Foundation, it is, apparently, no longer in business. In the soon-to-be released report of the State Department’s Inspector General, the obligation to pay for “The Wave” is listed as one of the U.S. government’s potential liabilities. Furthermore, the report of the State Department’s Office of Inspector General concludes that Coelho inappropriately “intermingled [the] financial obligations of a nonprofit organization with U.S. pavilion financial activities.”
“Technically, there was no real budget,” Edward Müller, the USIA’s chief contracting officer on Expo ’98, told the Center. “There were forecasts, and the forecasts were misleading, at best. The forecasts do not show money previously spent.” In short, Müller said, “The bottom line is not at the bottom of the page.”
Whatever the bottom line, however, it’s clear that the U.S. involvement in Expo ’98 turned out to be almost exactly the opposite of what was intended. At last count, the taxpayer funds that Coelho reeled in accounted for about 84 percent of the total funding for the U.S. Pavilion at Expo ’98 (and that’s not counting the salaries of regular federal employees and other expenditures borne directly by USIA and the sponsoring government agencies). “There’s been a crazy presumption that the private sector will come up with the money,” Berman told the Center. “Then, in the eleventh hour, they have to go hat in hand to Congress.”
Today, a year after Expo ’98 closed its doors, Berman and his fellow auditors at the State Department still don’t know exactly who did what in Lisbon and where, exactly, all the money came from and went. From Berman’s perspective, however, the commissioner general seemed less than interested in helping. “He was not generally available,” Berman told the Center. “We interviewed him at the very beginning, but he certainly wasn’t a willing [participant] up front.”
Questions linger
A shame if true, because Coelho may be in a better position than anyone else to answer many questions that linger in the aftermath of Expo ’98. Throughout his career, those who’ve worked with him say, Coelho the manager has relied on something he calls “weekly activity reports” to see that jobs get done, on time, the way he wants them done. “He’s a micromanager,” a knowledgeable source told the Center. “He wanted everyone to give him weekly reports so that he could make comments on them and give them back. He even did that with the college kids who came to work in the pavilion.”
Sometime in the summer of 1998, however, the U.S. Commissioner General ordered all the weekly activity reports, many if not most of them bearing his handwritten notations, destroyed. “People are out to get me,” one of the people who worked alongside Coelho in Lisbon recalls him saying. “ I don’t want to have people reading these.”
There may have been another reason. The weekly activity reports might well have established that Coelho, having worked more than 130 days in his second tour of duty, was no longer a “special government employee” and therefore subject to a stronger set of federal ethics and disclosure rules.
The report of the State Department’s Inspector General says, in no uncertain terms, that the destruction of the weekly activity reports hindered its investigation. “There’s a federal law against the improper destruction of records,” Berman said. “When you’re talking about potentially defending the United States in a lawsuit, arguably they could be useful.”
In the news release announcing Gore’s selection of Coelho to be general chairman of Gore 2000 (“Former Congressional Leader, Successful Businessman, Disabilities Advocate Joins Gore 2000”), one sentence makes mention of Coelho’s role in Expo ’98. “In 1998,” the sentence reads, “he was appointed U.S. Ambassador to the World Exposition in Lisbon, Portugal.”
Someone obviously exercised great care in constructing that sentence. Coelho’s claim to ambassadorial rank is contained in a letter from President Clinton that begins, “It gives me great pleasure to accord you the personal rank of ambassador in your capacity as the U.S. Commissioner General to the 1998 World Exposition in Lisbon, Portugal . . .”
The letter, signed “Bill Clinton,” is dated October 13, 1998 – two weeks after Expo ’98 ended.
This article was originally published on October 2, 1999, on the website of the Center for Public Integrity.
Bill Hogan