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.
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)
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)
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.
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.
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.
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)
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)
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)
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)
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."
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)
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.
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)
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)
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.
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)
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)
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)
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)
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)
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.
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)
Two large US custodial banks, Bank of New York Mellon and State Street, are embroiled in a major currency trading scandal. Americans seeking to invest internationally must convert dollars into the currency of countries in which they want to invest. The process is reversed when they sell their investment and want to bring their money back to the US. The banks gouged their clients as they moved currency back and forth during investment deals. Now whistleblowers from the firms allege that the custody banks profited improperly from global currency trades. (Wall Street Journal)
Stanford Financial is another false hoax revealed by the financial crisis. R. Allen Stanford, chairman of Stanford Financial Group, ran the fraudulent investment operation through his unregulated offshore bank in Antigua. Through an incentive program, Stanford pushed his employees to sell certificates of deposit (CDs) that promised very high returns. Lax financial regulators allowed Stanford to continue in business, while he cemented his power through sports promotion, cronyism with politicians, association with stars and royalty. (Wall Street Journal)
Phibro, a subsidiary of Citigroup, trades crude oil, refined oil and natural gas on the international market. CounterPunch reveals how the company has managed to avoid US government scrutiny and provide Citigroup with over $2 billion in revenue over the past three years. Many Citigroup subsidiaries are secret offshore entities whose trading records are unavailable to government regulators. Such manipulations suggest that even after the Enron scandal, there are still big loopholes in public regulatory policies.
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)
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.
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.
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.
Links and Resources
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 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.
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.
Up-to-the minute stories on prospects for world's largest corporations and banks.