How the Gores, father and son, helped their patron Occidental Petroleum

Introduction

On Sept. 7, 1995, Vice President Albert Gore Jr., stood on the White House lawn and talked in sweeping terms about ending the era of big government. He touted a list of recommendations formulated by the National Performance Review, an initiative Gore directed that he claimed streamlined the federal bureaucracy, cut unnecessary waste and helped make the government “work better and cost less.” Gore said that his report, delivered to President Clinton that day, would continue the drive to “reinvent government.”

Gore did not mention that his recommendations to the president included a plan to give oil companies access to thousands of acres of oil-rich, publicly owned land that the U.S. Navy has held as emergency reserves since 1912. Ever since the federal government earmarked the reserves for military emergencies, the oil industry had tried and failed to pry them away from the Navy.

In 1922 a couple of oil men Edward L. Doheny and Harry Sinclair bribed Albert Fall, the secretary of the interior in the Harding administration, for secret leases to drill on two of the fields, the Teapot Dome field just outside of Casper, Wyo., and the Elk Hills field in Bakersfield, Calif. Doheny and his Pan American Petroleum and Transport Co. (later Atlantic Richfield Co, or ARCO), paid $300,000 to Fall in exchange for the rights. When the bribes were uncovered, the ensuing Teapot Dome scandal forced the resignations of Fall (who later went to prison), and Edward Denby, the secretary of the Navy.

IN 1973, DURING THE ARAB oil embargo, the Nixon administration tried to lease Elk Hills to boost domestic oil production. In 1984, 1986 and 1987, the Reagan administration proposed selling Elk Hills for a lump-sum payment of $1.5 billion that would go toward reducing the federal budget deficit. Each time, Congress wisely blocked the sale of Elk Hills.

But where Fall, Nixon and Reagan had failed, Gore succeeded. Despite the history of the naval petroleum reserves, despite the royalty revenues that the field continued to generate, Gore recommended that the government put Elk Hills on the auction block. Clinton took Gore’s advice and approved a deal to let oil companies buy some of the reserves. The White House then pushed to have language authorizing the sales inserted in the 1996 defense authorization bill, which Congress ultimately approved. Oil companies bid on the field and, finally, on Oct. 6, 1997, the Energy Department announced that the government would sell its interest in the 47,000-acre Elk Hills reserve to Occidental Petroleum Corp. for $3.65 billion. It was the largest privatization of federal property in U.S. history, one that tripled Occidental’s U.S. oil reserves overnight. During the months after the sale, Occidental tripled the amount of natural gas extracted from the field.

Although the Energy Department was required to assess the likely environmental consequences of the proposed sale, it didn’t. Instead it hired a private company, ICF Kaiser International, Inc., to complete the assessment. The general chairman of Gore’s presidential campaign, Tony Coelho, sat on the board of directors.

Just hours after the announcement of the Elk Hills sale, Gore stood across town on the campus of Georgetown University and delivered a speech to the White House Conference on Climate Change on the “terrifying prospect” of global warming, a problem he attributed to the unchecked use of fossil fuels such as oil.

EVEN AS OCCIDENTAL was moving forward with plans to boost oil production at Elk Hills, Gore told his audience: “If we ignore the scientific warnings and continue stubbornly on our current course, we’d better begin to prepare what we would like to say to our children and grandchildren, because if they encounter the terrible consequences the scientific community is saying now come as a result of global climate disruption, and then look back at the evidence which was clearly laid out for us in our generation, they might fairly ask, If you knew all that, why didn’t you do something about it?’”

If there is one oil company that Gore might ask “our children and grandchildren” to forgive, it is Occidental Petroleum. The company has been a steady supplier of campaign funds to Gore and to the Democratic Party, though its relationship with Gore goes far deeper. Armand Hammer, who built Occidental Petroleum into the behemoth it is today and who’s been described as “the Godfather of American corporate corruption,” liked to say that he had Gore’s father, Sen. Albert Gore, Sr., “in my back pocket.” When the elder Gore left the Senate in 1970, Hammer gave him a $500,000-a-year job as the chairman of Island Coal Creek Co., an Occidental subsidiary, and a seat on Occidental’s board of directors. By 1992, Gore owned Occidental stock valued at $680,000.

FOR PART OF HIS CAREER, Albert Gore Sr., received two paychecks: one from the taxpayers and another from Hammer. Hammer, who raised prize bulls, met the elder Gore at a Tennessee cattle auction in the 1940s. He put Gore, who was then a member of the House, on the payroll of his New Jersey cattle business. Thus began a cozy relationship between the two men that would last until Hammer’s death in 1990.

Hammer personified the worst excesses of both capitalism and Communism. In his biography of Hammer (Dossier: The Secret History of Armand Hammer), Edward Jay Epstein notes that Hammer built a pencil factory outside Moscow in 1926 and returned to the United States soon after to launder funds for the Communist Party. In the 1930s, Hammer marketed something he called the “Romanoff Treasure,” a collection of fake Russian art that he passed off as genuine. Much of the proceeds of the sales went to Josef Stalin’s government. Hammer helped recruit Soviet spies and position them in the U.S. government. At one time he even had a contract to train dogs for the Soviet police.

FBI Director J. Edgar Hoover wanted to prosecute Hammer for his activities on behalf of the Soviet government. But Hammer had friends in Congress whom Hoover believed would attempt to protect him from prosecution; among them was Gore, who took to the floor of the Senate once to defend Hammer against allegations of bribery (later proved to be true) in obtaining government contracts.

Gore’s job as a senator was even more useful to Hammer the capitalist. In January 1961 the most sought-after ticket in Washington was to John F. Kennedy’s inaugural ball; Gore made sure that Hammer got one. A few months later, Gore successfully lobbied the Commerce Department to allow Hammer to visit the Soviet Union. The Kennedy administration had banned the importation of Soviet crabmeat on the ground that it was produced with slave labor; Hammer reported that he had found no evidence to support the ban, which was soon lifted. Gore even suggested to President Kennedy that Hammer, whom the FBI had long known was an agent for the Soviet Union, act as an envoy to Nikita Khrushchev should any crisis erupt between the two superpowers.

In April 1968, Senator Gore stood by Hammer’s side when the industrialist officially opened his Libyan oil fields. Occidental was not a player in world crude-oil markets until Hammer bribed King Idris and some of his officials to gain a concession to the huge reserves there. Two years after Gore left the Senate, Hammer placed him on Occidental’s board of directors, where he earned a much higher salary than he had as a U.S. senator.

BY THE TIME the younger Gore was elected to the U.S. House of Representatives, the Gore relationship with Hammer had already begun to transfer from father to son. In the 1960s, Gore informed Hammer that zinc ore had been discovered near the Gore farm in Smith County, Tenn. Hammer, who owned Occidental Minerals (a subsidiary of Occidental Petroleum), bought the land for $160,000, twice the only other offer. But after buying the land, Hammer made a strange decision at least from a business standpoint. Rather than mine the zinc-rich land, he offered instead to let Gore buy it from him. Then, once ownership transferred to Gore, Occidental starting paying Gore $20,000 per year for the mineral rights to mine it. After the first payment, Gore Sr. sold the land to his son for $140,000. Gore has received a $20,000 check in the mail almost every year since.

Perhaps even more astounding than Hammer’s decision to sell the land and pay royalties is that Occidental never actually mined the land. In 1985, Gore began leasing the land to Union Zinc, Inc., a competitor of Occidental. Gore still receives $20,000 a year in royalties. In all, the Hammer-engineered sweetheart deal has put hundreds of thousands of dollars in profits in Gore’s pocket.

The relationship between Hammer and Al Gore, Jr., continued. Gore and his wife once caught a ride across the Atlantic Ocean on Hammer’s private jet; they hosted Hammer at Reagan’s 1984 inauguration and President Bush’s in 1988; and they attended Hammer’s 90th birthday extravaganza in Washington on May 21, 1988. When Hammer came to Washington for business, he and Gore frequently lunched together in the company of Occidental’s lobbyists.

In return, Hammer and members of his family bent over backward to get money into Gore’s campaigns.

GORE RECOGNIZED that his relationship with Hammer and his company did not look good. In 1992, before President Clinton settled on him as his running mate, Gore’s father wrote a memo for Clinton on his ties to Occidental to prepare him for possible questions about it. After the election, however, Gore resumed his old relationship with the company and its new chairman, Ray Irani.

Occidental, for example, loaned $100,000 to the Presidential Inaugural Committee to help pay for the ceremony and the celebrations surrounding it. And Gore used his connections to bring in money from Occidental for the Clinton/Gore re-election campaign. According to a memo from White House Deputy Chief of Staff Harold Ickes, Occidental gave $50,000 in response to one of Gore’s “no controlling legal authority” telephone calls from his office in the White House. Indeed, since Gore became part of the Democratic ticket in the summer of 1992, Occidental has given more than $470,000 in soft money to various Democratic committees and causes.

Irani might lack Hammer’s high profile the old chairman traded quips with Johnny Carson on The Tonight Show but he has been as cozy as his predecessor was with occupants of the White House. Two days after he slept in the Lincoln Bedroom of the White House, Irani’s company dropped $100,000 on the Democratic National Committee He was also one of 130 guests at Clinton’s second official state dinner, on Sept. 27, 1994, where then-Russian President Boris Yeltsin and his wife were the guests of honor. Occidental had some interest in Russian oil; in the spring of 1994, Irani had traveled with the late Commerce Secretary Ronald Brown on a trade mission to Russia.

Uranium Deal Helps Benefactors, but Costs Taxpayers $2.1 Billion

IN 1993, Vice President Gore boarded Air Force Two and flew to Moscow for meetings with Russian Prime Minister Victor Chernomyrdin about the vitally important task of protecting nuclear weapons and nuclear material in the newly decentralized former Soviet Union. It was a natural mission for Gore; during his tenure in the Senate, he had become something of an expert in arms control agreements and, thanks to the patronage from Hammer, had already met with Anatoly Dobrynin, Moscow’s longtime ambassador to Washington.

Many defense experts consider Russia’s nuclear arsenal to pose the greatest immediate threat to U.S. security, of even greater concern than China’s alleged acquisition of U.S. nuclear secrets. The Chinese will no doubt develop sophisticated warheads and the missiles to launch them over the next decade or two; the Russians already have them. The fear of loose nukes grew as economic conditions in the old Soviet republics deteriorated in the early 1990s. Gore’s mission was to reach an agreement with Russia on a way to manage all those weapons in a post-Cold War world.

Gore and Chernomyrdin signed a 20-year, $12 billion deal under which Russia would ship its weapons-grade uranium to the United States. The U.S. Enrichment Corp. (then government-owned) would buy the highly enriched uranium, process it into lower grade, reactor-friendly uranium and sell it to nuclear power plants in the United States. The cash-starved Russian government would get much-needed dollars to pay its nuclear scientists, those scientists would not be tempted to offer their services around the world, and nuclear material would be under the protection of the United States.

IT LOOKED GOOD ON PAPER, but it didn’t work out that way. In 1996, Congress passed a bill to privatize the U.S. Enrichment Corp., a move that threatened the Gore-Chernomyrdin agreement, though one that in fact would ultimately benefit Gore.

Foreign policy experts including Thomas Neff, a senior researcher for the Center for International Studies at the Massachusetts Institute for Technology, who conceived of the uranium agreement warned that privatization threatened the deal. A privatized, profit-seeking U.S. Enrichment Corp., would pay Russia far less cash for its uranium than the amount Gore and Chernomyrdin had originally agreed on. Gore, as the broker of the deal, was in a perfect position to lobby against the privatization scheme. He didn’t. Instead, the Clinton-Gore administration wholeheartedly supported privatization of USEC as part of its efforts to “reinvent government.”

USEC’s board of directors, led by William Rainer, a large donor to the Presidential Inaugural Committee in 1993, had decided to consider two options: Sell the company to a behemoth like Lockheed Martin Corp., or go it alone with an initial public offering. Rainer and the board chose the latter course. In 1998, the U.S. government got $1.9 billion from the sale of USEC to private investors. Clinton rewarded Rainer for presiding over USEC’s privatization by nominating him to serve as the chairman of the Commodities Futures Trading Commission. At his Senate confirmation hearings, Rainer said, “I thought it was the right decision, and one year later, I look at the decision and I still think it was the right decision.”

The decision was certainly right for some of Gore’s biggest benefactors, which quickly cashed in on what turned out to be a $75 million bonanza. Wall Street firms such as Morgan Stanley, Dean Witter & Company; Merrill Lynch & Co., Inc.; and Goldman Sachs & Co., Gore’s No. 3 career patron, collectively raked in at least $42 million in underwriting fees. Well-connected law firms, among them Skadden, Arps, Slate, Meagher & Flom and Patton, Boggs earned nearly $11 million for their part in taking the company private. USEC retained J.P. Morgan & Company, Inc., as its adviser in the deal; J.P. Morgan, in turn, , hired Greg Simon, Gore’s domestic policy adviser, for a fee of $10,000 a month to help it select the new, privatized company’s directors.

AS NEFF AND OTHER EXPERTS had predicted, however, the deal soon began to unravel. Later in 1998 USEC announced that it had received shipments of uranium from the U.S. Department of Energy. The sudden glut caused the worldwide price of uranium to plummet, and the Russians suddenly stood to receive less money than they had been promised. Yeltsin’s government cried foul and threatened to sell its nuclear material to other countries, including Iran. The White House scrambled to come up with the money the Russians demanded, and managed to quietly slip an extra $325 million for the Russians a taxpayer-financed bailout into an omnibus appropriations bill before Congress.

Neff, the architect of the plan to ship Russia’s weapons-grade uranium to USEC for reprocessing, estimates that it will cost taxpayers $140 million a year for 15 years to continue purchasing the Russian nuclear material, for a total cost of $2.1 billion or $200 million more than the sale of USEC brought in. Gore’s “reinvention” of USEC made a lot of money for some of his most reliable political patrons. It also endangered nuclear arms control and left in private hands the management of facilities that are contaminated with deadly substances.