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Smarter corruption: How Lost Trust evolved into 'Capitol Gains'

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Corruption at the Statehouse used to have a surprising transparency: Cigar-chomping lobbyists openly prowled the chambers with credit cards, dishing them out to lawmakers with back slaps and suggestions to have a nice dinner somewhere. One Lowcountry legislator bragged that he would trade his vote for a couple of suits and five or six shirts. Another from the Midlands said he’d give up his for a set of golf clubs.

Operation Lost Trust in 1990 would end much of this type of vote-selling, at least the kind that took place in plain view. But as last week’s indictments of a powerful Charleston lawmaker showed, prosecutors believe other forms of graft and influence-peddling have taken its place – schemes that are more difficult to pierce.

Where cash once was transferred in brown bags and envelopes, now prosecutors say money moves through a murky system of legislative caucuses, political action committees, campaign accounts and private businesses. And instead of petty cash and free shirts, enormous sums are at stake.

Amid this torrent of money, a grand jury on Wednesday indicted Rep. Jim Merrill, a Republican from Daniel Island, on 30 counts of violating state ethics laws. Among the charges: Merrill used his public relations company, Geechie Communications, as a money funnel that took in hundreds of thousands of dollars from special interest groups.

Through his lawyers, Merrill has said the charges have no merit and that Merrill’s company did work that was “completely legal and legitimate.”

Former House Speaker Bobby Harrell made similar statements after he was indicted on charges of using campaign money for personal benefit. He eventually pleaded guilty in 2014 to six charges. But as with Harrell, the story that prosecutors lay out against Merrill raise questions about strength of the state’s ethics laws and whether they’re able to meet the challenge of more sophisticated ways of buying legislative influence.

“People are inventive,” said Lynn Teague, vice president for issues and action with the League of Women Voters of South Carolina. “Money has a way of finding a way to flow.”

The sting

It was flowing fast and loose in the late 1980s. One legislator from Greenville ran an escort service out of his office in the Blatt legislative office building on the Statehouse grounds, said John Crangle, an executive director with Common Cause and longtime government watchdog. Back then, Crangle said, legislators would leave the Statehouse for lunch, grab a credit card from a lobbyist and take their secretaries, girlfriends and pages to $400 and $500 flings.

Among these rainmakers was a lobbyist named Ron Cobb. He drove a shiny Jaguar. He was known for plying lawmakers with cash, saying: “It’s a bidness doing pleasure with you.”

Then Cobb was arrested on cocaine charges. For a time, prosecutors considered doing a simple drug sting to snare lawmakers. Drug cases were much easier to prosecute than ethics cases, said Charleston lawyer Bart Daniel, who was U.S. attorney for South Carolina at the time.

“What we found then was that there were very few ethics laws and rules,” he said. “But the atmosphere was so corrupt that people were selling their votes for almost nothing - $500, $1,000.”

Despite weak ethics laws, the feds decided to tackle the corruption.

Using the cocaine charges as leverage, the FBI deployed Cobb to do what he’d done before. With hidden cameras recording everything, Cobb handed lawmakers envelopes stuffed with cash. In exchange, the lawmakers agreed to vote for a sham bill to legalize horse track betting.

Crangle, who recently wrote the book “Operation Lost Trust and the Ethics Reform Movement,” says the FBI agents who ran the sting were in awe of the low prices their informant had to pay.

“We were like a flea market. Instead of buying guys for $10,000 like they did out west, they were buying votes for $300,” Crangle said.

In all, 27 people were convicted, including 17 lawmakers – roughly a tenth of the Legislature. The public shaming made a difference. Most lawmakers weren’t corrupt, Crangle and Daniel said. And so the Lost Trust sting provided fuel for honest members to pass sweeping ethics reform laws.

New laws banned cash campaign contributions and prohibited use of campaign money for personal purposes. Gifts that once flowed freely were cut off.

Today, Crangle said Statehouse corruption “might not be quite as widespread as it was,” but as in Lost Trust, by the time the current state grand jury investigation is over, “it may be more widespread than I suspect.”

Morphing graft

Fast forward from the 1990s to the fall of 2012 and a report in The Post and Courier. 

The newspaper said that then-Republican House Speaker Bobby Harrell paid himself nearly $326,000 from his campaign account. Harrell refused to show The Post and Courier receipts of those expenses, triggering calls for an investigation.

In early 2013, Ashley Landess, president of the South Carolina Policy Council, made a formal ethics complaint to the state Attorney General.

It was a bold move. It circumvented the General Assembly’s own ethics committees and essentially pushed it in the hands of a state grand jury. And as house speaker in a state where the legislature controls much of the government apparatus, Harrell had one of South Carolina’s most powerful posts.

Adding to his influence was an affiliated PAC, the Palmetto Leadership Council. The PAC collected donations from corporate heavyweights such as BMW and AT&T and doled out money to candidates running for office. It also spent money on private contracts with companies associated with sitting state lawmakers. Two beneficiaries were Merrill’s company, Geechie Communications, and Richard Quinn & Associates, operated by the father of Rep. Rick Quinn, R-Lexington.

Harrell vigorously fought the state grand jury charges against him, and Daniel, the former Lost Trust prosecutor, defended him. Among the charges was that Harrell used tens of thousands of campaign dollars to fund use of his private plane. At the time, Harrell issued this statement:

“While South Carolina is known for having a rough and tough political history, I never thought I'd be attacked for saving taxpayers money by using campaign funds instead of state funds to pay for official Legislative expenses.”

But David Pascoe, the prosecutor in that case as well as the one against Merrill, said the dynamics of the case changed when he saw he could prove Harrell forged flight logs.

"It changed it from a case of simply looking at the flights for being an improper benefit to being actions of deceit or at the very least gross negligence," Pascoe said at the time.

Harrell eventually pleaded guilty to six counts while also agreeing to give “thorough and complete debriefings” of his knowledge of other “unlawful activities” at the Statehouse.

The Harrell case cracked open a window into hazier but more lucrative forms of corruption. “Capitol Gains,” a joint investigation last year by The Post and Courier and the Center for the Public Integrity, opened it wider, exposing how the system serves as a personal ATM.

All told, this money machine dispensed more than $100 million to South Carolina candidates and elected officials since 2009 for such things as lawmaker car repairs, football tickets, male enhancement pills and turkey hunting trips.

The Capitol Gains report found many lawmakers to be quite open about how they spent their campaign cash. State Sen. Kent Williams, D-Marion, often gassed up his SUV two or three times a week, spending more than $28,000 at gas stations since 2009. Asked whether he used the gas for personal trips or the campaign, Williams told The Post and Courier last year: “Every day is an election day. People come up to me when I worship in church, when I’m eating breakfast, when I go out to lunch.”

The Capitol Gains investigation also revealed how lawmakers earned tens of thousands of dollars as consultants, a practice that government watchdogs say is ripe for abuse.

Gov. Nikki Haley fell into an ethical gray area. When she was a lawmaker, Wilbur Smith Associates, a Columbia engineering company, paid her $48,000 to find new business. In a 2012 House Ethics Committee hearing, she was accused of failing to report that money in economic disclosures. A company executive said in the hearing that Haley was unsuccessful in bringing the company new business during that time. The Wilbur Smith executive also testified the firm did not hire Haley to lobby lawmakers. And Haley’s attorney said at the hearing that she wasn’t required by state law to report the work. The committee then cleared her of all charges.

Caucuses also have emerged as a focus of the state grand jury.

Last week’s indictments said Merrill’s company, Geechie Communications, charged the House Republican Caucus and Palmetto Leadership Council $275,251 for candidate mailings and other services, but that Merrill often added “a markup of more than 50 percent.”

‘Legal corruption?’

The charges against Merrill stem from the Campaign Reform Act of 1991 — the legislation that emerged in the wake of Operation Lost Trust. Yet, like an old computer, have ethics laws kept up with the times?

Teague, of the League of Women Voters, said it’s clear that “the forms of corruption have moved away from a straight-up quid pro quo and bribery, into much more complex areas.”  

And making things more difficult for prosecutors: Some actions hug a fine line between legality and illegality.

“There are legal activities that at the same time appear as if you’re using your public office for personal gain,” Teague said. “That’s the core of the ethics issue: Are you serving the citizens, or are you serving yourself? There are so many gray areas.”

Those gray areas allow “legal corruption” to flourish, some experts say.

“I think for states like South Carolina, legal corruption is the bigger problem,” said Oguzhan Dincer, an associate professor of economics at Illinois State University who has tried to measure corruption perceptions nationwide.

Dincer defines legal corruption as “political gains in the form of campaign contributions or endorsements by a government official in exchange for providing specific benefits to private individuals or groups, be it by explicit or implicit understanding.”

He said “it’s extremely difficult to prosecute and convict a corrupt politician,” but “when it comes to legal corruption it is impossible.”

One area is a little less gray – the issue of lawmakers policing themselves.

When he was a state senator last year, Republican Larry Martin of Pickens helped pass a bill to reform laws governing the ethics of legislators by taking ethics investigations out of lawmakers’ hands and placing them in an independent panel.

Legislators often turn a sympathetic blind eye toward possible transgressions by their fellow lawmakers, he said. And with legislative corruption getting more sophisticated, “that’s why I reached the point that we needed to have outside eyes looking at our conduct.”

Martin, who lost in the June Republican primary to retain his seat, said he expects the independent investigations “will pay dividends.” He called the range of the state grand jury’s charges against Merrill “breathtaking … It fuels the mindset that those of us dedicated to public service are in it for what we can get out of it. It reflects on every member.”

Landess, who sparked the Harrell investigation, said despite the most recent ethics reform, state laws remain porous. She said they must be clarified to eliminate blatant conflicts of interest and the gray areas and loopholes lawmakers employ to circumvent the spirit of ethics laws. And, she said, lawmakers need a full, no-compromise income disclosure law.

She said she would like to believe the grand jury’s continuing investigation is “the beginning of a true take-down” of corrupt lawmakers and the ethics system they created – the system that largely sprang from Operation Lost Trust and its simple pay-for-votes cash.

Andy Shain contributed to this report.

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Tony Bartelme is senior projects reporter for The Post and Courier. He has earned national honors from the Nieman, Scripps, Loeb and National Press foundations and is a three-time finalist for the Pulitzer Prize. Reach him at 843-937-5554 and @tbartelme

Doug Pardue is a Pulitzer Prize winning investigative reporter and a member of The Post and Courier's projects team. Before joining this newspaper, he served as investigations editor at USA Today, The Tampa Tribune and The State (Columbia, SC)