Banking On Clinton Connections?

There's suspicion that's just what some community banks did

During Bill Clinton's 1992 Presidential campaign, he and his wife, Hillary, promised to create dozens of community banks to lend to small businesses in economically deprived areas. Now, 31 entities are about to divvy up $37 million in federal funds for Community Development Financial Institutions. The CDFI fund, now also a pet project of Treasury Secretary Robert E. Rubin, is the only Treasury program slated for a funding increase next year. Rubin wants CDFI to have a $1 billion annual budget by the year 2000.

Not so fast. Republicans on Capitol Hill are out to get CDFI. After a six-month probe, Representative Spencer T. Bachus III (R-Ala.), chairman of a House Banking subcommittee, says there's reason to believe its first round of funds were awarded not on merit but on the basis of political favoritism--namely connections to the Clintons. Now, Clinton and Rubin are suddenly scrambling to protect CDFI funds for the fiscal year beginning in October. On July 15, a Senate appropriations panel deleted the $125 million Congress had budgeted. Bachus and other House Republicans also want to trim the CDFI fund.

Allegations of links between the Clintons and CDFI grantees have been surfacing for months. But now it appears that the Clintons' ties to several grant recipients are more extensive than previously known. Furthermore, four of the CDFIs are so closely linked to one another that Bachus and other critics say that Treasury may have violated a $5 million-per-institution limit on CDFI grants. And the House probe has uncovered evidence that Treasury officials prepared misleading documents after the fact to support funding decisions.

A White House spokesman says that neither the President nor Mrs. Clinton had any contact with the Treasury officials overseeing the CDFI program. But Bachus charges CDFI officials with "a calculated effort to mislead Congress." Rubin, in a July 15 letter to lawmakers, says Treasury is taking steps to correct problems in the CDFI program, but he is convinced that award decisions were based "solely on merit."

TANGLED WEB. Community development banks, which exist in almost every state, started with Chicago's Shorebank Corp. It was founded in 1973 to lend money for housing rehabilitation on Chicago's South Side. In 1986, the Clintons helped create Arkansas' Southern Development Bancorporation. Shorebank Senior Vice-President Jan Piercy, a college roommate of Hillary Clinton, helped establish Southern Development. Piercy is no longer at Shorebank. But the Clintons maintain ties to several Shorebank officers and directors, who also have ties to three other CDFIs that got federal funds. In addition, the Clintons have numerous links to a fifth bank that also received a grant. All told, $13 million, or more than one-third of the $37 million awarded so far, went to these five.

Bachus is looking at those connections and at a curious paper trail. When the House investigators looked into Treasury files on the CDFI program in April, there were no memos evaluating the merits of awards to four of the five Clinton-connected institutions---Shorebank and its three progeny---which got $11 million. Two weeks later, however, aides found undated evaluation memos justifying the grants. According to a letter from House Banking Committee members, the memos were written by Steve Rohde, deputy director of the CDFI Fund.

Treasury Inspector General Valerie Lau, in an unflattering July 11 report to Congress that was quoted in the lawmakers' letter, says Treasury staff worked through the night prior to the second visit to prepare the memos and ignored legal advice to date them. A Treasury spokesman says the undated memos were not meant to mislead, and that funding decisions were based on a rigorous review.

CRONYISM AT WORK. But House Republicans see cronyism at work. Take Jackson (Miss.)-based Enterprise Corporation of the Delta, which received $2 million from Treasury. Enterprise is a subsidiary of the Foundation of the Mid South, on whose board Hillary Clinton once sat. George Surgeon, until recently an Enterprise board member, also was president of Southern Development, a bank on whose board Mrs. Clinton had served. Surgeon could not be reached for comment.

Enterprise's application was deemed "risky" by a Treasury aide, but recommended for further funding. The grant surprised other applicants who were rejected because they were startups. Enterprise's CEO, William J. Bynum, says charges of favoritism are "completely unfounded."

Meanwhile, House staffers are looking into whether Treasury violated the $5 million cap. One focus: Chicago's Shorebank, which helped prepare the applications of Douglass Bancorporation and Louisville Development Bancorporation Inc. It also gets a portion of Douglass' CDFI award as well as those of several other banks to which it consulted. Some lawmakers believe the institutions are legally tied. A Treasury spokesman says that unless Shorebank owns 25% of the others' stock, which it does not, the funding cap is not breached. Technically true, but Republicans are out to prove a public trust has been breached.

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