Fred Kaplan Reliably Wrong on Snowden Clemency

Since I pretty much made a meal out of this issue over on Twitter, I’m returning from 140-character land to the reassuringly logorrheic surroundings of my blog to share my thoughts on the Fred Kaplan think piece that made the case for denying clemency to Edward Snowden.

I was rather bemused by the hosannas this piece attracted from certain quarters.  It’s the usual collection of sneering tropes, innuendo, and speculation, marshaled in this case to repudiate a New York Times editorial urging clemency for Snowden.

Kaplan puts his gloss on what he regards as Snowden’s vile shenanigans to conclude that Snowden would not agree to get strapped to a polygraph for a pre-deal debriefing about what Kaplan regards as his disingenous statements about footsie with the Chinese and Russians and thereby asserts (in the title of his piece) that Snowden “won’t (and shouldn’t) get clemency.”

Predicating any Snowden clemency on Snowden inserting himself into the maw of the US security services for a preliminary adversarial debriefing is, quite frankly, such an obvious straw man that I’m surprised Kaplan’s piece was taken seriously.

But it was, by a lot of people, Ian Bremmer and Josh Marshall among others who, I speculate, are profoundly uncomfortable with what Snowden did and need the feeling that a pound of flesh has been extracted from Snowden’s currently safe, sound, and snowbound borscht-swilling hide in order to get closure.

Let me tell you what I think is in play here, and why Kaplan is willfully or obtusely missing the point.

I think the real point of the New York Times appeal for clemency is not to validate Snowden’s actions or opinions; it's damage control.  It is an attempt to right the ship of American security and foreign policy and commerce. 

The US government, in order to renormalize its dealings with its allies, needs to make a high-profile symbolic gesture that the intrusive unilateral surveillance practices of the NSA, abetted by US high tech companies, have been reined in.  Once this ugly transition has been navigated, the US can reclaim the moral high ground and return to strongarming foreign countries to cooperate with the NSA (and buy American high tech products which now look pretty tainted) under the new, Snowden-approved regime.

Per the NYT:

Many of the mass-collection programs Mr. Snowden exposed would work just as well if they were reduced in scope and brought under strict outside oversight, as the presidential panel recommended.

In other words, it’s all better, the US has come to terms with the extra-legal and/or excessive nature of some NSA practices, we’re the good guys again, Look! We even gave clemency to Snowden!  And you better keep buying Cisco routers!  Or else!

My personal opinion is that the New York Times suggested clemency for Snowden, as opposed to a presidential pardon, in order to throw a bone to the anti-Snowden crowd by acknowledging he had broken the law and not ruling out the possibility that he had harmed certain US-related interests.  

I refer interested readers to the Scooter Libby sentence commutation controversy for additional discussion (and suggest that the NYT may have shaped its Snowden proposal around the Libby case, where arguably rather dirtbag behavior was excused by the president with limited fuss, muss, and sustained public indignation for reasons of White House morale and partisan inclination, rather than any overarching foreign policy goal).

Unfortunately, clemency raises a new set of issues because it is traditionally granted for cause after the recipient has paid his debt to society with a certain amount of time in the slammer.  Maybe the NYT should have proposed a straightforward pardon for Snowden on the grounds of national interest.  Asserting clemency on grounds of equity, on the other hand, opens up the whole can of factual and evidentiary worms for Kaplan and other Snowden detractors to dig in.

I find it amusing that Kaplan’s contemptuous rejection of the clemency gambit, because it was coupled with a recognition that conditions did not yet obtain for trying Snowden for treason, was hailed as some piece of high-minded objectivity.

Tough minded pundits like Fred Kaplan are supposed to look beyond their emotions, look beyond concepts of justice, to make the tough calls to protect American interests.

In this case, the US interest would seem to reside in using a Snowden clemency to hang some faux-reform bunting on Castle Greyskull, the NSA's fortress headquarters in Fort Meade.

By attempting to foreclose clemency, Kaplan is not lifting a middle finger to Snowden or the New York Times; he is flipping off the Obama administration, the US security empire, and the US high tech industries, all of whom are trying to cope with the genuine Snowden effect: the incremental disintermediation of the United States from the world communications, data, and surveillance empire that they had themselves created.

When I read Kaplan’s article, I was reminded of that scene in Airplane! (funny only in a rather creepy way, I must say), where passengers line up to slap a hysterical passenger.

In this case, I imagine Kaplan facing the ire of a long line of US government and private interests, with world influence, security assets, and billions of dollars of contracts at stake, all trying to slap some sense into the guy.  

$5 billion in contracts for Cisco routers!  Slap!  The Brazilian Internet repiped away from the United States! Slap!  The PRC making the moral case against US global surveillance!  Slap!  Angela Merkel can’t let us listen to her cell phone!  Slap!

Yeah, I know, a lot of people think we should be slapping Snowden instead.  Point is, Snowden’s already done what he’s going to do.  It's water under the bridge.  In B-school speak, it's a sunk cost.


The real question is, What is the US going to do about it?  What is Fred Kaplan going to do about it?  

I recall a passage from Kaplan’s clemency slam:

But one gasps at the megalomania and delusion in Snowden’s statements, and one can’t help but wonder if he is a dupe, a tool, or simply astonishingly naïve.

Hmmm.  Pot...kettle...pot...kettle

[After posting this, it occurred to me that perhaps the Kaplan strategy is simply to unfurl the banner of defiance and stick to the line that the problem wasn't Snowden's revelations but the fact that Snowden revealed them.  If so, the appearance of the New York Times editorial and the realization that the foreign policy and media elites were not standing shoulder-to-shoulder would have been a nasty knock.  CH, 1/4/14]

I don't think Edward Snowden is going to get clemency.  But I think it's interesting that the NYT, perhaps working with some people inside the Obama administration, decided to float this trial balloon. And I'm still struck by the emotions that this case continues to arouse.

Insider trading, Chinese style

Decoding the Story of the Wen Family Billions

[This article appeared at Asia Times Online on Oct. 31, 2012.  It can be reposted if ATOl is credited and a link provided.]

Regarding the epic financial machinations allegedly practiced by the family of Chinese Premier Wen Jiabao, his supporters can draw consolation from the fact that the Wen family compares favorably to the Bo Xilai family in the matter of financial sophistication, investment success, and in not murdering its financial adviser.

They may also be heartened by the thought that China's tycoons are achieving parity with the West in best practices of legalized insider trading and self-dealing.

There is another group that definitely feels thrilled and empowered by the New York Times' blockbuster revelation concerning an alleged US$2.7 billion nest egg possessed by Premier Wen
Jiabao's family. [1] That group is not China's dissidents. It is Western print journalists, who feel under siege around the world, and especially in China. The Guardian's media critic, Michael Wolff, took it to the next level, calling the revelations the biggest thing since the Pentagon Papers:

The New York Times' unraveling of the holdings of the Chinese premier, Wen Jiabao, and his family may be its most direct challenge to a sitting government since its publication of the Pentagon Papers in 1971. Arguably, its forensic accounting will be even much more damaging and potentially transformational to the Chinese government than its seminal revelations about the roots of the war in Vietnam were to the Nixon government.

As with the Pentagon Papers, the Times now faces the concerted wrath of the government it has challenged. The Nixon administration took the Times to the US Supreme Court in a move that threatened to criminalize the company. The Chinese government has cordoned off the Times' digital reach into China and, effectively, declared it persona non grata in one of the world's most significant markets. In other words, it's a great day. [2]

Easy, tiger.

Actually, I think David Barboza's expose of wealth aggrandizement by the extended friends and family of Wen Jiabao might be the biggest thing in journalism since ... the Guardian's unconscionable butchering of the WikiLeaks release, but that's another story.

In the matter of the Pentagon Papers, the New York Times defied the advice of its lawyers and published the purloined documents at considerable legal risk without checking in with the US government. President Richard Nixon did not learn of the leak until he opened his morning paper.

The US government then tried to impose prior restraint - getting a court injunction to force the Times to stop publishing the ongoing expose - only to be rebuffed by the Supreme Court. The court, however, did not remove the New York Times from legal jeopardy, affirming for the most part that that the paper could be prosecuted after the fact for revealing state secrets under the Espionage Act (something that the Nixon administration considered but didn't pursue). Instead, infuriated by the leak, Nixon set up the "Plumbers" (leak-stoppers) covert operation that burgled the Watergate Apartments and eventually brought down his presidency. [3]

In the Wen Jiabao matter, Barboza collected the facts legally, and the Gray Lady gave the Chinese government a heads-up before publishing, as the New York Times' public editor reported:

On Friday, I interviewed the publisher Arthur Sulzberger Jr about the story, the censorship and what it means for The Times's global push.

"I'm very proud of this work," he said of the story. "Our business is to publish great journalism. Does this have a business impact? Of course."

Mr Sulzberger said the publication of the article was preceded by "conversations with the Chinese government to discuss it".

"They wanted to air their concerns - which I listened to, as I should," Mr Sulzberger said. "And eventually, we made a decision to publish."

The Times' foreign editor, Joseph Kahn, also confirmed discussions with Chinese officials, and put the scoop in the proper perspective vis a vis the Pentagon Papers:

Mr Kahn said that as recently as Wednesday, Mr Sulzberger and the executive editor, Jill Abramson, met with Chinese government representatives at The Times. But the focus of that conversation was not about the journalism - it was about political and cultural differences In short, Chinese officials were making the case that The Times not publish the article.

"I'm gratified - there's no other word to describe it," Mr Kahn said about The Times's decision to publish it. "People cite the Pentagon Papers, but that involved defying a legal order." [4]

The New York Times is suffering genuine and significant financial losses from the story - one can assume its costly Chinese-language launch has been blown out of the water for at least a few months - and it should be commended for running the piece, but the level of institutional risk and political significance does not appear to rise to a Pentagon Papers level.

Pre-warned by the Times, the Chinese government moved into containment mode. The Chinese Foreign Ministry issued a huffy response that the report was a smear, the New York Times US and Chinese-language websites were blocked, and the word was put out to "harmonize", ie scrub, web and blog references to the New York Times, $2.7 billion, so on and so forth. In addition, Western journos in China were subjected to an aggravating slowdown of Internet service.

Within the People's Republic of China, the report - which is inevitably filtering through the Great Firewall - has apparently not excited a new tsunami of disgust against the Chinese Communist Party regime. The response seems to have been muddled by the fact that the article took pains not to implicate Wen Jiabao personally, and by the fact that Wen is regarded as a leader - albeit of suspect efficacy - of the reformist bloc, and giving him a black eye is considered as providing aid and comfort to the enemies of reform.

The fact that Wen is retiring after the 18th party congress, to be started a few days from now, also takes some of the heat out of the allegations. There were even indignant accusations that the revelations had been fed to the Times by partisans of disgraced party official Bo Xilai seeking revenge on Wen for his role in Bo's downfall earlier this year.

This seems unlikely. Barboza is a well-regarded and tenacious reporter who spent almost a year sorting through Chinese corporate records to get the story. Perhaps Wen's adversaries were willing to egg him on, but, as in the case with the Bloomberg expose on Xi Jinping this past June (see here - for which Bloomberg staff were reportedly subjected to death threats by disgruntled Xi cronies - it can be assumed he dug out the story on his own.

The Barboza article is a fascinating expose of how the wealth-creation sausage gets made in the People's Republic of China, revealing how a family with political connections and access to information can leverage opportunities in everything from diamond-trading to construction of wastewater treatment plants with the help of a few billionaire friends in the PRC and overseas.

However - barring further revelations - it is not the devastating legal and factual brief against Wen Jiabao that the excited coverage might lead one to believe. The New York Times made the understandable, if rather questionable decision, to hang its hat on the eye-popping figure of $2.7 billion, inviting the inference that Wen's family exemplified official corruption on a truly heroic scale.
However, $2.2 billion of that figure is derived from ownership of shares of stock of Ping An Insurance imputed to members of the Wen family, shares that were purchased by partnerships in 2002, apparently for around $65 million, and which skyrocketed in value after Hong Kong (2004) and Shanghai (2007) IPOs.

As for those partnerships, the Times was unfortunately unable to come up with a clear determination as to whether they were simply front companies for Wen family skullduggery or, well, partnerships that provided privileged access for wealth creation for PRC and foreign elites, some of whom were members of the Wen family.

The Times carefully characterized the partnerships as:

Partnerships controlled by Mr Wen's relatives - along with their friends and colleagues - made a fortune by investing in the company before the public offering.

Wen family fingerprints are apparently all over these partnerships, but nailing down issues of legitimacy and control are, understandably, slippery issues.

Around $1.3 billion of the purported Wen family stake in Ping An is controlled by Tianjin Taihong, which in turn is controlled by one of the PRC's richest people, Mdme Duan Weihong, who is in turn generally characterized as an old friend of the Wen family and, more specifically of Wen's allegedly rapacious wife Mdme Zhang Beili. [5]

The question can seriously be raised as to whether Mdme Duan is simply a bag-woman for the Wen family, or a close family friend who has benefited herself - and members of the Wen family - through a carefully constructed, morally questionable, but legally defendable web of obligation and opportunity.

A look at Taihong reveals something that looks more like a plausible business enterprise than a slush fund or cut-out. Taihong apparently achieved considerable success in property
management and, subsequently, development in Premier Wen's home town of Tianjin. Taihong's English-language name is Great Ocean Group.

On its website, it touts its strategic investment in Ping An (stating that "outstanding returns ... reflect the group's foresight and execution ability"): In 2002, the Great Ocean Group acquired a major share in Ping An Group, one of China's largest insurance and financial services companies entitling it to a seat on the company's Board of Directors. [6]

Duan Weihong took that seat on the Ping An (supervisory) board from 2003 through 2009.

The Ping An deal shows the hallmarks of privileged information and access; it does not, however, exhibit significant signs of interference by the Wen family to assure Ping An's success. The Great Ocean investment occurred in 2002. The lifting of restrictions on domestic insurance operations - which paved the way for highly successful IPOs by Ping An and other insurance companies - did not occur until 2004. Spotting Ping An as an up-and-comer would not have been extremely difficult, even without the help of a high ranking communist official.

By 2002, Morgan Stanley and Goldman Sachs had already been strategic investors in Ping An for eight years; in 2002, HSBC also put in another $600 million (it would subsequently buy out Morgan Stanley and Goldman Sachs for $1 billion).

The company had employed McKinsey and Co to advise it on its business operations, staffed its company through a well-known European headhunter, and in 2005 it was named one of Asia's best managed companies by Euromoney magazine. It subsequently achieved the distinction of serving as subject of a fawning case study by a leading Western business school.

In short, Ping An's primary identity is as a private company backed by international financial muscle, not a sclerotic state-owned-enterprise relying on government favoritism and protection. Therefore, the corrupt-dealing framing provided for the Times article is, perhaps, not completely apt to the Ping An situation:

As prime minister in an economy that remains heavily state-driven, Mr Wen, who is best known for his simple ways and common touch, more importantly has broad authority over the major industries where his relatives have made their fortunes. Chinese companies cannot list their shares on a stock exchange without approval from agencies overseen by Mr Wen, for example. He also has the power to influence investments in strategic sectors like energy and telecommunications.

Investing in Ping An prior to its IPO and sensational run-up in stock price was something of a no-brainer.

Of course, getting an opportunity to invest prior to the IPO is something else.

It would perhaps be most informative to ask Ping An's hard-charging boss, Peter Ma, or strategic investors Morgan Stanley, Goldman Sachs, and HSBC - all of whom had seats on the Ping An board - to provide some context as to how Taihong/Great Ocean was privileged to get a sweetheart pre-IPO deal.

Mdme Duan married a Hong Kong investment banker, Desmond Shum, who perhaps provided the deal-making expertise to enable Great Ocean to leverage its Ping An windfall into a very successful foray into active, managed investment: the construction of the massive freight logistics center at Beijing Airport, the "Airport City Development Limited" or ACL, with a total first-stage investment of 4 billion yuan (US$640 million). Mr Shum served as vice chairman and chief executive officer for the project, which was completed in 2007. [7]

In 2011, Great Ocean sold its 40% interest in ACL to Singapore's Global Logistic Properties Ltd for around US$270 million (the New York Times may be in error here by imputing the full $400 million proceeds of the sale to Great Ocean; the shares of another company, "Trade Year Properties Limited," amounting to 15% of ACL, were also sold to Global Logistics as part of the deal).

Interestingly, the Times did not choose to impute the ACL deal to Wen-related shenanigans, even though the high profile and highly political deal (involving approvals by the Ministry of Commerce, the Civil Aviation Administration of China, the Beijing municipal government, the General Administration for Customs - which "consult[ed] eight ministries and commissions" - the National Resources Development Council, and the State Council) would seem to welcome influence peddling in a way that the largely opportunistic and passive Ping An investment did not.

In true nouveau riche style, Mdme Duan has turned to high-profile philanthropy to enhance the reputation of her enterprise. Great Ocean established the Kai Feng charitable foundation, which funded the construction of Tsinghua University's new library and, in 2012, sponsored the Yehudi Menuhin violin competition in Beijing. Under the sobriquet of the "Whitney and Desmond Shum Fellowships", the family funded a program to send two Harvard graduate students to China each year to pursue research in the social sciences.

Mdme Duan blotted her tycoon copybook, however, with a flustered response to the most damning piece of evidence unearthed by Barboza: apparently part of Taihong/Great Ocean's stake in Ping An was held in the name of Premier Wen's ancient mother.

Apparently not aware that the correct response to dangerous and intrusive inquiries from the press is "Talk to my lawyer", Mdme Duan provided a novel explanation:

"When I invested in Ping An I didn't want to be written about," Ms Duan said, "so I had my relatives find some other people to hold these shares for me."

But it was an "accident", she said, that her company chose the relatives of the prime minister as the listed shareholders - a process that required registering their official ID numbers and obtaining their signatures. Until presented with the names of the investors by The Times, she said, she had no idea that they had selected the relatives of Wen Jiabao.

It can be assumed that the purpose of this legerdemain was not to enrich Wen Jiabao's oblivious mother. Perhaps the motive was to park some shares in the name of a clueless retail investor - one who would not be subject to the lock-up obligations imposed on strategic and institutional investors in the Ping An IPO - for prompt disposition at a favorable price.

In any case, the case of granny's Ping An shares - which had a value of $120 million in 2007, though it is unclear that they are still in her name - would be an interesting area of exploration for China's securities regulators, if they decided to pursue it.

Of course, if the way the case plays out is that Mdme Duan takes the rap for parking the shares, the Wen family will be shielded from complicity and the matter will be recast as a securities enforcement matter. It may be that this is how things will turn out, and the Wen family will face no criminal consequences - and Wen Jiabao will not be subjected to Party disciplinary action.

Judging from the long list of business ventures described by Barboza - which even absent the Ping An shares amount to interests amounting to hundreds of millions of dollars - the greedy members of Wen Jiabao's immediate family (led by Wen's wife, brother, and son) were careful not to demand or take payoffs as a condition for deploying political influence. No "pay for play" in other words.

Instead, the currency employed was that of shared opportunity, mutual obligation, and the promise of future cooperation.

Nor did the immediate family hold assets in their own names - high party officials are required to disclose their own assets and those of close family members - allegedly relying instead on the good offices of a network of trusted relatives and associates.

In other words, the Wen family appears to have navigated the loopholes, opportunities, and perilous shoals of personal enrichment in an adroit, legalistic, and politically astute fashion that would be recognized and admired immediately by their spiritual brothers and sisters across the sea: the robber barons of Wall Street and the London bourse.

Whether Wen Jiabao and the CCP will see fit to untangle this web in the interests of transparency, decency, and the Party's political viability is an interesting question.

Notes:
1. Billions in Hidden Riches for Family of Chinese Leader, Yahoo! Finance, Oct 26, 2012.
2. The New York Times' China coup, The Guardian, Oct 26, 2012.
3. Rethinking the Pentagon Papers, National Affairs, Summer, 2010.
4. 'Great Journalism' That Has Unwanted Business Impact in China, NYT, Oct 26, 2012.
5. The Wen Family Empire, NYT, Oct 25, 2012.
6. Strategic China Investment, Great Ocean Group.
7. Airport City Development Lid, DocStoc.
8. China's Ping An Insurance kicks off Shanghai IPO, Reuters, Feb 1, 2007.