Conflict of Interest

‘Pro-market’ Lexington Institute arguing in favor of subsidies for donors

Boeing F-18 Super Hornet jet fighter / AP
• April 7, 2014 11:00 am


An ostensibly market-oriented nonprofit group defending a controversial federal program to finance the purchase of U.S. exports is financially supported by top defense contractors that benefit from the program.

The Lexington Institute’s website portrays the group as a free market think tank. It "actively opposes the unnecessary intrusion of the federal government into … commerce … and strives to find nongovernmental, market-based solutions to public-policy challenges," the group’s website says.

The group is also a strong proponent of the Export-Import bank, a federal program to boost American exporters, and previously worked to ease the U.S. embargo against Cuba on behalf of a Canadian company with interests in the country.

The group’s critics say the interests of Lexington’s donors explain why a think tank that claims to be laissez faire in its attitudes would go to bat for companies operating in a repressive communist state and a federal program derided as "corporate welfare" by top U.S. politicians, including then-Senator Barack Obama.

Lexington has recently taken to hammering the Ex-Im bank’s critics.

Chief operating officer Loren Thompson went after conservative activist group Heritage Action for America on Thursday, saying its Ex-Im criticism "ignores facts that don’t fit its biases, … substitutes abstract ideas for common sense … [and] betrays the principles that made its existence possible."

Thompson has also attacked Club for Growth for criticizing the bank.

"Naive proponents of pure capitalism … think Ex-Im Bank is a form of corporate welfare even though it doesn’t actually subsidize anyone," Thompson wrote in a Forbes column that singled out Club for Growth.

"People with a more practical grasp of how economics operates in the real world will have to weigh in to assure U.S. exporters are not hobbled by ideology," he wrote.

Thompson’s attacks on Heritage Action and the Club for Growth make more sense, Lexington’s critics say, in light of financial support for the group by major defense contractors that benefit from Ex-Im financing.

According to Thompson, Boeing, Raytheon, and Lockheed Martin are Lexington donors. Lockheed is also a client of Thompson’s consulting firm, Source Associates.

All three of those companies have benefitted from Ex-Im financing for foreign purchases of their products.

Thompson is also an adviser to the Silverline Group, a defense and aerospace consultancy.

Despite his industry ties, he is frequently quoted in news reports as an expert on defense policy without any disclosure of his financial interests in companies affected by those policies.

"I'm not going to work on a project unless somebody, somewhere, is willing to pay. This is a business," Thompson told Harper’s in a 2010 interview. "My bottom line is that if what I write and say is true, it doesn't really matter what my motives are."

Heritage Action spokesman Dan Holler disagrees.

"Heritage Action expects to be on the receiving end of attacks from folks who are benefiting from the status quo," Holler said in an email. "We are trying to disrupt and break apart the corrupt nexus that has dominated Washington for far too long."

Thompson did not respond to multiple requests for comment.

Lexington is a 501(c)(3) nonprofit, meaning it must operate for educational, religious, or charitable purposes, and cannot devote a "substantial part" of its resources to policy advocacy.

Federal law prohibits such groups from operating "for the benefit of private interests, such as the creator or the creator's family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests," according to the Internal Revenue Service.

Thompson received $376,530 in compensation in 2011, more than 15% of the group’s total revenue for the year, according to Lexington’s most recent publicly available IRS filing. More than half of its revenue that year went towards salaries and bonuses for its four paid employees.

The Ex-Im issue is not the first policy debate that has raised questions about Lexington’s financial motives.

A former Lexington vice president reportedly took money from a business operating in Cuba to push U.S. policymakers, under the guise of an objective Cuba scholar, to ease U.S. economic sanctions against foreign corporations operating in the country.

Congress strengthened the U.S. embargo against Cuba in 1996. The Helms-Burton Act barred executives of foreign companies that "trafficked" in expropriated American property in Cuba from entering the U.S.

The law gives the president the authority to waive the travel ban if he deems it in the national interest. President Barack Obama did so most recently last year.

A number of executives from Canadian mining company Sherritt International fell under that prohibition due to its operations on land initially owned by Louisiana-based Freeport-McMoRan Inc.

"Sherritt works quietly in Washington to get its personnel off the exclusion orders," according to a 2003 memo from Robert Muse, an attorney who represented a number of foreign businesses operating in Cuba.

Sherritt enlisted then-Lexington vice president Phil Peters in the effort, according to Muse. "[Sherritt] has given money to … Peters, to advance its interests," he wrote. "The money to Peters goes through contributions to the Lexington Institute."

"Because the Lexington Institute is a 501(c)(3) not-for-profit, there is no public record of Sherritt’s funding. This has allowed Peters to advise and direct the [House Cuba] Working Group in ways beneficial to Sherritt while presenting himself to the Group as an objective think-tank scholar with a specialization in Cuba."

According to the memo, Peters convinced members of the working group to visit Sherritt facilities in Cuba and to stay in a hotel partially owned by the company.

"I suspect that Phil Peters was also directly behind the Cal Dooley (D., Calif.) bill to ‘sunset’ the Helms-Burton Act," Muse wrote.

Four months after Muse wrote that memo, Peters testified before the Senate Finance Committee that Congress should get rid of Helms-Burton.

"Congress should sunset Cuba sanctions laws that violate WTO norms by penalizing foreign nationals who do business in Cuba," he told the committee.

"The Helms-Burton Act … create[s] needless conflict with American trade partners, and are obstacles to greater diplomatic cooperation with our allies on political issues involving Cuba."

It is not clear whether Sherritt continued supporting Lexington. Peters did not return requests for comment. He left the group to found the Cuba Research Center last year, where he is still pushing to roll back the Helms-Burton Act.

Published under: Defense, Ex-Im Bank