Tuesday, December 30, 2003

(Update: Ireland was interviewed about this story on Democracy Now)

Here's a story to watch:

The Nation (Doug Ireland) is the first U.S. publication to follow up on Le Figaro's explosive revelations that Halliburton may be charged with bribery for activities in Nigeria that happened on Cheney's watch.

Halliburton self-reported this case to the SEC back in May, as required under the Foreign Corrupt Practices Act. It appears they may have tried to make a preemptive strike against any inquiries into Cheney's role:

"The payments were made in 2001 and 2002, Halliburton spokeswoman Zelma Branch told AFP's business ethics news service, AFX Global Ethics Monitor." ("Halliburton admits it paid Nigerian bribe," AFP, 5/9/03).

I.e. Halliburton claimed the bribes occurred AFTER Cheney left.

But that's not what the French prosecutor is saying. He's saying the scam extends back to the mid-1990s.

Moreover, the company's original story was that the bribes amounted to just $2.4 million (according to Ireland, Judge van Ruymbeke believes the secret "retrocommissions" may amount to as much as $180 million in bribes).

Halliburton also said the bribes were strictly the work of local employees (AFP: " "Based on the findings of the investigation we have terminated several employees," Halliburton said in the filing, adding that none of its senior officers was involved in the bribe.")

But the scheme appears far too complicated to have escaped the notice of someone in Houston, involving multiple layers of offshore bank accounts and subsidiaries.

The story should remind skeptics of the first stories that came out about Enron and how a brilliant CFO set up hundreds of offshore Special Purpose Entities to hide billions in debt. Clearly Fastow was involved, and he looked like quite a genius until it was revealed that banks like Citi had cooked up the deals and pitched them to Fastow. (The banks pitched these deals to other countries before Enron.)

In Corporate Crime (considered the classic on the topic) Clinard and Yeager point out that "many decisions regarding foreign bribery are made at the highest corporate levels. In other cases, the internal organization of transnational corporations seems to facilitate the use of bribery at lower levels. Top executives delegate responsibilities yet fail to follow them up, thus creating a general atmosphere in which corruption can exist and even flourish ... In this milieu, executives may issue a directive to exhort exmployees to obey the law, yet they may fail to determine the general level of compliance within the firm. Instead of closely watching the day-to-day activities of subordinates, top executives simply use such output measures as sales, market shares, or profit margins to evaluate foreign operations, all of which tend to put pressure on lower levels of management to use bribery."

"We are cooperating with the SEC in its review of the matter," Halliburton told AFP back in May.

Of course they are, just as the SEC is cooperating with Halliburton.

SEC/DOJ have joint responsibility for enforcement of the FCPA, which was first passed in the wake of Watergate. Which is one reason it doesn't get enforced very aggressively -- there's a kind of bureaucratic hot potato in these cases, which also require far more resources to pursue than most of the insider trading and accounting fraud cases that have received attention in recent years.

Although Justice Department officials will neither confirm nor deny that they are investigating specific cases, they do confirm that they are aware of reports that some of the same U.S. companies under investigation for accounting fraud and other alleged violations stemming from their domestic operations may have also bribed foreign officials to obtain business.

Xerox, for example, admitted in a July, 2002 filing with the SEC that “[I]n India, we have learned of certain improper payments made over a period of years in connection with sales to government customers by employees of our majority–owned subsidiary in that country. … We estimate the amount of such payments in 2000, the year the activity was stopped, to be approximately $600 to $700 thousand.”

Business Week also that the SEC is investigating whether Tyco subsidiary Earth Tech Venezuela may have used illegal means to win a $200 million contract to build an industrial water-treatment complex in Venezuela. ("The Tax Games Tyco Played," Business Week, July 1, 2002, pp 40 –41.)

Other recent cases:
* Accenture (formerly Arthur Andersen consulting) announced on 7/15 that it had violated the law during its Middle East operations. The company wouldn’t identify which business unit in what country was involved, and said it was conducting its own investigation. (Paul McDougall, Information Week, 7/15).
* Cardinal Health and Syncor. Cardinal Health’s 10-Q forms (for the quarterly period ending December 31st 2002 pp. 13 & 24, and period ending March 31st 2003 pp. 14 & 28) made mention of Syncor’s improper payments to Taiwanese foreign customers, in a scheme to artificially inflating the price of Syncor shares. A consolidated complaint was expected to be filed by May 2003. Shareholders of voted to support a merger in December, 2002 after news of the alleged scandal reduced the overall price tag.
* AES. According to company 10-Q forms (for the quarterly period ending June 30th 2002 p. 19, for the quarterly period ending September 30th 2002 p. 21 and for the quarterly period ended March 31st 2003, p.16), the U.S. Department of Justice is conducting an investigation into allegations that persons and/or entities involved with the Bujagali hydroelectric power project which the Company is developing in Uganda, have made or have agreed to make certain improper payments in violation of the Foreign Corrupt Practices Act. The Company is conducting its own internal investigation and is cooperating with the Department of Justice in this investigation.
* Bribery allegations against Enron extend around the world. In India, the company was accused of bribing government officials to gain the contract to build the Dabhol power plant and then sell power back to the government at grossly exorbitant prices. In the UK, the CEO of Enron subsidiary Wessex Water was indicted for taking $1.5 million in bribes, as part of a $1.77 billion sale of the company. According to the Wall Street Journal, “claims of corruption in Enron power or water projects have arisen over the years in many countries, including Ghana, Colombia, Bolivia, Panama, Nigeria and the Dominican Republic.” (See “Enron Criminal Probe Focuses On Alleged Corruption Abroad,” By John R. Wilke, Wall Street Journal, August 5, 2002)

SEC is unlikely to pursue these cases (whether or not your ex-CEO is the Vice President) because it endangers our relations with other governments and the image of American businesses in general. Until recently, the FCPA allowed U.S. corporations to claim a superior standard in business ethics. Enron and the other scandals kind of ruined that rap.

The Department of Justice has successfully prosecuted only about 40 cases since the law was passed in 1977. Not only are such cases tough to win, but corporate lobbyists have successfully weakened the law since its passage.

In March, the Senate Finance Committee issued a report on a bribery case that involved an Enron power project in Guatemala. The case was discovered by the IRS and referred directly to both SEC and DOJ. But the SEC and DOJ "failed to act on the non-tax criminal referral."

Think SEC will get tougher with Halliburton?

Recall that the SEC has yet to even settle with Halliburton for the accounting fraud that occurred on Cheney's watch.

Remember back in July 2002, before Cheney changed the subject to war against Iraq, how the President and Vice President's involvement in scandals at Halliburton and Harken were beginning to grab headlines on a daily basis?.

Perhaps the Dems should pull out that video where Cheney brags about how he got "over and above" the normal kind of accounting advice from Arthur Andersen.