When Does Philanthropy Become Lobbying?

Houghton Freeman's Asia-oriented foundation finds itself in an unwelcome spotlight

As Houghton Freeman traces his fingers along a stunning, 180-centimeter-long 1934 photograph of Shanghai's waterfront in his Stowe (Vt.) office, the scene he witnessed in May, 1949, is as vivid as ever. He points to a fourth-floor window of the American International Group Inc.'s old headquarters, where he and his pregnant wife Doreen watched the Communist forces advance up the Bund, the financial district's main thoroughfare. Below, panic-stricken citizens were shot down as they fled. To the north, the remnants of the Nationalist Army piled onto ships to escape to Taiwan. Four months later, Freeman and other AIG staff joined the exodus. "We thought we could do business with the Communists," he says. "We were wrong."

With Hong Kong's handover to the same Chinese Communist Party on July 1, one might expect Freeman to fear for the city's future. Instead, he is bullish. To appreciate how "China has moved on" in recent years, Freeman, 75, believes Americans should see it firsthand. So after retiring in 1995 from a 45-year career building AIG's Asian insurance operations, Freeman has been doling out up to $15 million a year to schools and cultural groups as manager of the Freeman Foundation, a $500 million family trust dedicated to promoting understanding of Asia.

POINTING A FINGER. But in early March, the publicity-shy former executive suddenly found his philanthropy in the spotlight. One of the foundation's latest grants--to the nonprofit National Committee on U.S.-China Relations, to sponsor visits by U.S. lawmakers to China--was the subject of a long, accusatory article in Roll Call, a Capitol Hill tabloid. Seven members of Congress pulled out of a trip scheduled for later that month. With paranoia high in Washington over perceived financial links between lawmakers and "pro-China" lobbyists, other congressional jaunts funded by his and other private groups were also scotched.

To Washington watchdogs, it's just as well. They view such trips as part of a corporate campaign to buy influence over foreign policy. With congressional travel budgets tight, more fact-finding missions are hosted by nonprofits that are funded by business. "I have major problems with members of Congress and their staffs taking trips paid for by groups with a vested interest in legislation before their committees," says Charles Lewis, executive director of the Center for Public Integrity. Foundations, he suspects, are convenient vehicles "to hide the source of money."

The $795,000 Freeman grant does seem to be laden with conflicts. AIG has big investments in China and lobbies Congress on trade policies. While there is no financial link between his foundation and AIG, Freeman, a former vice-chairman, still owns considerable AIG stock and consults on its Asia affairs as an outside director. And AIG Chairman and CEO Maurice R. Greenberg is one of the China relations committee's 58 directors.

But to Freeman, the program is another senseless casualty of the "hysteria that seems to have gripped Washington" over the Donorgate campaign finance scandal. Many sinologists agree. They fear that even well-intentioned groups are being tarred as Beijing apologists. Take lawmakers' sudden unease with being hosted by the National Committee on U.S.-China Relations. While it gets corporate money, the group gets just as much from the U.S. Information Agency and the Education Dept. It has been a key go-between since 1972, hosting exchanges of everyone from ping-pong teams to academics. Committee officials say corporate donors and board members such as Greenberg have no role in selecting who goes to China or who they meet. "It's a very clean organization," says Columbia University's Andrew J. Nathan, a critic of Beijing's human rights record. "If congressmen can't go to China with a reputable exchange group, what can they do?"

From Freeman's perspective, funding exchanges of lawmakers was just a logical extension of his educational activities on China, an interest that runs deep. His grandfather, Luther Freeman, a Methodist minister, founded the Shanghai Community Church in the 1920s. His father taught philosophy at Beijing's Tsinghua University before joining AIG in 1921 in Shanghai, where Houghton graduated from high school. In World War II, Houghton, fluent in Chinese and Japanese, ran a Navy intelligence operation in a coastal region occupied by Japan. Freeman joined AIG's office in Shanghai in 1948. After the company lost its insurance, banking, real estate, auto agency, and newspaper holdings, he opened AIG's lucrative life insurance office in Japan in 1950. He also helped AIG return to Shanghai in 1992 as the first foreign insurer allowed to sell policies in China.

LOOKING FOR FUN. Freeman was looking ahead to a quiet retirement to be spent on a family farm in the picturesque upper Vermont ski country and playing golf in Florida. Then came the 1992 death of his father, Mansfield, an AIG senior partner and founder of its life insurance empire. His vast AIG stock holdings went to the foundation, managed by Houghton out of an unassuming office on the second floor of a small Stowe strip mall. "I could sit around signing checks," he says. "But that wouldn't be any fun."

So Houghton devoted full time to promoting Asian studies. A $10 million grant to Wesleyan University, Freeman's alma mater, provides four-year scholarships to students from 13 Asian countries. Another funds one-year exchanges for high school teachers from the U.S. and China. Some programs are offbeat. One sends black New York City teenagers to study in South Korea. Others finance Asian language classes at high schools, production of Asia literature for Web sites, and a jobs program for Tibetan immigrants. "Freeman does not like to support ivory-tower research," says China expert Nicholas R. Lardy of the Brookings Institution. "He's very big on getting Asians and Westerners to rub elbows."

The next step, Freeman figured, was to get public servants to rub elbows. Under one grant, four young Chinese Foreign Ministry officers study international affairs each year at U.S. universities. He also wants to fund visits by Chinese legislators. But sending U.S. lawmakers to China is out. Few now dare to take such trips unless through the government. "Given the fear of being tainted with private money, taxpayer funds are the preferred way to visit China," says David M. Lampton, president of the National Committee on U.S.-China Relations.

But House and Senate travel funds are limited. And taking too many junkets at taxpayers' expense can backfire politically. As a result, fewer members will visit Asia. That means many will vote on issues such as Taiwan security, China's trade status, and Hong Kong policy without having been to these places. "It makes you a little nervous," Freeman says. But his plan to bridge the knowledge gap "has all come to a crashing halt." By straying into Washington politics, it was Freeman who got a firsthand education.

— With assistance by Paula Dwyer

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