Friday, November 19, 1999

Estate lobbied White House

Ex-Gov. John Waihee urged
officials to kill legislation that would
penalize charities' trustees
for excessive pay

By Rick Daysog


Ousted trustees of the Bishop Estate paid former Gov. John Waihee to lobby top White House officials in an effort to protect their hefty paychecks, according to internal trust documents obtained by the Star-Bulletin.

Waihee met with President Bill Clinton's then-deputy chief of staff, Erskine Bowles, at the White House in late 1995 to discuss the so-called intermediate sanctions law, which penalizes trustees of charitable trusts who receive excessive pay.

Waihee, a longtime Clinton supporter, also contacted then-Treasury Department Deputy Lawrence Summers on the trustees' behalf while his law partner, former Senate Majority Leader George Mitchell, approached Clinton's then-chief of staff, Leon Panetta.

The trustees' congressional lobbying had been controversial for several years. But until now their efforts to influence the intermediate sanctions legislation at the White House level, along with Waihee's role in the campaign, have been largely unknown.

And while the trustees' lobbying eventually fizzled, critics said it demonstrates the lengths to which the ousted trustees went to protect their compensation, and lays bare the 115-year-old charitable trust's political connections in the nation's capitol.

"It's almost unbelievable that they would spend this much money and go through these efforts to serve their personal interests at the expense of the interests of the trust's beneficiaries," said Randall Roth, University of Hawaii law professor and co-author of the 1997 "Broken Trust" article which prompted Gov. Ben Cayetano to order a state investigation of the estate.

"It seems like 'arrogant' isn't a strong enough word for them."

The estate previously disclosed that it paid Waihee's firm -- Washington, D.C.-based Verner Liipfert Bernhard McPherson and Hand -- more than $900,000 between 1995 and 1998 to lobby Congress on the intermediate sanctions measure.

The ousted trustees defended the effort as being conducted for the benefit of the trust. The former trustees said they supported the general idea of the intermediate sanctions law but opposed specific provisions that were onerous to the estate and the trust-run Kamehameha Schools.

"It's the old story of a good idea that got messed up in the details," said Glenn Sato, attorney for ousted Bishop Estate trustee Richard "Dickie" Wong. Wong previously headed the estate's lobbying efforts.

The estate's court-appointed master and interim trustees disagree. Colbert Matsumoto, the estate's master for the 1994-1996 period, concluded that the lobbying was largely self-serving, and asked the state Probate Court to surcharge trustees for the costs.

The interim board has cited the ousted trustees' lobbying as one of several alleged breaches of trust in its suit to permanently remove Wong and Henry Peters from the multibillion-dollar estate.

The temporary trustees have charged that Peters and Wong jeopardized the estate's tax-exempt status by taking excessive pay and by neglecting the trust's core educational mission.

The interim trustees are retired Adm. Robert Kihune, American Savings Bank executive Constance Lau, former Iolani School headmaster David Coon, retired Honolulu police Chief Francis Kealoa and local attorney Ronald Libkuman.

Probate Judge Kevin Chang removed Wong and Peters on an interim basis May 7 after the Internal Revenue Service threatened to revoke the estate's nonprofit status.

According to internal documents obtained by the Star-Bulletin, the former trustees' lobbying was more extensive than previously disclosed.

The documents also show that ousted trustees sought to eliminate the intermediate sanctions law, contradicting their public statements that they supported the legislation.

'Everyone but the pope'

A Sept. 22, 1995, memo from Waihee and Verner Liipfert staffer Denis Dwyer indicated that the estate initially sought to "kill" the bill but was unable to do so due to a barrage of negative stories about nonprofits in the national media. That year, longtime United Way President William Aramony was convicted of defrauding the charity.

Waihee and Dwyer later developed a backup position to "minimize the adverse impacts" on the estate.

The trustees successfully lobbied for the elimination of the so-called exit tax, which gave the IRS the power to charge hefty fines to charities that convert to a for-profit corporation.

The trustees also pushed unsuccessfully for a provision that would have set their compensation according to state law. Under that rule the trustees' salaries would have been protected from the overview of the IRS or other federal agencies.

According to the estate's documents, Verner Liipfert's lobbying team consisted of 15 lawyers and consultants, including Waihee and former state official Norma Wong.

The campaign included dozens of telephone calls, letters and meetings with Sens. Robert Dole, William Roth and David Pryor and House Ways and Means chairman Bill Archer.

The Verner Liipfert team also enlisted the assistance of Goldman Sachs Group to lobby former New York Sen. Alfonse D'Amato. Bishop Estate is a large shareholder in the Goldman Sachs investment banking firm.

"It appears that the former trustees lobbied everyone but the pope himself on this issue," said Deputy Attorney General Hugh Jones.

A Verner Liipfert spokeswoman had no immediate response. Waihee was out of town and could not be reached for comment.

Legislation's sole opponent

At times the Bishop Estate's hard-sell approach appeared to backfire. After Waihee placed a telephone call to former Treasury Deputy Secretary Summers, staff attorney Kathy Livingston abruptly told the lobbyists that the department would not support the estate's position on the intermediate sanctions bill, according to a February 1996 memo by Dwyer.

Summers' boss at the Treasury Department was former Goldman Sachs manager Robert Rubin, whose stock in Goldman Sachs was insured by Bishop Estate. Summers succeeded Rubin as head of the Treasury Department in July.

The estate failed to halt the legislation because it was the only charity that opposed the measure. Stung by the United Way controversy, the mainland philanthropic community banded together and urged passage of the intermediate sanctions legislation because such a law would help restore public confidence.

The bill was signed by Clinton in July 1996.

Paul Streckfus, a former IRS attorney and editor of EO Tax Journal, a monthly newsletter covering the nonprofit sector, said the estate's lobbying on the intermediate sanctions law adds fuel to the IRS' recent threat to revoke the estate's tax-exempt status.

Although former trustees have received outside legal opinions approving their lobbying, the IRS could conclude the lobbying constitutes an instance of private benefit, and could yank the estate's nonprofit status.

"If you are making $800,000 a year, you're probably going to do anything you can to ward off the people who are trying to take it away from you," Streckfus said.

"But the issue here is whether they were spending estate money for a proper purpose."

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