Posted by Mark Floegel on March 19th, 2008
You might have heard the story about General Motors Vice Chairman Bob Lutz. At a recent closed-door meeting with reporters, the 76-year-old, who’s in charge of product development said he thinks global warming theory is “a total crock of sh*t” and that hybrid cars “make no economic sense.”
As you might expect, the people who cover both the auto industry and the environment went nuts. Mr. Lutz eventually responded to the uproar with a post on GM’s blog site (or at least a 26-year-old administrative assistant posted a response for him).
In the blog, Mr. Lutz called his remarks “an offhand comment.” “But I think that the people making a big deal out of it are missing the real point,” he wrote. “My beliefs are mine and I have a right to them, just as you have a right to yours.”
I don’t think anyone’s questioning Mr. Lutz’s right to have an opinion. I think, instead, when Mr. Lutz was kind enough to treat the world to his unvarnished thoughts, we all had an “Aha!” moment explaining why Toyota is overtaking GM as the world’s largest automaker.
Hybrid vehicles “make no economic sense” to Mr. Lutz, who undoubtedly basks in a bloated bath of cash thanks to his salary ($8 million per year), bonus and perks, but the for rest of us poor schmucks, trying to pony up what will soon be four dollars per gallon at the pump, hybrid cars make a world of economic sense and again, explains why Toyota is eating Mr. Lutz’s lunch.
“Instead of simply assailing me for expressing what I think, they should be looking at the big picture,” Mr. Lutz wrote. “What they should be doing, in earnest, is forming opinions not about me but about GM, and what this company is doing that is — and will continue to be — hugely beneficial to the very causes they so enthusiastically claim to support.”
Really? As fate would have it, I’ve driven three rental cars in the past week. One was a Hyundai Sonata, one a Dodge Avenger and one a Chevrolet Cobalt, from Mr. Lutz’s beloved GM.
The Cobalt was – to paraphrase Bob Lutz – a total piece of sh*t. It was cramped, handled poorly; the interior was made of such cheap plastic that I was afraid I’d a) die from off-gas fumes or b) snap off the handle when I went to open the door. The icing on this cake of deficiency was the fact that the little monster sucked down gas like a fleet of overloaded semis. Yet another wonderful product from GM, polluting the atmosphere and making people poor and miserable while it careens toward an early grave in the junkyard. Thanks, Bob.
My favorite – by far – was the Hyundai. It was comfortable, roomy, responsive and got decent gas mileage. The Dodge fell somewhere in between.
Mr. Lutz wrote, “My opinions on the subject [of global warming] — like anyone’s — are immaterial. Really.”
Really? GM pays you eight million dollars a year and doesn’t give a sh*t (I hate to keep using this word, but you brought it up, Bob) what you think?
And, really? Everyone’s opinion on global warming is immaterial? Perhaps that’s true. No one’s opinion counts except that of the decider, George W. Bush and he’s decided we need to keep pumping oil and mining coal.
Bob Lutz is a walking embodiment of what’s wrong with America’s industrial policy. He’s got his head so far up his own ass that everything looks like a crock of sh*t to him. Someone find this bozo a gold watch and let’s get on with trying to save ourselves from the internal combustion engine.
Making Company Data Truly Public
Posted by Ian Elwood on March 12th, 2008
For anyone who has private photos on MySpace there is a good chance that their intimate moments are now being laughed at by pimple-faced teenage boys around the world. Rupert Murdoch's News Corp, owner of MySpace, neglected to repair a security vulnerability that made 77,000 "MySpaces" into "OurSpaces" in late 2007. Around 500,000 private photos were extracted from the site and uploaded to a popular file sharing website called the Pirate Bay. Over the course of three months MySpace was notified multiple times about the glitch, but it was only fixed after Wired News reported the story in late January.
Well, what if the scheme that troublemakers used to embarrass amateur photographers was used to publish secret material in the public interest (such as evidence of product failures or toxic waste dumping), and then distributed far and wide for free, so that anyone could access it in a manner that the rich and powerful had no way to prevent it?
One recent event has tipped the scales in favor of corporate accountability. A website called WikiLeaks recently released information on an offshore bank named the Julius Baer Group that exposed a scandal involving Cayman Island tax havens, money laundering and tax evasion. WikiLeaks allows whistleblowers to leak documents to the site anonymously, and has a community of editors and users who vet the information and rate the credibility of submissions. Julius Baer Group asked a U.S. court to issue a gag order against WikiLeaks and had their domain name revoked by court order for a short period of time.
Instantly other organizations sprang to the defense of the public interest, the ACLU, EFF and Public Citizen all recognized the need for whistleblower websites, and as a failsafe WikiLeaks had kept multiple mirror sites, so all of their information stayed online. Eventually more people saw the data than if the bank had ignored the matter, so the Julius Baer Group gave up the fight.
Sites like WikiLeaks provide a good venue for otherwise difficult to find information to be made publicly available. This type of information is crucial for holding corporations accountable, and is not always easy to find. If you have information on any corporate malfeasance, and would like to share it anonymously, please visit our corporate malfeasance wiki, Crocodyl.
Spitzer versus Schwarzman
Posted by Pratap Chatterjee on March 12th, 2008
The news this week is deeply ironic: the main
building of the New York Public Library at Fifth Avenue and 42nd Street will be engraved with the name of Stephen A. Schwarzman, while the periodicals inside may sadly chronicle Eliot Spitzer, the
governor of New York state, as Client Number 9 of a prostitution ring. Both men made their name on Wall Street:
Schwarzman rose from his first job in investment banking at Lehman
Brothers to run the Blackstone Group, a private equity firm, that has
allowed him to stash away an estimated $4 billion today, while Spitzer
got corporations from Samsung to investment bankers like Lehman
Brothers to return almost the same amount to the public
The Wall Street financier is now giving $100
million to support a worthy cause that taxpayers cannot afford: a new library to lend books, wireless Internet access
and new rooms for children and teenagers, to attract as many as three
million new users, most of whom are expected to be from low-income
minority groups. It will be financed by the profits that Schwarzman
at Blackstone by exploiting tax loopholes to cut his tax rate
from 35 percent to 15 percent, costing the U.S. taxpayer tens of millions
Doubtless one of the books
that will be available at the new library will be the play Julius Ceasar, where Mark Anthony is quoted as
saying: "The evil that men do lives after
them; the good is oft interred with their bones." Yet
Schwarzman, like many wealthy people before him, will be able to escape
the curse of history, by buying fame at a public auction.
Spitzer may not escape the curse. The name
"Mr. Clean" may never be applied to him again. But for those
of us that track corporate fraud, who can forget his shining moments?
For example, in 2002 when ten Wall Street
banks from Bear Sterns to UBS Warburg were forced to pay $1.4 billion to settle
charges of "spinning" stock prices to make millions for
wealthy investors? Or in 2003, when his office uncovered how mutual fund brokers allowed select clients
privileges deprived to ordinary customers? Another billion dollars was
paid back to the small investor. How about the $50 million in royalties that his office
discovered that record companies hid from musicians in a
2004 investigation? And let's not forget the
$730 million in fines paid out in 2006 when his office discovered
price-fixing among computer chip manufacturers.
When Spitzer offered his apologies for his
, he asked that the media remember that politics should
not be about individuals but about ideas and the public good. That surely is also the role of
libraries -- ideas and the public good -- not about celebrating the
titans of greed and excess. Perhaps if Wall Street were to pay its
fair share of tax dollars to spend on libraries, then there would be
no need to name the Central Library after one of the men who robbed
the public purse.
Will children who pass through those two stone
lions to enter the library notice that their names are Patience and
Fortitude? Or will they hope that one day they become as rich and
famous as the man after whom the building is named?
I hope that when they look through the shelves
of the New York public library, they will find books and magazines
that remind generations of New Yorkers to come of Eliot Spitzer's
true legacy: of an honest man -- human and fallible no doubt -- who
spoke truth to power.
(And for those on Wall Street who are crowing
about Spitzer's misfortune, shame on
you; your turn may be next to lose your job in
the reckoning over the real scandal on Wall Street: the sub-prime mortgage crisis that threatens to leave many a poor family without a
home of their own.)
The Times Falls for Wal-Mart’s "Authenticity"
Posted by Phil Mattera on March 6th, 2008
Dirt Diggers Digest
The New York Times gave a boost today to Wal-Mart’s effort to raise its coolness quotient. Its account of a new blog
that the giant retailer is allowing some of its merchandise buyers to
produce was filled with references to “candor,” “speak[ing] frankly,”
and “uncensored rambling.” Much is made of the fact that the posters
have made unflattering comments about some of the offerings of
Wal-Mart’s suppliers. Wal-Mart is said to have learned its lesson from
earlier disasters with blogs created in the name of bogus front groups.
This new initiative, the Times assures us, is the real thing.
It is indeed the case that the site allows reader comments that are critical of certain company practices. For example, a posting
by an “associate” named Alex saying he might use spend his federal
economic stimulus check to purchase a TV or a laptop was followed by
comments on how that would do more to help the foreign economies where
such products are made. One person asked: “what happened to the
campaign WalMart used to run advertising its commitment to support
Yet, it appears that the Times was hoodwinked by Wal-Mart.
The appearance of authenticity and candor is just another technique
used by advertising agencies and public relations consultants to win
over skeptical audiences.
As for those critical comments, it’s significant that “Alex” thanked
all those who had corrected a spelling error in his post but had
nothing to say about the company’s sourcing practices. In fact, that
the only real topic covered in the posts apart from product assessments
Those items are posted in the name of Rand Waddoups,
who is no lowly buyer but rather the company’s senior director of
business strategy and sustainability. His part of the blog, at least,
fits in neatly with the company’s dubious campaign to depict itself as
the environmental leader of the corporate world.
As I have previously noted,
Wal-Mart’s green crusade places all the burdens on its suppliers, while
the moves taken by the retailer itself (improving energy efficiency,
etc.) are in fact nothing more than cost-cutting measures that boost
its bottom line. Until Wal-Mart makes some hard choices itself—such as
paying all its workers a living wage—nothing it does in the blogosphere
or elsewhere is going to be very authentic.
McDonald's gets F grade in Florida
Posted by Pratap Chatterjee on January 18th, 2008
Fast food giant McDonald's was just forced to withdraw a controversial program to sponsor report cards in Seminole County, central Florida, in exchange for a Happy Meal coupon on the cover that features an image of Ronald McDonald. (Children with A and B grades, with two or fewer absences or who exhibit good behavior were entitled to pick up a free Happy Meal at their local McDonald's, as long as they presented their report cards. The company paid the $1,600 cost of printing the report cards.)
The promotional campaign by the Illinois-based company was defeated by a small, but feisty, activist coalition named the Campaign For A Commercial-Free Childhood, which is based out of the Judge Baker Children's Center in Boston.
In early December last year, CCFC launched a campaign against McDonald's when outraged parents contacted them. "My daughter worked so hard to get good grades this term and now she believes she is entitled to a prize from McDonald's," Susan Pagan, an Orlando parent, told CCFC. "And now I'm the "bad guy" because I had to explain that our family does not eat at fast food chains. I'm outraged that McDonald's is trying to exploit my daughter's achievement -- and that the Seminole County School Board would help facilitate this exploitation."
It's not the first time that McDonald's has tried to directly influence the eating habits of young children (nor, probably the last, unfortunately). Three years ago the company dropped a national campaign in the UK of providing educational material and teaching assistants to primary schools after a public backlash against the program by groups like McLibel.
And in the 1990s there was a hue and cry by groups like UNPLUG! of Oakland, California, after McDonald's and other companies provided "sponsored educational materials" on subjects like nutrition to teachers to supplement or take the place of approved curriculum in the U.S. The company was also protested for sponsoring McTeacher's Night in southern California, which involved teachers working at local McDonald's restaurants to raise funds for schools by selling burgers to their own students!
Yet perhaps the most devastating blow to McDonald's advertising to school-children was done by documentarian Morgan Spurlock with his film: SuperSize Me (the entire film can be watched for free online at http://freedocumentaries.org/film.php?id=98 ). In the film, Spurlock documents the impact of dining exclusively on McDonald's products for a 30-day time period. The film also explores the fast food industry's corporate influence, including how it encourages poor nutrition for its own profit. (An edited DVD version of the film designed to be integrated into a high school health curriculum is available from Arts Allliance America.)
NB: Full disclosure: This writer is a former fast food food industry employee with almost two years experience working fulltime in the business including stints at Burger King, McDonald's and Pizza Hut which allowed him to finance a diploma course in journalism school.
Stop the Walled Garden!
Posted by Ian Elwood on January 15th, 2008
Many of today's new dot-com corporations, like Facebook and LinkedIn, make money by building "walled gardens" and programs that conduct "data mining" to take advantage of casual users surfing the web who are signing up in their millions for the numerous popular "free" social network sites. (Facebook refuses to reveal its profits but is rumored to be worth $15 billion.)
(A walled garden refers to a media strategy that compels users to one stay on their service. Data mining is the practice of collecting large amounts of personal information on website users by the site itself.)
While Apple's iPhone unabashedly locks users into using AT&T cell phone service, sometimes the strategies are more subtle. FaceBook, the popular social network site, restricts the functionality of their site so that it is easy to remain on facebook.com, while making external linking and emailing difficult. LinkedIn, another social network site, doesn't allow users to delete their profile without contacting customer service.
All of these tactics seek to make it easier for companies to collect information on individuals, with the sole purpose of creating consumer profiles for targeted advertising. The reason is simple: they make their money from the advertisers who will pay to get a captive audience (the kind they were once guaranteed on newspapers and TV) who might buy their products.
It is possible that these companies will soon sell their inventions for vast profits in the same way that YouTube and MySpace did, by taking advantage of ordinary people who would probably not pay for their services unless they were completely free. But activists say that the the Web has enormous potential to be a digital commons, if we assert our rights to use it for purposes other than buying and selling.
An activist group named Freespeech.org has put together a video that they are using to promote their "It's Our Web" campaign. The video, which spoofs the Transformers, is pretty entertaining, and manages to fit some complicated ideas about Internet user freedom into an accessible format. The underlying message of the video is a good one: the Internet is a medium that is best if it remains free. Restricting access to information is a taboo among Wikipedians, Slashdotters, bloggers and Gnubies alike because the free flow of information is what has driven the collective production responsible for the Web as we know it.
The New Business Watergate: Prosecution of International Corporate Bribery is on the Rise
Posted by Philip Mattera on December 18th, 2007
Philip Mattera is director of The Corporate Research Project,
an affiliate of Good Jobs First. The Project is a non-profit center that assists
community, environmental and labor organizations in researching and
analyzing companies and industries. Philip is also author of The Corporate Research E-Letter, and this blog is a re-posting of the November-December 2007 edition.
Chevron has recently been spending heavily on a public relations campaign titled “the Power of Human Energy” to depict itself as a leader in environmental and social responsibility. This image-burnishing effort faced a setback last month when the company was forced to pay $30 million to settle federal charges that it made illegal kickback payments to prewar Iraq in connection with crude oil purchases under the United Nations Oil-for-Food Program.
Chevron is just one of dozens of corporations that have been caught up in a move by the Securities and Exchange Commission and the Department of Justice to step up enforcement of a law prohibiting overseas bribery by U.S.-based corporations. The law—the Foreign Corrupt Practices Act or FCPA—can also be applied to foreign companies with a substantial presence in the United States. There have been reports that electronic and engineering giant Siemens, which recently paid a fine of around $300 million in a global bribery investigation by a German court, may soon be hit with FCPA charges as well.
The rise in FCPA enforcement emerged just as the prosecution of the wave of accounting scandals starting with Enron was winding down. In fact, the limited reforms enacted in response to those scandals—especially the Sarbanes-Oxley Act—have helped bring to light much of the information on which the recent FCPA cases are based. Business apologists who hoped that the public was forgetting about corporate crime now have to deal with new reminders of the sleazy aspects of commerce.
THE “BUSINESS WATERGATE”
It is often forgotten that the Watergate scandal of the 1970s was not only about the misdeeds of the Nixon Administration. Investigations by the Senate and the Watergate Special Prosecutor forced companies such as 3M, American Airlines and Goodyear Tire & Rubber to admit that they or their executives had made illegal contributions to the infamous Committee to Re-Elect the President.
Subsequent inquiries into illegal payments of all kinds led to revelations that companies such as Lockheed, Northrop and Gulf Oil had engaged in widespread foreign bribery. Under pressure from the SEC, more than 150 publicly traded companies admitted that they had been involved in questionable overseas payments or outright bribes to obtain contracts from foreign governments. A 1976 tally by the Council on Economic Priorities found that more than $300 million in such payments had been disclosed in what some were calling “the Business Watergate.”
While some observers insisted that a certain amount of baksheesh was necessary to making deals in many parts of the world, Congress responded to the revelations by enacting the FCPA in late 1977. For the first time, bribery of foreign government officials was a criminal offense under U.S. law, with fines up to $1 million and prison sentences of up to five years.
The ink was barely dry on the FCPA when U.S. corporations began to complain that it was putting them at a competitive disadvantage. The Carter Administration’s Justice Department responded by signaling that it would not be enforcing the FCPA too vigorously. That was one Carter policy that the Reagan Administration was willing to adopt. In fact, Reagan’s trade representative Bill Brock led an effort to get Congress to weaken the law, but the initiative failed.
The Clinton Administration took a different approach—trying to get other countries to adopt rules similar to the FCPA. In 1997 the industrial countries belonging to the Organization for Economic Cooperation and Development reached agreement on an anti-bribery convention. In subsequent years, the number of FCPA cases remained at a miniscule level—only a handful a year. Optimists were claiming this was because the law was having a remarkable deterrent effect. Skeptics said that companies were being more careful to conceal their bribes, and prosecutors were focused elsewhere.
Any illusion that commercial bribery was a rarity was dispelled in 2005, when former Federal Reserve Chairman Paul Volcker released the final results of the investigation he had been asked to conduct of the Oil-for-Food Program. Volcker’s group found that more than half of the 4,500 companies participating in the program—which was supposed to ease the impact of Western sanctions on Iraq—had paid illegal surcharges and kickbacks to the government of Saddam Hussein. Among those companies were Siemens, DaimlerChrysler and the French bank BNP Paribas.
THE REBIRTH OF FCPA PROSECUTIONS
The Volcker investigation, the OECD convention, the Sarbanes-Oxley law and other factors together breathed new life into FCPA enforcement. Stricter internal controls mandated by Sarbanes-Oxley have made it more difficult for improper payments to be concealed, prompting numerous companies to self-report FCPA violations in the hope of receiving more lenient treatment.
In 2005 the number of FCPA prosecutions started to pick up and reached double digits the following year. This year the number of investigations has reportedly been in the dozens, and the resolved cases have gained higher visibility. Among these have been the following:
* Three subsidiaries of British oil services company Vetco International pleaded guilty to FCPA violations in Nigeria and agreed to pay a total of $26 million in criminal fines. This was the largest criminal penalty the Justice Department had ever obtained in an FCPA case.
* Oil & gas distributor El Paso Corporation settled FCPA charges in connection with the Oil-for-Food Program and agreed to disgorge $5.5 million in profits and pay a civil penalty of $2.2 million.
* Dow Chemical paid a $325,000 civil penalty to settle FCPA charges relating to improper payments made by an Indian subsidiary in the late 1990s.
* A subsidiary of oil services company Baker Hughes pleaded guilty to FCPA charges involving bribery in Kazakhstan and paid a criminal fine of $11 million. In related SEC charges, Baker Hughes agreed to pay more than $44 million in criminal fines, civil penalties and disgorgement of profits. This became the new record for FCPA-related penalties.
* Textron Inc. paid more than $3.5 million to settle FCPA charges relating to kickback payments made by a subsidiary to obtain contracts for the sale of humanitarian goods to Iraq under the Oil-for-Food Program.
* Industrial equipment company Ingersoll-Rand agreed to pay more than $4.2 million to settle FCPA charges that four of its subsidiaries made kickback payments in connection with the Oil-for-Food Program sale of humanitarian goods.
FOREIGN COMPANIES IN THE FCPA NET
While the recent rash of FCPA cases has drawn little attention in the United States, the Siemens case has generated a major scandal in Europe. Last year, more than 200 police officers participated in a raid of company offices and homes of managers. Prosecutors in Italy and Switzerland joined in the investigation, which focused on suspicious transactions at the company’s telecommunications equipment unit reportedly totaling more than $2 billion.
The outcry over the bribery charges (and separate controversies over matters such as price-fixing) forced both the chief executive of Siemens and the chairman of its supervisory board to announce their resignation. In October the company agreed to a $300 million fine, hoping that the controversy would die down. But in November the Wall Street Journal gained access to the unpublished court ruling in the case, which provided embarrassing details about the payment of bribes in Nigeria, Libya and Russia. Subsequently, Business Week Online reported that FCPA charges in the United States could generate penalties for Siemens much harsher than what it experienced at home.
Siemens is not the only European company whose bribery problems are becoming an issue in the United States. Earlier this year there were reports that U.S. prosecutors have been investigating improper payments by major military contractor BAE Systems (formerly British Aerospace), including some reportedly involving Prince Bandar bin Sultan, former Saudi ambassador to the United States and a close ally of the Bush Administration, as well as other members of the Saudi royal family.
A quarter century after the Watergate investigation revealed a culture of corruption in the foreign dealings of major corporations, the new wave of FCPA prosecutions suggests that little has changed. There is one difference, however. Whereas the bribery revelations of the 1970s elicited a public outcry, the recent cases have generated little comment in the United States. Companies like Chevron pay their fine and go right on using their ad campaigns to present themselves as paragons of virtue. It took years for the reputation of Richard Nixon to recover from the taint of Watergate in the eyes of mainstream observers. Corporate America seems to be able to purchase instantaneous redemption.
Turning Ethnic Pride into Sales
Posted by Amelia Hight on November 6th, 2007
Listen to this as you read . . . "Air Force Ones" by rappers Nelly, Murphy Lee, Ali, and Kyjuan, 2002
According to a recent article in the Wall Street Journal, Nike is tapping into the sway of cultural “influencers” to attract new types of consumers. Traditionally, celebrity athletes have worn Nike shoes in return for lucrative endorsement deals. However, recent charges brought against famous Nike-sporting athletes like NFL star and criminal dog-fighter, Michael Vick, and more recently, track heroine and self-admitted steroid user, Marion Jones, have dirtied this image of the hard-working athlete and further urged Nike to look beyond the sweat-drenched athlete for culturally influential people to wear their shoes. While still focusing on the athlete as the main consumer, Nike is turning to “under the radar” influencers for inspiration. In many cases, this leads to Nike’s white sneaker being painted, embroidered or dyed the colors of a Latin American flag or taking on “cultural signifiers,” often stereotyped symbols meant to represent a certain heritage or ethnicity.
Nike’s most stylistic shoe, the Air Force 1, provides an excellent case in point. A new series of the shoe, called the “Cultura” collection consists of shoes like The Los Angeles Cortez, inspired by “the traditional images of LA street life,” the Handball Aztec Cortez designed to capture “our Aztec heritage,” and the green, white and red Mexican Airforce, which “pays homage to the Motherland.” Nike designers hired well-known graffiti and tattoo artists to create each shoe’s aesthetic appeal. Each year, Nike releases a new Chinese New Year AF1 (check out the Year of the Dog here). And, in previous years, Nike has introduced a series of West Indies Air Force 1s in time for West Indies Pride Days in New York City. Each shoe has the flag of a different West Indies country on its insole. There are also Jamaica, Philippines, and Puerto Rico Air Force 1s. Deemed “ethnic pride sneakers” by bloggers, these shoes bring up interesting issues about identity and consumerism. Through these shoes Nike present a pre-packaged narrative of identity. They tell consumers that it is possible to express ethnic pride by wearing Nike tennis shoes. Effectively, commodifying ethnicity has become a sales strategy for Nike.
However, according to Nike, developing shoes for certain ethnicities is not only about ethnic pride, but also about promoting health. Earlier this year, Nike introduced the Air Native N7, a shoe designed specifically for Native Americans. In addition to its signature swoosh, the shoe features “heritage callouts,” including sunrise and sunset patterns on the tongue and heel, arrowheads and feathers. Nike claims the new shoe is “an effort aiming at promoting physical fitness in a population with high obesity rates.” As one self-described Native American blogger, David Yeagley, summarizes, “American Indians are fat and have funny-shaped feet.” He continues: “Our own Nikes! What an achievement!” and asks, “A shoe designed especially for Indians is going to make us walk more? A national company name lent to Indians is going to inspire us to better health?” Another critic, Sherman Alexie, a Spokane/Coeur d’Alene Indian had the following to say, “The day it was announced, I thought: ‘Are they going to have dream catchers on them? Are they going to be beaded? Will they have native bumper stickers on them that say, ‘Custer had it coming’?”
Apparently the idea behind these specialized shoes is that they will create a buzz that will spread to consumers closer to the mainstream. That's right, Nike is attempting to attract attention from "under the radar" consumers in order to appeal to the mainstream. Buying "ethnic pride" sneakers from Nike might allow someone to feel like they're expressing their ties to a certain culture or identity, but in the end, they're still just products designed to make profits for the biggest footwear company in the world.
One has to wonder if Nike's switch from risky celebrity endorsements to ethnic pride, is really just about creating a positive spin on its image, which has historically also been sullied by accusations of worker abuse in poor country sweatshops.
Book Review: Stolen Without a Gun
Posted by Ian Elwood on November 1st, 2007
Stolen Without a Gun reads like an Anarchist's Cookbook of Corporate Crime and illustrates well how an international money laundering scheme works (including how to nest embezzled funds in a series of quasi-legal Cayman Island bank accounts) while telling the personal tale of Walter Pavlo, Jr., a convicted white-collar criminal who was busted for embezzling $6 million while working at MCI Telecommunications in the mid-1990s.
Pavlo, who served his time in jail and now gives lectures and advice on the subject of ethics and white-collar crime, is portrayed in the book as an everyman, without any particular bent to stealing money.
The narrative gives an inside perspective of how a business person could get wrangled into a high stakes game of money laundering. Pavlo, good at his job, notices the graft and corruption all around him and sees people hiding debt in accounts that he knows will never be repaid. Millions of dollars are being thrown away all around him. All the myths that he learned in business school, "The corporation as a community run by thoughtful innovators striving to do good while doing well," are shattered before him. As he is being groomed by his superiors in the company and his rise to power begins, he realizes the upper limits of just how much money he will make in his career at MCI. And it isn't enough. Plus, his company is being ripped off by delinquent customers everyday and he is the one responsible when they don't pay up. They are all getting away with it, why can't he?
The entire scheme is viewed by the perpetrators as nothing more than a college prank, they justify it by telling themselves that no one will miss the money, and for a while no one does. They get increasingly bold and sloppy with their methods and start to go after larger customers with higher levels of oversight. It is fun to watch the dizzying high come crashing down as Pavlo realizes that he cannot keep control of all of the accounts he has been siphoning, and he is running out of shells to shuffle money under.
The book does a good job of giving a frank perspective on how the culture of graft and corruption works. The demands to collect money from his clients are so unrealistically high that Pavlo has no choice but to bend the rules to make his quota. Corporate won't tell him explicitly to shirk regulations, but it is understood. Once he sees how easy it is to break the rules, and that everyone is doing it, there isn't much ground to cover for him and his buddies to come to the realization that he could be making money for himself instead of chucking it away into delinquent accounts.
Stolen Without a Gun is a "How-To" guide for students of the U.S Racketeer Influenced and Corrupt Organizations Act (RICO) and shows that too often a white collar criminal pushes externalities on their families and friends; Pavlo loses his wife and two children and his coworkers end up in jail. In the end the protagonist goes to jail, as the cover suggests, and presumably has a change of heart about his life of crime. But a quote from the last pages of the book suggests otherwise, "Bottom line, we are...getting what we deserve. We had our eyes wide open. Our only real regret is that we got caught. Case closed."
Made in the U.S.A.
Posted by Amelia Hight on October 22nd, 2007
In a recent decision reported in the Guardian, a federal appeals court ruled that Caterpillar Inc. could not be sued over the death of an American peace activist who was crushed under bulldozers sold to the Israeli Defense Force (IDF). The story of Rachel Corrie, the activist who was crushed by a 60-ton Caterpillar D9 Bulldozer in Rafah, Gaza in 2003 while trying to prevent the razing of a Palestinian home by the Israeli army, achieved widespread media attention. Reports of the IDF’s razing of homes in Rafah were issued by numerous human rights watchdog organizations, including Human Rights Watch. Corrie’s family, along with four Palestinian families of victims killed while their houses were bulldozed, began legal proceedings against Caterpillar in 2005 for selling machines to Israel. Lawyers arguing for the families insisted that the company sold the bulldozers to the Israeli government on a commercial basis and knew, or should have known, that they would be used to demolish homes and kill innocent victims in violation of international law.
Explaining its decision, the court claimed that it could not rule in favor of the bereaved families "without implicitly questioning, and even condemning, United States foreign policy towards Israel." Of course, this is not the first time that U.S. companies have been implicated in mass human rights abuse and not had to answer for their participation. Indeed, U.S. companies have been intimately connected to the human rights abuses of regimes throughout modern history. Near the turn of the millennium, pressure from Jewish organizations finally forced the U.S. to begin looking at the use of slave labor by U.S. corporations (and their subsidiaries) in Nazi Germany.
A court case brought against Ford Motor Co. was dismissed, but Ford admitted that its German subsidiary, Ford-Werke AG, used labor at the Buchenwald concentration camp to build vehicles. Other major U.S. corporations that continued to operate in Nazi-occupied Europe and used slave labor include General Motors, Chase Manhattan Bank and JP Morgan. ''There are things that have to be faced up to,'' alleged Elan Steinberg, World Jewish Congress executive director, ''American companies were collaborating with Nazi Germany at a time when we were at war, because there was an ethos that demanded huge profits at the expense of everything else.''
Modern history is peppered with examples of corporations seeking profit during periods of mass human rights abuse: In the 1970s, the U.S. manufacturing giant, ITT, and others helped overthrow democracy and install the Pinochet dictatorship in Chile (to listen to the Nixon Whitehouse tape that acknowledges this relationship visit GWU’s website, The National SecurityArchive). Numerous companies supported South African apartheid, including U.S. giants IBM, General Motors, ExxonMobil, J.P Morgan Chase, Citigroup, Caltex Petroleum Corporation, Ford Motor Company and the Fluor Corporation. In 2002 a group of South Africansunsuccessfully sued 20 banks and corporations that did business in South Africa during apartheid. The list goes on and on.
Even if these corporations are not held accountable for their role in mass human rights abuse and economic activities are allowed to take legal precedence over human rights, it is of vital importance to recognize the role that corporations play in this abuse. It appears to be the responsibility of the public to put pressure on corporations to consider where they do business and with whom.
Global Accounting Standards
Posted by Pratap Chatterjee on October 18th, 2007
The world of global accounting is girding up for a trans-Atlantic battle. Last month L'Oreal, Royal Dutch Shell, and Unilever, all gigantic companies, asked the U.S. Securities and Exchange Commission (SEC) to allow them to choose which accounting standards they want to use. (The companies belong to the European Association of Listed Companies, who delivered the letter.)
The reason is that U.S. Generally Accepted Accounting Principles (GAAP) is 25,000 pages long (which are based on very specific rules) and they don't like it. By comparison, the International Financial Reporting Standards (IFRS), is just one tenth the length (which are based on principles which can be more open to interpretation).
There are other good arguments for using the global rules - there are now more than 100 countries either using or adopting international financial reporting standards, or IFRS, including the members of the European Union, China, India and Canada.
But L'Oreal, Royal Dutch Shell, and Unilever, don't just want the easier rules, they want to choose which version of IFRS they can use - a European Commission version that allows them to choose how they value certain assets.
Financial Week, an industry magazine, in New York is up in arms.
" Imagine signing a contract and not having to hold up your end of the bargain. Or being able to say "I do" at the altar when you might sometimes mean "I don't." Having it both ways in such matters sure provides flexibility, to put it charitably. Yet that's exactly what a group of European companies want when it comes to accounting standards for global companies tapping the U.S. capital markets," editors of Financial Week, wrote earlier this month. (see "Converging on Chaos")
Another industry magazine, Accountancy Age in London, has also been critical of companies that use the more flexible European Commission rules. A couple of years ago, Taking Stock, the magazine's blog, asked Rudy Markham, the finance director of Unilver, why he was using flexible IFRS rules in reporting for the company, but he refused to comment, leading them to poke fun at him:
" TS understands that the biggest accounting change for a generation can be a complete turn off. We assume the numbers involved didn't mean that much to Markham anyway - a billion off the top line there, a billion on the bottom line there. He did, after all, personally take home just over £1.1 million last year. Money, money, money, as Abba used to sing... "
The good news is that the U.S. which has long insisted on using its own complex rules, may be open to using the global standard. SEC chairman Christopher Cox has agreed to allow U.S. companies to use the IFRS but has cautioned against local versions of the rules, like the European Union version. Financial Accounting Standards Board chairman Robert Herz has also said that this is a bad idea.
Today the International Accounting Standard Board, which drew up the IFRS, appointed a new chairman, Gerrit Zalm, a former Dutch finance minister, who has already announced that he would try to prevent local variations of the global rules: "One of my first priorities will be no new carve-outs in Europe and trying to get rid of the existing carve-out, because if Europe is doing this, other countries could get the same inspiration and then all the advantages of the one programme fade away," Zalm told the Financial Times. "The fragmentation of standards is costly for the enterprise sector and it doesn't help in creating clarity for investors."
We look forward to his efforts to create a single global standard. Stronger global rules are always welcome, especially if they are easier to follow, but weaker ones that cater to nationalistic interests are not.
Cowboy Capitalism: Chinese Companies in Africa
Posted by Amelia Hight on October 10th, 2007
Transit riders switching trains at the Montgomery BART subway station in downtown San Francisco will find it difficult to miss the new ads covering the walls, the floor and even the stairs with pictures of Sudanese refugees. The advertisements' message is attention catching: "Are you invested in genocide?" As part of the Save Darfur Coalition's Divest for Darfur campaign, the ads urge transit users to visit their website, where they are asked to demand that investment firms - specifically JP Morgan, Franklin Templeton, Fidelity Investments, Capital Group (American Funds), and Vanguard - withdraw investments from companies like the Chinese National Petroleum Corporation (CNPC), which are, according to the website, "filling the coffers of the Sudanese government and helping fund the government's actions in Darfur." (As a side note, the use of the term "genocide" by groups like Save Darfur to describe the conflict in Sudan is highly controversial. For more information, read the transcript of Professor Mahmood Mandani's June 4th interview with Amy Goodman on Democracy Now!, titled "The Politics of Naming: Genocide, Civil War, Insurgency."
The CNPC has been heavily censured for continuing to do business in Sudan, despite the ongoing conflict there. Attempting to place pressure on firms invested in the state-owned CNPC, rather than on the CNPC itself, is a way for activists to circumvent the "no strings attached" stance of the Chinese government toward investment in Africa and other parts of the world. China prides itself on having a different approach to investment than western lending organizations like the World Bank or IMF, which have numerous development and human rights stipulations attached to investments. In Sudan, this means that the government doesn't have to bend to international pressure to, say, allow UN troops into Darfur. Many African governments welcome Chinese investment specifically because of this hands-off approach. In a recent article in the New York Times, Lydia Polgreen comments on the increasing presence of Chinese companies in Africa, especially in the rich natural resources and mining sector. Manganese mines in South Africa, uranium pits in Nigeria and cobalt mines in the Congo are all areas of investment for state-owned Chinese companies, like the Nonferrous Metals Corporation.
African citizens view Chinese investment with ambivalence. Some see economic relationships with China as a source of much needed income and a step up from paternalistic relationships with the West. "Let the Chinese come," said Mahamat Hassan Abakar, a lawyer in Chad. "What Africa needs is investment. It needs partners. All of these years we have been tied to France. Look what it has brought us." Others are more critical, seeing China as just another country robbing Africa of its resources and in the process enriching local elites, bolstering repressive governments and perpetuating Africa's secondary economic status. Cheap Chinese goods flooding Africa inhibit local manufacturing and the jobs that accompany it. Unsafe working conditions lead to industrial accidents like the 2005 blast at a Chinese-owned explosives factory in Chambishi, Zambia, which killed 51 people.
The investment of Chinese state-owned companies in Africa is hardly a win-win situation, but it is easy to recognize the attraction for African governments doing business with Chinese companies. In judging if China is a partner or colonizer in Africa, the answer is probably, a little of both.
Posted by Robert Young Pelton on October 2nd, 2007
Robert Young Pelton is the author of "Licensed to
Kill: Hired Guns in the War
on Terror " and the "Guide to the World's Most
Dangerous Places." He is also co-founder of
http://www.iraqslogger.com . This blog item is about his
experiences attending the Congressional hearing into the Blackwater
shootings in Iraq written on October 2nd, 2007.
The two extremes represent the bookends of public debate on the
private security industry. The former military men who run Blackwater
view their supporting role in the war on terror as both necessary and
good, while human rights activists believe there is something deeply
wrong with authorizing private citizens to kill other private
Standing in line to get into Tuesday's hearing, I found myself in a
strange position. In front of me, dark-suited and staid Blackwater
executives stood waiting to show moral support for their boss, Erik
Prince, while the colorful and animated Pink Ladies behind me ticked
off reasons he and his industry should be feared.
One of the women waiting in line asked me, "How can we find out what
these people are doing?" I suggested she could go to any
neighborhood in Baghdad and just ask the locals.
Or better yet--spend a week driving through Baghdad in an unmarked car
to see how often convoys blast through intersections, guns bristling
from every door, pointed directly at you, giving you mere seconds to
get out of the way before the bullets start flying. Feel your own
pulse racing as you realize how easily you could have been killed if
you'd had your radio a little louder, or hadn't noticed their
approach, or hadn't swerved to a stop fast enough.
Companies like Blackwater wield a life-and-death power in Iraq,
creating an arrogant misuse of force the United States has put into
I spent time in Sadr City and other areas interviewing the victims of
Blackwater and other security companies. Terrified Iraqis, many who
did not want to be identified or publicly quoted, told of sudden
unexpected encounters with fast moving convoys of SUVs--then death,
destruction, or permanent life change as family members were crushed,
maimed, killed, or traumatized.
During the time I spent researching my book Licensed to Kill, I
realized there were thousands of stories waiting to be heard about
excessive force being used on civilians in the name of "security".
Not surprisingly, many victims look to a militia to seek some revenge
for the transgression in the form of an ambush or IED.
Security companies are reviled; the Iraqis that work for these
companies have to cover their faces because they know militias or
their neighbors will kill them and or their families.
Military commanders understand that a non-state actor on the
battlefield is a wild card--whether death squad, militia or security
company. Iraqis know that the undermanned military must rely on
contractors to deliver 16 flavors of ice cream, frozen lobster and
bullets to the war effort.
The normally timid State Dept, known more for issuing warnings and
shutting down embassies when things get rough, has decided that its
people must travel the mean streets of Baghdad rather than give in to
intimidation. Security contractors are literally the grease that makes
our forward-leaning foreign policy in Iraq work.
So when Prince pretends like he is defending the US--justifying
violent acts by categorizing it as fighting bad guys--he does it with
the support of the State Department, though to the direct detriment of
the Iraqi civilians those actions terrify and kill.
When Prince testified that his people "acted appropriately at all
times," it made me wonder how many killings he investigated from
the Iraqi viewpoint. He has a blind spot towards the damage he causes
if he thinks that firing a contractor who just murdered someone
somehow fixes the problem. "Window or Aisle" instead of "guilty
or not guilty" does not enforce any accountability
It is no coincidence that BW has been involved in shootouts with the
Iraqi police. They too have seen the destructive force Blackwater
been authorized to unleash on their citizens.
When Prince rattles off the various legal umbrellas he operates under,
he conveniently ignores that none of his hired guns have been brought
up on any charges for anything-despite clear incidents of
itself faces no ill consequence for deploying
unstable men into the war zone.
"Anytime a contractor is abroad, he can be brought up on
charges," is the equivalent of saying speeding is illegal while
cars whip by at 80 mph without a cop in sight.
Blackwater is the personification of war as a business, violence as a
service, and chaos as a product. Prince recognized the lack of
sufficient available US troops and provided a privatized solution. He
cannot be faulted for that.
Any corporate master would take the position, like Prince did in front
of Congress Tuesday, that his people are perfect, his conduct
Exposed deceit or corruption at most companies would lead to its own
downfall. If it's a monster like Enron
, it could conceivably flutter
Wall Street for a few days.
But the conduct of companies like Blackwater
directly impacts US
The obvious polarization of politicians addressing Prince during the
hearing indicates that Republicans are willing to bless the use of
lethal force by a private individual against the people they are
trying to pacify, while Democrats have yet to quite capture what it is
about the industry that makes people so nervous.
I say again: Go to Iraq. Talk to the people. Drive in an unmarked
car. When an armed convoy pushes you off the road with guns
drawn, you'll understand the naked fear that Blackwater
2008 Public Eye Awards
Posted by Pratap Chatterjee on September 27th, 2007
Which are the world's worst multinationals? Which are the best? These are questions CorpWatch gets asked practically everyday. Just to clarify, we do not rank good corporations or endorse any of them, for several reasons: today's idols sometimes turn out to have feet of clay. And we see our job as investigators of malfeasance. For those who want to do the opposite, there are plenty of groups out there who promote "socially responsible" businesses, and we encourage you to look them up. (We don't have a list of these groups for the aforementioned reasons, but we do have a guide to the principles that we believe good businesses should follow -- and we leave it to you, our gentle readers, to apply this criteria to evaluate corporations.)
(We strongly believe that it is very important not to take corporate claims at face value, because sometimes these companies are not telling the whole truth. This is known as "greenwash" and to see a history of this phenomenon, we urge you to check out our short history of the subject, in this handy guide written by Josh Karliner, the founder of CorpWatch.)
Today, there is an opportunity for you to get your favorite (or maybe, least favorite) multinational nominated for an award for corporate malfeasance -- the Berne Declaration and Friends of the Earth Switzerland are holding its fourth annual award ceremony in January 2008, to coincide with the annual gathering of Fortune 500 chieftains in Davos. You can take part in this contest by clicking here.
(Previous winners from 2005, 2006 and 2007 are available online.)
If you have questions, contact Oliver Classen who is coordinating the awards ceremony.
In case you are wondering, how do you find out whether companies are telling the truth? Well, here's a tip -- there's a group in the Netherlands that collects these reports: the Global Reporting Intitiative. You can even search their database to look up your favorite/least favorite company. GRI is about to launch a tool on October 1st, 2007 that will allow you to rank these reports -- if you are so inclined.
Read the reports, search our website and that of Multinational Monitor, and then contact groups on the ground to see if these companies are telling the truth or not.
Remember the deadline to nominate a company for the Public Eye on Davos award is September 30th, 2007!
Contractor Rock Bands Jam with Military
Posted by Pratap Chatterjee on September 27th, 2007
You've heard of golf junkets
for politicians and pay-offs for disc jockeys who help get
artists into the Top 40.
But government bureaucrats invited to play Grateful Dead-style music
and rock music covers from the Clash with military contractors looking
for work? Welcome to GitRockin, a fund-raiser to be held in Washington
DC on October 18th.
Ken Sandler of the Defense Information Systems Agency (DISA), a
division of U.S. Central Command, will play the drums with Jim
Ittenbach, a Verizon engineer under contract with DISA. The pair
belong to a band called Troubled Spirit. They play songs like Rolling Stones'
Sympathy For The Devil and REM's End Of The World As We Know
For the October 18th event, Troubled Spirit has renamed itself the
DISA-Peering Act, after the agency that they both work at. Our
question is will they play one of their classic covers: the Rolling
Stones Can't Always Get What You Want or will it be the
Beatles Come Together?
Then there is an all contractor band composed of a vocalist from
Perot Systems and a guitarist from AT&T. Songs on their previous play lists
include The Clash's I Fought the Law and English Beat's Save
it for Later.
CorpWatch asked a former senior government official how ethical this
was. (Sorry, we can't tell you who, but he goes way to the top) His
response: "There is an Office of Government Ethics regulations at 5
CFR 2635 that talks about "impartiality" in performing a
Federal employee's duties, but that was about the closest thing I
could find. I suppose that one could argue that a Federal
employee participating in this sort of thing loses his/her
"impartiality", but that's about it."
The event, which is being held
at the State Theater in Falls Church, Virginia, is a benefit for the
United Service Organizations (USO) that provides charity to the United
States Armed Forces personnel and their families. Iraqis waiting for
handouts may just have to suffer in silence while Tacocat belts out
REM's Fables of the Reconstruction.
Who's Really Paying the High Prices for Your Pharmaceuticals?
Posted by Stan Cox on September 19th, 2007
Hazardous imports have been the top story on the evening news for weeks now. But the poor quality of some foreign-made products is only half the story. Before we ever see those products, manufacturing plants in the countries of origin can pose an even greater danger to human and ecological health.
Take India, which is now our biggest foreign source of pharmaceuticals. A just-published study by Sweden's Goteborg University shows that, whatever the quality of the drugs being shipped out of India, they are leaving behind a toxic mess. Even after days in a water-treatment plant, effluents discharged into streams and rivers in one Indian region show concentrations of antibiotics and other drugs at 100 to 30,000 times the levels considered safe.
In a 2005 visit to villages in that area near Patancheru, in the state of Andhra Pradesh, I spoke with people who’d broken out in rashes from bathing in water from their own wells; farmers who’d left rice paddies unsown because their irrigation water was ruined; and herders whose water buffalo had dropped dead while grazing -- damage they attributed to pollution from the 90 or more bulk-drug factories in the vicinity. Health surveys have shown higher rates of cancer and other illnesses in villages around Patancheru’s "special economic zone" than in more distant villages.
State law says that the factories must haul their toxic wastes to an effluent treatment plant run by Patancheru Enviro Tech, Ltd. (PETL) on a tributary of the Nakkavagu rivulet. The treatment plant’s outflow into the Nakkavagu (which waters a valley dotted with 14 villages) has often been found to carry industrial pollutants at many times the statutory limits.
Now the Swedish study, recently published online by the Journal of Hazardous Materials (abstract here free) has found record-breaking concentrations of eleven drugs – antibiotics and treatments for high blood pressure, ulcers and allergies – in wastes flowing from the PETL plant.
Noting that "to the best of our knowledge, the concentrations of these 11 drugs were all above the previously highest values [ever] reported in any sewage effluent", the authors singled out the antibiotic Ciprofloxacin (Cipro), which flows out of the plant at the rate of 100 pounds of active ingredient per day. That, say the authors, "is equivalent to the total amount consumed in Sweden (population nine million) over an average 5-day period"! Concentrations of five other antibiotics were found at levels that are toxic to plants, blue-green algae, and a range of bacteria. And before it leaves the facility, the stew of drugs is mixed with human sewage, creating perfect conditions for breeding dangerous, antibiotic-resistant bacteria.
In June, a front-page story by Washington Post reporter Marc Kaufman revealed that there are virtually no controls on the quality of drugs being imported from India. He wrote that India and China together supply as much as 20 percent of the US market for generic and over-the-counter drugs and 40 percent of all bulk drugs used here and that the two nations' share may rise to 80 percent by 2022. India’s share of the US market in 2006 was $800 million, exceeding China’s.
According to Kaufmann, the FDA conducted 1222 quality-assurance inspections of domestic drug-manufacturing plants in 2006. That same year, the agency carried out only 32 inspections of Indian drug plants, mostly to check on new import applications, not for quality control by existing suppliers. And "on-the-ground inspections of Indian and Chinese plants remain rare and relatively brief and are always scheduled in advance, unlike the surprise visits that FDA inspectors pay to domestic manufacturers." There is no indication that FDA inspectors pay any attention to environmental impacts of the plants.
The Swedish researchers calculated that if the quantities of pharmaceuticals they detected being released from the Patancheru treatment facility in a single 24-hour period could be collected and sold in Sweden, they would fetch an amount approaching $200,000, even in generic form. But, they wrote, because the production costs are so much lower than the eventual retail price, it is cheaper for companies to waste the drugs than to invest in pollution control.
When I returned to India earlier this year and checked on the current state of pollution in Patancheru, I was told that burgeoning export-drug production is putting more pressure than ever on the system. Meteorologist Dr. S. Jeevananda Reddy -- a former chief technical advisor to the United Nations and now a campaigner for tougher policies on pollution in the Patancheru area -- told me that the sheer quantity of drugs that plants are producing means that they pump out far more waste water than the treatment plant can handle.
The state permits each company to dispose of only a certain amount of water per day, and if its chemical concentration is too high, the company is fined. But, said Dr. Reddy, "The fines are peanuts to them." And, of course, the effluent is not even tested for presence of pharmaceuticals. The bulk-drug plants are often producing at two, three, sometimes ten times the permitted capacity. Reddy has watched as tanker trucks full of effluent from drug factories are turned away by the water treatment plant because their company's daily quota has been exceeded. He says that rather than returning to the factory, the trucks will often head out into the countryside to dump their load. Those wastes would contain, if anything, higher concentrations of pharmaceuticals than seen in the Swedish study.
So when the alarm is raised over hazardous toys, food, and drugs imported from China, India, or other countries, it may be that people living and working downstream or downwind from the foreign factories who could well be paying the highest price of all for our insatiable demand.
Blackwater Back in the News
Posted by Pratap Chatterjee on September 18th, 2007
Blackwater is back in the news again -- TIME Magazine's Adam Zagorin and Brian Bennett have copies of a document that show that the North Carolina private security company's employees shot and killed eight Iraqis in a firefight.
"The skirmish occurred at 12:08 p.m. on Sunday when, "the motorcade was engaged with small arms fire from several locations" as it moved through a neighborhood of west Baghdad. "The team returned fire to several identified targets" before leaving the area. One vehicle engine was hit and disabled by bullets and had to be towed away. A separate convoy arriving to help was "blocked/surrounded by several Iraqi police and Iraqi national guard vehicles and armed personnel," the report says. Then an American helicopter hovered over the traffic circle, as the U.S. convoy departed without casualties. Some reports have said the helicopter also opened fire on Iraqis, but a Blackwater official told TIME that no shots were fired from the air."
The Iraqi government says it has revoked Blackwater's license to operate in Iraq, although CorpWatch understands from knowledgable insiders that the company's license (issued by the Ministry of Interior) had expired a while ago. Although the Ministry has issued licenses to a number of private security contractors, many companies do not bother to get licenses because they know that there is no enforcement mechanism against them. Indeed, Paul Bremer of the Coalition Provisional Authority issued an executive order that specifically gave private contractors in Iraq immunity from prosecution.
Erica Razook of Amnesty International's Business and Human Rights Program has provided an excellent summary of the legal issues around this thorny matter of human rights violations by private security contractors, which can be downloaded here. You can also see her testifying before U.S. Congress on the implications of this legal vaccum, in which she noted that the contractors operate in a "culture of impunity" with "virtually no control or oversight." "A contractor can shoot an Iraqi civilian in the street and face no consequences," she said.
A few months ago, we listed a number of similar incidents in which private contractors were involved in violent clashes in Iraq, which we reprint below:
A Blackwater security guard shot dead the personal bodyguards of Iraqi Vice President Adil Abdul-Mahdi last Christmas Eve. Yet seven months later, the contractor has not been charged with any crime.
The admission by Blackwater that one of their security guards shot dead an Iraqi man confirms worries that armed contractors working directly or indirectly for the U.S. government have been involved in killing Iraqi civilians and that they have escaped the rule of law in Iraq or in the United States.
An article in the Washington Post in September 2005 quoted Brigadier General Karl R. Horst, deputy commander of the 3rd Infantry Division, which is responsible for security in and around Baghdad. "These guys run loose in this country and do stupid stuff. There's no authority over them, so you can't come down on them hard when they escalate force. They shoot people, and someone else has to deal with the aftermath. It happens all over the place."
The article described the shooting of an Iraqi man named Ali Ismael in Erbil, Northern Iraq by unamed U.S. private security contractors.
Nor is Blackwater the only company to have been accused of shooting at Iraqi civilians with an intent to kill.
* In July 2006, two security contractors working for Triple Canopy in Iraq witnessed their boss shoot at Iraqi civilians.
Shane B. Schmidt, a former Marine Corps sniper, and Charles L. Sheppard III, a former Army Ranger, have sued the company, which they say fired them after they filed a report on July 8 that their shift leader fired deliberately and unnecessarily at Iraqi vehicles and civilians in two incidents while their team was driving in Baghdad.
Schmidt and Sheppard's lawsuit claims that the Triple Canopy employee announced that he was ''going to kill someone today,'' stepped from his vehicle and fired several shots from his M4 assault rifle into the windshield of a stopped white truck. The men claim that the truck was not an evident threat and that their team was not in danger. The men say in the suit that the shift leader then returned to their truck and said, ''That didn't happen, understand.'' Later that day, the suit says, the shift leader said, ''I've never shot anyone with my pistol before,'' and then opened the vehicle door and fired seven or eight shots into the windshield of a taxi.
* Custer Battles, another U.S. security company, was accused of shooting at Iraqis in February 2005, in an investigative report by NBC News. Titled "U.S. Contractors in Iraq Allege Abuses." The report quotes four former U.S. soldiers.
"[He] sighted down his AK-47 and started firing," says (Corporal Ernest) Colling. "It went through the window. As far as I could see, it hit a passenger. And they didn't even know we were there."
Later, the convoy came upon two teenagers by the road. One allegedly was gunned down.
"The rear gunner in my vehicle shot him," says Colling. "Unarmed, walking kids."
In another traffic jam, they claim a Ford 350 pickup truck smashed into, then rolled up and over the back of a small sedan full of Iraqis.
"The front of the truck came down," says (Captain Bill) Craun. "I could see two children sitting in the back seat of that car with their eyes looking up at the axle as it came down and pulverized the back."
* CorpWatch's David Phinney was among one of the first reporters to chronicle the infamous "Trophy Video" in Novermber 2005, in which security contractors for Aegis, a British company, in Iraq, were seen shooting at Iraqi civilians.
David Phinney also broke the story of another North Carolina company named Zapata, whose security guards allegedly fired at U.S. Marines in Fallujah in May 2005.
Accounting for Errant Auditors
Posted by Pratap Chatterjee on September 14th, 2007
The U.S. Securities and Exchange Commission (SEC) brought charges against 69 accountants for failing to register with the Public Company Accounting Board (PCAB) earlier this week. This somewhat obscure action is the latest ripple in the wave of crackdowns that followed the Enron accounting scandals in 2001 -- to break up the all too cozy relationship between auditors and the multinationals that they are supposed to be policing.
Governments allow companies to close their financial books at the end of the fiscal year, if a qualified accountant has signed off on it. The problem is that both the companies and the auditors are private entities whose ultimate motive is to make a profit, so there is potential for one or both of the two not to report any cooking of the books, unless they know that a regulator might catch them and discipline them. And in the last two decades, as favored accountants have been rewarded with multi-million dollar non auditing consulting gigs (such as tax planning or management consulting), the worry was that they were looking the other way in order to win more business.
Following the Enron scandal, which showed that Arthur Andersen, the company's auditor, had failed in its public duty, the U.S. Congress passed the Sarbanes-Oxley law in 2002 that replaced the accounting industry's own regulators with the Public Company Accounting Board with subpoena and disciplinary powers. Auditors are supposed to register with the board, but clearly not everyone took this seriously.
The SEC's enforcement director, Linda Chatman Thomsen, said that Thursday's action showed that the agency "is committed to ensuring compliance with the regulatory framework Congress established for auditors of public companies." A total of 50 of the errant accountants settled the charges with the federal agency the very same day.
This action is an important warning shot across the bows to let the auditors know that the SEC is checking up on them. But the jury is still out as to whether the SEC will go one step further and prosecute auditors who fail to report companies that are cooking their books.
In related news, a new study from the University of Nebraska suggests the whistle-blowers who report violations of the Sarbanes-Oxley Act to agencies like the PCAB are not properly protected. The study looked at 700 cases where employees experienced retaliation from companies for whistle-blowing and found that a mere 3.6 per cent of cases were won by employees.
Richard Moberly, the study's author, argues the findings "challenge the hope of scholars and whistle-blower advocates that Sarbanes-Oxley's legal boundaries and burden of proof would often result in favourable outcomes for whistle-blowers."
The Financial Times reports that Louis Clark, president of the Government Accountability Project, a non-profit organization that lobbies for whistle-blowers, calls the law "a disaster." Jason Zuckerman, a lawyer at the Employment Law Group, a law firm that represents Sarbanes-Oxley whistle-blowers, says: "Part of the problem is that investigators misunderstand the relevant legal standards and believe that a complainant must have a smoking gun -- that is, unequivocal evidence proving retaliation."
The debate is still on
over whether Sarbanes-Oxley is effective five years after the law was
passed, although all appear to agree it was a step in the right
direction. The proof of the pudding, they say, will be in the eating,
so we eagerly await the day that SEC puts errant accountants behind
Will the Pope tell Gucci and Prada to please pay their taxes? (Mick Jagger and Microsoft too!)
Posted by Tonya Hennessey on August 14th, 2007
In the next few days Pope Benedict plans to issue his second encyclical – the most authoritative statement a pope can issue – which apparently will focus on social and economic inequity in a globalized economy. In the statement, he is expected to denounce the use of tax havens as socially-unjust and immoral in cheating the greater well-being of society.
According to the Times (UK) newspaper, the statement may have been inspired by a recent request to the Vatican by Romano Prodi, the Italian prime minister, who urged church leaders to speak out on tax evasion.
Prodi’s government plans to seek taxes on undeclared earnings of €60 million ($84 million) by Valentino Rossi, the world motorcycling champion. How about also asking Gucci and Prada, some of Italy’s best known fashion designers, to move their tax headquarters back to home turf (from the tax-saving Netherlands, see below) and contribute to Italy’s budget deficit?
As global capital has progressively unbound itself from traditional national constraints, excessive off-shore wealth seemingly knows no shame, with wealthy individuals and corporations setting up front companies abroad to avoid paying taxes, supported by a new class of financial services specialists.
While Caribbean island resorts are often assumed to be the places where the wealthy stash their money away for retirement, some European countries (and I don't mean Lichtenstein) have also newly seen the light.
A favored location is the Netherlands -- check out the November 2006 report by Dutch-based SOMO, "The Netherlands: A Tax Haven?" The report is the first comprehensive analysis of the complex system of double tax treaties, tax incentives, the relationship with the Netherlands Antilles and the now 20,000 and counting mailbox corporations operating within the borders of this small European nation. According to SOMO, "examples of companies with tax-induced headquarters in the Netherlands are Volkswagen, IKEA, Gucci, Pirelli, Prada, Fujitsu-Siemens, Mittal Steel, and Trafigura."
The issue has been in the news, mostly because big name musical artists (like Bono and Mick Jagger) and famous athletes (think David Beckham) have also been getting in on the act. When it comes to evading taxes on lucrative licensing and royalties, the Netherlands is fast emerging as the hip tax haven of choice because Holland levies no tax on earnings royalties.
In an article titled “Gimme Tax Shelter”, the New York Times reported on this in February 2007 as newly public documentation surrounding the assets and wealth-transfer plans of the Rolling Stones demonstrated that the wily rockers have paid a mere 1.5% (as opposed to the British tax rate of 40%), or $7.2. million, on $450 million in earnings routed through the land of tulips with the help of their company Promogroup.
"The Caribbeans are thinking about trading profits, not royalties, so the smaller European countries like Holland have had to be creative, tax-wise,'' David Pullman, an investment banker in New York who caters to entertainers and athletes told the New York Times. ''They are going for the high-end stuff and don't want to be seen as shady like some Caribbean haven.''
More scandalous was the 2006 revelation that super-rockers U2 had transferred their song-publishing catalog from Ireland to Holland's Promogroup, in order to avoid a change in Irish tax law introducing taxes on royalties earned in excess of 250,000 Euros per year. Much ado was made of Bono's unwillingness to pony up his share of the tax obligation in service of the global debt relief and poverty eradication for which he so famously advocates.
Another European country that has figured they can make money out of tax evasion is Ireland -- whose “Celtic Tiger” growth is largely the product of charming huge corporations like Dell, Google, Microsoft and Sun Systems to move much of their intellectual property patents over to subsidiaries in the land of Eire -- where the corporate tax rate is 12.5%, but no taxes are charged on royalties.
Microsoft has been a major beneficiary of this scheme for the last four or so years -- it slashed billions in tax receipts to the U.S. Treasury -- by setting up subsidiaries Round Island One and Flat Island Company in Dublin. Recently Microsoft took things a step further by re-registering the two patent-holding entities as unlimited liability companies which have no obligation to file their accounts publicly.
Indeed, the Sunday Independent (Ireland) reports that Ireland was the most profitable location for U.S. multinationals between 1998-2002, during which the “the profits of US companies with Irish facilities doubled.”
The Irish law exempting patent income from taxes also provides a sweet loophole for corporate executive pay. In November 2005 it was reported that Dell Ireland’s top executives were reaping the fruits of sumptuous pay, and saving the company taxes: between them the senior management shared nearly $3.8 million in tax-free dividends since 2003.
These corporate tax breaks have earned Ireland the distinction of being hailed “the world’s 7th freest economy” in 2007 by the conservative, DC-based Heritage Foundation, which says that “Ireland’s economy is 81.3 percent free.”
Most of this tax evasion, is sadly, quite legal. But ordinary citizens around the world who think that Microsoft and Mick Jagger should pay taxes, can take heart from the fact that some members of the global elite have been punished -- take the recent conviction of media mogul Conrad Black of Hollinger International. In July, Canadian and U.S. press reported on the lawsuits, corporate and civil, that are following his conviction for obstruction of justice and mail fraud, seeking remuneration from assets, including purported millions stashed in the Caribbean:
…"Not satisfied with receiving $20 to $40 million a year in excessive management fees, Black and the Ravelston insiders then directed significant portions of those fees to Moffat Management and Black-Amiel Management, which were empty shell companies registered in Barbados," a special report from Hollinger’s board stated.
"Even though these entities did nothing to earn fees, and did not have either employees or real operations, paying management fees to them on the pretense that they performed services allowed the recipients the prospect of transforming a portion of the enormous management fees that would otherwise most likely have been taxable in Canada (where the payments were received), or possibly the U.S. (where services were largely performed), into dividends received in Barbados (where nothing occurred)," the report stated.
NOTE: For more good examples of what tax journalist Lucy Komisar calls the “corporate bag of tricks called profit laundering,” check out the Tax Justice Network, and the Komisar Scoop -- who just revealed where did Rupert Murdoch get $5 billion to buy up the Wall St. Journal? (Answer: A collection of 800 offshore companies that helped him cut corporate taxes to 6%!)
CorpWatch stories on Iraq & New Mexico get mainstream coverage
Posted by Pratap Chatterjee on July 27th, 2007
We're gratified to see that the U.S. Congress and the mainstream media are picking up on some of the issues that CorpWatch has been digging into over the last couple of years. For example, there was a hearing on July 26th, 2007 in Representive Waxman's committee (the House Oversight and Government Reform Committee) on a topic that CorpWatch broke a year ago February: the use of trafficked Asian labor to build the US Embassy in Baghdad.
Our original story can be seen here:
Baghdad Embassy Bonanza
Kuwait Company's Secret Contract & Low-Wage Labor
by David Phinney, Special to CorpWatch
February 12th, 2006
The two witnesses who testified yesterday were first featured in an extensive CorpWatch article in October 2006.
See A U.S. Fortress Rises in Baghdad:
Asian Workers Trafficked to Build World's Largest Embassy
by David Phinney, Special to CorpWatch
October 17th, 2006
To read the article from today's Washington Post about yesterday's hearing, go here:
Foreign Workers Abused at Embassy, Panel Told
By William Branigin, Washington Post
Friday, July 27th, 2007
In related matters, we're also pleased to see that the Special Inspector General for Iraq Reconstruction (SIGIR) has been looking into why Bechtel did such a bad job in Iraq. (Answer: the fault lies quite heavily with the way that the U.S. government managed the contract.) Good coverage of the SIGIR report can be found in yesterday's New York Times.
IRAQ: Bechtel Meets Goals on Fewer Than Half of Its Iraq Rebuilding Projects, U.S. Study Finds
By James Glanz, New York Times
July 26, 2007
But one thing: we'd like to note that SIGIR only looked at the second phase of Bechtel's work, what about the first phase? We ran a story on this some 40 months ago:
Bechtel Fails Reconstruction of Iraq's Schools
by Karim El-Gawhary, Special to CorpWatch
December 2nd, 2003
Back on the U.S. home front we are also glad to see that the New York Times is following the story of the Sithe Global Power's proposed coal-fired power plant at Desert Rock in New Mexico on Diné lands:
Navajos and Environmentalists Split on Power Plant
By Felicity Barringer, New York Times
July 27th, 2007
To get a better feel for how the company has divided the traditional Diné community, do read our story from April of this year:
Speaking Diné to Dirty Power: Navajo Challenge New Coal-Fired Plant
by Jeff Conant, Special to CorpWatch
April 3rd, 2007