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Picture Credit: Business Week Corporate Crisis and Corporate Malfeasance
The tech-boom of the 1990s brought a sense of euphoria to the propertied classes of the United States and Europe. For a time, economists celebrated a world that had moved into a "new economy," immune from classic economic cycles. While other less fortunate countries (Russia, Brazil, Indonesia, South Korea and others) were wracked with financial and currency crises, corporate chieftans and financial manipulators in Wall Street, London and Frankfurt embarked on wild investment programs, brazen insider trading schemes, and accounting cover-ups to portray unrealistically high profits. After Enron, WorldCom, and many other large corporations crashed in high-profile lawsuits and bankruptcies, the stock markets plunged in 2000 and the economies of the rich countries suddenly looked very shaky. Washington kept the ship afloat through tax cuts and high government deficits. But the corporate scandals, covered in detail in this section, reveal much about the shaky and scandal-prone corporate system.
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Cases of Corporate Malfeasance | General Articles | Archived Articles | Links
Cases of Corporate Malfeasance
ABB | AIG | Arthur Andersen | Elf | Enron | Halliburton
Hollinger | Parmalat | Shell | WorldComABB
Outraged in Europe Over ABB (March 4, 2002)
The Swedish-Swiss firm Asea Brown Boveri was seen as “a paradigm of European capitalism at its best.” In 2002, it suddenly turned into a “Swedish version of Enron.” The company revealed that after stepping down from his post, former CEO Percy Barnevik cashed in a secret $148 million severance package for himself and his successor Goran Lindahl. (BusinessWeek)Lindahl Forced to Leave UN (February 27, 2002)
Secretary General Kofi Annan has decided not to renew the Swedish business leader Goran Lindahl’s UN contract as special advisor for the UN Global Compact. Mr. Lindahl played a front role in Asea Brown and Boveri’s pension scandal, where he and former CEO Percy Barnevik collected a significant sum in pension packages. The behavior of the Compact's corporate advisor exemplifies the underlying problem with an UN-corporate alliance. (Dagens Nyheter)
American International Group (AIG)
How a Titan of Insurance Ran Afoul of the Government (April 4, 2005)
After heading American International Group (AIG) for over 30 years, Maurice “Hank” Greenberg resigned from his post as company chairman amid an ongoing probe into whether the company had manipulated its books to mislead investors. This New York Times article provides an overview on how the scandal around AIG unfolded.A Top Insurance Company as the New Enron? (April 1, 2005)
The accounting fraud scandal shaking American International Group (AIG), one of the world’s largest insurance companies, “has the potential to cause tsunami-sized damage” says the Christian Science Monitor. Due to AIG’s huge size and importance in the financial world, the US government will likely not bring a criminal charge against the company, the paper argues. The case also involves two of the world’s richest men, Warren Buffett and Maurice Greenberg. The latter is an influential donor in the Republican circles of Washington.
Arthur Andersen
Joe Berardino's Fall from Grace (August 12, 2002)
BusinessWeek calls the Arthur Anderson accounting scandal an “unimaginable failure of leadership and governance.” The firm, with CEO Joe Bernardino at the top, was convicted for obstructing justice and cooking the books of scandal-ridden corporations such as Enron, WorldCom and Sunbeam, whose dirty business have cost investors more than $300 billion and put tens of thousands of people out of work.No Accounting for Greed (July 23, 2002)
When the Securities and Exchange Commission launched an investigation on Arthur Andersen, it became clear that the auditing company had practiced fraudulent activities and dishonest accountings for longer than originally thought. Besides revealing corporate malfeasance, the case of Arthur Andersen illustrates the danger of manipulation when accounting firms work both as consultants and auditors for the same company. (BBC)
Elf
Elf Verdicts Reveal State Corruption at Highest Levels (November 25, 2003)
This article describes the Elf scandal trial as “a chilling insight into the nature of the French state, French politics and French imperialism as a whole since the 1960s.” Besides financial embezzlement of 305 million euros and involvement in arms trade, the oil company, under the supervision of the French President Francois Mitterrand, functioned as an arm of French foreign policy in Africa, Taiwan and even Germany. (World Socialist Web Site)Elf Executives Jailed Over Fueling Corruption in Africa (November 18, 2003)
Three former Elf executives were jailed for five years over corrupt practices in Africa. One of the executives incriminated French President Jacques Chirac and the former President Francois Mitterrand and their political parties in the corruption cases. (Vanguard)Elf Was “Secret Arm of French Policy” (March 19, 2003)
Investigators in the Elf Aquitaine trial in France found out that Elf, until its privatization in 1994, worked much more as an “unofficial arm of France’s murkiest diplomacy” than as a normal oil company. By the 1980s, Elf had expanded into many African countries thanks to secret “commissions” paid with the blessing of the French government. (BBC)
Enron
The Real, Vile Meaning of Free Markets – Enron: Elvis Lives (February 2002)
This Le Monde diplomatique piece argues that Enron’s “corporate ideology [and] its zealous, cult-like love of free markets” directly relate to the company’s fall. While the free market enthusiasts have long insisted on emphasizing the market’s “democracy and creativity,” the case of Enron reveals the dark side of the 1990s “New Economy.”Board Secretary Implicates Lay, Skilling (February 25, 2006)
The testimony of Paula Rieker, a former corporate board secretary, confirms how Enron managers intentionally misled employees and investors. This article gives an update on the trial, reminding the reader that many big corporations prioritize their personal and corporate profits over their employees’ well-being. (Washington Post)Inside the Culture and Collapse of Enron (October 12, 2004)
The hearings of 14 people who pleaded guilty in the Enron scandals give insight into the company’s malfeasance prior to its bankruptcy, reports the Christian Science Monitor. The government’s star witness, former Enron Treasurer Ben Glisan Jr. who himself received immunity in exchange for his testimony, explains how the company fabricated earnings to appear economically stronger.Enron Used US Government to Bully Developing Nations (May 30, 2003)
Documents prove Enron pressured US embassies and the World Bank to shape the economic policy of poor countries. Enron used its special connections, even though the company was known to be cheating customers and was involved in a deepening financial scandal. (Inter Press Service)
Halliburton
Corporate Power - The Halliburton Fix (May/June 2004)
In New Jersey Senator Frank Lautenberg’s words, the Halliburton scandal represents “the worst in government contracts with private companies: influence peddling, kickbacks, overcharging and no-bid deals." The company’s pre-war acquiring of no-bid contracts for reconstruction both in Afghanistan and Iraq demonstrates not only Halliburton’s close ties to the Bush Administration, but also how Halliburton subsidiary Kellogg, Brown & Root has embedded itself into the Pentagon's decision-making structure. (Multinational Monitor)Hurricane Halliburton: Conflict, Climate Change & Catastrophe (May 2006)
In this “Alternative Annual Report,” CorpWatch documents some of the doubtful activities that helped Halliburton make 2005 the most profitable year in its history. The report reveals how the company’s close relations with the US government allowed Halliburton to continue malpractices, abuse workers and finally benefit from the war in Iraq. Furthermore, CorpWatch illustrates alarming operations in other regions of the world, such as Peru and Nigeria, while also showing how the company took advantage of immigrant workers after Hurricane Katrina.
Hollinger
Report Details 'Kleptocracy' at Newspaper Firm (September 1, 2004)
The publishing company Hollinger International Inc. issued a biting report, concluding that former officials Conrad M. Black and F. David Radler ran a "corporate kleptocracy." The two diverted over $400 million in earnings to themselves over seven years and used the corporation as their own “piggybank.” (Washington Post)
Parmalat
Sour Milk (February 2004)
Amidst accusations of fraudulent accounting practices, cooked books, fictional profits and complicated offshore arrangements, the Parmalat scandal suggests the Enron era of “rogue capitalism, dodgy companies and economic nightmares” is far from over. (Le Monde Diplomatique)Parmalat Chiefs Await Their Fate (October 5, 2004)
Former Parmalat CEO Calkisto Tanzi and 28 other company executives face criminal charges for the 14 billion euro financial implosion, which in 2003 led to Europe’s largest corporate bankruptcy. The Italian court will also investigate the involvement of major Italian Banks and the Bank of America in the scandal which has been called "the Enron of Europe.” (Guardian)
Shell
Changing Drill: How Shell's Move to Revamp Culture Ended in Scandal (November 2, 2004)
This article explores the corporate history of Royal Dutch/Shell Group and portrays a company that, in desperation, practiced accounting maneuvers to hide its failures in finding oil and gas reserves. In 2004, Shell’s illegitimate overstatement of its own reserves led to a $150 million fine by the US Securities and Exchange Commission and British regulators. The company paid the fine, but has neither admitted nor denied any wrongdoing. (Wall Street Journal)
WorldCom
Threatened Collapse of WorldCom Sends Political Establishment into Crisis (June 28, 2002)
This article analyzes the WorldCom scandal and argues that corporate accounting frauds are not isolated cases of badly behaving corporations, but form the basis of the economic boom of the1990s. In an economy that falsely portrays itself as healthy “but in reality [is] based on lies,” extensive corporate fraud will continue to come to light. (World Socialist Web Site)Ebbers: What It Means and What It Doesn't (March 16, 2005)
A Federal Court has found former WorldCom executive Bernard J. Ebbers guilty of engineering a record US$11 billion fraud. Theoretically he could face up to 85 years in prison, but in practice the sentence will certainly be much less. In fact, according to this Forbes article, securities fraud cases are so rare that it is a small wonder Ebbers had to stand trial at all. Yet the outcome of this case may indicate that the courts are increasingly willing to hold CEOs responsible for fraud on their watch.Ex-WorldCom Chief Is Indicted by US in Securities Fraud (March 3, 2004)
Federal prosecutors have charged Bernard Ebbers with assisting to plot and execute the largest accounting fraud in US history. Ebbers was the former chief executive of the telecommunications giant, WorldCom where bookkeeping problems ultimately led to bankruptcy and thousands of job losses. (New York Times)
General Articles
2005 | 2004 | 2003 | Archived Articles 2005
Sins & The Citi (July 4, 2005)
Citigroup has been involved in most of the major corporate scandals of late, but the repeated fines after the fallout of Enron, WorldCom, Adelphia, and others have not resulted in any major policy change. Although the banking giant has set aside an astonishing $9.8 billion for fines, Citigroup has continued to do fraudulent business. For the time being, it appears, crime does pay. (The Nation)
Corporate Character Building (May 2, 2005)
For most private investors who worry about their retirement savings, “corporate accountability” brings to mind corporate fraud scandals like Enron and WorldCom. According to this TomPaine article, however, the concept of corporate accountability should also include the environment, human rights and other public social goods. As the market “is unlikely to regulate itself,” small investors should hold corporations accountable for everything they do, the author argues.Captains of Piracy (March 19, 2005)
What do you call people who manipulate capitalism to gain fabulous personal wealth? According to this New York Times op-ed piece, the Russians call them oligarchs, but in the US those people are just referred to as CEOs. Companies that report record losses and sack employees to cut costs reward their executives with extraorbitant bonuses for “outranking their peers.” If companies paid their CEOs according to their true market value, the salary would often not exceed one penny, says the article.If Directors Snooze, Now they May Loose (January 9, 2005)
Ten WoldCom directors have agreed to pay $18 million out of their own pockets to settle an investor lawsuit filed by the New York retirement fund. The fund represents investors who lost billions as the WorldCom scandal ended in the “biggest bankruptcy filing in history.” This New York Times article points towards an emerging trend, in which shareholders can hold individuals responsible for corporate malfeasance.2004
2005 | 2004 | 2003 | Archived Articles When Companies Investigate Themselves (December 31, 2004)
This Washington Post article examines the downside to internal investigations on corporations accused of cooking their books. Companies use internal audits in hope of minimizing the damage to the corporation and protecting their reputation, but investigators face potential conflicts as they have two sets of constituencies with separate interests: the independent board members versus the Securities and Exchange Commission and Justice Department lawyers.Top 100 Corporate Criminals of the Decade
The Corporate Crime Reporter highlights the “dark underside of the marketplace” by rating the decade’s worst corporations who have pled guilty or no contest to crimes and has been criminally fined. This list is only the tip of an iceberg of corporate crime.The Encyclopedia of White Collar and Corporate Crime (October 20, 2004)
This book review praises criminologist Lawrence Salinger’s two-volume Encyclopedia of White Collar and Corporate Crime. The Encyclopedia lists over 500 entries exposing corporate criminality culture and its rich history in alphabetical order. (Common Dreams)The Myth of Corporate Accountability (September 27, 2004)
Howard Dean, former governor of Vermont, addresses here the issue of corporate corruption and argues that the federal government needs to push for a more accountable business community in order to restore the US dominant position in the world economy. (Yuba Net)2003
2005 | 2004 | 2003 | Archived Articles The Roaring Nineties: A New History of the World’s Most Prosperous Decade (November 5, 2003)
In the 1990s, the US experienced one of its greatest economic expansions in history. Yet this same period of “mega-growth” also sowed the seeds of its own collapse, argues Joseph Stiglitz. The US trusted too much in the market’s self-regulatory efficiency, and therefore failed to get the right balance between the market and the government. (Carnegie Council on Ethics in International Affairs)Funds and Games (November 18, 2003)
The growing US mutual fund scandals show that corporate managers and regulation authorities did not learn the lessons of previous US corporate abuses, claims Paul Krugman. He criticizes the Securities and Exchange Commission (SEC), the US regulatory institution, for “giving comfort to the industry” instead of “exposing wrongdoing.” (New York Times)Capitalism's Mistress: Private Banking (June 25, 2003)
A lack of legal transparency in private banking and offshore bank accounts, allows the world’s richest to avoid disclosing assets and paying taxes. (Asia Times)Dot-com Exiles Turn Up at New Charities (June 23, 2003)
Business professionals help under-funded non-profits by taking pay cuts and devoting their skills to philanthropy. (Christian Science Monitor)Corporate America's Most Wanted (April 3, 2003)
“When it comes to learning from its mistakes, corporate America has fallen off the rehab wagon more times than Robert Downey, Jr.,” sneers writer Arianna Huffington. Huffington compiles a list of the “worst and slimiest” corporate crooks still on the loose. (Arianna Online)Panel Finds Manipulation by Energy Companies (March 27, 2003)
Widespread manipulation and misconduct by Enron, Reliant Energy Services, BP Energy and other corporations was responsible for California’s energy crisis during 2000-2001, ruled the Federal Energy Regulatory Commission. California state officials had to fight for two years, in the face of public ridicule, to expose the corporate profiteering at the heart of the crisis. (New York Times)Cooked Books (March 5, 2003)
The recent wave of Enron-style accounting scandal prompted calls for tighter corporate regulations to protect investors, but it wasn't the first time the US corporate world has faced a crisis of legitimacy. Even in the early twentieth-century, corporate elites practiced brazen insider trading and fraud, arguing that stiffer corporate regulation would damage the US economy. (Atlantic)Tax Moves by Enron Said to Mystify the I.R.S. (February 13, 2003)
Senators say accounting experts’ report to the Senate Finance Committee provides a “shocking” and “eye-popping” indictment of Enron’s multifarious tactics to avoid paying taxes. Large companies like Enron use costly tax avoidance transactions so complex that even the Internal Revenue Service doesn’t understand them. (New York Times)Effort to Dilute New SEC Rules (January 22, 2003)
An onslaught of lobbying by powerful law firms, accounting firms and trade groups may have succeeded in softening the Securities and Exchange Commission’s new proposed regulations. According to SEC officials, many of the toughest proposals to prevent Enron-style scandals “appear to be dead, watered down or postponed.” (New York Times)The Boys in the Bubble (January 2, 2003)
Of the many implicated in the corporate accounting scandals, the media must also acknowledge its failure to report corporate malfeasance. Business reporters, this article argues, instead acted as corporate cheerleaders, often because their own interests were at stake. (New York Times)
Archived Articles
Links and Resources
CorpWatch
CorpWatch provides news, analysis, research tools and action resources to respond to corporate activity around the world. The website mainly covers the issues of corporate abuses, corporate accountability, human rights, social and environmental justice.Public Citizen
Public Citizen is a national, nonprofit consumer advocacy organization to represent consumer interests in Congress, the executive branch and the courts. The group fights for openness and democratic accountability in government and follows the Enron scandals in its Enron Information Center.Corporate Accountability
The site is an outcome of a project organized by WEED (World Economy, Ecology & Development, an NGO based in Germany) in collaboration with various NGOs from around the world. The aim of corporate accountability project is to be sure a company's products and operations are in the interests of society and not harmful.Business Wire
Up-to-the minute stories on prospects for world's largest corporations and banks.
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