Corporate Crime Wave(excerpt)

From New Internationalist

The recent wave of US business corruption is just the tip
of a very slippery iceberg. Richard Swift plays private detective
to find out how the corporate crooks get away with it
and what we can do to stop them.

As a matter of course, corporations tried to evade laws and regulations if they stood in the way of profits. They dumped toxic waste illegally. Evaded taxes. Exposed their workers to dangerous substances and deadly working conditions. Gave bribes. Spewed poisons into the air and water. Sold a gullible public everything from dangerous baby toys to cars that flipped over and drugs whose sideeffects were worse than the diseases they were supposed to cure. They hyped their stocks by hiding losses and cooking the books. Whoa, if I did a quarter of this stuff I’d be waking up in the crowbar hotel!

I started at the beginning of the big corporate meltdown that so exercised Mertinsky and company – the Enron case. The basic facts were pretty well known by now. Enron, Worldcom, Tyco and a number of other wunderkinder of the tech revolution had hidden their precarious economics with the help of the accounting industry and the big investment banks. In the meantime the top execs walked away with billions in over-inflated salaries, fat bonuses, soft insider loans and lucrative stock options – a cool $3.3 billion from the 25 biggest companies to go bust in 2002. And that’s just the stocks they sold. And when the bubble finally burst the exec cash was safely stowed in fancy real estate, solid securities and bank accounts – some of them offshore.

But this wasn’t just a US story. Open up any business page – it was all over the world. HIH, a big Aussie insurance company, took both policyholders and investors to the cleaners while people like their execs Ray Williams and Rodney Adler hid losses, cashed bonus cheques and issued rosy financial predictions. Then there was the rogue trader Nick Leeson who hid so much in losses in the derivatives market that he bankrupted Britain’s prestigious Barings Bank. The interesting thing about Enron was how the guys down in Houston, Jeffery Skillings and Ken Lay (known to his buddy George Bush as ‘Kenny Boy’) were able to convince people Enron, in debt up to its ears, was ‘the best company in the world.’ When I dug a little deeper I found out that what Enron was into was something called ‘market making.’ They were trading in a lot of stuff that nobody quite understood – gas pipeline capacity, broadband width, banks of electrical power, water supply. They even dabbled in trying to buy and sell Japanese and European weather futures. Who even knows what this stuff is, to say nothing of how to price it or evaluate supply-anddemand curves? Enron used to claim that their main product was in fact markets.

Now I was on to something. The more I looked into it the more I realized that this ‘market making’ was fertile ground for all kinds of corporate shenanigans. It fitted neatly into all that deregulation and privatization stuff so dear to the hearts of free enterprisers and their political cheerleaders everywhere. It wasn’t rocket science to figure out that the first one into a new market – say, selling you the water you used to get as a public service – made a killing. Take all this derivatives stuff, the futures market. It was making my head spin. How the hell was anyone even supposed to understand this crap with its ‘puts’ and ‘calls’, ‘options’ and ‘swaps’ and ‘swaptions’ in currency, bonds, stocks and interest rates? They made up 25 to 30 new ones every year – futures in everything from shipping charges to air pollution.

But what use was it to anybody? These guys were trading $142 trillion a year worth of nothing as far as I could see. They called it ‘hedging risk’. But I thought the reason we let corporations run the damn economy was that they were such big risk-takers. It was all simply a playground for deception, a recipe for instability. But don’t take my word for it. Even Warren Buffett, the cranky old investment guru, saw through it:‘weapons of financial mass destruction... that facilitated huge-scale frauds and near frauds,’ muttered the Oracle of Omaha.

I started working the phones. I needed some stuff from the horse’s mouth. But all I got were terse ‘no comments’ or bland reassurances that ‘things were bad once but we’ve cleaned it all up now’. I wasn’t buying it.

Then I thought of Jerry. He worked just off Wall Street as some kind of corporate consultant. I’d known him for a dog’s age but a little bit of Jer went a long way. He was the kind of friend you get together with to catch a ball game or some music – he always seems to get great seats. But stay away from politics. Jer made that redneck talk show host Rush Limbaugh sound liberal and polite. We met down at a steak place Jer likes, that specializes in three-pounders.

What can I do for ya fella?’ I told Jerry I was investigating corporate crime and I was in up to my neck. ‘Corporate crime,’ he snorted. ‘There’s no such thing. It’s just business as usual. You bleeding hearts, you have your way we’d be rubbing two sticks together just to cook this meat. I know I like it rare but...’ That’s my Jer – shallow as a wading pool. But he quickly warmed to the subject. ‘Crime, let’s see you try and prove it. Remember that big deal they made about Bhopal a few years back? Some gas escaped, something like that. Well, Warren Anderson was CEO of Carbide at the time. People were calling for his head on a platter. I did some work for the PR company on the Carbide account so I know. First it wasn’t Carbide, it was Carbide’s Indian subsidiary that controlled that pesticide factory. Carbide had certain profit targets the subsidiary was expected to meet. After all, this wasn’t charity work. I guess maybe in order to meet the targets, a few corners got cut on safety... staff laid off... Turned off one of the refrigeration units, as I recall. It was all too bad, but you can hardly blame Anderson. He didn’t personally lie about the storage or turn off the unit. Didn’t even tell anyone else to. See what I mean? Even if it was a crime, there is no criminal. Just try and prove something against a CEO or other corporate exec. Plausible deniability, fella, plausible deniability.’

I thought of the 8,000 gas-dead and I felt depressed. I needed a stiff drink. But Jer at least made me realize that these corporate criminals had protection most gangsters couldn’t dream of. First a lot of what seemed like corporate crime wasn’t actually illegal. These guys spent a fortune on lobbyists and political donations to make sure the rules worked in their favour. A couple of years back they tried to push through an investors’ rights treaty (something called the MAI) to protect them even more. A big campaign against it worked, but now they are trying to sneak it in through the back door with the help of their buddies at the World Trade Organization. Even when they slip up – which they do a lot – it’s real hard to pin it on anyone important. Sure there was someone who turned off a valve or entered a figure in the wrong column but who made them do it? A lot of it was automatic pilot stuff – company policy really. Or the old ‘just following orders’ excuse. It was a culture of corruption where profit came before consequence.



Then a lot of it took place where people either weren’t watching or didn’t much care. A company like Dyncorp drenches Ecuadorian peasants and Amazonian Indians with chemical poisons as part of the US War on Drugs – who knows? Who cares? Royal Caribbean Cruise Lines dumps waste at sea – the tourists were probably safely tucked away in bed. Some brand-name in the rag trade subcontracts into Burma or Honduras to make fancy shirts and the army pushes around some trade unionists or maybe there’s a scandal about child labour. Hell, the CEO probably didn’t even know. Does that mean they are off the hook?

How many of these guys actually end up in jail, I wondered. I started looking at the penalties. Mostly fines – a small portion of what had been filched. Fine a corporation for cheating their stockholders and who ends up paying? The same stockholders. The inside player’s money is mostly long gone. You can bet their wrists aren’t stinging too much. In some places you can even write off bribes as a business expense against your taxes.