Allegations that a past president of Taiwan illegally set up a $100 million secret slush fund to pay for overseas intelligence, propaganda, and influence operations are causing ripples that have reached into the Bush Administration.

At the end of March, Next, a Hong Kong magazine, and the China Times, a daily newspaper in Taiwan, reported that classified documents indicated Lee Teng-hui, Taiwan’s president in the late 1990s, established a secret account in the National Security Bureau to underwrite various activities, including running spy networks in China and elsewhere. The articles, which noted the NSB had made payments to Japanese officials (including former prime minister Ryutaro Hashimoto) and which identified Taiwanese intelligence officials stationed abroad, detonated a scandal in Taiwan.

The government did not challenge the veracity of the reports, and the Taiwanese news media reported Taiwan’s security services were recalling personnel from outposts around the world, including those in the United State, Japan, France and China. The Next magazine reporter who broke the story, Hsieh Zhong-liang, was charged with breaching national security and banned from leaving the country; his magazine’s office was raided by the police. Hsieh wouldn’t reveal the source who provided the documents, but other journalists speculated the information had come from a former National Security Bureau finance officer who is on the run and alleged to have embezzled $5.5 million. The leaks embarrassed the current government, which is controlled by the Democratic Progressive Party, for the DPP is allied with the Taiwan Solidarity Union, a pro-independence party led by ex-President Lee. Amid all the fuss, Lee called off a trip to the United States.

The scandal has tainted two senior Bush appointees in the State Department. Sing Tao Daily, a Hong Kong newspaper, reported that Lee used the secret account–which had not been approved by Parliament–to pay Cassidy and Associates, one of Washington’s largest lobbying firms, to work for Taiwan, and the newspaper said the slush fund had covered the costs of trips made to Taiwan by Carl Ford Jr., a Cassidy and Associates consultant. Ford is now assistant secretary of state for intelligence and research.

Sing Tao, citing the classified documents, also reported James Kelly, whom Bush last May appointed assistant secretary of state for East Asian and Pacific affairs, received money from this fund when he headed the Pacific Forum, a Honolulu-based think tank that is an arm of the Center for Strategic and International Studies, which is based in Washington, DC. Sing Tao maintained Lee drew $100,000 from the clandestine account in February 1999 to pay the Pacific Forum to support former Japanese Vice-Defense Minister Masahiro Akiyama’s study at Harvard University.

Both Ford and Kelly are significant players in crafting Bush Administration policy on Taiwan. Ford is a longtime expert on Chinese affairs. He was a China analyst with the CIA in the 1970s and the CIA’s National Intelligence Officer for East Asia in 1985. He has been a Capitol Hill staffer, a Pentagon official, and a prominent advocate of U.S. military assistance to Taiwan. Kelly was director of Asian affairs for the National Security Council during the Reagan Administration. He also served in the Pentagon in the early 1980s.

In 1999 and 2000, Ford was indeed a consultant to Cassidy and Associates, according to Justice Department records and a spokesman for the firm. During this time, Cassidy and Associates was mounting a vigorous campaign on Taiwan’s behalf, lobbying Congress, the State Department, the Pentagon, and the White House and producing pro-Taiwan media materials, including a website, position papers, and a newsletter. (This was a joint effort with its sister company, Powell Tate.) Ford wrote op-eds, letters-to the editor and testified before Congress in support of Taiwan’s positions, usually identified as a consultant to the Taiwan Research Institute, a think tank based in that country and associated with Lee’s party. In the spring of 2000, as the Clinton administration was pondering whether to sell Aegis destroyers to Taiwan, Ford circulated a memo in Washington arguing that a leaked Pentagon report showed Taiwan needed the “Aegis and other systems to offset Beijing’s ballooning arsenal.”

A spokesman for Cassidy and Associates says the firm was paid for its pro-Taiwan efforts by the Taiwan Research Institute. Justice Department records show that Cassidy and Associates received $3.2 million from 1997 to 2000 for this work. “It was our understanding that the TRI money came from private sources,” says the Cassidy and Associates spokesman. “TRI, to us, was a private, nongovernmental think tank. They engaged us and they paid us.”

But perhaps the money was part of an undercover government effort to influence politics and policy in the United States. Which would mean that Cassidy and Associates, whether it realized it or not, was fronting for a secret propaganda operation conducted by a foreign leader. Does it make any difference to Cassidy and Associates that the payments may have come from a slush fund, funneled through a research institute? “That’s a metaphysical question,” the spokesman replies. “I’m not sure it makes any sense for me to respond.” Did Ford take trips to and from Taiwan as part of his work on Cassidy and Associate’s Taiwan account? “We really don’t get into that sort of information on our contacts with clients,” the Cassidy and Associates spokesman says. (If you’re wondering why the Cassidy and Associates spokesman is not named here, it’s because the person said he would talk only if I agreed not to identify him.)

Jay Farrar, a spokesman for the Center for Strategic and International Studies, says his think tank has examined its financial records and found no transactions between any Taiwanese government entity and the Pacific Forum or the CSIS that correspond to the allegations in the Asian media. He asserts there was no evidence “in our records” of any payment made by Pacific Forum or CSIS to Harvard University. CSIS has received general support funding from the Taipei Economic and Cultural Representative Office ($250,000 or more in 2001), Farrar says. But he notes this is a governmental office that routinely makes grants overseas. “We don’t see any funds from the NSB,” he adds. Farrar does note CSIS and Pacific Forum employees are free to do outside consulting: “Jim Kelly had that same opportunity when he was at Pacific Forum; he may have taken advantage of that.” But Farrar says that CSIS has no knowledge whether Kelly did and that CSIS has not had any “formal contact” with Kelly regarding the Taiwan allegations. Has CSIS asked the Taipei Economic and Cultural Representative Office if the money it gave CSIS may have come from Lee’s secret slush fund? No, says Farrar, remarking, “It’s an interesting prospect to go back and ask people who gave you money, is this legal or not?”

Neither Ford nor Kelly will address the media reports from Asia. A woman answering the phone in Ford’s office said he has “no comment” and would not take questions on the subject. Kelly’s office referred me to a spokesman at the State Department who said, “There will be no response from my office. This has nothing to do with the State Department.”

Shouldn’t the State Department have some response? To recap: news reports in Taiwan and Hong Kong, citing classified government records, say that as part of ex-President Lee’s covert campaign to win friends and influence governments around the world, key members of the pro-Taiwan lobby in the United States received money, wittingly or not, from a slush fund. And two alleged to have done so are currently high-level U.S. government officials.

During the campaign finance scandal of the Clinton administration, there was much huffing–mostly among Republicans–about a supposed Chinese campaign to shape politics in the United States. The more rabid rightwingers accused Bill Clinton of selling out the United States to Beijing. But several of the so-called Chinese connections tracked back to Taiwan, not China, and firm evidence of a Chinese plot never fully materialized. (There were hints.) With the recent media reports out of Taiwan, there is a much stronger case that it was Taiwan that utilized illegal and covert funds to influence U.S. policy–as well as policy in other nations. But there has yet been no outrage here. The U.S. media has not caught on to the story, and Ford, Kelly and the State Department have been able to get away with their no-comments-at-all response.

Perhaps the say-nothing strategy will work. But the story might not be over. Professor Wu Yu-shan of the National Taiwan University tells the BBC that he expects the leaks will “go on and on.”


Two days after saying that CSIS had no records of any transactions involving the Pacific Forum, Harvard University and Masahiro Akiyama (the former Japanese defense official), Jay Farrar called to note that a “more fulsome search” found that the Pacific Forum did provide money to Harvard on behalf of Akiyama.

In December 1999, according to a statement produced by Farrar, the Pacific Forum “was asked” to help find Akiyama a fellowship, and the think tank agreed to do so. Subsequently, the Pacific Forum received $50,000 from the Taiwan Transportation Machinery Corporation, via the firm’s president R.T. Peng. The forum sent $40,000 to Harvard and kept the remaining $10,000 in its general administration fund.

In June 2000, R.T. Peng and the his company contributed another $50,000 to the Pacific Forum to support its work, according to the CSIS statement. And Peng and the Taiwan Transportation Machinery Corporation made $25,000 donations to the Pacific Forum’s general fund in 1998 and 1999.

According to Farrar, CSIS does not know who requested the Pacific Forum assist Akiyama. He says that the CSIS still has not asked Jim Kelly anything about this arrangement. Has CSIS spoken to Peng about the source of the funds used to pay for Akiyama’s Harvard fellowship? “No,” replies Farrar. Will CSIS be conducting an additional inquiry into the matter? “We don’t have any reason to,” Farrar says.

The CSIS statement does not note that Peng sits on the board of the Pacific Forum and has been a close adviser to former President Lee, helping him particularly in diplomatic matters concerning Japan. The news accounts out of Taiwan and Hong Kong and CSIS’s accounting records raise the possibility a board member of the Pacific Forum served as a conduit for money from a government slush fund used by Lee to do an underhanded favor for a former senior-level Japanese government official. That ought to merit further attention from CSIS. And was Kelly aware he was being used in this fashion? His involvement–and Carl Ford’s connection to the scandal–should prompt a State Department inquiry.


On April 5, The Washington Post published a front-page story, “Secret Taiwan Fund Sought Friends, Influence Abroad,” that covered most of what The Nation reported above. The piece, by John Pomfret, a Beijing correspondent for the paper, provided additional information. Pomfret, who interviewed past and present officials in Taipei, reported that the secret slush fund was divided into seven components, and one called Mingde (“Clear Virtue,” in English) handled projects involving the United States and Japan. One Taiwanese official told Pomfret that Taiwan regularly funded research by U.S. academics on Taiwan, subsidized conferences conducted by U.S. think tanks (such as the Heritage Foundation and the American Enterprise Institute), and paid for trips to Taiwan taken by congressional aides. But the story does not indicate if all of this activity was supported by the secret slush fund. This official remarked, “We know there is a revolving door in Washington. So we follow the careers of people and hope we can cooperate.”

One success on this front for the Taiwanese involved John Bolton, now undersecretary of state for arms control and international security. During his confirmation hearing last year, Bolton, a hawk who has for years championed Taiwan, said that in the mid-1990s he received $30,000 from the Taiwan government to write three research papers on how Taiwan might win its way back into the United Nations. Bolton defended the payments and said they would not affect his judgment in office. According to the Post, the money for these reports came from the slush fund. During the period he was receiving these payments, Bolton twice testified before Congress in favor of Taiwan’s readmission into the U.N.

It’s not likely that Bolton pushed ardently pro-Taiwan positions because of the payments. Taiwan was, more probably, rewarding a right-wing ally already on its side. But Bolton should be asked what he understood about the source of the money for these reports, and he ought to be questioned about any other institutional ties he has had with Taiwan. Does it compromise the political system to have foreign policy experts testifying before Congress who have been paid via the slush fund of an overseas government? But Bolton would not talk to the Post.

The Post article noted that the Mingde project targeted other Americans to befriend, including Paul Wolfowitz, now the deputy defense secretary, and Kurt Campbell, a deputy assistant defense secretary in the Clinton administration. But there’s no evidence slush fund money went to either, and a Wolfowitz spokesman said Wolfowitz did not know of any connection between himself and the Taiwan fund.

Beyond the United States, Lee and his lieutenants spread the secret money to win support. Pomfret reports Panama’s government was given $11 million for hosting Lee in 1997, Nicaragua was slipped $10 million to build a palace for its president, and that about $20 million was passed to the African National Congress in South Africa to help it repay campaign debts.

To date, three top Bush appointees in the State Department have been tarred by the scandal. When will these officials and the State Department feel compelled to address the controversy? Were other American hawks on Taiwan’s secret payroll, knowingly or not? Will Congress become interested enough to examine Taiwan’s extensive covert influence campaign? How far will the slush spread?