Campaign Money Links SBA Fraud Company to Key Lawmakers

The largest loan fraud in the history of the Small Business Administration has created repercussions in Washington, but whether lawmakers are just rounding up the usual suspects or are actually serious about cleaning up the SBA's mess is open to question.

An examination of federal campaign finance reports reveals a web of money among key lawmakers and the top executives who were supposed to be safeguarding SBA loans. As I reported in my column last week, we now know that they were asleep at the switch and let a so-called "rogue" bank executive defraud the SBA's flagship 7(a) loan program out of at least $76 million before federal investigators broke up the scheme last January.

The caper was dubbed "Cookie Jar Capitalism" but that's not the only cookie jar involved here. Allied Capital, its subsidiary Business Loan Express (BLX), and its top executives have given lawmakers almost $500,000 in campaign contributions in the past four years. By Washington standards, that's a modest amount of money. But the contributions have been directed with laser precision to House and Senate small business leaders.

In fact, Allied and BLX are the largest contributors to House Small Business Committee Chairman Nydia Velázquez, D-N.Y. Combined, they donated $18,500 in political contributions, almost twice the amount of any other organization. The next largest contributor, the American Bankers Association, gave her $10,000. In all, Allied and BLX gave her almost 40 percent of the $49,800 she received from the securities and investment industry. The amount was exceeded only by the legal industry's $57,650 in donations, according to campaign records.

Senate Small Business Committee Chairman John Kerry, D-Mass., also received contributions from Allied and BLX and/or their executives. But he at least appears more insulated from influence, thanks to copious amounts of money he raised (in excess of $23 million) for his presidential bid. Kerry also refuses to accept Political Action Committee (PAC) contributions. Even so, he collected at least $4,000 from BLX Board Chairman Robert F. Tannenhauser and another BLX executive, Scott Stapert.

Meanwhile, Allied Chairman and Chief Executive William Walton has donated $143,300 out of his own pocket to Washington lawmakers since 2002. Nearly all of the money went to Republicans or conservative political action groups and small business committee leaders. Nor is Walton averse to spreading his bets. Among presidential candidates, he and other Allied executives have so far donated to Rudolph Giuliani ($6,900) and John McCain ($2,300).

Tannenhauser, in contrast, gave about $90,000 out of his own pocket mostly to Democrats, including about $35,000 to the Democratic Congressional Campaign Committee. While he apparently has made no contributions to the current crop of presidential candidates, he gave $3,000 to Kerry, according to records. Other Allied Capital executives have contributed about $3,600 so far to Hillary Clinton and Allied's PAC has ponied up another $7,000 for her campaign.

As the saying goes, money is the mother's milk of politics, and the spending pattern evidenced by Allied, BLX, and its executives is pretty common in Washington. Because they give to both Democrats and Republicans, their largesse reflects more of an effort to protect their interests rather than an ideological bent. They are obviously hoping to gain some influence. But how much?

That question is not easily answered; it all depends on the lawmaker. What is evident, however, is the potential for a conflict of interest. As chairman of the House Small Business Committee, for example, Velázquez wields vast influence over legislation affecting the SBA or companies that do business with the agency. Given the amount she's received, at the very least she should return the contributions or recuse herself from all matters involving the BLX scandal.

Kerry's money connection is minor by comparison. Even so, the suspicion remains. For example, during hearings before his committee in November, he was quick to soft-pedal BLX's culpability for the fraud and its overall management of government loan programs. "This hearing is not a 'gotcha' hearing," he volunteered in his opening statement. "The hearing," he added, "is not intended to hurt Business Loan Express."

But after reports surfaced last week that the Department of Agriculture was forced to buy back $34 million in bad BLX business loans, Kerry quickly issued another statement. "I'm gravely concerned that there is a pattern of bad loans from BLX. When BLX testified last month, they said they were victims and the bad loans were isolated. BLX and the administration claimed they've got the lending problems under control. I don't think they do."

Did Kerry deliberately soft-pedal the scandal at his own hearing, or was he simply caught off guard by the new disclosures (uncovered by the Washington Post)? Either way, he's got egg on his face. The close association between money and politics will never go away. But in matters like this, it's imperative that lawmakers demonstrate their ability to deal at arm's length with contributors. And when there is even a shred of doubt, they should always err in favor of the taxpayers, not special interests.