Insider Enrichment

When the Clinton Administration privatized the United States Enrichment Corporation (USEC) last year, critics warned that the new company would seek to back out of a historic but unprofitable dea

Ken Silverstein and Ian Urbina

November 25, 1999 | This article appeared in the December 13, 1999 edition of The Nation.

When the Clinton Administration privatized the United States Enrichment Corporation (USEC) last year, critics warned that the new company would seek to back out of a historic but unprofitable deal to reprocess uranium from Russian nuclear warheads. What they didn't know was that the privatization scheme itself was severely flawed by insider dealing that ultimately resulted in millions of dollars in benefits being paid out to company officials and advisers. Now, those same officials are claiming they need a federal bailout of up to $200 million or there will be severe consequences for the US-Russia nonproliferation program.

About the Author

Ian Urbina

Ian Urbina, an editor at Middle East Report, is based at the Middle East Research and Information Project (MERIP) in...

Ken Silverstein

Ken Silverstein is a fellow at the Edmond J. Safra Center for Ethics at Harvard University and a contributing editor to...

Also by the Author

Letters (Politics)

HOLLAND REPLIES TO STONE & SKLAR

Washington, DC

To the uninitiated, the Oliver Stone/Zachary Sklar advertisement on
page 37 of the August 5/12 Nation appears to be a telling
critique of my Studies in Intelligence article on the CIA and the
Kennedy assassination. It is not.

Stone/Sklar challenge the notion of a KGB provenance for the Paese
Sera articles by citing unnamed Paese Sera editors. These
editors allegedly explain that the articles could not be
dezinformatsia timed to Clay Shaw's arrest, because they were
"actually assigned [six months before] in the wake of a right-wing coup
in Greece." This new information would be damaging to my argument save
for one thing--it can't possibly be true. Paese Sera published
the first article in question on March 4, 1967--three days after Shaw's
arrest--and the infamous colonels' coup in Greece did not occur until
seven weeks later, April 21, 1967. (For the record, my researcher
in Italy contacted two Paese Sera editors and one of the two
reporters who wrote the articles; the former professed not to remember
the articles and the reporter wanted to be paid for answering
questions.)

Another novel concoction in the ad is provably false, again because
dates are stubborn things. Until now no one has ever claimed that
Garrison began to perceive a CIA hand in the assassination as far back
as November 1963. This revisionism is refuted by the documentary record.
In December 1966, early in his reinvestigation, Garrison handwrote a
three-page letter to Life journalist Richard Billings. "At the
base of everything," the DA predicted, will be "self-designated
revolutionaries from the lunatic fringe of the Cuban movement." Not a
word about the CIA. Immediately after Shaw's arrest, Garrison fervidly
claimed to journalists that the assassination was a "homosexual
thrill-killing." Again, not a word about the CIA.

Billings's diary gives us the precise date the New Orleans DA trained
his mercurial mind on the agency: March 16, 1967, two weeks after Shaw's
arrest, the day Garrison heard about an article that "supposedly
mentions Shaw's [CIA] work in Italy." On April 3 Billings observed,
"Garrison now is hot on the CIA angle." Correspondence in Garrison's
own papers proves he embraced Paese Sera's stunning
allegations, namely, that Shaw was an "Agency man" and a neo-Nazi intent
on restoring Fascism to Italy.

It's crucial to understand why Stone/Sklar are hellbent on backdating
Garrison's "gradual" thought process on CIA involvement: to paper over a
pivotal falsehood in Garrison's 1988 memoir (which Sklar edited). He
wrote that he didn't discover Shaw's "life as an Agency man in Rome"
until "well after" the 1969 trial. Why did Garrison lie?
Everything depends on the answer (for which go to
www.odci.gov/csi/studies/fall_winter_2001/article02.html).

I find dumbfounding Stone/Sklar's trust in a single source, Paese
Sera. They regard its articles as gospel (as did Garrison) and have
never seriously attempted to corroborate the allegations (nor can they;
no reputable Italian newspaper ever printed remotely similar
allegations). On the rare occasion they pretend to provide
corroboration, they rely on outlandish sources. Their JFK: The
Documented Screenplay, for example, approvingly cites Executive
Intelligence Review, a Lyndon LaRouche publication. Worse, those
sources turn out to be circular, always boiling down to Paese
Sera! Reliance on one source is why Stone/Sklar perpetuate
outrageous assertions about such peripheral figures as Ferenc Nagy, whom
they smear as a "well-known fascist sympathizer" when he was actually
jailed by the Gestapo in 1944.

Ten years ago Stone testified--with "pleasure and pride"--in support of
a statute to unseal the secret files on Kennedy's assassination. Now
those files are largely open, and Stone doesn't like one of the
consequences: Jim Garrison stands revealed as the Joe McCarthy of the
1960s, an audacious liar who unfortunately held a position of state
power.

MAX HOLLAND

THERE'S NO APARTHEID IN ISRAEL

Philadelphia

It is painful for me, as a longtime activist for Israeli-Palestinian
peace (and one who remembers hours on picket lines to stop the selling
of krugerrands), to see the great Archbishop Desmond Tutu lending his
moral authority to the "divestment in Israel" movement and the analogy
it promotes between apartheid and the occupation ["Against Israeli
Apartheid," July 15]. This analogy obscures the cyclical nature of
Israeli-Palestinian violence and therefore serves as another roadblock
on the path to truth and reconciliation in the Middle East.

South African apartheid was an internal system of racist exploitation
within a nondemocratic country. The original divestment movement
targeted corporations that profited from this exploitation. The Republic
of South Africa's right to exist was never challenged by these opponents
of apartheid, nor by the ANC, nor by neighboring African states.

In contrast, Israel itself is a democratic state with a popularly
elected government. Israel's occupation of Palestinian lands, including
the current brutal military occupation, is a fundamental piece of a
messy history of war, repression, terrorism, settlement building, hatred
and "moral legitimacy" on both sides. On the economic side, Israel's
corporate investors are generally injured, not benefited, by the
occupation, as Israel's economy loses all the benefits gained from the
Oslo peace process. And Israel's right to exist has been only grudgingly
acknowledged by a sector of the Palestinian leadership and a few
neighboring Arab states--only after decades of war, boycott and
diplomatic hostility.

In fact, the new campus movement for divestment has proved to be more
anti-Israel than pro-peace. Its rhetoric denies the legitimacy of an
Israeli state. It began on the UC Berkeley campus immediately after
Arafat's rejection of the Clinton/Barak peace, amid anti-Zionist
rhetoric, and it spread to other campuses long before the recent Israeli
military assaults on the West Bank. People involved with the Israeli
peace movement know that divestment will not bring peace or an end to
occupation any closer. Security is the core and very real issue of
Israeli politics: A campaign that even appears to threaten that security
would neutralize the peace forces and drives the Israeli center--crucial
to the peace process--to the right, just as the suicide bombings have
done.

Any movement that denies the legitimacy of Israel or even appears to
threaten the security of the state further pushes the American Jewish
community to the right and into the arms of Republicans. Therefore, on a
strategic and on a tactical level this divestment movement will not
bring us closer to peace and justice.

On a moral level, one can support or defend anyone who on principle will
not invest in any defense industries or derive any benefit from military
contractors. An across-the-board movement to disinvest in all militarism
is, however, a far cry from singling out one state; especially when the
destruction of that state is routinely called for by nations with
significant weaponry. Treating one nation differently from all others is
not the basis of a moral stand.

RABBI MORDECHAI LIEBLING
Torah of Money Director
The Shefa Fund

TUTU & URBINA REPLY

Cape Town, South Africa; Washington, DC

There seems to be a basic confusion about present and past divestment
efforts. During the 1980s, it was precisely the Republic of South
Africa's right to exist as an apartheid state that was being challenged
by the divestment movement, the ANC and neighboring African countries.
Likewise, it is precisely the right of Israel to exist as an occupying
power that is being challenged at present. Then as now, divestment
efforts focused on all companies, not just the directly profitable ones,
since such tactics require breadth to succeed.

The target of current efforts should also not be obfuscated. It is
Israel's occupation, not its security, that is the focus of the current
divestment movement. In fact, it is Israeli security that is most
imperiled by the very occupation that students aim to dismantle. Just as
in the case of South Africa, it will probably take external pressure,
through divestment and other means, to compel the government to provide
peace and security for its own citizens, and justice to the
Palestinians. Israel is, indeed, being singled out, not for its
militarism but for its territorial ambitions and its continual violation
of international law.

When it comes to questions of existence, it is dangerously misleading to
invert certain facts. The Israelis have a sovereign and firmly
established nation; the Palestinians do not. Backed by the sole
remaining superpower, Israel commands one of the strongest militaries in
the world. It is the only country in the region with nuclear arms.
Within its 1967 borders, Israel's existence is recognized by the
international community, including the PLO since 1988, and as offered
more recently by all of its Arab neighbors. The Palestinians, on the
other hand, remain stateless and under military occupation, divided
between two isolated enclaves. Their sovereignty is a distant
aspiration, not a well-guarded reality. In the face of ongoing house
demolitions, the occupied territories are traversed by a growing grid of
restricted-access bypass roads. Palestinian livelihood currently sits in
paralysis, as seven of the eight major West Bank cities are under
tank-enforced curfew. But settler activity proceeds in fast forward.
With more than forty new settlements constructed in the past seven
months, government tax incentives and state subsidies entice new
arrivals to the West Bank. Israel's right to exist is hardly at issue.
Palestine's is a different matter.

DESMOND TUTU
IAN URBINA

REPEAL THE BAN SO KIDS CAN EAT

St. Louis

I'd like to add one more priority to Ruth Conniff's agenda for welfare
reauthorization ["The Right Welfare Reform," July 22/29]: repeal the ban
on cash assistance and food stamps for people convicted of drug
felonies.

This provision is particularly perverse, counterproductive and cruel. A
recent study by the Sentencing Project in Washington, DC, estimates that
in just the first three years of the ban, 92,000 women became
permanently ineligible for public aid, putting some 135,000 children at
risk of poverty, homelessness and further separation from their mothers.
Not surprisingly, given the way our criminal justice and drug war
policies work, fully half the women affected are African-American or
Latina.

A few states (including, brazenly, South Carolina) condition assistance
on participation in drug treatment, as if treatment--especially for
mothers with young children--were in abundant supply. The TANF ban,
combined with public housing restrictions on applicants with criminal
records, makes it practically impossible for poor women convicted of
drug felonies to re-establish themselves in the "free" world.

RACHEL ROTH

HOIST WITH HIS OWN CANARD?

Washington, DC

Michael Massing's June 10 "The Israel Lobby" repeats the outdated
canard that the American Israel Public Affairs Committee operates in the
shadows, and letters responding to the piece [Aug. 5/12], particularly
that by Edward Miller, show a complete disregard for the truth.

AIPAC is a grassroots, pro-Israel group whose members are dedicated to
strengthening the relationship between the United States and Israel.
AIPAC does not collect money from a single PAC, let alone "from over a
hundred Jewish PACs," nor does AIPAC "direct," "funnel" or "pour"
millions into candidates' campaigns. As a matter of policy AIPAC does
not rate or endorse candidates, and as a matter of law AIPAC is
prohibited from making political contributions or utilizing its
corporate resources to make in-kind contributions in connection with a
campaign for federal office. AIPAC is scrupulous in adhering to these
election laws. Indeed, as Miller points out, the Federal Election
Commission concluded as much.

In reference to that complaint, however, not one of the named plaintiffs
was a then-presiding public official. Furthermore, while the complaint
was brought in the name of several individuals who have made a second
career publishing the very canards repeated by Massing, the
American-Arab Anti-Discrimination Committee funded and filed the
complaint. AIPAC itself never fought the complaint in court, as the FEC
determined there was no reason to take any action against AIPAC and that
as a membership organization, AIPAC is constitutionally permitted to
communicate with its members on any subject.

REBECCA NEEDLER
American Israel Public Affairs Committee

...OR INCLUDE VALIUM

Newport, RI

I'm a new subscriber, and I'm upset already. I get so pissed off after
each issue, it takes me a week to settle down--then BOOM! another
Nation shows up and I repeat the cycle. Either make your mag a
monthly, or let's impeach the wackos in Washington so I can get a little
peace in my declining years.

JIM KENDALL

Ian Urbina, Desmond Tutu, Max Holland and Rabbi Mordechai Liebling

Against Israeli Apartheid (Foreign Policy, Regions and Countries)

The end of apartheid stands as one of the crowning accomplishments of
the past century, but we would not have succeeded without the help of
international pressure--in particular the divestment movement of the
1980s. Over the past six months a similar movement has taken shape, this
time aiming at an end to the Israeli occupation.

Divestment from apartheid South Africa was fought by ordinary people at
the grassroots. Faith-based leaders informed their followers, union
members pressured their companies' stockholders and consumers questioned
their store owners. Students played an especially important role by
compelling universities to change their portfolios. Eventually,
institutions pulled the financial plug, and the South African government
thought twice about its policies.

Similar moral and financial pressures on Israel are being mustered one
person at a time. Students on more than forty US campuses are demanding
a review of university investments in Israeli companies as well as in
firms doing major business in Israel. From Berkeley to Ann Arbor, city
councils have debated municipal divestment measures.

These tactics are not the only parallels to the struggle against
apartheid. Yesterday's South African township dwellers can tell you
about today's life in the occupied territories. To travel only blocks in
his own homeland, a grandfather waits on the whim of a teenage soldier.
More than an emergency is needed to get to a hospital; less than a crime
earns a trip to jail. The lucky ones have a permit to leave their
squalor to work in Israel's cities, but their luck runs out when
security closes all checkpoints, paralyzing an entire people. The
indignities, dependence and anger are all too familiar.

Many South Africans are beginning to recognize the parallels to what we
went through. Ronnie Kasrils and Max Ozinsky, two Jewish heroes of the
antiapartheid struggle, recently published a letter titled "Not in My
Name." Signed by several hundred other prominent Jewish South Africans,
the letter drew an explicit analogy between apartheid and current
Israeli policies. Mark Mathabane and Nelson Mandela have also pointed
out the relevance of the South African experience.

To criticize the occupation is not to overlook Israel's unique
strengths, just as protesting the Vietnam War did not imply ignoring the
distinct freedoms and humanitarian accomplishments of the United States.
In a region where repressive governments and unjust policies are the
norm, Israel is certainly more democratic than its neighbors. This does
not make dismantling the settlements any less a priority. Divestment
from apartheid South Africa was certainly no less justified because
there was repression elsewhere on the African continent. Aggression is
no more palatable in the hands of a democratic power. Territorial
ambition is equally illegal whether it occurs in slow motion, as with
the Israeli settlers in the occupied territories, or in blitzkrieg
fashion, as with the Iraqi tanks in Kuwait. The United States has a
distinct responsibility to intervene in atrocities committed by its
client states, and since Israel is the single largest recipient of US
arms and foreign aid, an end to the occupation should be a top concern
of all Americans.

Almost instinctively, the Jewish people have always been on the side of
the voiceless. In their history, there is painful memory of massive
roundups, house demolitions and collective punishment. In their
scripture, there is acute empathy for the disfranchised. The occupation
represents a dangerous and selective amnesia of the persecution from
which these traditions were born.

Not everyone has forgotten, including some within the military. The
growing Israeli refusenik movement evokes the small anticonscription
drive that helped turn the tide in apartheid South Africa. Several
hundred decorated Israeli officers have refused to perform military
service in the occupied territories. Those not already in prison have
taken their message on the road to US synagogues and campuses, rightly
arguing that Israel needs security, but that it will never have it as an
occupying power. More than thirty-five new settlements have been
constructed in the past year. Each one is a step away from the safety
deserved by the Israelis, and two steps away from the justice owed to
the Palestinians.

If apartheid ended, so can the occupation, but the moral force and
international pressure will have to be just as determined. The current
divestment effort is the first, though certainly not the only, necessary
move in that direction.

Ian Urbina and Desmond Tutu

Also by the Author

The Secret Donors Behind the Center for American Progress and Other Think Tanks (US Politics, Corporate Lobbying)

Washington institutions esteemed for their independent scholarship don’t disclose donations from corporations and foreign governments.

Ken Silverstein

The New China Hands (Economic Policy, Ethical Economics, Regions and Countries)

Corporate America spends millions lobbying to win permanent most favored nation (MFN) trade status for China, with its vast market and dirt-cheap labor force.

Ken Silverstein

USEC has dispatched a team of lobbyists from one of Washington's top firms, Patton Boggs, to meet with members of Congress and the Administration to press its case. The Nation obtained a November 12 letter to White House Chief of Staff John Podesta from Thomas Hale Boggs Jr., top lobbyist for the firm, which says that a bailout "need[s] to be acted upon before Congress adjourns this year." (Congress took no action before adjournment, but the issue is still very much alive.) Another USEC hired gun, Greg Simon--former adviser and presidential campaign counselor to Al Gore, a leading proponent of the privatization scheme--is helping Boggs coordinate the lobbying campaign.

How did the government get itself into this mess? USEC's directors, led by board chairman William Rainer, approved the company's sale in June 1998 by a 3-to-1 vote (a fifth board member abstained). The privatization took place through a public stock offering (IPO), an option drawn up by USEC's incumbent management. That plan won out over competing bids from General Atomics and Lockheed Martin to buy the company outright, as well as a nonprivatization option. Rainer predicted that the IPO would net the government "appreciably higher proceeds" than the $1.9 billion Lockheed was offering; in fact it brought in precisely the same amount.

It's no surprise that USEC's managers preferred the IPO route. Lockheed and General Atomics both had their own management teams, so USEC's senior officials would likely have been out of a job if the company were sold to an outside bidder. Instead, at least six members of the old guard currently hold top positions at the new USEC. William Timbers, CEO and president of the new and old company, earned $325,000 when USEC was in public hands. Last February, the board of the newly privatized USEC set his base pay at $600,000 per year, gave him a $617,625 bonus and awarded him stock shares currently worth about $900,000.

Federal law bars government employees from taking part in decisions that affect their personal financial situation. Rainer granted Timbers's request for a waiver so he could participate in the privatization debate, stating that he and other board members would protect the integrity of the process. Board meeting minutes obtained under the Freedom of Information Act show that Rainer authorized Timbers and a USEC lawyer to hear the ostensibly confidential presentations of competing bidders and subsequently allowed Timbers and other senior managers to critique those bids before the board. USEC's financial adviser, investment firm J.P. Morgan--which raked in more than $12.5 million in fees for its assistance--was also permitted to argue before the board in favor of management's IPO scheme. So, too, was USEC's outside counsel, Skadden, Arps, which made upward of $10 million in fees during the privatization debate.

Asked by a board member if privatization might lead to the need for a federal bailout, Skadden, Arps's Les Goldman replied that he could foresee no circumstances that might cause such an eventuality. Jim Derryberry of J.P. Morgan concurred, saying the company had "sufficient cash flow" to remain profitable. William Burton, who cast the one no vote on privatization, commented at one board meeting, "It's the expectation of all of us that if we go with an IPO that Skadden would remain counsel [to USEC]." In response, Goldman huffed, "There have been no discussions about future employment." But Skadden, Arps was indeed retained by USEC. George Rifakes, a senior USEC executive, said he was "offended" by the mere suggestion of bias on the part of management. "I'm 64 years old," he said. "I'm not looking for a new career." Following the privatization, Rifakes stayed on at USEC as the company's senior executive vice president. He stepped down on September 30, then signed a deal with USEC the following day that will pay him $95,000 for six months for eighty hours of consulting work per month.

The key difference between management's bid and the proposals from Lockheed and General Atomics was that the former promised to move forward rapidly with AVLIS, a new laser enrichment technology. Timbers told the board that AVLIS "is going to be the method by which this company stays viable." Lockheed and General Atomics were highly skeptical of AVLIS, a stance that proved prophetic. Eleven months after USEC was privatized, management announced that it was scrapping the technology.

Meanwhile, the nonproliferation deal with Russia, signed in 1994, gets shakier by the day. Under the terms of the agreement, USEC is to buy 500 metric tons of uranium from Russian nuclear warheads over the next twenty years and process it into fuel for commercial nuclear plants. Critics have warned all along that USEC enrichment plants in Ohio and Kentucky produce uranium for less than the price that the company is committed to paying Russia. Hence, a privately run, profit-maximizing USEC would have no incentive to maintain the deal with Moscow. That's precisely what has happened. In early November, Timbers complained that USEC should not be forced to "subsidize national security" and would therefore seek to modify the Russia agreement. Boggs's letter to Podesta warns that if no federal help is forthcoming, USEC might be "forced by its legal obligations to its shareholders...to terminate" its role in implementing the deal.

Lawyers for the Paper Allied-Industrial Chemical & Energy Workers International Union (PACE), which represents USEC workers, have asked Attorney General Janet Reno to investigate the privatization deal. At the House Commerce Committee, Democrat Ted Strickland, whose Ohio district includes one of USEC's plants, has joined Republican Tom Bliley of Virginia in pushing for Congressional hearings. "People with a vested interest in the privatization personally benefited from a process that was detrimental to national security and to the American people," he says.

And what of Rainer, the man most responsible for the unfolding debacle? Last June, President Clinton appointed him chairman of the Commodity Futures Trading Commission. Rainer declined comment to The Nation other than to point to a statement he made during his confirmation hearings, when he said, "I was very proud of the decision that we made at the time...and one year later I look at the decision, and I still think it was the right decision."

Ken Silverstein and Ian Urbina

November 25, 1999 | This article appeared in the December 13, 1999 edition of The Nation.