Some prestigious Wall Street firms may have been involved in a Ponzi scheme.
It's hard to imagine a tale of corporate mischief that would shock veteran observers of the US tobacco industry. But even the most jaded reader may raise an eyebrow at the allegations reported on page 11 that major American tobacco companies smuggled cigarettes and laundered money on a vast scale, defying US and foreign law and defrauding foreign governments of hundreds of millions in tax revenues before engineering a rewrite of the USA Patriot Act last fall to shield themselves from international liability. For this special report, the result of an investigation by The Nation, the Center for Investigative Reporting, and NOW With Bill Moyers--with support from the Investigative Fund of the Nation Institute--journalist Mark Schapiro traveled to Colombia, whose state governments are suing the companies in US court, to assess the charges and to inspect the scene of the alleged smuggling operations. (NOW airs its investigative report on April 19.)
The Bush Administration ought to cooperate with authorities in Colombia and other countries in their efforts to hold US corporations accountable. It should support legislation to establish clearly the principle of jurisdiction in US courts over allegations of wrongdoing by American companies overseas. And the Justice Department should launch an investigation into the activities of US tobacco firms in Colombia to determine whether laws were broken and prosecution is warranted. It is important for the rest of us to raise the political cost of inaction. Republicans in Congress and in the White House may one day realize that with friends like Philip Morris, they don't need enemies.
The IMF deserves to be blamed. But so does the country's willing political class.
The Enron "outrage," AFL-CIO president John Sweeney told a rapt crowd of several hundred workers at Milwaukee's Serb Memorial Hall, is "not the story of one corporation's abuses, but sadly it's an example of business as usual in boardrooms and executive suites all across the country." Over the coming months, at a series of town-hall meetings around America, the AFL-CIO will warn workers that they, too, could be "Enroned," and it will call for "no more business as usual."
In an unprecedented way, argues AFL-CIO corporate affairs director Ron Blackwell, the Enron scandal "opens up a channel of public discourse on issues of retirement security and corporate accountability." In the booming nineties nobody wanted to hear why corporations and capital markets had to be better regulated, and reformers were left pleading for corporations to be "socially responsible." But today, "new economy" job-hoppers as much as steelworkers have good reasons to listen to union warnings about deeply flawed 401(k) plans and Social Security privatization.
The labor movement helped win millions in severance pay for laid-off Enron workers, provided legal counsel for workers battling Enron's creditors, sued Enron executives (through union-affiliated Amalgamated Bank) on behalf of pension funds that lost hundreds of millions of dollars in Enron's collapse and helped ex-Enron workers--both union and nonunion--tell Congress and the public how they were misused. The AFL-CIO requested new Securities and Exchange Commission rules and forced four Enron directors to withdraw from renomination at other corporate and public boards. Now labor is challenging Enron director Frank Savage's renomination to Lockheed Martin's board, sending the message that independent directors have a public trust.
Besides supporting auditor reform, the AFL-CIO is promoting legislation to strengthen the rights of workers in 401(k) plans--to a point. Senator Jon Corzine, backed by the Pension Rights Center, initially proposed prohibiting employees from holding more than 20 percent of their employer's stock in their plans. But after complaints from unions representing some workers who had bet big with their employers' stock, like pilots and GE employees, the AFL-CIO backed Senator Ted Kennedy's legislation, which places a less stringent limit on the employees' 401(k) holdings of their employers' stock but which, quite importantly, would require equal worker and employer representation in governing the plans. Enron worker Dary Ebright, who lost $300,000 from his 401(k), argues that limits make sense. "If that had been in place," he said in Milwaukee, "I wouldn't be here today."
Sweeney hopes that unions can use votes on Enron-related reforms to draw lines in this year's elections showing what candidates put first--corporations or workers. The AFL-CIO attacked Republican Representative John Boehner's legislation, passed in April, for "wip[ing] out existing retirement protections for workers under the guise of responding to" Enron. The House bill would permit investment firms to advise workers about financial products, like mutual funds, from which those firms profit--precisely the kind of 1990s conflict of interest that is under investigation at several Wall Street brokerages. While providing limited protections for workers and preserving executive privileges, the House bill would also make it easier for corporations to exclude most employees from retirement plans. Labor's advocacy for Enron workers and retirement security could also strengthen organizing, including efforts among white-collar workers, by sparking a more "enlightened" view of a collective voice at work, as it did with former Enron vice president Dennis Vegas, now a union enthusiast.
But a budding labor scandal threatens the movement's credibility on corporate accountability. It appears that a few labor leaders, sitting on the board of ULLICO, parent of Union Labor Life Insurance Company, personally profited from privileged deals in the Enronlike boom and bust of telecommunications upstart Global Crossing, while their unions' pension funds were denied the same opportunity. Robert Georgine, president of ULLICO and former president of the AFL-CIO's building and construction trades department, former Iron Workers president Jake West, Plumbers president Martin Maddaloni and Carpenters president Douglas McCarron are among those who got windfalls of several hundred thousand dollars. In March Sweeney, who did not take part in the deal, called on ULLICO, like Enron, to appoint an independent committee and counsel to investigate, but in mid-April Georgine said he would take a "somewhat different" approach. "We're not going to ask Enron to live by one set of standards and ULLICO to live by another," Sweeney insisted. Many union officials say they were shocked and disgusted by the news, a reminder that "no more business as usual" is a widely applicable slogan, even within union ranks.
Uncovering the industry's multibillion-dollar global smuggling network.
Six weeks ago, The Nation called for Army Secretary Tom White's resignation. White, former vice chairman of an Enron Ponzi scheme called Enron Energy Services (EES) was self-evidently not fit to bring sound business practices to the Pentagon. Since then, new revelations have created a bill of particulars against White serious enough to warrant probes by a federal grand jury and the Defense Department's Inspector General. White has stated that "if I ever get to the point...where the Enron business represents a major and material distraction...I wouldn't stay." That point has come. If White does not resign, he must be fired. The recent revelations show that White continues to practice the same squirrelly ethics that made Enron infamous. Since becoming Army Secretary, he has:
§ infuriated Republican Senator John Warner and Democrat Carl Levin of the Armed Services Committee by masking the full range of his Enron holdings;
§ violated his pledge to divest himself of those holdings, in accordance with ethics guidelines. After requesting an extension to sell his 405,710 shares, he finished dumping them in October, after a flurry of calls to executives at Enron and just before the SEC's public announcement of a formal investigation of the company, which caused the stock to tank. This has made White a target of a grand jury probe on insider trading. White says he was just commiserating with his former friends about Enron's troubles;
§ concealed those supposedly innocent contacts with Enron executives, failing to include them in response to a request by Representative Henry Waxman. White claims that he forgot to include the calls from his home phone;
§ misused a military plane to fly his wife and himself to Aspen, Colorado, where he completed the sale of his $6.5 million vacation house. This earned him an Inspector General's review of his past travel. Military transport is available only for official duty. White claims he had official business in Dallas and Seattle and that Aspen was directly between the two. He also states that he was required to fly a military plane as part of the Bush Administration's secretive continuity-in-government plan, which apparently requires top officials to fly military aircraft to resorts where they maintain mansions.
The more we learn of White's past at Enron, the worse it gets. EES cooked the books to register immediate earnings and profits, when in fact it was suffering hundreds of millions in losses--most of which were then secreted in Enron's notorious accounting scams. White has claimed that he knew nothing about improprieties at EES. But former EES employees interviewed by Dow Jones Newswires affirm that White was part of the scam. He signed off on the EES contracts that produced immediate paper profits and long-term real losses. He urged the sales force to make the company look like it was making money. He even participated in the notorious Potemkin Village trading floor, a fake trading room that EES threw together to impress visiting stock analysts. And then White walked off with millions, while investors were fleeced and the workers discarded. For conservative military analyst Eliot Cohen this alone is grounds for White's resignation, because he cannot profess the core military ethic of "mission" and "men" before self since "he was an integral part of an organization that violated those principles."
These days George W. Bush scarcely remembers his leading political patron, Enron CEO Ken "Kenny Boy" Lay. The President now poses as a champion of corporate accountability, calling for executives to be held personally responsible for their companies' financial statements. Yet he hasn't held his own Army Secretary personally responsible for his fraudulent actions at Enron and his misdeeds as Army Secretary. If White doesn't have the grace to go, he should be dismissed. The Army and the country would be better served if he defended himself from scandals past and present on his own time and with his own dime.
It has come to this: The investigation of Enron as a political scandal appears for now to depend on Senator Joseph Lieberman, an Enron Democrat who bagged Enron campaign contributions and who worked hard to block accounting reforms. Lieberman's committee agreed to issue subpoenas seeking information that could shed light on Enron contacts with the White House, but the question is, How hard is he willing to push?
For months the White House and the Republicans have put out the message that Enron is nothing but a business scandal, a strategy that seems to have paid off, judging by the dwindling media coverage. But the lack of coverage doesn't mean that the political aspects of Enron have been thoroughly probed. Far from it.
In a letter to Dan Burton, the Republican chairman of the House Government Reform Committee, Henry Waxman, the senior Democrat on the panel, noted many episodes that warrant scrutiny. Among them: Enron-friendly appointments to the Federal Energy Regulatory Commission; Vice President Cheney's timely condemning of electricity price caps during the California energy crisis (see John Nichols on page 14); meetings between Enron execs and Clinton officials; and Congressional passage in 2000 of legislation exempting energy derivative contracts from federal oversight. Army Secretary Thomas White, who previously headed an Enron venture that engaged in fraudulent accounting practices, failed to disclose all his financial ties to the company. And just-released documents from the Energy Department, forced out by public-interest-group lawsuits, show that Energy Secretary Spencer Abraham met with dozens of business representatives and Bush contributors--and no consumer or conservation groups--while he was developing the Bush energy plan. But Burton, to no one's surprise, turned down Waxman's proposed investigation, and other House Republicans, again no surprise, have been more eager to jump on Enron's and Arthur Andersen's funny numbers than on those firms' political connections.
In the Senate, the Democrats have not shown much taste for this kind of probe either, at least until recently. On March 21 Lieberman announced that the Governmental Affairs Committee, which he chairs, is issuing twenty-nine subpoenas seeking information on contacts between the companies and the federal government. The subpoenas--addressed to Enron, Arthur Andersen and twenty-seven past and present members of Enron's board--request materials regarding Enron's communications with the White House and eight federal agencies, starting in January 1992. Lieberman also said his committee will send letters (not subpoenas) to the White House and the US Archivist asking for similar information. Those subpoenaed have until April 12 to respond. Lieberman's staff is quick to note that his investigation targets Enron, not the White House. And the subpoenas and letters are limited in their scope: They do not ask for Enron files on its efforts to develop political muscle. But the subpoenas and letters could produce information on how the Bush and Clinton administrations responded to Enron's attempts to gain political influence.
The Enron mess offers a view into a world where policy is increasingly shaped by money. Few members of Congress, of either party, want to run down that rabbit hole. But Enron is a political scandal, and those who want it investigated should press Lieberman to chase this bunny as far as it goes.
A probe of the company's White House ties should begin at his door.
Those who place the blame on executive greed may be missing the larger point.
In early March, the Bush Administration adopted a policy that the steel industry as well as the United Steelworkers of America (USWA) have long been agitating for--tariffs on steel imports. The official reason is to give the industry some "breathing space," so it can restructure while shielded from foreign competition. It's more likely that Bush wants to carry some important industrial states in 2004.
Thanks to NAFTA, Canada and Mexico are exempted, as are some poorer countries. Imports from elsewhere will face initial duties ranging from 8 percent to 30 percent, though the levels will decline over the next three years as they are gradually phased out. This is less than what labor and management wanted, but it's still striking coming from a professed free-trader. The Clinton Administration never did anything remotely like it--and if it had, Wall Street, which was unfazed by the Bush announcement, would have panicked about the protectionist threat.
Loud complaints did come from abroad, though. Even British Prime Minister Tony Blair, usually found waving the Stars and Stripes with hysterical glee, denounced the move as "unacceptable and wrong." He urged the industry to restructure rather than hide behind trade barriers--exactly the prescription the United States usually gives other countries (with similar indifference to displaced workers). Blair was joined by politicians, businesspeople, unions and pundits around the world--and by Bush's own frequently indiscreet Treasury Secretary, Paul O'Neill, who told the Council on Foreign Relations that the tariffs would cost more jobs in steel-using industries than they could save in steel.
Indeed the industry is in dire shape. It's lost 35,000 jobs in the past two years. Sixteen producers are operating in bankruptcy. Steel employed 1.5 percent of US workers in 1950, 0.6 percent in 1980 and 0.2 percent in 2000, versus 0.1 percent today. It's hard to believe three years of protection can reverse that long slide.
Clearly the Administration structured its tariffs with an eye on the political map. The kinds of steel offered maximum protection happen to be produced in the electoral battlegrounds of Ohio, Pennsylvania and West Virginia. There's a political pattern to the victims too: Turkey, an important factor in the likely war on Iraq, was spared. Brazil, key to any future hemispheric free-trade agreement, got off relatively lightly, as did Russia, key to many things. The most affected producers are in South Korea, Japan, China, Taiwan and the European Union. Most have filed complaints with the World Trade Organization. The EU is also threatening to retaliate against US steel and textiles, which could limit Bush's political gain in steel country and alienate the textile-intensive South.
Defenders of the tariffs--from US Steel to the union-friendly Economic Policy Institute--argue that everyone subsidizes and protects its steel industry except us. As a result, the US steel industry is getting killed. So the tariffs are necessary to defend it.
Not everyone agrees with this picture of America as victimized innocent. According to the EU's count, the United States has imposed more than 150 measures over the years to protect steel. More than subsidized foreign competition, the US steel industry is suffering from the high value of the dollar, recession, global overcapacity and high pension and healthcare costs.
The United States could have filed a complaint with the WTO, but it would have had a hard time proving its case. Another multilateral route was available too--negotiations to reduce world steel capacity by some 12 percent are well under way. But the Administration and its supporters claim that having the tariffs will strengthen Washington's negotiating hand.
The USWA seems to have no idea of how offensive foreign workers find Bush's big stick policy. Most of the affected countries have higher unemployment rates than ours. The EU, Japan and Latin America haven't seen a boom in decades, and Asia is still recovering from its 1997 financial crisis. Gary Hubbard of the Steelworkers' Washington office conceded that the EU and Japanese unions were annoyed but wasn't sure whether the USWA had consulted at all with its counterparts abroad (no one had ever asked the question before). So much for solidarity.
It's nice to imagine another world, where we protect workers, not their jobs. If we had a good system of income support, retraining, job placement and job creation, we wouldn't have to disemploy foreign workers to fight what's probably a losing battle to save jobs here. Sweden has long had such an active labor market policy, as it's called. Workers wouldn't have to fear innovation if they knew they wouldn't end up on the sidewalk. But that's not the way the world works these days. It's all about market solutions--except when George W. Bush is cruising for votes.