Insider Enrichment | The Nation


Insider Enrichment

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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 Washington, DC–based investigative reporter.

Also by the Author

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.

Also by the Author

The buyers come from all over the globe, bearing cash and complicated pasts.

Here are a few recent buyers of high-end Miami properties.

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."

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