McCain aide: DOJ scandal 'nonsense'

by Andrew Zajac

Steve Schmidt, the new man in day-to-day charge of the McCain presidential campaign, stoutly defended his lobbying and PR firm's hiring of Tim Griffin, a former prosecutor who figured in the U.S. attorneys firing scandal.

Griffin, a protégé of Karl Rove, went to work for Mercury Public Affairs after quitting as interim U.S. attorney in Little Rock, Ark. in June 2007 when it was disclosed that his predecessor, Bud Cummins, had been fired to create an opening for Griffin (pictured at right).

While U.S. attorneys serve at the pleasure of the president, they typically have not been removed except for ethical or legal lapses.

The removal of Cummins and the dismissal of eight other prosecutors in 2006 may have violated this unwritten rule and triggered an ongoing investigation by the Justice Department's inspector general into inappropriate politicization of DOJ employment. The uproar over the sackings also was a major factor in the downfall of former Attorney General Alberto Gonzales.

Schmidt (pictured) right) was untroubled by the firings, telling the Arkansas Democrat-Gazette that it was "mostly a combination of nonsense and politics and provides us no concern at all." Griffin, Schmidt said, was "a great addition to the firm."

Read the Gazette story here: Ark-Schmidt-Griffin.doc

Griffin no longer works for Mercury.

Schmidt joined Mercury, which bills itself as "a full service strategic communications firm", in early 2007 after managing California Gov. Arnold Schwartzenegger's re-election campaign.

At the time Schmidt joined the firm, Mercury represented the government of the Cayman Islands, which was under scrutiny for lax banking laws that fostered tax dodging by U.S. citizens.

Schmidt wasn't registered to lobby for the Caymans and, according to the McCain campaign, had no role in repping the Caribbean government.

Schmidt was based in Sacramento and was hired to run Mercury's California operations, said Brian Jones, managing director of Mercury's Washington office.
Schmidt has never done any lobbying for Mercury, Jones said.

On the Cayman account, "Steve Schmidt is not and has never been a lobbyist. He's had no dealings with this client," Jones said.

Regarding Schmidt's current relationship with the firm, Jones said that, "Steve Schmidt is a partner at Mercury Public Affairs. As a result of the recent change of his role at the McCain campaign, the campaign will compensate Mercury Public Affairs for his services."

(In a good illustration of how entangled relationships can become in Washington -- and how the McCain has struggled to put together an effective campaign team -- Jones himself is a former top McCain aide, as is Terry Nelson, another senior Mercury exec.
Both left the McCain operation in a purge last summer that put Rick Davis in charge of the campaign. Davis himself was eclipsed by Schmidt last week.)

Mercury's Caymans engagement lasted from March 2006 until July 31, 2007.

In Foreign Agent Registration Act filings at the outset of its engagement, Mercury said it would provide "information to the Permanent Subcommittee on Oversight and Investigations of the Senate Committee on Homeland Security and Government Reform in connection with an inquiry into offshore financial institutions."

According to its FARA filing, Mercury in 2006 and 2007 also monitored three bills that would make it more difficult to use offshore havens to evade taxes.

The investigations subcommittee cited estimates that Americans illegally evade $40-$70 billion in taxes annually by stowing assets in offshore accounts or using offshore tax schemes.

According to lobbying documents, Mercury lobbyists on the case were John Hishta and Michael McSherry, both long-time Republican operatives.

It's not clear from records how much Mercury was paid for its services to the Caymans.

The firm was paid pursuant to a "verbal subcontract" with its sister firm, Fleishmann-Hillard Group Ltd, which had a contract with the Caymans government potentially worth $805,000, according to FARA filings.

FARA documents indicate Mercury was paid $70,000 to monitor legislation, but don't state how much the company was paid to prep Caymans officials for the subcommittee hearings.

Mercury also filed paperwork under the separate Lobbying Disclosure Act, but did list any bills it was following.

In the space following "Specific lobbying issues", the Mercury registration reads: "Enhance the standing of the large and growing financial services industry in the Cayman Islands."

Banking practices in the Caymans became a hot button political issue earlier this year when the Boston Globe reported that military contractor KBR, a former subsidiary of Halliburton, set up shell companies in the Caribbean nation to avoid U.S. payroll taxes for contract workers in Iraq.

Globe KBR.doc

Congress subsequently closed the loophole.