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Enron Style Corporate Crime and Privatization

A look at the U.S. Coalition of Service Industries

by Darren PuscasPolaris Institute
June 20th, 2003

Democracy in the

The U.S. Coalition of Service Industries (CSI or USCSI) is the largest services oriented lobby group in the United States. With prime access to elite government and corporate circles, its various corporate members gain handsomely from international trade agreements, from IMF or World Bank handouts, and from privatization programs. As well, many USCSI corporate members have been embroiled in the corporate scandals that have rocked the U.S. and the world in the past two years. You can almost pick at random from the USCSI membership to find a corporation that is either privatizing public services, embroiled in financial controversy, or gaining from the misery imposed by an IMF loan.

The degree to which members of the USCSI were among the corporations most involved in the recent wave of corporate scandals is disturbingly high. For example, Enron, Andersen, and WorldCom were all USCSI members at the time they were hit with the scandals (Enron and Andersen have since left the coalition). Enron was the company that hid debt from its books in order to artificially inflate its value to shareholders and was also heavily involved in the illegal trading which led to the California energy crisis in 2001. Andersen was Enron's accountant who let this all happen. And Worldcom was the corporation that inflated profits by nearly $4bn through deceptive accounting and later went bankrupt (only to reemerge as MCI). And, we shall see, this is just the tip of the iceberg, as many other USCSI corporations were heavily involved in various forms of illegal and unethical activity.

Further, the USCSI is one of the best examples of how corporations have positioned themselves to heavily influence the structure of trade agreements through the formation of corporate lobby coalitions that are well connected to government. The USCSI membership uses their collective power to push for more favourable rules in cross-border trade-in-services such as the WTO's General Agreement on Trade in Services (GATS) and the services sections of the Free Trade Area of the Americas (FTAA). Here, the direct connection between the corporations involved in the push privatization of services (including many public services) and the push for trade agreements which will provide a legally binding lock-in for privatized services (through GATS and FTAA) is clear. In short, the USCSI acts as the access point to trade policy for US services corporations.

Looking through this lens of the USCSI's association with both the corporate scandals and the push for ever more free trade, this article is an expos of the USCSI, shedding light on its members' connections to many of the biggest corporate problems and scandals of our time. After a brief background on the USCSI and its connections to the trade negotiations process (Part I), three social and political exposs will be outlined where USCSI members have been heavily involved:

  • Corporate scandals - A look many of the USCSI members which have been implicated in the recent corporate scandals (Part II)
  • Public Service Privatization - An expos of the many CSI members which have been frontrunners in the current rapid and international expansion of privatization of public services, and have a long history of causing social and environmental problems in this pursuit (Part III)
  • Public Financing - A look at some of the many USCSI members have profited enormously from International Monetary Fund and/or World Bank project funding at the expense of the people in the countries involved (Part IV).

PART I - Background: Corporate power and the USCSI

About the US Coalition of Service Industries

The USCSI a relatively unknown group located in a non-descript office tower on Vermont Avenue in Washington, D.C.. The USCSI is the main service industry group lobbying the U.S. government to ensure that services provisions are front and centre in the new rounds of WTO and FTAA negotiations. The USCSI is one of the two most powerful service oriented big business lobby groups in the world (along with European Services Forum [ESF]) currently involved in the negotiation of the General Agreement on Trade in Services (GATS) at the WTO. The GATS is a unique multi-country agreement governing international trade and investment in services. It is has been described as an instrument designed first and foremost for the benefit of capitalism and big business.

The USCSI is currently made up of approximately 60 service corporations and corporate associations ( full list of members), including many of the United States' largest, most well known corporations that collectively use the CSI to lobby the US government and other key political bodies. According to the USCSI website they are "above all an advocacy organization, aggressively representing the interests of its members in all US and international forums where CSI can advance our members' trade expansion goals". The USCSI proudly boasts that it "played a major role in shaping the [WTO] General Agreement on Trade in Services (GATS)", a role it continues to play today. [more information on the GATS ]

This is not an exaggerated boast the Director of the WTO Services Division from 1993-2001, David Hartridge has stated that without the enormous pressure generated by the American financial services sector, particularly companies like American Express and Citicorp [CSI members], there would have been no [GATS] services agreement.

How does the USCSI advance its 'trade expansion goals'?

In addition to the influence of making enormous contributions to political campaigns (go to and search using almost any USCSI member), USCSI members gain access to the U.S. government and key international agencies through their enormous government lobbying capacity. They lobby the U.S. Congress as well as the Departments of Commerce & Treasury, the US Trade Representative, and senior WTO officials. Representatives from twenty CSI member corporations also sit on the key committee advising the U.S. government on services trade policy, the International Trade Administrations Industry Sector Advisory Committee on Services (ISAC #13). In fact, these representatives make up 67% of the total who sit on the committee. Together they provide corporate America with access to privatization opportunities abroad and influence over US trade policy decision makers.

And the USCSIs influence has not gone unnoticed. At a February 2002 conference held at the US Department of Commerce, the new WTO Director General, Dr. Supachai Panitchpakdi, stated that the USCSI, with its extensive global network and influences in the world has successfully served to advance and secure the interests of its members, more importantly, in shaping US policies and promoting US interests within the international fora, thereby ensuring progressive global market liberalization. And, of course, the USCSI itself sees the incredible value of such meetings stating that "by working closely with the [US Trade Representative] and the WTO, the group will have a profound impact on the structure, content and results of the current negotiations as we continue to seek market access ... for services companies.

It is at conferences like this where the convergence of the WTO, services coalitions like the USCSI, and government is most obvious. The conference was keynoted by three highly influential people: Dr. Supachai Panitchpakdi, the WTO Director General, Dean OHare, Chair and CEO of the Chubb Corporation and also the chair of the USCSI; and Peter F. Allgeler, the Deputy U.S. Trade Representative. In addition, the many conference discussion groups consisted of moderators and panelists from the USCSI corporate membership, with 'rapporteurs' from U.S. Government departments such as Commerce, Treasury, Transportation, and the Office of the US Trade Representative. At such high level meetings like this, the tight knit circle of USCSI corporate members, the US government, and the WTO is made clear. Through these meetings the USCSI gains access to power that the rest of us can only dream of.

II. USCSI Members and the corporate scandals of 2002

Many of us know about the the scandals involving Enron, Andersen, and Worldcom (now MCI) - from fraudulent transactions to accounting fraud and document shredding. But this is only the tip of the iceberg for USCSI members, a group saturated with accusations of shady dealings. (At least) three other USCSI members --- Citigroup, Halliburton and the healthcare group Cigna --- have also allegedly been involved in the corporate scandals:

Citigroup, the world's largest bank is right in the thick of the scandals:

Citigroup has very much been a part of the Enron scandal. There are currently probes by Federal and New York State prosecutors, an investigation by the Securities and Exchange Commission, and a large number of investor lawsuits. According to a July 23rd, 2002 NY Times article, internal bank documents have revealed that Citigroup intentionally manipulated the written record of a 1999 transaction with Enron so that Enron could ignore accounting requirements and hide its financial condition. This kept $125 million in debt off the books, helping Enron to look better publicly and falsely keep its share price up. Citigroup, along with JP Morgan and other banks, is being scrutinized in Congressional investigations for its role in setting up complex energy deals which allowed Enron to boost its cash flow. Citigroup and JP Morgan made $200 million in fees off of these deals.

Said Senate investigator Robert Roach: "The evidence indicates that Enron would not have been able to engage in the extent of the accounting deceptions it did, involving billions of dollars, were it not for the active participation of major financial institutions willing to go along with and even expand upon Enron's activities." (see AP, July 23rd, 2002). In December 2002, a U.S. Senate Governmental Affairs Committee investigation panel charged that Citigroup and J.P. Morgan Chase knowingly helped Enron deceive investors in complex, multi-million dollar transactions involving Enron's pulp and paper business which investigators say helped Enron disguise its true financial condition in 2000 and 2001. Enron reported transactions that were loans as revenue-generating sales. Citigroup (and J.P. Morgan) denies any wrongdoing and the investigation continues.

The US Attorney in Manhattan, state and federal regulators, and the National Association of Securities Dealers have also investigated Citigroup unit Salomon Smith Barney and one of its research analysts, Jack Grubman, charging that they violated securities rules by giving seriously misleading statements to investors. In August, the probe was widened to examine how Salomon won a huge financing contract from AT&T (another CSI member), including investigation into Grubman's high rating on AT&T stock and the role Citigroup CEO Sanford Weill played, given that he is an AT&T board member. In the end, Citigroup agreed to pay $300 million US in a settlement, Weill was let off the hook from prosecution, and Grubman was fined $15 million and barred from the investment analyst business for life. The $300 million settlement has been called a 'slap on the wrist' by Citizen Works commentator Lee Drutman in the Providence Journal-Bulletin, as it represents less than 1% of Citigroup's annual revenues of $100 billion.

In another case of questionable business practices, Citigroup paid $215 million to settle with the Federal Trade Commission (FTC), over allegations that a Citigroup subsidiary in Texas was involved in "predatory lending to consumers" including abusive debt collection policies and deceptive marketing practices. By settling, Citigroup does not admit to any wrongdoing, but the fact that this is the largest ever consumer-protection settlement in the history of the FTC exposes the length to which Citigroup was willing to go to close this issue.

Beyond the corporate scandals, Citigroup is infamous for its various socially and environmentally destructive projects. Though Citigroup has recently announced - under enormous pressure - that it plans to adopt more responsible social and environmental policies in deciding what projects to finance, it is currently the worlds top financial backer of fossil fuel exploration. This makes Citigroup the worlds number #1 funder of global warming.


In addition to lawsuits recently settled for over $4 billion US over use of cancer causing Asbestos inherited when Halliburton bought Dresser Industries, many other questions abound around Halliburton - the company Dick Cheney ran before becoming US Vice President. One question which has placed Halliburton in legal trouble is whether or not Halliburton improperly recorded revenue from cost overruns on various big construction jobs during and after the time that Cheney ran the company in order to boost revenue and profits. This has brought forth a formal Securities and Exchange Commission (SEC) probe into the potential wrongdoing and has prompted numerous securities fraud lawsuits as well, including a lawsuit against Cheney himself for fraud from the right-leaning government watchdog group Judicial Watch. On May 30th, 2003 Halliburton announced that it has agreed to settle approximately 20 shareholder lawsuits, combined into a class action. Halliburton did not disclose the amount of the settlements, but stated that the payment "is immaterial and will not impact second quarter results". As is usually a corporate demand in such settlements so that the corporation will be able to more easily rebuff other suits, Halliburton refused to accept any wrongdoing as a condition of the settlement. It is noteworthy that current Halliburton CEO David Lesar, while defending Halliburton's accounting practices, publicly acknowledged that Cheney knew about the firm's accounting practices, stating that "the Vice President was aware of who owed us money, and he helped us collect it."

Over the years, Halliburton has also left its mark internationally. The Environmental Rights group EarthRights International put together a scathing report of Halliburton's practices in Burma called "Halliburton's Destructive Engagement: How Dick Cheney and USA Engage Subvert Democracy both at home and abroad". According to the report, Halliburton subsidiary European Marine Contractors (EMC) helped lay the offshore portion of the Yadana natural gas pipeline and, though Halliburton's involvement with the pipeline was not as thorough as Unocal's, it certainly helped in propping up the Burmese government though its work on the project. This was a Burmese government that was routinely violating human rights through rape, torture, human slavery, and murder as a means to ensure full compliance - including using human slavery to ensure the Yadana pipeline was completed. As Dick Cheney told the crowd at the [Texas] Panhandle Producers and Royalty Owners Association annual meeting in 1998: "You've got to go where the oil [or, in the Burma case, natural gas] is. I don't think about it [political volatility] much."

Halliburton is also notorious for receiving enormous corporate welfare and special privileges from the U.S. government, most notably during the Cheney years. In the five years before Cheney took over in 1995, Halliburton received $100 million in government backed loans and subsidies. However, during the Cheney years this skyrocketed to $1.5 billion in loans and subsidies for oil services projects in Algeria, Angola, Bangladesh, and Russia and they gained $2.3 billion in U.S. government contracts, mostly for military base support. Halliburton also received $896 million from the World Bank for fossil fuel extraction and other projects. And in the past two years even, though now-VP Cheney denies he had any influence, Halliburton has been the main beneficiary of contracts from the Pentagon for "anti-terrorism" military bases around the world.

Despite his lack of experience in having ever run a company, Cheney obviously was worth bringing on board for the connections he had made in his 25+ years working inside the political power corridors of Washington. Halliburton certainly felt it was getting value for their money as they rewarded Cheney with over $30 million in salary and stock options in his last two years with the company. And he continues to be paid by Halliburton as Vice President in the form of "deferred compensation" of up to $1m (600,000) a year, even as Halliburton is gaining contracts to "cleanup" Iraq's oilfields (and more) after the Iraq war that Cheney promoted so heavily. (See the articles "Cheney's Grimy Trail in Business" and "Cheney is Still Paid By Pentagon Contractor" for details)

Halliburton also has long standing connections to Iraqi oil. The Washington Post reported that through foreign subsidiaries, Halliburton under Cheney did $73 million in business with Iraq in 1998-99, helping rebuild Saddam's damaged post-Gulf War oil fields - despite Cheney publicly saying Halliburton had a "firm policy" against dealing with Iraq. According to a Boulder Daily Camera column by Molly Ivins, this was made possible by a 1998 UN resolution allowing Iraq to avert sanctions to buy spare parts for its oil fields, which is tragic considering that hundreds of thousands of Iraqis were still denied medicine and similar supplies under the sanctions because of concerns that medicines could be used for making weapons. Many Iraqi children died directly because of this policy. It therefore appears to be highly hypocritical that Dick Cheney was a key booster for the U.S. war on Iraq, after having made enormous money off of the Iraqi people for Halliburton just a few short years before.


While governments and WTO officials dismiss concerns that the GATS agreement will threaten public healthcare, CIGNA corporation, a massive for-profit Health Maintenance Organization (HMO), is playing a prominent role in the USCSI which is lobbying hard for massive 'opening up' of private access to public services - including those parts of the healthcare sector that are still public. As the top representative of the for-profit health industry in the USCSI, Cigna is in a pivotal position to shape the GATS international trade in health services rules currently being negotiated at the WTO. Cigna has had some significant financial problems lately as their share price has plummeted in the past year and they lost over $800 million. In addition to these financial problems, Cigna is also reeling from some legal and ethical business concerns.

Physicians and medical associations in several U.S. states filed class action suits against Cigna and other HMO corporations for failure to pay for medical work and treatment prescribed for patients. In Texas, Cigna was charged with failures to properly pay doctors, including failing to provide a fee schedule to the physicians and arbitrarily changing the steps that doctors must take to be paid. Shortly after signing a contract with Cigna, one oncologist said he was told the contracted fees were no longer valid and hed have to accept a new, lower reimbursement. In November 2002, Cigna attempted to take what amounts to a $50 million settlement charge in Illinois to end a lawsuit on favorable terms to Cigna, but the Judge on the U.S. case in Miami, Federico Moreno, denied this by putting a hold on on the Illinois settlement plan, saying that Cigna is trying to 'snooker' the broader case in Miami. Doctors involved in the lawsuits applauded Moreno's injunction, saying that Cigna is paying too little to settle the cases and hasn't agreed to end the billing practices that created the litigation in the first place. Jack Lewin, head of the California Medical Association, which is involved in the lawsuit, said "Cigna's actions [in attempting to settle on the side in Illinois] show they have little intention of stopping their over-reaching and unfair practices. [That is] how they have done business with us for years: fast and loose." Cigna denies this and challenges Moreno's hold on the Illinois settlement. The lawsuit continues.

In a large class action suit currently before the courts in the U.S., Cigna along with other major HMO corporations, is being charged with violating federal racketeering laws by using financial incentives for physicians to deny treatment and cut costs. Cigna has also been charged with fraudulently over billing U.S. taxpayers. A Cigna employee blew the whistle on a Cigna subsidiary, Connecticut General Life Insurance, charging they over billed U.S. Medicares Health Care Financing Administration for nearly 10 years. Cigna settled, agreeing to pay the U.S. Federal Government nearly $9 million.

And consider the case of Cigna insurance holder Thomas Concannon, who was diagnosed with a rare cancer, multiple myeloma, requiring a bone marrow transplant in order to survive. Cigna refused to pay for the transplant operation, effectively handing Concannon a death sentence. Only after heavy pressure and media coverage, did Cigna finally agree to pay for Concannons transplant.

Other cases of USCSI members connected to corporate scandals:

Merrill Lynch - the giant of the investment and brokerage world, is another of the corporations which has been linked to the scandals at Enron.

The New York Times reported that Merrill Lynch made a sham energy deal worth $60 million with Enron in December 1999 which, according to former Enron executives who were involved in the transactions, was 'intended to inflate Enron's profits and drive up its stock price.' The deal was predetermined to be cancelled after Enron booked its profits, and eventually it was. For its role, Merrill Lynch received $8 million. Merrill Lynch was also investigated for tailoring stock research to win investment bank business. It ultimately agreed to a whopping $100 million settlement with the New York State Attorney General.

AOL Time Warner

The U.S. Security and Exchange Commission (SEC) is also looking into how AOL Time Warner, the massive internet and media corporation, generated revenue through a number of unusual transactions, including shifting revenue between divisions and and selling advertising for eBay and then accounting for them as their own revenue. It also has come to light that the biggest chunk of AOL Time Warner's revenue under investigation was from deals with WorldCom who we all remember as last summer's corporate fraud superstar.

III. Privatization Engines: USCSI Members and the Privatization of Public Services

With privatization of public services as a key corporate goal of trade and investment agreements such as the FTAA and the WTO, it is not surprising that a number of USCSI members make a great living off of such privatization, and many of them surely joined the Coalition for just that reason, to promote further private access to public services around the world through the legal mechanisms of various trade agreements. Beyond criticisms of the very concept of commodification and corporate privatization of essential services, there have been more than a few problem cases stemming from this privatization which, despite the rhetoric of big business, show the true costs and losses from privatization of public services. A couple of the Coalition companies most involved in this privatization are Accenture and Vivendi Universal:

This business consulting company, which broke away from Andersen in 1999, is currently a key consultant and receiver of government outsourcing contracts which are often the first step in the process of the complete privatization of a public service. Accenture is a major player in the provision of long term welfare and social services outsourcing contracts and has recently become more involved in the privatization of parts of publicly run electrical utilities, having been offered a highly scrutinized contract for privatization of selected functions of BC Hydro, the publicly run electricity company in British Columbia. Beyond basic questions of the loss of public control over essential services, Accenture's efforts in government outsourcing have often been very expensive and/or of poor quality. There is good reason to question Accenture's track record in outsourcing of government services.

Ohio is just one example. Accenture was contracted to set up the states welfare reform program and the Ohio Works job matching service computer program and website (called ServiceLink). Both contracts experienced problems, including the website kicking users off shortly after they signed on, demanding excessive personal information, and the site not allowing job searchers to browse job listings. As reported in Dayton Daily News report from March 12th, 2001, these problems led to the reinstatement of the old-job matching system, Ohio JobNet.

Regarding cost and accountability, the contracts were filled with problems such as Accenture billing the state up to $450/hour per manager. According to a scathing report from the Ohio Inspector General, work done by Cochoran public relations to convince the public of the necessity of Accenture's services was marked up by 63%, costing taxpayers $67,300. As well, taxpayers paid up to $93,750 a month for coffee, lunches, California hotel rooms, office furniture, office rental, carpeting, and a husband for rent repair service

In the late 1990s, Arnold Tompkins, then welfare director of Ohio, awarded nearly $26 million in unbid contracts to Accenture. Soon after this award, Tompkins left public office and was given a $10,000 a month contract from Accenture. The largest of the contracts he signed with Accenture ($16.1 million) was approved less than a month before he left office and was done over the objections of his whole contractual review committee, which said the contract was too expensive and had not been competitively bid. The Ohio Inspector General recommended that Tompkins, and Donna Givens, a consultant who was "'instrumental' in facilitating the unbid contracts", both be charged criminally for this steering of contracts for Accenture. Ohio's state's inspector general Thomas Charles did ultimately charge Tompkins with improper steering of contracts to set up work for himself after leaving office and conflict of interest.

In November 2001, these ended in a slap in the wrist for the guilty Tompkins because though he was deemed guilty, he received a sentence of only 300 hours of service to develop a plan to integrate county based law enforcement computer systems. [Tompkins could have faced over 25 years in jail with a $50,000 fine, plus restitution to the state] This is all he received as punishment for blatantly attempting to make private gain, through his Accenture connections, from the public service. It appears likely, at least in part, that Accenture did indeed gain the unbid contracts because of its connection to Tompkins. But while the right connections certainly seem to have helped Accenture secure this contract, Accenture was ultimately unable to fulfill this outsourcing contract, leaving the people of Ohio to be the big losers in this wasteful private outsourcing scheme.

[For more information on Accenture's dubious track record, click here]

Vivendi Universal-

Vivendi Universal, through its Gnrale des Eaux and US Filter divisions, is one of the world's largest water and wastewater privatizers around the world, often with the support of the World Bank or the various other development banks. It has contracts to run the water system in cities and regions around the world, in places as diverse as Indianapolis, Tangiers, Prague, Nairobi, Bucharest and Moncton, New Brunswick. After purchasing U.S. Filter in May 1999, Vivendi Universal became the largest water and wastewater company in the U.S. market, with contracts in municipalities in various states. And Vivendi, like many other water corporations, has a spotty history in many of its privatization projects, with costs rising in numerous cases and many examples of poor service.

Having greatly overstretched in its acquisitions during the term of former CEO Jean Marie Messier, Vivendi Universal is now in serious trouble financially and possibly legally, as its share price has recently collapsed, its has begun a fire sale of assets, and both French and U.S. regulators have set up formal inquiries looking into whether the company issued misleading statements on its financial condition during Messier's tenure. As part of the investigation, Vivendi's offices in France were raided in December 2002, as were the homes of Messier and former board member Marc Vienot. Like Enron before it, Vivendi Universal has recently ended its long-time membership in the USCSI. It is unknown if this was Vivendi's choice or if the USCSI wants to distance itself from Vivendi's recent financial and legal troubles.

Looking specifically at questionable privatization contracts, two examples are Vivendi Universal's dealings in Naroibi, Kenya and in the island of Puerto Rico:

Vivendi Universals joint venture to manage the water billing and revenue system for Nairobi became the subject of a major public controversy. It was reported in the East African in August 2000 that Sereuca Space (made up of Vivendis subsidiary Gnrale des Eaux and Israels Tandiran Information Systems) was initially not willing to put its money into costly water service infrastructure stating that it will not invest a single cent in new water reservoirs or distribution systems during the ten years the contract will be in force." Instead, the company decided it would direct its investments into installing a new billing system at City Hall, reaping a 14.9 per cent profit off of the $169 million US] collected over the period.

In response to the widespread public criticism of the proposed project, Vivendi said later it would invest another $150 million in expansion, repair, and maintenance to minimize water loss. In August 2001, however, the Kenyan government announced that it was suspending the water billing project until the World Bank had completed a 'privatization option study'.

Vivendis management of Puerto Ricos water authority, PRASA, through its subsidiary Compania de Aguas, was strongly criticized by a Puerto Rican government report in August 1999 for failing to adequately maintain and repair the states aqueducts and sewers. According to Interpress news agency, The Puerto Rico Office of the Comptroller [Contralor] issued an extremely critical report on the PRASA-Compania de Aguas contract. The document lists numerous faults, including deficiencies in the maintenance, repair, administration and operation of aqueducts and sewers, and required financial reports that were either late or not submitted at all. The Interpress account of the comptrollers report went on to say, Citizens asking for help get no answers, and some customers say that they do not receive water, but always receive their bills on time, charging them for water they never get. A local weekly newspaper published reports of PRASA work crews who did not know where to look for the aqueducts and valves that they were supposed to work on. Whats more, the 1999 comptrollers report showed that under private administration, PRASAs operational deficit has kept increasing and has now reached US $241 million. As a result, the Government Development Bank (Banco Gubernamental de Fomento) has had to step in several times to provide emergency funding.

In May 2001, the Puerto Rico Office of the Comptroller issued another report about PRASAs performance, identifying 3,181 deficiencies in the administration, operation, and maintenance of the water infrastructure. Among these, the Comptroller reports that PRASAs operating losses had increased from US $241 million in August 1999 to US $695 million in May 2001, and that the agency had not collected US $165 million in bills. According to Comptroller Manuel Diaz-Saldaa, the privatization has been a bad business deal for the people of Puerto Rico. We cannot keep administrating the Authority (i.e., PRASA) the way it has been done until now, he said. Ultimately, Puerto Rico severed its relationship with Vivendi, ending the contract.

[For more information on Vivendi's contracts and track record, click here]

To be sure, Vivendi Universal and Accenture are just two corporate members of the USCSI companies involved in the privatization of public services. To name only a few others, EDS is active in the privatization of government services, UPS is using international trade rules to challenge public postal services in many countries (including Canada and Germany), General Electric in active in energy privatization projects, and the members of the National Committee on International Trade in Education (NCITE) are looking for access to the national education sectors of countries around the world. These corporations and many others on the USCSI are eagerly looking for opportunities within the GATS and other international trade and investment agreements to open up opportunities for them to privately provide what have traditionally been public services. And they use the connections and collective leverage of the CSI to do so.

IV. Public Financing: USCSI members and the World Bank & International Monetary Fund (IMF)

International Monetary Fund and World Bank loans always come at a price. IMF loans to 'stabilize' financial markets charge the high price of privatization of core services and massive reduction in social program spending. World Bank loans are also usually made for massive privatization projects. And corporations usually reap the benefits, gaining the newly privatized contracts, and often receiving investment finance from the World Bank. And these are not just side benefits that corporations gain from the IMF and World Bank - in reality, both forced privatization and financing corporate takeovers are at the core of the IMF and World Bank mission in these countries. The national water system of Cameroon stands as a typical example. A joint mission of the IMF and World Bank pressured the government of Cameroon to accelerate the privatization of the state water company Socit nationale des eaux du Cameroun (SNEC) as a condition of an IMF loan policy for Cameroon. The water company Suez, a member of the USCSI's European counterpart lobby group called the European Services Forum, took over the Cameroon governments 51% stake and gained a concession to operate their water supply for a 20-year period. Other examples include:

Vivendi Universal and the World Bank

Vivendi has gained numerous privatization contracts that were initially set up by the World Bank. Vivendi was awarded a EUR 150m renewable lease contract to provide water services for the entire country of Niger, following a World Bank-sponsored international tendering procedure. This was a ten year renewable contract and the World Bank provided most of a 35 million Euro investment finance package. Vivendi was also awarded a 5-year support and service contract in Burkina Faso, again supported by World Bank financing. The contract covers the management of customer service and finance activities and aims to support a program that will lead to the opening of the Ziga dam. And the tendering process for the Nairobi contract discussed earlierhad been conducted by the World Bank. The list of such World Bank help in Vivendi contracts goes on and on.

Citigroup, JP Morgan, the IMF and Brazil

An August 2002 IMF loan to Brazil provides an excellent example of the gains that are made by multinationals, especially banks, when IMF loans are announced. In this case, USCSI members Citigroup and JP Morgan (as well as Fleet Boston), which have enormous investments in Brazil (for example, Citigroup has $9.7 billion in assets there), were on the hook as the Brazilian economy was acing a potential collapse and a default on its debt, much of which was Citigroup and JP Morgan debt. Consequently, the IMF came to the 'rescue' and offered Brazil a $30 billion loan. Not coincidentally, Citigroup and JP Morgan stock value soared immediately after this announcement, because investors knew the potential debt default had been averted and that IMF money would essentially flow back to Citigroup and JP Morgan as payback on their investments. And, of course, as always, Brazil is forced to follow an austerity program that requires privatizing and gutting social programs in order to cut costs and save money to pay back its IMF loan. What this amounted too, essentially, was 'structural adjustment' of the Brazilian economy in order to pay back the likes Citigroup and JP Morgan - the poor paying with the erosion of their public services and their already weak social programs in order to ensure that the investments of billion dollar companies will not be hurt. Thus, the people of Brazil face massive erosion of public services in order to pay back financiers like Citigroup and JP Morgan - under terms and conditions not of their choosing.

It has been argued (half jokingly) by some that IMF money should be sent directly from Washington, D.C. to New York, rather to a country like Brazil first, as most of that money is heading to New York and other international financial centers anyway. It would likely save on transaction costs and would be a more honest portrayal of the workings of the IMF! This case of Citigroup and JP Morgan only adds to the weight of this argument.


As was stated in the introduction, you can almost pick at random from the USCSI membership to find a corporation that is either privatizing public services, embroiled in financial controversy, or gaining from the misery imposed by an IMF loan. There is no other group where the convergence of all of these is as pronounced as it is in the members of the USCSI and this is what makes the USCSI such a key organization in the struggle to understand who is behind the waves of both privatization and scandal that have been hallmarks of the past number of years. If you are trying to understand what is behind the push for corporate friendly trade agreements, for privatization of vital public services, and what the track record of these groups really is, just think of the corporate scandals of 2002 and then think of the attempt to privatize your local water or energy supply, and then think of membership of the U.S. Coalition of Service Industries.

Darren Puscas is researcher at the 1310 Polaris Institutein Canada.