Rudy’s Dirty Money

Rudy’s Dirty Money

A closer look at the Texas energy interests fueling the former New York mayor’s presidential campaign.


In March 2001, as Dick Cheney assembled his secret energy task force, Haley Barbour, one of the most powerful Republican lobbyists in Washington and a former chair of the Republican National Committee, fired off a memo to the Vice President. “A moment of truth is arriving,” Barbour wrote, “in the form of a decision whether this Administration’s policy will be to regulate and/or tax CO2 as a pollutant.” Barbour pointedly asked, “Do environmental initiatives, which would greatly exacerbate the energy problems, trump good energy policy, which the country has lacked for eight years?”

The memo bore the imprimatur of Barbour’s lobbying firm, but the real work was being done by Bracewell & Patterson, a midsize Texas law firm with a client list as long as the plume from a smokestack. Bracewell would go on to become one of the key lobbying outfits on energy policy in the Bush II era. Its clients have included massive coal-burning power plants like the Atlanta-based Southern Company; more than 450 oil companies represented by the National Petrochemical and Refiners Association; and Texas heavy hitters like Enron, ChevronTexaco and Valero Energy. All these interests had a major stake in persuading George W. Bush to abandon his campaign pledge to regulate carbon dioxide, the leading source of greenhouse-gas emissions. Two weeks after receiving Barbour’s memo, Bush reversed his position and decided against naming CO2 as a pollutant, leading to more than six years of inaction in combating global warming.

It was the first of many victories for Bracewell & Patterson. In the coming years the firm would persuade the Administration to exempt coal-burning power plants from new pollution controls, forestall plans to reduce mercury emissions and shield the makers of MTBE, a toxic gasoline additive that contaminates drinking water, from costly lawsuits.

In March 2005 Bracewell got its biggest boost yet. At a press conference at the Waldorf-Astoria in New York City, the firm unveiled a new partner: former New York Mayor Rudolph Giuliani. It also unveiled a new name: Bracewell & Giuliani. It was a huge coup for the firm. “He’s going to help expand Bracewell’s reputation nationally and internationally,” Bracewell lobbyist Scott Segal said at the time.

It was also a shrewd move for “America’s mayor.” Giuliani had already enjoyed a string of business successes following his term as mayor. He had launched the consulting firm Giuliani Partners shortly after 9/11, and he’d partnered with Ernst & Young to launch an investment bank, Giuliani Capital Advisors, which was sold in March to an Australian company for an undisclosed sum. Giuliani jet-setted around the globe in a Gulfstream, giving speeches at $100,000 a pop. His 2002 book Leadership sold more than a million copies.

A law firm would solidify Rudy’s financial empire–but not just any firm would do. Partner Giuliani wanted to become President Giuliani. He needed money and, more important, political connections. Bracewell offered a gateway into the lavish world of Texas Republican fundraising and easy access to the same titans of industry who had helped make the Bush family rich and propelled W. into the White House. The former mayor of one of the bluest cities in the country had just inked a whole lot of red.

Strike Force for Industry

The arrival of the second Bush Administration and the ascent of Bracewell went hand in hand. After persuading the Administration to abandon its CO2 pledge, Bracewell launched a full-court press on behalf of another industry priority: relaxing restrictions on coal-fired power plants. In 1999 the Clinton Administration had sued nine companies for failing to add new pollution controls when updating or expanding more than fifty of their plants. The companies wanted the EPA rule, known as “new source review,” changed and the lawsuits dismissed. Enlisted in the cause were key GOP lobbyists, including Barbour; C. Boyden Gray, White House counsel for Bush Sr.; and Marc Racicot, former governor of Montana, a Bracewell partner who was a top lobbyist for Enron and head of the Republican National Committee.

In May 2001, two weeks before the Administration unveiled its energy plan, Barbour and Racicot met with Cheney and urged him to abandon the Clinton-era rules. Over the intense objections of career EPA attorneys, the Administration decided to torpedo the Clinton lawsuits and granted the power plants the huge loopholes they sought. Senior EPA officials resigned in protest, and fourteen states sued to block the rules changes. Eliot Spitzer, New York Attorney General at the time, accused the Administration of “gutting” the Clean Air Act and “putting the financial interests of the oil, gas and coal companies above the public’s right to breathe clean air.”

Days after the changes were announced, Ed Krenik, the EPA’s chief liaison to Capitol Hill, took a job in Bracewell’s Washington office. It was the beginning of an EPA exodus–especially to Bracewell. The EPA’s acting general counsel, Lisa Jaeger, joined Bracewell in March 2004, and the agency’s top political appointee for clean air, Jeffrey Holmstead, was hired last October. These hires solidified Bracewell’s reputation as a “strike force for industry,” says Frank O’Donnell, president of Clean Air Watch.

By the time Giuliani joined Bracewell in 2005, the firm was regarded as “the most well-known face of aggressive energy-industry lobbying in DC,” says John Walke, head of the clean air division at the Natural Resources Defense Council. The DC contingent has done little to tone down its advocacy since Rudy’s arrival. In the wake of record oil industry profits, they lobbied against a tax on windfall revenue. At a recent EPA hearing in Philadelphia, physicians, state officials, environmentalists and even an asthmatic family testified about the need to reduce smog levels. But Holmstead, now Bracewell’s star expert, brushed aside such concerns. “If you change the standard, it’s not going to have any impact whatsoever,” he said.

Rudy didn’t come cheap. Bracewell paid Giuliani Partners $10 million for his services and Giuliani a base salary of $1 million a year, plus 7.5 percent of the firm’s New York revenues. (Former New York City Mayor Ed Koch once said, “You can get rich, or you can get elected.” Giuliani is trying to do both.) In return, Rudy performed a variety of tasks. He spearheaded the opening of the New York office, bringing over talent like Michael Hess, New York City’s chief lawyer under Giuliani, and Marc Mukasey, the son of US Attorney General-designate Michael Mukasey, to head the firm’s white-collar defense practice. In more than two years, the firm has grown to roughly forty lawyers, with annual revenues estimated at $27 million.

Giuliani says he’s never lobbied in Washington. But he has helped in other ways. He traveled to London to meet with executives from Shell Oil. He recruits new associates. As of last year he worked on “three or four cases” a year, he told Bloomberg News.

Rudy was once widely considered one of the premier lawyers in the country. He was the youngest associate attorney general ever, under Ronald Reagan, and as district attorney in Manhattan he made a name for himself by prosecuting crooked congressmen, Wall Street schemers and mob leaders. Yet he’s always had trouble balancing his law career with his politics. In 1989 Giuliani joined the New York firm of White & Case. The firm had a list of controversial clients, including the government of Panama, home to drug-dealing dictator Manuel Noriega; foreign banks that gave large loans to the apartheid regime in South Africa; and an Italian construction firm that helped build a chemical weapons plant in Libya.

When Giuliani launched a run for mayor that same year, he was blindsided by bad press. “White & Case represented all sorts of dictators and scumbags,” says veteran political consultant Hank Sheinkopf. “Rudy could never understand why that would be a problem.” Politicians of both parties called on Giuliani to release his client list. Billionaire businessman Ronald Lauder, who ran against Giuliani in the Republican primary, aired a television ad featuring side-by-side pictures of Giuliani and Noriega. Nelson Warfield, Lauder’s spokesman at the time and a current adviser to presidential candidate Fred Thompson, sees parallels between then and now. “It was an issue for him in ’89, and it’s an issue for him in ’07,” Warfield says of Rudy’s clients. (Thompson, it should be noted, has his own questions to answer about his lengthy career as a Washington lobbyist.)

The Giuliani campaign is anticipating such scrutiny. In a leaked campaign dossier obtained by the New York Daily News in January, the word “business” appeared at the top of a list of potential vulnerabilities, ahead of his ex-wife Donna Hanover. The concern was justified. After the 2004 election Giuliani saw the nomination for Homeland Security czar of a protégé, former New York City Police Commissioner Bernard Kerik, crash and burn when the press uncovered Kerik’s affairs, unpaid back taxes and ties to the mob. “Rudy will be held to a higher standard,” predicts GOP strategist Tony Fabrizio. “This is stuff he did after becoming America’s mayor.”

Bracewell & Giuliani presents a host of potential sore spots, on the left and the right. Operatives from rival GOP campaigns were quick to exploit the fact that the firm represented Citgo, the state oil company of Venezuela, one of the current bêtes noires of the right wing. Bracewell helped Rupert Murdoch’s News Corp. block “indecency” laws on television, thwarting a pet issue of Christian conservatives. The firm provided counsel to the defense fund of disgraced former House majority leader Tom DeLay–at the same time that it was lobbying DeLay and Congress to grant immunity to the makers of the toxic gasoline additive MTBE, which faces hundreds of lawsuits for contaminating drinking water. Clients abroad have included repressive regimes such as Saudi Arabia and Kazakhstan (Bracewell has two offices representing American oil companies in Kazakhstan; Rudy’s Bracewell supporters recently held a campaign fundraiser there). A few years ago its biggest client was Enron.

Giuliani has accepted more money from the energy industry–$477,208 through the first half of 2007–than any other presidential candidate. These ties likely won’t hurt him with GOP primary voters, who welcomed Bush and Cheney with open arms. But it could arouse the suspicions of moderate and independent voters in a general election, many of whom don’t look forward to the idea of Halliburton clones dictating policy in the next White House.

Texas Loves Rudy

After joining Bracewell, Giuliani became a frequent visitor to Texas. He’s raised nearly $4 million in the state, more than any other Republican, and as of August recruited thirty-seven of George W. Bush’s Pioneers and Rangers (those who raised at least $100,000 and $200,000, respectively, for the Bush campaigns), second only to John McCain. Rudy became acquainted with Texas politics when he launched his aborted senatorial run against Hillary Clinton in 2000. Roy Bailey, a Dallas insurance mogul and former finance chair of the Texas Republican Party, helped him raise money for that race. They struck up a close friendship, and after 9/11 Giuliani told The American Lawyer magazine he “turned over” his postmayoral planning to Bailey, who became managing director of Giuliani Partners. At the 2004 Republican National Convention in New York City, where Rudy’s invocation of 9/11 took center stage, Bailey met Pat Oxford, managing partner of Bracewell & Patterson. Over coffee the next day, Bailey floated the idea of Giuliani joining Bracewell. They clicked, and soon the deal was done.

Oxford himself is a player in Texas Republican politics. He met George W. Bush in the 1970s, worked on his campaigns and became a Pioneer in 2000 for Bush/Cheney. Through Texas Senator Kay Bailey Hutchison, a law school classmate, Oxford met Karl Rove; they became “fast friends,” Oxford told The American Lawyer. In 2000 Oxford formed the Mighty Texas Strike Force, dispatching volunteers from Texas to battleground states. During the 2000 recount in Florida, Oxford said he “ran Broward County” and managed the Bush/Cheney legal defense team, talking with Bush frequently in Texas. In 2004 his twenty-five-person “strike force” in Ohio became a source of contention when hotel workers in Columbus, according to a report compiled by the Democratic staff of the House Judiciary Committee, claimed that the strike team used “payphones to make intimidating calls to likely voters, targeting people recently in the prison system” and alleging that the FBI would send them back to jail if they voted.

Giuliani’s business partners and Texas allies have come to play a prominent role in his presidential campaign. Oxford is the campaign’s national chairman, marshaling operations and squiring Giuliani throughout the state. A fellow Houstonian, Jim Lee, a close ally of Governor Rick Perry and a Pioneer for Bush/Cheney in ’04, is the campaign’s new finance chief. The day-trading company Lee co-founded, Momentum Securities, was censured and fined $75,000 by the National Association of Security Dealers in 2001 for producing misleading advertising material, downplaying financial risks to investors and overstating its capital. After Lee raised $200,000 for Perry’s re-election campaign, the governor appointed him last year to the board overseeing Texas’s $96 billion public school employee pension fund.

Giuliani Partners’s Roy Bailey introduced the candidate to GOP billionaires and major Bush supporters like T. Boone Pickens and Tom Hicks. Pickens got to know Rudy after dinner one night at Bailey’s house. Hicks had committed to McCain’s campaign, but after Bailey “went to see him and rib him about it,” he changed his mind and became Giuliani’s Texas chairman. The three hosted a fundraiser for Rudy last March in Dallas.

Pickens is a legendary corporate raider from West Texas who terrorized Wall Street by threatening to take over oil companies and grew filthy rich in the process. Since launching a hedge fund specializing in energy investments in 1996, Pickens has become even richer, making more than $1.5 billion in 2005. That same year he gave $165 million to Cowboy Golf, a small charity connected to his alma mater, Oklahoma State, and on whose board Pickens sits. Within an hour, the tax-deductible donation was invested back into the Pickens hedge fund, BP Capital. Critics who objected to the transaction, and Pickens’s influence at OSU, began calling the school “Boone State.”

More recently, Pickens has been prospecting in Texas’s new oil: water. His company, Mesa Water, owns groundwater rights to 200,000 acres of land north of Amarillo (in Texas, unlike other Western states, groundwater is considered private by virtue of a “right to capture” law), which he’s said he plans to sell to cities like El Paso, San Antonio and Dallas, potentially netting him $1 billion over the next thirty years. Pickens claims to be the “number-one steward of the land,” but locals are wary of what Fortune magazine dubbed a Chinatown-esque scheme to divert water from the Panhandle, earning Pickens the status of “regional reprobate,” as Salon put it. For a born-and-bred Texan, Pickens is more like Giuliani than you’d think, especially when it comes to his personal life: four wives, semi-estranged from his children, reviled in his hometown. His political profile is no less turbulent. When the Swift Boat Veterans for Truth needed seed money for an ad campaign smearing John Kerry’s service record in Vietnam, Pickens ponied up an initial $500,000. He eventually gave $3 million to the group. Pickens has raised more than $500,000 for Giuliani, including $50,000 from employees of his hedge fund.

Tom Hicks isn’t far behind Pickens financially, and his ties to the Bush family go even deeper. In 1994 under then-Governor Bush Hicks joined the University of Texas Board of Regents, one of the plushest appointments in the state, and was put in charge of investing the university’s multibillion-dollar endowment. Hicks formed a private entity using UT money, called the University of Texas Investment Management Company, which invested millions with Bush family supporters and Hicks allies like The Carlyle Group, Bass Brothers of Fort Worth–who bailed out Bush’s previous company, Harken Energy–and Dallas’s Wyly family, all major patrons of the Bushes. News reports detailing the close family connections led to a major public controversy. Hicks stepped down at the end of his term, but the ties to Bush didn’t end there. In 1998 Hicks bought the Texas Rangers for $250 million, three times what Bush and his partners paid for the team in 1989, and granted Bush six times his original share, making the failed businessman an overnight multimillionaire.

Hicks, who became vice chairman of the radio behemoth Clear Channel in 2000, helped Bush in whatever way he could. According to Salon, “Hicks announced on a conference call among Clear Channel’s senior radio executives that the company was supporting Bush’s presidential run, that everyone was encouraged to make donations, and that the legal department would be in contact with donors in order to maintain a proper roster.” After 9/11 Clear Channel banned “potentially offensive” songs from its stations, and in the run-up to the war in Iraq, bankrolled supposedly grassroots pro-war “Rallies for America” across the country. The company gave nearly $470,000 to Republican candidates in 2006, roughly the same as in ’04. Ironically, Hicks’s investment fund sold its stake in Clear Channel last year to the private equity firm Bain Capital Partners–the longtime employer of Mitt Romney. Today, though, Hicks says, “I’m more closely aligned to Rudy than I am to Bush.” As state chair for Giuliani, Hicks was given the task last January, according to the leaked strategy memo, of raising $30 million for the campaign in Texas, a figure that has thus far proven wildly optimistic.

The benefits of Giuliani’s association with Bracewell are evident when it comes to hauling in money and supporters. “If people in Texas want a presidential candidate with Texas connections, I think I have the strongest one,” he told donors at a private golf club in Dallas in March. “I’m here a lot on business. I’ve got to know Texas really well.” Bracewell gave Giuliani a foothold in Texas that other candidates don’t have. “It helped considerably,” says Robert Stein, a professor of political science at Rice University in Houston whose daughter recently accepted a job with the firm.

In between stops on the campaign trail, Giuliani always found time to swing by the Houston office. “This summer, it was quite a thing to watch,” Stein says. “He was there a lot, to be seen and to create press.” At gatherings of prospects whom Bracewell wanted to lure to the firm, Giuliani was a star attraction. “It was as much a fundraising attempt as an attempt to get people to sign with Bracewell,” Stein says. (The Giuliani campaign never responded to repeated requests for interviews with the candidate’s business partners and key fundraisers.)

Giuliani was back in Houston in early September, enjoying a Houston Texans football game with Oxford and Texans owner Bob McNair, who in 2004 had given more than $500,000 to the Swift Boat Veterans and another right-wing 527, Progress for America. Rudy had been in Arlington the day before taking batting practice with the Texas Rangers, courtesy of owner Tom Hicks, who was hosting a fundraiser at the park. That night, Hizzoner threw out the first pitch.

On the surface, it’s surprising that a thrice-married, pro-gay rights, pro-gun control mayor of New York City could do so well in the Lone Star State. But when you examine Giuliani’s record as mayor and his positions on the campaign trail, it begins to make sense. As mayor of New York, Giuliani tried to privatize everything he could, including hospitals, schools and the management of Central Park, while vetoing a living-wage ordinance for city employees.

On the campaign trail in Texas, like everywhere else, he talks largely about 9/11 and “the terrorists’ war against us.” (His foreign policy advisers include neocon war cheerleaders like Norman Podhoretz and Daniel Pipes.) He has taken a newfound hard line on illegal immigration and the border and frequently professes his love for Ronald Reagan. He talks about the need to further reduce taxes and shrink the government. In an essay on National Review Online, Pickens explained his support for Giuliani in part by noting that “Rudy will demand that each Cabinet member submit budget cuts of between 5 and 20 percent annually.” When asked at a cocktail party in the Woodlands, a chic suburb of Houston, how he could win the South, Giuliani mentioned his “strong conservative credentials” and his competitiveness in a general election, according to Jim Granato, a professor at the University of Houston who attended the event. “He’s the one they think can defeat Hillary,” says Stein.

In a state where Republicans remain doggedly fond of their native son, Giuliani rarely, if ever, criticizes President Bush. “Rudy’s been alone, among all the candidates, in treating Bush with kid gloves,” says Giuliani’s former deputy mayor, Fran Reiter. “So gathering Bush’s supporters to his campaign makes sense to me.”

When it comes to energy policy, Giuliani’s record as mayor won’t present a roadblock to his industry supporters. He put ten new power plants in New York neighborhoods over the objection of community groups and allowed utility giant Consolidated Edison to expand along the East River. Unlike other New York Republicans, such as former Governor George Pataki, “environmental issues were not a big category for Giuliani,” says Reiter.

At a speech last year at the Manhattan Institute, the conservative think tank that generated many of Rudy’s mayoral policies, Giuliani called the idea of energy independence “the wrong paradigm.” He dismissed energy conservation as “helpful but not really very, very effective.” He was most animated, according to press reports, about the need to build new nuclear power plants and expand oil drilling. “We haven’t drilled in Alaska,” he said. “We haven’t built oil refineries. We haven’t ordered a nuclear power plant since 1978.” He also plugged ethanol, a favorite in Midwest corn states like Iowa, and so-called clean coal technologies.

On the campaign trail, Rudy now includes the requisite language about curbing global warming and weaning America from its dependence on foreign oil. One of his campaign’s “twelve commitments” is to “lead America towards energy independence.” At a diner in Waterloo, Iowa, this past summer, he was asked how he’d accomplish that goal, given his clients in the oil, gas, coal and nuclear energy industries. “Law firms aren’t political,” Giuliani responded, “so this is kind of a silly way in which people attack each other on politics. It has no relationships to your political position. As a lawyer, or a law firm…you don’t make determinations of who you represent on your political philosophy.”

That answer was less than convincing in light of Bracewell’s political activism and Giuliani’s newfound friends. These days, Rudy’s “political philosophy” seems to mirror that of his energy clients and Bush Pioneers. There’s synergy between the old Bracewell & Patterson and the new Bracewell & Giuliani. On a recent trip to Mississippi, Giuliani even floated the name of Haley Barbour, now governor of the state, as his potential VP.

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