Contact l Sitemap

home industries issues reasearch weblog press

Home  » Issues » Regulation


Offshore Corporate Tax Havens: Why Are They Still Allowed?

Posted by Arianna Huffington on June 1st, 2010

Originally posted on June 1 on The Huffington Post.

The bracing reality that America has two sets of rules -- one for the corporate class and another for the middle class -- has never been more indisputable.

The middle class, by and large, plays by the rules, then watches as its jobs disappear -- and the Senate takes a break instead of extending unemployment benefits. The corporate class games the system -- making sure its license to break the rules is built into the rules themselves.

One of the most glaring examples of this continues to be the ability of corporations to cheat the public out of tens of billions of dollars a year by using offshore tax havens. Indeed, it's estimated that companies and wealthy individuals funneling money through offshore tax havens are evading around $100 billion a year in taxes -- leaving the rest of us to pick up the tab. And with cash-strapped states all across the country cutting vital services to the bone, it's not like we don't need the money.

You want Exhibit A of two sets of rules? According to the White House, in 2004, the last year data on this was compiled, U.S. multinational corporations paid roughly $16 billion in taxes on $700 billion in foreign active earnings -- putting their tax rate at around 2.3 percent. Know many middle class Americans getting off that easy at tax time?

In December 2008, the Government Accounting Office reported that 83 of the 100 largest publicly-traded companies in the country -- including AT&T, Chevron, IBM, American Express, GE, Boeing, Dow, and AIG -- had subsidiaries in tax havens -- or, as the corporate class comically calls them, "financial privacy jurisdictions."

Even more egregiously, of those 83 companies, 74 received government contracts in 2007. GM, for instance, got more than $517 million from the government -- i.e. the taxpayers -- that year, while shielding profits in tax-friendly places like Bermuda and the Cayman Islands. And Boeing, which received over $23 billion in federal contracts that year, had 38 subsidiaries in tax havens, including six in Bermuda.

And while it's as easy as opening up an island P.O. Box, not every big company uses the dodge. For instance, Boeing's competitor Lockheed Martin had no offshore subsidiaries. But far too many do -- another GAO study found that over 18,000 companies are registered at a single address in the Cayman Islands, a country with no corporate or capital gains taxes.

America's big banks -- including those that pocketed billions from the taxpayers in bailout dollars -- seem particularly fond of the Cayman Islands. At the time of the GAO report, Morgan Stanley had 273 subsidiaries in tax havens, 158 of them in the Cayman Islands. Citigroup had 427, with 90 in the Caymans. Bank of America had 115, with 59 in the Caymans. Goldman Sachs had 29 offshore havens, including 15 in the Caymans. JPMorgan had 50, with seven in the Caymans. And Wells Fargo had 18, with nine in the Caymans.

Perhaps no company exemplifies the corporate class/middle class double standard more than KBR/Halliburton. The company got billions from U.S. taxpayers, then turned around and used a Cayman Island tax dodge to pump up its bottom line. As the Boston Globe's Farah Stockman reported, KBR, until 2007 a unit of Halliburton, "has avoided paying hundreds of millions of dollars in federal Medicare and Social Security taxes by hiring workers through shell companies based in this tropical tax haven."

In 2008, the company listed 10,500 Americans as being officially employed by two companies that, as Stockman wrote, "exist in a computer file on the fourth floor of a building on a palm-studded boulevard here in the Caribbean." Aside from the tax advantages, Stockman points out another benefit of this dodge: Americans who officially work for a company whose headquarters is a computer file in the Caymans are not eligible for unemployment insurance or other benefits when they get laid off -- something many of them found out the hard way.

This kind of sun-kissed thievery is nothing new. Indeed, back in 2002, to call attention to the outrage of the sleazy accounting trick, I wrote a column announcing I was thinking of moving my syndicated newspaper column to Bermuda:

I'll still live in America, earn my living here, and enjoy the protection, technology, infrastructure, and all the other myriad benefits of the land of the free and the home of the brave. I'm just changing my business address. Because if I do that, I won't have to pay for those benefits -- I'll get them for free!

Washington has been trying to address the issue for close to 50 years -- JFK gave it a go in 1961. But time and again Corporate America's game fixers -- aka lobbyists -- and water carriers in Congress have managed to keep the loopholes open.

The battle is once again afoot. On Friday, the House passed the American Jobs and Closing Tax Loopholes Act. The bill, in addition to extending unemployment benefits, clamps down on some of they ways corporations hide their income offshore to avoid paying U.S. taxes. Even though practically every House Republican voted against it, the bill passed 215 to 204.

The bill's passage in the Senate, however, remains in doubt, with lobbyists gearing up for a furious fight to make sure America's corporate class can continue to profitably enjoy the largess of government services and contracts without the responsibility of paying its fair share.

The bill is far from perfect -- it leaves open a number of loopholes and would only recoup a very small fraction of the $100 billion corporations and wealthy individuals are siphoning off from the U.S. Treasury. And it wouldn't ban companies using offshore tax havens from receiving government contracts, which is stunning given the hard times we are in and the populist groundswell at the way average Americans are getting the short end of the stick.

But the bill would end one of the more egregious examples of the double standard between the corporate class and the middle class, finally forcing hedge fund managers to pay taxes at the same rate as everybody else. As the law stands now, their income is considered "carried interest," and is accordingly taxed at the capital gains rate of 15 percent.

The issue was famously brought up in 2007 by Warren Buffett when he noted that his receptionist paid 30 percent of her income in taxes, while he paid only 17.7 percent on his taxable income of $46 million dollars.

As Robert Reich points out, the 25 most successful hedge fund managers earned $1 billion each. The top earner clocked in at $4 billion. And all of them paid taxes at about half the rate of Buffett's receptionist.

Closing this outrageous loophole would bring in close to $20 billion dollars in revenue -- money desperately needed at a time when teachers and nurses and firemen are being laid off all around the country.

Hedge fund lobbyists are currently hacking away at the Senate's resolve with, not surprisingly, some success. And it's not just Republicans who are willing to do their bidding, but a number of Democrats as well. Indeed, it was a Democrat -- Chuck Schumer -- who led the fight against closing the loophole in 2007.

"I don't know how members of Congress can return home and look an office manager, a nurse, a court clerk in the eye and say 'I chose hedge fund managers instead of you and your family'," said Lori Lodes of the SEIU.

Nicole Tichon, of the U.S. Public Interest Research Group, framed the debate in similar terms:

It's hard to imagine anyone campaigning on protecting hedge fund managers, Wall Street banks and companies that ship jobs and profits overseas. It's hard to imagine telling constituents that somehow they should continue to subsidize these industries. We're anxious to see whose side the Senate is on and what story they want to tell the American people.

Up until now, the story has been a familiar narrative of Two Americas, with one set of rules for those who can afford to hire a fleet of K Street lobbyists and a different set for everybody else. It's time to give this infuriating tale a different -- and far more just and satisfying -- ending.




Bad Karma in the Gulf of Mexico Oil Disaster

Posted by Phil Mattera on May 10th, 2010

Originally posted on May 7 at Dirt Digger's Digest.

http://dirtdiggersdigest.org/wordpress/wp-content/uploads/2010/05/deepwaterhorizon1.jpg

British Petroleum is, rightfully, taking a lot of grief for the massive oil spill in the Gulf of Mexico, but we should save some of our vituperation for Transocean Ltd., the company that leased the ill-fated Deepwater Horizon drilling rig to BP. Transocean is no innocent bystander in this matter. It presumably has some responsibility for the safety condition of the rig, which its employees helped operate (nine of them died in the April 20 explosion).

Transocean also brings some bad karma to the situation. The company, the world’s largest offshore drilling contractor, is the result of a long series of corporate mergers and acquisitions dating back decades. One of the firms that went into that mix was Sedco, which was founded in 1947 as Southeastern Drilling Company by Bill Clements, who would decades later become a conservative Republican governor of Texas.

In 1979 a Sedco rig in the Gulf of Mexico leased to a Mexican oil company experienced a blowout, resulting in what was at the time the worst oil spill the world had ever seen. As he surveyed the oil-fouled beaches of the Texas coast, Gov. Clements made the memorable remarks: “There’s no use in crying over spilled milk. Let’s don’t get excited about this thing” (Washington Post 9/11/1979).

At the time, Sedco was being run by Clements’s son, and the family controlled the company’s stock. The federal government sued Sedco over the spill, claiming that the rig was unseaworthy and its crew was not properly trained. The feds sought about $12 million in damages, but Sedco drove a hard bargain and got away with paying the government only $2 million. It paid about the same amount to settle lawsuits filed by fishermen, resorts and other Gulf businesses. Sedco was sold in 1984 to oil services giant Schlumberger, which transferred its offshore drilling operations to what was then known as Transocean Offshore in 1999.

In 2000 an eight-ton anchor that accidentally fell from a Transocean rig in the Gulf of Mexico ruptured an underwater pipeline, causing a spill of nearly 100,000 gallons of oil. In 2003 a fire broke out on a company rig off the Texas coast, killing one worker and injuring several others. As has been reported in recent days, a series of fatal accidents at company operations last year prompted the company to cancel executive bonuses.  It’s also come out that in 2005 a Transocean rig in the North Sea had been cited by the UK’s Health and Safety Executive for a problem similar to what apparently caused the Gulf accident.

Safety is not the only blemish on Transocean’s record. It is one of those companies that engaged in what is euphemistically called corporate inversion—moving one’s legal headquarters overseas to avoid U.S. taxes. Transocean first moved its registration to the Cayman Islands in 1999 and then to Switzerland in 2008. It kept its physical headquarters in Houston, though last year it moved some of its top officers to Switzerland to be able to claim that its principal executive offices were there.

In addition to skirting U.S. taxes, Transocean has allegedly tried to avoid paying its fair share in several countries where its subsidiaries operate. The company’s 10-K annual report admits that it has been assessed additional amounts by tax authorities in Brazil and that it is the subject of civil and criminal tax investigations in Norway.

In 2007 there were reports that Transocean was among a group of oil services firms being investigated for violations of the Foreign Corrupt Practices Act in connection with alleged payoffs to customs officials in Nigeria. No charges have been filed.

An army of lawyers will be arguing over the relative responsibility of the various parties in the Gulf spill for a long time to come. But one thing is clear: Transocean, like BP, brought a dubious legacy to this tragic situation.




Oil spill changes everything

Posted by Michael Brune on May 2nd, 2010

Originally posted on CNN.com on May 1.

tzleft.michael.brune.eanes.jpg

Michael Brune

Editor's note: Michael Brune is executive director of the Sierra Club and former director of the Rainforest Action Network.

The oil disaster plaguing the Gulf of Mexico and our coastal states puts our desperate need for a new clean energy economy in stark relief. We need to move away from dirty, dangerous and deadly energy sources.

We are pleased that the White House is now saying it will suspend any new offshore drilling while the explosion and spill are investigated, but there should be no doubt left that drilling will only harm our coasts and the people who live there.

Taking a temporary break from offshore drilling is an important step, but it's not enough. We need to stop new offshore drilling for good, now. And then we need an aggressive plan to wean America from dirty fossil fuels in the next two decades.

This BP offshore rig that exploded was supposed to be state-of-the-art. We've also been assured again and again that the hundreds of offshore drilling rigs along our beaches are completely safe. Now, we've seen workers tragically killed. We've seen our ocean lit on fire, and now we're watching hundreds of thousands of gallons of toxic oil seep toward wetlands and wildlife habitat.

This rig's well is leaking 210,000 gallons of crude every day, wiping out aquatic life and smothering the coastal wetlands of Louisiana and Mississippi. As the reeking slick spreads over thousands of square miles of ocean, it rapidly approaches the title of worst environmental disaster in U.S. history, even worse than 1989's Exxon Valdez oil spill. The well is under 5,000 feet of water, and it could take weeks or even months to cap it.

This disaster could unfortunately happen at any one of the hundreds of drilling platforms off our coasts, at any moment. It could happen at the drilling sites that the oil industry has proposed opening along the beaches of the Atlantic Coast.

Indeed, even before this spill, the oil and gas industry had torn apart the coastal wetlands of the Louisiana Bayou over the years. These drilling operations have caused Louisiana to lose 25 square miles of coastal wetlands, which are natural storm barriers, each year.

Another view: Why it won't be easy to replace fossil fuels

And it's hardly just the environmental costs of oil spills that we have to worry about with offshore drilling. The threat to the people who work on these platforms has again become terribly clear. In fact, more than 500 fires on oil platforms in the Gulf have injured or killed dozens of workers in just the past four years, according to the federal Minerals Management Service.

We don't need to pay this price for energy. We have plenty of clean energy solutions in place that will end our dependence on dirty fossil fuels, create good, safe jobs and breathe new life into our economy.

One huge example came Thursday, when the Obama administration approved our country's first offshore wind farm.

Our country has huge solar power potential as well. We can also save more oil through simple efficiency measures than could be recovered by new drilling on our coastlines.

This oil spill changes everything. We have hit rock-bottom in our fossil fuel addiction. This tragedy should be a wake-up call. It's time to take offshore drilling off the table for good.

The opinions expressed in this commentary are solely those of Michael Brune.




Pecora Weeps

Posted by Philip Mattera on January 16th, 2010

Originally posted on January 15 at Dirt Diggers Digest.

After J.P. Morgan was questioned by Congressional investigator Ferdinand Pecora during a 1930s investigation of the causes of the Great Crash, the legendary financier complained that Pecora (photo) had “the manners of a prosecuting attorney who is trying to convict a horse thief.” Morgan was also embarrassed when a Ringling Bros. publicity agent placed a diminutive circus performer on his lap in the middle of the proceedings.

At this week’s public hearing of the Financial Crisis Inquiry Commission, the nation’s most powerful bankers were, unfortunately, treated with a lot more deference. Sure, there was one satisfying exchange between FCIC Chairman Phil Angelides and Goldman Sachs CEO Lloyd Blankfein in which Angelides likened the firm’s practice of betting against the very securities it was peddling to clients to that of selling someone a car with faulty brakes and then buying an insurance policy on the buyer.

But those moments were rare. For the most part, the bankers came away unscathed. Most of the ten commissioners treated them not as suspected criminals whose misdeeds needed to be probed, but rather as experts whose opinions on the causes of the crisis were being solicited. This gave the bankers abundant opportunities to pontificate about industry and regulatory practices while avoiding any incriminating admissions about their own firm’s behavior.

For example, Commissioner Heather Murren, CEO of the Nevada Cancer Institute, asked Blankfein whether there should be “more supervision of the kinds of activities that are undertaken by investment banks?” This allowed him to babble on about the “sociology…of our regulation before and after becoming a bank holding company.”

The bankers seemed to have expected tougher questioning. Their opening statements sought to soften the interrogation by conceding some general culpability, though it was done in a mostly generic way. Jamie Dimon of JP Morgan Chase admitted that “new and poorly underwritten mortgage products helped fuel housing price appreciation, excessive speculation and core higher credit losses.” John Mack of Morgan Stanley acknowledged that “there is no doubt that we as an industry made mistakes.” And Brian Moynihan, the new CEO of Bank of America, noted: “Over the course of the crisis, we, as an industry, caused a lot of damage.”

But much too little time was spent by the commissioners exploring how the giant firms represented on the panel contributed to that damage. A search of the transcript of the hearing produced by CQ Transcriptions and posted on the database service Factiva indicates that the word “predatory” was not used once during the time the four top bankers were testifying.

The commissioners failed to challenge most of the self-serving statements made by the bankers to give the impression that, despite whatever vague transgressions were going on in the industry, their own firms were squeaky clean. Even Angelides failed to pin them down. When he asked Blankfein to state “the two most significant instances of negligent, improper and bad behavior in which your firm engaged and for which you would apologize” the Goldman CEO admitted only to contributing to “elements of froth in the market.” Angelides asked whether that included anything “negligent or improper.” Blankfein again evaded the question and the Chairman gave up.

The bankers also went unchallenged in making statements that were incomplete if not outright erroneous. When Blankfein, for example, claimed that Goldman deals only with institutional investors and “high-net-worth individuals,” no one pointed out the firm’s ties to Litton Loan Servicing, which has handled large numbers of subprime and often predatory home mortgages.

The Goldman chief also made much of the fact that he and other top executives of the firm took no bonuses in 2008. That’s true, but he failed to mention that, according to Goldman’s proxy statement, he alone became more than $25 million richer that year when previously granted stock awards vested.

The bankers were at their slipperiest when it came to the few questions about the issue of being too big to fail. They would not, of course, admit to being too big, but in spite of every indication that the federal government would never allow another Lehman Brothers-type collapse to occur, they labored mightily to argue that they could conceivably go under. This notwithstanding the fact that a couple of them had just thanked U.S. taxpayers for the financial assistance their firms had received.

I suppose it’s possible that the Commission is saving its best shots for later stages of the investigation and its final report, but its handling of the banker hearing deprived the public of a chance to see some of the prime villains of the current crisis get a much-deserved tongue-lashing.




Chevron Gets Fixed

Posted by Antonia Juhasz on November 4th, 2009
Huffington Post

Originally published on 3 November 2009.

On Sunday, Chevron became the first oil company to come under a Yes Men Audience Attack.

(See Video, Photos, and Yes Man Andy Bichlbaum's Blog of event)

Chevron was chosen because Chevron is different from other oil companies.

It is bigger than all but three (only ExxonMobil, BP and Shell are larger). It is facing the largest potential corporate liability in history ($27 billion) for causing the world's largest oil spill in the Ecuadorian rainforest. It is the only major U.S. Corporation still operating in Burma and, with its partner Total Oil Corp., is the single largest financial contributor to the Burmese government. It is the dominant private oil producer in both Angola and Kazakhstan, with operations in both countries mired in human rights and environmental abuses. It is the only major oil company to be tried in a U.S. court on charges of mass human rights abuse, including summary execution and torture (for its operations in Nigeria).

It is the only oil company to hire one of the Bush Administration's "torture memo" lawyers (William J. Haynes). It is the largest and most powerful corporation in California, where it is currently being sued for conspiring to fix gasoline prices. It has led the fight to keep California as the only major oil producing state that does not tax oil when it is pumped from the ground, thereby denying the state an extra $1.5 billion annually. It is the largest industrial polluter in the Bay Area and is among the largest single corporate contributors to climate change on the planet.

Chevron is also the focus of one of the world's most unique and well-organized corporate resistance campaigns.

That campaign got a jolt of energy when Yes Man Andy Bichlbaum came to San Francisco on Halloween weekend for a special screening of The Yes Men Fix the World.

Global Exchange and I teamed up with Andy (the movie's co-writer, director, and producer) and a host of the Bay Areas most creative activists, to lead an entire movie audience out of the theater, into the streets, and in protest of Chevron.

We spread the word early, far, and wide: The Yes Men are coming! The Yes Men are coming! They will not only fix the world, they will fix Chevron too!

Larry Bogad, a Yes Man co-hort and professor of Guerilla Theater, helped concoct a masterful street theater scenario. A crack team of protest and street theater organizers was compiled, including David Solnit of the Mobilization for Climate Justice and Rae Abileah of Code Pink. Rock The Bike signed on and the word kept spreading.

On Sunday, the Roxie Theater in San Francisco's Mission District was filled beyond capacity with an audience that came ready to protest. They laughed, clapped, booed, and cheered along with the film. When the movie ended, Andy answered questions, I talked about Chevron, and Larry laid out the protest scenario.

Three Chevron executives, protected from the early ravages of climate change in SurvivaBalls, were dragged up the street by dozens of Chevron minions with nothing but haz-mat suits to protect them. Those unable to afford any protection (i.e. The Dead) followed close behind. Next came resistance: the Chevron street sweepers, actively cleaning up Chevron's messes who were followed by the protesters, ready to change the story.

We didn't have a permit, but we took a lane of traffic on 16th street anyway. The police first tried to intervene, then they "joined in," blocking traffic on our way to Market and Castro.

As we marched and the music blared, people literally came out of their houses and off of the streets to join in. Passersby eagerly took postcards detailing Chevron's corporate crimes.

Once we arrived at the gas station, I welcomed everyone and explained that we were at an independent Chevron (as opposed to corporate) station, whose owner (whom I'd been speaking with regularly) had his own list of grievances with his corporate boss. The particular station was not our target of protest, but rather, the Chevron Corporation itself.

Larry and Andy than led the entire crowd in a series of Tableaux Morts. The Chevron executives in their SurvivaBalls drained the lifeblood from the masses. The people began to rebel, forcing the SurvivaBalls into the "turtle" position to fend off the attacks. Ultimately, the separate groups saw their common purpose in resisting Chevron's abuses. The dead rose, the Chevron minions rebelled, and the sweepers and protesters joined together. They all chased the Chevron executives off into the distance, and then danced in the streets, rejoicing in their shared victory!

The Chevron Program I direct at Global Exchange seeks to unite Chevron affected communities across the United States and around the world. By uniting these communities, we build strength from each other, and become a movement. By expanding, strengthening, and highlighting this movement, we bring in more allies and create a powerful advocacy base for real policy change. Those changes will reign in Chevron, and by extension, the entire oil industry. And, by raising the voices of those hardest hit by the true cost of oil and exposing how we all ultimately pay the price, we help move the world more rapidly away from oil as an energy resource altogether.




Still Learning Nothing

Posted by Mark Floegel on September 24th, 2009

Originally posted at http://markfloegel.org/

The best time to announce the worst news is late on Friday. The federal government and public relations firms have known this for years. So it was that the National Marine Fisheries Service (NMFS) scheduled its press conference last Friday for 3 p.m., Pacific Daylight Time or (even better!) 6 p.m. in the east.

As planned, the news that stocks of Bering Sea pollock – America’s largest fishery – have declined to a 30-year-low was reported only in the fishing trade press and the Seattle and Anchorage papers. Mission accomplished.

Every summer, NMFS technicians survey pollock. The amount of fish allowed to be caught in 2009 was based on the 2008 summer survey. The 2010 quota will be based on the 2009 survey and so on. On one hand, these surveys are about “environmental protection.” (Alas, we must us the dreaded quotation marks, because the environment has not been protected.) On the other hand, the surveys are a government-subsidized service for the industrial trawler fleet that pulls the pollock from the sea.

On the other, other hand (we’re playing three hands today), most people don’t know what a pollock is, but we eat enough of it. (As I mentioned two paragraphs ago, it’s America’s largest fishery.) All that imitation crabmeat in the supermarket wet case? Pollock. (And why must pollock imitate crabmeat? American fisheries management.)

Pollock is the whitefish in all those disgusting frozen fish sticks. Pollock is, or was, the fish in the sandwiches at the fast food restaurants. Now that pollock is in severe decline, McDonald’s is considering switching to hoki. This has nothing to do with environmental awareness; McDonald’s requires a steady supply of a consistent product at a predictable price. Hoki, a whitefish that’s overfished by industrial trawlers in New Zealand waters, will be a temporary fix, a few years at best. Thanks, Ronald.

Where was I? Oh right, severe decline. Three years ago, NMFS allowed the trawlers to take 1.5 million metric tons of pollock out of the Bering Sea. This year, because the decline was already evident in last year’s survey, the quota was set at 815,000 metric tons. The industry trade press headlines news like this as: “Pollock prices likely to rise.”

The At-Sea Processors Association, the trade group that represents the industrial trawlers, will try to convince the feds to keep the quota high and if the past is any evidence, they’ll do it. That’s why the fish population is crashing. What’s worse, they may bully the feds into continuing the pollock roe season. Roe, of course, is fish talk for eggs. The trawlers deliberately target the pregnant females, strip the eggs out of their bellies and sell them for big bucks on the Asian market.

What the Epicureans of Korea and Japan eat for dinner is what doesn’t become a fish in the Bering Sea, with tragic consequences for the sea and the other animals that live there. Pollock have traditionally been mighty breeders, the rabbits of the northern seas (one reason we fish them so hard). As such, they’ve provided much of the food for the rest of the animals in the ocean, like Steller sea lions and Pribilof fur seals. Because we humans got greedy with the trawlers and the roe, now those species (and more) are in trouble.

Yes, eating the eggs is a great way to deplete a population of fish (or any other wild creature) and yes, there’s more to it than that. Global warming plays a role, with warm water moving north into the Bering Sea, making conditions for pollock love less favorable than they’ve been in decades past. The pollock don’t cause global warming, though, nor do sea lions or fur seals. So yeah, we should stop burning so many fossil fuels, but until we do, we have to back off with the trawlers and give the pollock time to rebuild their numbers.

An irony here (not the irony, there’s too much irony for that) is that Bering Sea pollock are often referred to (by the industrial trawling people) as “the best-managed fishery in the world.” Sadder still is that the statement is not far from accurate. Look at Atlantic cod, that population crashed 15 years ago and has yet to come back.

And we learned nothing from it.

Tightening the Corporate Grip: The Stakes at the Supreme Court

Posted by Robert Weissman on September 18th, 2009

Originally posted on 9 September at http://www.commondreams.org/view/2009/09/09-11

Can things get still worse in Washington?

Yes, they can. And they will, if the Supreme Court decides for corporations and against real human beings and their democracy in a case the Court will be hearing today, Citizens United v. Federal Election Commission.

Until reaching the Supreme Court last year, this case has involved a narrow issue about whether an anti-Hillary Clinton movie made in the heat of the last presidential election is covered by restrictions in the McCain-Feingold campaign finance law. However, in a highly unusual move announced on the last day of the Supreme Court's 2008 term, the justices announced they wanted to reconsider two other pivotal decisions that limit the role of corporate money in politics.

The Court ordered a special oral argument on the issue, before the full start of their 2009 term in October.

The Court will today hear argument on whether prior decisions blocking corporations from spending their money on "independent expenditures" for electoral candidates should be overturned. "Independent expenditures" are funds spent without coordination with a candidate's campaign. The rationale for such a move would be that existing rules interfere with corporations' First Amendment rights to free speech.

Overturning the court's precedents on corporate election expenditures would be nothing short of a disaster. Corporations already dominate our political process -- through political action committees, fundraisers, high-paid lobbyists and personal contributions by corporate insiders, often bundled together to increase their impact, threats to move jobs abroad and more.

On the dominant issues of the day -- climate change, health care and financial regulation -- corporate interests are leveraging their political investments to sidetrack vital measures to protect the planet, expand health care coverage while controlling costs, and prevent future financial meltdowns.

The current system demands reform to limit corporate influence. Public funding of elections is the obvious and necessary (though very partial) first step.

Yet the Supreme Court may actually roll back the limits on corporate electoral spending now in place. These limits are very inadequate, but they do block unlimited spending from corporate treasuries to influence election outcomes. Rolling back those limits will unleash corporations to ramp up their spending still further, with a potentially decisive chilling effect on candidates critical of the Chamber of Commerce agenda.

The damage will be double, because a Court ruling on constitutional grounds would effectively overturn the laws in place in two dozen states similarly barring corporate expenditures on elections.

More than 100 years ago, reacting to what many now call the First Gilded Age, Congress acted to prohibit direct corporate donations to electoral candidates. Corporate expenditures in electoral races have been prohibited for more than 60 years.

These rules reflected the not-very-controversial observation that for-profit corporations have a unique ability to gather enormous funds and that expenditures from the corporate treasury are certain to undermine democracy - understood to mean rule by the people. Real human beings, not corporations.

In arguing to uphold the existing corporate expenditure restrictions, the Federal Election Commission has emphasized these common sense observations.

"For-profit corporations have attributes that no natural person shares," the FEC argues. Noting that corporations are state-created -- not natural entities -- the FEC explains that "for-profit corporations are inherently more likely than individuals to engage in electioneering behavior that poses a risk of actual or apparent corruption of office-holders." The FEC also notes that corporate spending on elections does not reflect the views of a company's owners (shareholders).

Although the signs aren't good, there is no certainty how the Court will decide Citizens United. There is some hope that the Court will decide that it is inappropriate to roll back such longstanding and important campaign finance rules, in a case where the issue was not presented in the lower courts, and where the litigants' dispute can be decided on much narrower grounds.

Public Citizen is organizing people to protest against a roll back of existing restrictions on corporate campaign expenditures. To join the effort, go to www.dontgetrolled.org. People are pledging to protest in diverse ways -- from street actions to letter writing -- today, and in the event of a bad decision, and also networking for solutions to corporate-corrupted elections.

Ours is a government of the people, by the people, for the people -- not the corporations and their money. Corporations don't vote, and they shouldn't be permitted to spend limitless amounts of money to influence election outcomes.

Robert Weissman is president of Public Citizen. Public Citizen attorney Scott Nelson serves as counsel to the original sponsors of the McCain-Feingold law, who have filed an amicus brief in the case, asking that existing restrictions on corporate election expenditures be maintained.

Corporations and the Amazon

Posted by Philip Mattera on August 16th, 2009


Originally posted on August 13, 2009 at http://dirtdiggersdigest.org/archives/746

These days just about every large corporation would have us believe that it is in the vanguard of the fight to reverse global warming. Companies mount expensive ad campaigns to brag about raising their energy efficiency and shrinking their carbon footprint.

Yet a bold article in the latest issue of business-friendly Bloomberg Markets magazine documents how some large U.S.-based transnationals are complicit in a process that does more to exacerbate the climate crisis than anything else: the ongoing destruction of the Amazon rain forest.

While deforestation is usually blamed on local ranchers and loggers, Bloomberg points the finger at companies such as Alcoa and Cargill, which the magazine charges have used their power to get authorities in Brazil to approve large projects that violate the spirit of the country’s environmental regulations.

Alcoa is constructing a huge bauxite mine that will chew up more than 25,000 acres of virgin jungle in an area, the magazine says, “is supposed to be preserved unharmed forever for local residents.” Bloomberg cites Brazilian prosecutors who have been waging a four-year legal battle against an Alcoa subsidiary that is said to have circumvented the country’s national policies by obtaining a state rather than a federal permit for the project.

Bloomberg also focuses on the widely criticized grain port that Cargill built on the Amazon River. Cargill claims to be discouraging deforestation by the farmers supplying the soybeans that pass through the port, but the Brazilian prosecutors interviewed by Bloomberg expressed skepticism that the effort was having much effect.

Apart from the big on-site projects, Bloomberg looks at major corporations that it says purchase beef and leather from Amazonian ranchers who engage in illegal deforestation. Citing Brazilian export records, the magazine identifies Wal-Mart, McDonald’s, Kraft Foods and Carrefour as purchasers of the beef and General Motors, Ford and Mercedes-Benz as purchasers of leather.

The impact of the Amazon cattle ranchers was also the focus of a Greenpeace report published in June. That report put heat on major shoe companies that are using leather produced by those ranchers.

Nike and Timberland responded to the study by pledging to end their use of leather hides from deforested areas in the Amazon basin. Greenpeace is trying to get other shoe companies to follow suit.

Think of the Amazon the next time a company such as Wal-Mart tells us what wonderful things it is doing to address the climate crisis.

What's not in Chevron's annual report

Posted by Cameron Scott on May 26th, 2009

Originally posted at http://www.sfgate.com/cgi-bin/blogs/green/detail?entry_id=40674

When people with strong ideological perspectives are often outraged by media coverage of their pet issues. When both sides are mad, you know you're doing something right. But how often do you hear corporations furious about they way they are covered in the business section? The section seems to lend itself to favor-currying and soft-shoeing.

In the lead-up to Chevron's annual shareholders meeting tomorrow in San Ramon, the company landed a puff piece on KGO focusing on its efforts to decrease its water usage. No mention of the Amazon controversy, and no mention of outside pressure on Chevron, EBMUD's largest water user.

I'm disappointed to say that a Chronicle interview with the company's top lawyer also softballs the issues, while giving Chevron the opportunity to present its side of the story with no opportunity for response from the company's many critics. [Update: Chron editors tell me there will be more coverage of Chevron later in the week.]

Well, Chevron's opponents, including San Francisco's Amazon Watch, have taken matters into their own hands, releasing an alternate annual report that presents the externalities not listed in the company's balance sheet, which shows a record profit of $24 billion, making the company the second most profitable in the United States.

Did you know that Chevron's Richmond refinery was built in 1902 and emitted 100,000 pounds of toxic waste in 2007, consisting of no less than 38 toxic substances? The EPA ranks it as one of the worst refineries in the nation. With 17,000 people living within 3 miles from the plant, you'd think the San Ramon-based company would take local heat from more than just a couple dozen activists.

Chevron has sought to brand itself an "energy" company, one eagerly pursuing alternatives to petroleum. Its aggressive "Will You Join Us?" ad campaign asked regular folks to reduce their energy consumption, suggesting that Chevron was doing the same. In actuality, the company spent less than 3 percent of its whopping capital and exploratory expenditures on alternative energy. And it has refused to offer better reporting on its greenhouse gas emissions, despite strong shareholder support for it. (The aggressive, and misleading, ad campaign seems to have ired the report's researchers as well: The report is decorated by numerous parodies, and some have been wheat-pasted around town.)

It's a very well researched report, written by the scholar Antonia Juhasz, clearly divided into regional issues, and it's a much needed counterbalance to the friendly coverage Chevron is otherwise getting. (Juhasz was interviewed on Democracy Now this morning.)

For information on protesting the shareholder meeting early tomorrow morning, click here.

The IDB—50 Years, Zero Reflection

Posted by Laura Carlsen on April 3rd, 2009
Americas Policy Program, Center for International Policy

At the end of March, the Inter-American Development Bank (IDB) celebrated its 50th anniversary in Medellin. The occasion presents an opportunity to revise concepts and move toward a fairer development model. It is logical to think that among the festivities, a process of evaluation and self-critique would begin regarding the bank's actions and work in the region.

The circumstances demand it. The continent has been plunged into a grave economic crisis, in part because of the string of structural reforms, deregulation, foreign market dependence, and privatization that the IDB has supported in the region. Limits on the use of non-renewable fuels have become more and more obvious while climate change threatens to affect the production of basic foods and increase the frequency of natural disasters. Forced migration characterizes modern life and growing inequality has become the most important challenge faced by all the countries in the region.

      Medellin: site of the 50th anniversary of the IDB. Photo: www.skyscraperlife.com.

In spite of this gray outlook, it seemed that until now everything suggested that the IDB would prescribe more of the same medicine. They predicted an increase in loans to the region for the record figure of US$18 billion for 2009 as a response to the crisis. This will generate a new wave of debt in the recipient countries, while at the same time the development model behind the loans faces a crisis of credibility due to its dubious results. For the IDB, development is seen as a process of ensuring the transnational mobility of capital, enabling foreign investment, the transfer of goods, and access to natural resources. In recent years, this model has been imposed on regions that were previously closed off due to their geographical location or because of little interest from big business. Now that the value of natural resources is increasing and national economies have opted for exports, mega-projects including transportation infrastructure and hydroelectric power plants, among others, have become attractive again. They generally target regions with a low population density, and, in many cases, significant indigenous populations. While these communities are often forgotten by their national governments and suffer high levels of marginalization, at the same time their territories are rich in both culture and biodiversity.

The IDB has been a major promoter of infrastructure mega-projects designed to drive this vision. Two mega-project master plans have been of particular interest to the IDB: The Plan Puebla-Panama (also known as the Mesoamerican Integration and Development Project) and the Initiative for the Integration of Regional Infrastructure in South America (IIRSA). These plans include the construction of super-highways, dams, electricity networks, and more. The projects signal a drastic change in the use of land and resources. Local, regional, and national markets—which generate more jobs and constitute the majority of food distribution—are seen as a hindrance, and natural resources—conserved by indigenous communities—are considered the spoils of transnational business.

Among its objectives, the IDB aims to generate development in these regions. However, a recent study revealed that the mega-projects financed by the IDB in many cases end up displacing thousands of people who are supposed to be the beneficiaries. The construction of dams is the clearest example because it entails the involuntary displacement through the flooding of vast areas which often include pre-existing communities. One example is the La Parota hydroelectric dam in Guerrero, Mexico which would displace around 25,000 people and has currently been halted due to popular resistance. A group of 43 grassroots organizations met prior to the IDB meeting in Medellin. They presented studies and testimonies on the impacts of these projects in an effort to change the IDB's policies. Through the campaign known as "The IDB: 50 years financing inequality," these groups argue that, rather than alleviate the issue of poverty, mega-projects channel the profits gained from natural resources into the hands of the private sector and destroy the social fabric and community networks necessary for indigenous survival.

The solution to poverty that the IDB fundamentally proposes would seem to be: reduce poverty by expelling the poor. The two meetings—that of the IDB authorities and that of the organizations which question its practices—present an opportunity to revise the concept of development and move toward a fairer development model.

Originally posted on April 1, http://americas.irc-online.org/am/6008.

Who Will Determine the Future of Capitalism?

Posted by Philip Mattera on March 13th, 2009

Amid the worst financial and economic crisis in decades, the U.S. business press tends to get caught up in the daily fluctuations of the stock market and, to a lesser extent, the monthly changes in the unemployment rate. By contrast, London’s Financial Times is looking at the big picture. It recently launched a series of articles under the rubric of The Future of Capitalism. In addition to soliciting varying views on this monumental question, the paper published a feature this week presuming to name the 50 people around the world who will “frame the way forward.”

Kicking off the series, the FT’s Martin Wolf was blunt in asserting that the ideology of unfettered markets promoted over the past three decades must now be judged a failure. Sounding like a traditional Marxist, Wolf writes that “the era of liberalisation [the European term for market fundamentalism] contained seeds of its own downfall” in the form of tendencies such as “frenetic financial innovation” and “bubbles in asset prices.”

An article in the series by Gillian Tett casually notes that “naked greed, lax regulation, excessively loose monetary policy, fraudulent borrowing and managerial failure all played a role” in bringing about the crisis. Richard Layard of the London School of Economics weighs in with a piece arguing that “we should stop the worship of money and create a more humane society where the quality of human experience is the criterion.” Did editorial copy intended for New Left Review mistakenly end up in the FT computers?

Wolf finished his initial article with the statement: “Where we end up, after this financial tornado, is for us to seek to determine.” Yet who is the “we” Wolf is referring to?

Following the damning critique of markets and poor government oversight, the last ones we should turn to for leadership are the powers that be. Yet that is exactly the group that dominates the list of those who, according to the editors of FT, will lead the way forward. The 50 movers and shakers include 14 politicians, starting with President Obama and Chinese Prime Minister Wen Jiabao; ten central bankers; three financial regulators; and four heads of multinational institutions such as the IMF and the WTO. Also included are six economists, including Paul Krugman and Obama advisor Paul Volcker, and three prominent investors, among them George Soros and Warren Buffett.

The list also finds room for three chief executives (the heads of Nissan, PepsiCo and Google) and, amazingly, the chiefs of four major banks: Goldman Sachs, JPMorgan Chase, HSBC and BNP Paribas. It even includes two talking heads: Arianna Huffington and Rush Limbaugh.

Except for Olivier Besancenot of France’s New Anticapitalist Party, who is included among the politicians in a way that seems a bit condescending, there is not a single person on the list directly involved in a movement to challenge corporate power or even to significantly alter the relationship between business and the rest of society. There is not a single labor leader, prominent environmental advocate or other leading activist. The editors at FT seem never to have heard of civil society.

Then again, the problem may not be thickheadedness among FT editors. Perhaps the voices for radical change have simply not been loud enough to earn a place on a list of those who will play a significant role in the shaping capitalism’s future. In fact, one of the articles in the FT series suggests that in Europe neither the Left nor the labor movement has taken a leadership role in responding to the crisis, even as spontaneous protests have erupted in numerous countries.

In the United States, where those forces are weaker, anger at the crisis has to a great extent been channeled into support for the Keynesian policies of the Obama Administration. That’s unavoidable in the short term, but it doesn’t address the need for fundamental alteration of economic institutions. If, as the Financial Times suggests, the future of capitalism is up for grabs, let’s make sure we all join the fray.

Originally posted at: http://dirtdiggersdigest.org/archives/341

The City Within

Posted by Mark Floegel on February 26th, 2009

Before his execution, Socrates was visited in prison by his friend Crito, who told him the bribes for the guards were ready and Socrates could escape whenever he wished. Socrates refused to go.

Crito, angered, argued Socrates would a) leave his children orphans and b) bring shame on his friends, because people would assume they were too cheap to finance his escape. (Apparently, this sort of thing was common in Athens in those days.)

Socrates replied that in his imagination, he hears the Laws of Athens saying, “What do you mean by trying to escape but to destroy us, the Laws, and the whole city so far as in you lies? Do you think a state can exist and not be overthrown in which the decisions of law are of no force and are disregarded and set at naught by private individuals?”

In short, either Socrates or the rule of law had to die. Socrates chose to die rather than diminish his city. Now, as then, he’d be a lonely guy. His notion that the city lay within him – that he was the city of Athens – is striking.

All failure to enforce law – or to work around it – is bad. This applies equally to speed limits, armed robbery and banking regulations. Failure to enforce our agreed-upon standards weakens our social bonds and undermines faith in both our justice system and our government. If the police will not apprehend or the courts will not prosecute or the legislatures draw protective circles around certain elements in society, then society as a whole suffers.

There is within all of us an affinity for justice. The majority of citizens have no training in law or political science, but we possess intuitive notions of right and wrong. We’re willing to tolerate some discrepancy on either margin of the page, but when things are pushed too far out of balance on either side, then the door to vigilantism, riot and revolution is opened.

This great imbalance – and we’re getting strong whiffs of it now – is a failure by our institutions to enforce the terms of the American social contract.

“America is a classless society.” “All citizens stand equal before the law.” Blah, blah, blah. It’s illegal to rob a convenience store. It’s illegal to defraud investors. The accused robber, who flashed a knife and made off with eighty or a hundred bucks, sits behind steel bars and waits for his overburdened public defender to get around to speaking with him.

The accused fraudulent investment fund manager, who flashed a phony set of books and made off with eight or fifty billion dollars, sits in his cosmopolitan penthouse and consults a million-dollar legal team, which he pays with ill-gotten dosh.

If we vigorously enforce laws on the working class and make only half-hearted attempts to do so with the managing class, then the class warfare Republican politician are always whining about comes closer to reality.

Worse, by allowing Ken Lays, Bernie Madoffs and Allen Stanfords to get off easy, it destroys real opportunity for people in the working classes to realize the American dream for themselves and their children. The crimes of the managing class – unlike the convenience store robber – have the real effect of depriving millions – both here and abroad - of their livelihoods and homes when the financial system crashes.

In the news and before Congressional committee, we hear that regulators were specifically warned for years that Bernie Madoff and Allen Stanford were violating regulations.

While the beltway talkers argue over whether Wall Street bankers should be allowed to keep their bonuses and exorbitant salaries, the discussion that had yet to start is: why were these highly leveraged instruments and securitized debt transactions legal in the first place? We’re told incessantly that the Wall Street banking transactions were so complicated that “no one really understands them.” There is, however, the easily understood principle that one’s debts should be balanced by one’s assets. Or one’s at least one’s assets should be within shouting distance of one’s debts.

We have speed limits not because driving 110 is inherently evil, but because it is unsafe and anyone who does shows reckless disregard for themselves and others. And yet, a legion of reckless drivers loosed on the interstate for a decade could not have wrought as much misery as this handful of bankers, brokers and hedge fund managers.

We will now suffer for years. These will be hard times, but within this hardship will be opportunities to rediscover the extent to which our society lives within in us, as Socrates would have said.

Originally published at:

http://markfloegel.org/2009/02/26/the-city-within/

Norway finds Canada's largest publicly-traded company, Barrick Gold, unethical

Posted by Sakura Saunders on February 2nd, 2009
protestbarrick.net

Norway's Ministry of Finance announced Friday that it would exclude mining giant Barrick Gold and U.S. weapons producer Textron Inc from the country's pension fund for ethical reasons.  This is an especially significant judgment for Canada, as Barrick Gold is currently Canada's largest publicly traded company.

While the Norwegian Council of Ethics full recommendation mentions conflicts involving Barrick in Chile, Tanzania, and the Philippines, the panel acknowledged that, "due to limited resources," it restricted its investigation of Barrick to the Porgera mine in Papua New Guinea.  The Porgera mine has been a prime target for criticism for its use of riverine tailings disposal, a practice banned in almost every country in the world.

"It's unbelievably embarrassing," admitted Green Party deputy leader Adriane Carr. "It's got to be bad news for Canada when a foreign government says it's going to sell its shares in a Canadian company they figure is unethical."

This isn't the first time that Norway's Fund has divested from a gold mining company. In fact, looking at a list, the fund – with the notable exception of Walmart – divests exclusively from mining (primarily gold mining) corporations and corporations that produce nuclear weapons or cluster munitions... an interesting juxtaposition highlighting the comparable nature of mining to the production of weapons of mass destruction, especially in terms of long-term environmental consequences.

Compare that to Canada's treatment of gold mining companies. Just this last December, Peter Munk, the chairman and founder of Barrick Gold, received the Order of Canada, Canada's highest civilian honor. Additionally, within Toronto he is honored as a philanthropist, with the Peter Munk Cardiac Center and the Munk Centre for International Studies at the University of Toronto both adorning his name. Similarly, Ian Telfer, the chairman of Goldcorp, the world's second largest gold miner behind Barrick, has the Telfer School of Management at the University of Ottawa bearing his name.

These symbolic gestures, along with the fact that several Canadian Pension funds and even Vancouver-based "Ethical Funds" are still heavily invested in Barrick Gold, show that Canada has a long way to go in demanding that its companies honor human rights and halt its colonial-style, exploitative economic regime. In fact, by its own admittance, Canada's Standing Committee on Foreign Affairs and International Trade stated that "Canada does not yet have laws to ensure that the activities of Canadian mining companies in developing countries conform to human rights standards, including the rights of workers and of indigenous peoples." Since the date of that landmark confession, Canada has yet to adopt any intervening structures (like an ombudsperson) or develop any mandatory regulations for Canadian companies operating abroad.

Gold mining produces an average of 79 tons of waste for every ounce of gold extracted, 50 percent of it is carried out on native lands, and about 80 percent of it is used for jewelry, according to the "No Dirty Gold" campaign, a project of Oxfam and Earthworks. It is no wonder that in a portfolio with plenty of human rights abuses, the Norwegian Pension Fund decided to concentrate on gold miners, cluster munition manufacturers and nuclear weapon producers first. It is time that the rest of the world catch up.

Popular Uprising Against Barrick Gold in Tanzania sparked by killing of local

Posted by Sakura Saunders on December 14th, 2008
ProtestBarrick.net

Why would "criminals" set fire to millions worth in mine equipment?

How was it that these "intruders" had an estimated 3,000 - 4,000 people backing them up?

In what appears to be a spontaneous civilian movement against Barrick Gold, the world's largest gold miner, thousands of people invaded Barrick`s North Mara Gold Mine this week in Tarime District and destroyed equipment worth $15 million. Locals say that the uprising was sparked by the killing of a local, identified as Mang'weina Mwita Mang'weina.  According to a Barrick Public Relations officer (as reported by the Tanzanian Guardian newspaper), "the intruders stoned the security personnel relentlessly until they overpowered them. The guards abandoned their posts and retreated to safety."

While Barrick implies that "high levels of crime" are the cause of this recent outbreak, recent reports suggest a different picture.

Allan Cedillo Lissner, a photojournalist who recently documented mine life near the North Mara mine, explains:

Ongoing conflict between the mine and local communities has created a climate of fear for those who live nearby. Since the mine opened in 2002, the Mwita family say that they live in a state of constant anxiety because they have been repeatedly harassed and intimidated by the mine's private security forces and by government police. There have been several deadly confrontations in the area and every time there are problems at the mine, the Mwita family say their compound is the first place the police come looking. During police operations the family scatters in fear to hide in the bush, "like fugitives," for weeks at a time waiting for the situation to calm down. They used to farm and raise livestock, "but now there are no pastures because the mine has almost taken the whole land ... we have no sources of income and we are living only through God's wishes. ... We had never experienced poverty before the mine came here." They say they would like to be relocated, but the application process has been complicated, and they feel the amount of compensation they have been offered is "candy."

Evans Rubara, an investigative journalist from Tanzania, blames this action on angry locals from the North Mara area who are opposed to Barrick's presence there. "This comes one week after Barrick threatened to leave the country based on claims that they weren't making profit," comments Evans after explaining that Barrick does not report profit to avoid taxes in the country. "This is a sign to both the government of Tanzania and the International community (especially Canada) that poor and marginalized people also get tired of oppression, and that they would like Barrick to leave."

Only one week prior, Barrick's African Region Vice President, Gareth Taylor threatened to leave Tanzania due to high operating costs, claiming that the company did not make profits there. Barrick's Toronto office quickly denied this report, stating that "the company will work with the government to ensure the country's legislation remains 'competitive with other jurisdictions so that Tanzanians can continue to benefit from mining.'"

Interestingly, Taylors threat came shortly after he attended a workshop to launch the Extractive Industries Transparency Initiative (EITI) in Dar es Salaam.

One thing is clear, though; these reports of hundreds, backed by thousands, of villagers attacking mine infrastructure reflects a resentment that goes beyond mere criminal action. And this surge in violence should be examined in the context of the on-going exploitation and repressive environment surrounding the mine.

Public Ownership -- But No Public Control

Posted by Rob Weissman on October 21st, 2008

Originally posted Tuesday, October 14. 2008 -- It is an extraordinary time. On Friday, the Washington Post ran a front-page story titled, "The End of American Capitalism?" Today, the banner headline is, "U.S. Forces Nine Major Banks to Accept Partial Nationalization."

There's no question that this morning's announcement from the Treasury Department, Federal Reserve and Federal Deposit Insurance Corporation (FDIC) is remarkable.

It was also necessary.

Over the next several months, we're going to see a lot more moves like this. Government interventions in the economy that seemed unfathomable a few months ago are going to become the norm, as it quickly becomes apparent that, as Margaret Thatcher once said in a very different context, there is no alternative.

That's because the U.S. and global economic problems are deep and pervasive. The American worker may be strong, as John McCain would have it, but the "fundamentals" of the U.S. and world economy are not. The underlying problem is a deflating U.S. housing market that still has much more to go. And underlying that problem are the intertwined problems of U.S. consumer over-reliance on debt, national and global wealth inequality of historic proportions, and massive global trade imbalances.

Although it was enabled by deregulation, the financial meltdown merely reflects these more profound underlying problems. It is, one might say, "derivative."

Nonetheless, the financial crisis was -- and conceivably still might be -- by itself enough to crash the global economy.

Today, following the lead of the Great Britain, the United States has announced what has emerged as the consensus favored financial proposal among economists of diverse political ideologies. The United States will buy $250 billion in new shares in banks (the so-called "equity injection"). This is aimed at boosting confidence in the banks, and giving them new capital to loan. The new equity will enable them to loan roughly 10 times more than would the Treasury's earlier (and still developing) plan to buy up troubled assets. The FDIC will offer new insurance programs for bank small business and other bank deposits, to stem bank runs. The FDIC will provide new, temporary insurance for interbank loans, intended to overcome the crisis of confidence between banks. And, the Federal Reserve will if necessary purchase commercial paper from business -- the 3-month loans they use to finance day-to-day operations. This move is intended to overcome the unwillingness of money market funds and others to extend credit.

But while aggressive by the standards of two months ago, the most high-profile of these moves -- government acquisition of shares in the private banking system -- is a strange kind of "partial nationalization," if it should be called that at all.

Treasury Secretary Henry Paulson effectively compelled the leading U.S. banks to accept participation in the program. And, at first blush, he may have done an OK job of protecting taxpayer monetary interests. The U.S. government will buy preferred shares in the banks, paying a 5 percent dividend for the first three years, and 9 percent thereafter. The government also obtains warrants, giving it the right to purchase shares in the future, if the banks' share price increase.

But the Treasury proposal specifies that the government shares in the banks will be non-voting. And there appear to be only the most minimal requirements imposed on participating banks.

So, the government may be obtaining a modest ownership stake in the banks, but no control over their operations.

In keeping with the terms of the $700 billion bailout legislation, under which the bank share purchase plan is being carried out, the Treasury Department has announced guidelines for executive compensation for participating banks. These are laughable. The most important rule prohibits incentive compensation arrangements that "encourage unnecessary and excessive risks that threaten the value of the financial institution." Gosh, do we need to throw $250 billion at the banks to persuade executives not to adopt incentive schemes that threaten their own institutions?

The banks reportedly will not be able to increase dividends, but will be able to maintain them at current levels. Really? The banks are bleeding hundreds of billions of dollars -- with more to come -- and they are taking money out to pay shareholders? The banks are not obligated to lend with the money they are getting. The banks are not obligated to re-negotiate mortgage terms with borrowers -- even though a staggering one in six homeowners owe more than the value of their homes.

"The government's role will be limited and temporary," President Bush said in announcing today's package. "These measures are not intended to take over the free market, but to preserve it."

But it makes no sense to talk about the free market in such circumstances. And these measures are almost certain to be followed by more in the financial sector -- not to mention the rest of economy -- because the banks still have huge and growing losses for which they have not accounted.

If the U.S. and other governments are to take expanded roles in the world economy -- as they must, and will -- then the public must demand something more than efforts to preserve the current system. The current system brought on the financial meltdown and the worsening global recession. As the government intervenes in the economy on behalf of the public, it must reshape economic institutions to advance broad public objectives, not the parochial concerns of the Wall Street and corporate elite.

http://www.multinationalmonitor.org/editorsblog/index.php?/archives/99-Public-Ownership-But-No-Public-Control.html#extended

Robert Weissman is managing director of the Multinational Monitor.

Getting Wall Street Pay Reform Right

Posted by Robert Weissman on September 30th, 2008

There's mounting talk on Capitol Hill that a Wall Street bailout will include some limits on executive compensation, as well as contradictory reports about whether a deal on controlling executive pay has already been reached.

Four days ago, such a move seemed very unlikely. But the pushback from Congress -- from both Democrats and Republicans -- has been surprisingly robust, thanks in considerable part to a surge of outrage from the public.

Will restrictions on CEO pay just be a symbolic retribution, as some have charged?

The answer is, it depends.

Meaningful limits not just on CEO pay, but also on the Wall Street bonus culture, could significantly affect the way the financial sector does business. Some CEO pay proposals, by contrast, would extract a pound of flesh from some executives but have little impact on incentive structures.

There are at least five reasons why it is important to address executive compensation as part of the bailout legislation.

First, there should be some penalty for executives who led their companies -- and the global financial system -- to the brink of ruin. You shouldn't be rewarded for failure. And while reducing pay packages to seven digits may feel really nasty given Wall Street's culture of preposterous excess, in the real world, a couple million bucks is still a lot of money to make in a year.

Second, if the public is going to subsidize Wall Street to the tune of hundreds of billions of dollars, the point is to keep the financial system going -- not to keep Wall Street going the way it was. Funneling public funds for exorbitant executive compensation would be a criminal appropriation of public funds.

Third, the Wall Street salary structure has helped set the standard for CEO pay across the economy, and helped establish a culture where executives consider outlandish pay packages the norm. This culture, in turn, has contributed to staggering wealth and income inequality, at great cost to the nation. We need, it might be said, an end to the culture of hyper-wealth.

Fourth, as Dean Baker of the Center for Economic and Policy Research says, the bailout package must be, to some extent, "punitive." If the financial firms and their executives do not have to give something up for the bailout, then there's no disincentive to engage in unreasonably risky behavior in the future. This is what is meant by "moral hazard."

If Wall Street says the financial system is on the brink of collapse, and the government must step in with what may be the biggest taxpayer bailout in history, says Baker, then Wall Street leaders have to show they mean it. If they are not willing to cut their pay for a few years to a couple of million dollars an annum, how serious do they really think the problem is?

Finally, and most importantly, financial sector compensation systems need to be changed so they don't incentivize risky, short-term behavior.

There are two ways to think about how the financial sector let itself develop such a huge exposure to a transparently bubble housing market. One is that the financial wizards actually believed all the hype they were spreading. They believed new financial instruments eliminated risk, or spread it so effectively that downside risks were minimal; and they believed the idea that something had fundamentally changed in the housing market, and skyrocketing home prices would never return to earth.

Another way to think about it is: Wall Street players knew they were speculating in a bubble economy. But the riches to be made while the bubble was growing were extraordinary. No one could know for sure when the bubble would pop. And Wall Street bonuses are paid on a yearly basis. If your firm does well, and you did well for the firm, you get an extravagant bonus. This is not an extra few thousand dollars to buy fancy Christmas gifts. Wall Street bonuses can be 10 or 20 times base salary, and commonly represent as much as four fifths of employees' pay. In this context, it makes sense to take huge risks. The payoffs from benefiting from a bubble are dramatic, and there's no reward for staying out.

Both of these explanations may be true to some degree, but the compensation incentives explanation is almost certainly a significant part of the story.

Different ideas about how to limit executive pay would address the multiple rationales for compensation reforms to varying degrees.

A two-year cap on executive salaries would help achieve the first four objectives, but by itself wouldn't get to the crucial issue of incentives.

One idea in particular to be wary of is "say on pay" proposals, which would afford shareholders the right to a non-binding vote on CEO pay compensation packages. These proposals would go some way to address the disconnect between executive and shareholder interests, reducing the ability of top executives to rely on crony boards of directors and conflicted compensation consultants to implement outrageous pay packages. But while they might increase executive accountability to shareholders, they wouldn't direct executives away from market-driven short-term decision making. Shareholders tend to be forgiving of outlandish salaries so long as they are making money, too, and -- worse -- they actually tend to have more of a short-term mentality than the executives. So "say on pay" is not a good way to address the multiple executive compensation-related goals that should be met in the bailout legislation.

The ideal provisions on executive compensation would set tough limits on top pay, but would also insist on long-term changes in the bonus culture for executives and traders. Not only should bonuses be more modest, they should be linked to long-term, not year-long, performance. That would completely change the incentive to knowingly participate in a financial bubble (or, more generously, take on excessive risk), because you would know that the eventual popping of the bubble would wipe out your bonus.

Four days ago, forcing Wall Street to change its incentive structure seemed pie in the sky. Today, thanks to the public uproar, it seems eminently achievable -- if Members of Congress seize the opportunity.

http://www.multinationalmonitor.org/editorsblog/index.php?/archives/98-Getting-Wall-Street-Pay-Reform-Right.html

Robert Weissman is managing director of the Multinational Monitor.

The Dangers in Outsourcing the Bailout

Posted by Philip Mattera on September 30th, 2008

Originally posted at Dirt Digger's Digest on September 23, 2008 -- A number of leading Democrats and Republicans expressed strong misgivings last Monday about the autocratic plan for bailing out Wall Street that Treasury Secretary Henry Paulson wants to ram through Congress. It remains to be seen whether this is mere posturing or serious opposition.

Critics are focusing on vital issues such as cost and oversight, but a lot less attention is being paid to the mechanics of Paulson’s proposal – specifically, the question of who would carry out the federal government’s purchase of $700 billion in “troubled” securities from banks. As I noted in my post a week ago Sunday, the draft legislation circulated over the weekend includes a provision that seems to allow Treasury to contract out the process. Treasury then put out a fact sheet making it quite clear it intends to use private asset managers to manage and dispose of the assets it acquires, though the document does not specifically allude to the purchasing. Paulson himself referred to the use of “professional asset managers” during an appearance on one of the Sunday morning talk shows.

It amazes me that there is not more outrage over this aspect of the plan. Paulson seems to be leaving open the possibility that the same firms that are being bailed out could be hired to run the bailout. This would mean that institutions receiving a monumental giveaway of taxpayer money could turn around and earn yet more by acting as the government’s brokers. Aside from the unseemliness of this arrangement, this would be an egregious conflict of interest.

The alternative proposal floated by Senator Chris Dodd, which accepts Paulson’s language on contracting out, includes a section on conflict of interest. But rather than stating what the rules should be, the draft leaves it up to the Treasury Secretary to do so. There were reports last Monday night that Treasury would go along with the inclusion of a conflict-of-interest provision.

Paulson’s approach to the Big Bailout, particularly the insistence that there be no punitive measures for the banks, shows he is not the right party to oversee ethical issues. Paulson apparently can’t help himself. He still has the mindset of a man who spent more than 30 years working on Wall Street, at Goldman Sachs. He is a living example of the perils of the reverse revolving door: the appointment of a private-sector figure to a key policymaking position affecting his or her former industry.

The weak conflict-of-interest provisions Paulson is likely to impose would probably not address the inherent contradiction in having for-profit money managers running the bailout program. Even if Treasury chooses managers whose firms are not getting bailed out, there is still the danger that they will use their inside knowledge to benefit their non-governmental clients (and themselves) or will collude with buyers to the detriment of the public.

A Reuters story of last Monday reported that a leading contender for a federal money management role is Laurence Fink and his firm BlackRock, which was involved in managing the portfolio of Bear Stearns when that firm was sold to JPMorgan Chase as part of an earlier bailout. Last March, BlackRock, which is 49-percent owned by Merrill Lynch (now part of Bank of America), announced it was forming a venture to “acquire and restructure distressed residential mortgage loans.” Will Paulson see that as a conflict of interest – or more likely as a credential?

Letting financial firms that have profited from the mortgage crisis manage the bailout gives the impression that we are permanently in the grip of Big Money. To Paulson’s way of thinking, that’s not a problem, but it could make a bad plan much worse.

http://dirtdiggersdigest.org/archives/200

Dirt Diggers Digest is written by Philip Mattera, director of the Corporate Research Project, an affiliate of Good Jobs First.

The Financial Re-Regulatory Agenda

Posted by Robert Weissman on September 23rd, 2008

As the Federal Reserve and Treasury Department careen from one financial meltdown to another, desperately trying to hold together the financial system -- and with it, the U.S. and global economy -- there are few voices denying that Wall Street has suffered from "excesses" over the past several years.

The current crisis is the culmination of a quarter century's deregulation. Even as the Fed and Treasury scramble to contain the damage, there must be a simultaneous effort to reconstruct a regulatory system to prevent future disasters.

There is more urgency to such an effort than immediately apparent. If the Fed and Treasury succeed in controlling the situation and avoiding a collapse of the global financial system, then it is a near certainty that Big Finance -- albeit a financial sector that will look very different than it appeared a year ago -- will rally itself to oppose new regulatory standards. And the longer the lag between the end (or tailing off) of the financial crisis and the imposition of new legislative and regulatory rules, the harder it will be to impose meaningful rules on the financial titans.

The hyper-complexity of the existing financial system makes it hard to get a handle on how to reform the financial sector. (And, by the way, beware of generic calls for "reform" -- for Wall Street itself taken up this banner over the past couple years. For the financial mavens, "reform" still means removing the few regulatory and legal requirements they currently face.)

But the complexity of the system also itself suggests the most important reform efforts: require better disclosure about what's going on, make it harder to engage in complicated transactions, prohibit some financial innovations altogether, and require that financial institutions properly fulfill their core responsibilities of providing credit to individuals and communities.

(For more detailed discussion of these issues -- all in plain, easy-to-understand language, see these comments from Damon Silvers of the AFL-CIO, The American Prospect editor Robert Kuttner, author of the The Squandering of America and Obama's Challenge, and Richard Bookstaber, author of A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation.)

Here are a dozen steps to restrain and redirect Wall Street and Big Finance:

1. Expand the scope of financial regulation. Investment banks and hedge funds have been able to escape the minimal regulatory standards imposed on other financial institutions. Especially with the government safety net -- including access to Federal Reserve funds -- extended beyond the traditional banking sector, this regulatory black hole must be eliminated.

2. Impose much more robust standards for disclosure and transparency. Hedge funds, investment banks and the off-the-books affiliates of traditional banks have engaged in complicated and intertwined transactions, such that no one can track who owes what, to whom. Without this transparency, it is impossible to understand what is going on, and where intervention is necessary before things spin out of control.

3. Prohibit off-the-books transactions. What's the purpose of accounting standards, or banking controls, if you can evade them by simply by creating off-the-books entities?

4. Impose regulatory standards to limit the use of leverage (borrowed money) in investments. High flyers like leveraged investments because they offer the possibility of very high returns. But they also enable extremely risky investments -- since they can vastly exceed an investor's actual assets -- that can threaten not just the investor but, if replicated sufficiently, the entire financial system.

5. Prohibit entire categories of exotic new financial instruments. So-called financial "innovation" has vastly outstripped the ability of regulators or even market participants to track what is going on, let alone control it. Internal company controls routinely fail to take into account the possibility of overall system failure -- i.e., that other firms will suffer the same worst case scenario -- and thus do not recognize the extent of the risks inherent in new instruments.

6. Subject commodities trading to much more extensive regulation. Commodities trading has become progressively deregulated. As speculators have flooded into the commodities markets, the trading markets have become increasingly divorced from the movement of actual commodities, and from their proper role in helping farmers and other commodities producers hedge against future price fluctuations.

7. Tax rules should be changed so as to remove the benefits to corporate reliance on debt. "Payments on corporate debt are tax deductible, whereas payments to equity are not," explains Damon Silvers of the AFL-CIO. "This means that, once you take the tax effect into account, any given company can support much more debt than it can equity." This tax arrangement has fueled the growth of private equity firms that rely on borrowed money to buy corporations. Many are now going bankrupt.

8. Impose a financial transactions tax. A small financial transactions tax would curb the turbulence in the markets, and, generally, slow things down. It would give real-economy businesses more space to operate without worrying about how today's decisions will affect their stock price tomorrow, or the next hour. And it would be a steeply progressive tax that could raise substantial sums for useful public purposes.

9. Impose restraints on executive and top-level compensation. The top pay for financial impresarios is more than obscene. Executive pay and bonus schedules tied to short-term performance played an important role in driving the worst abuses on Wall Street.

10. Revive competition policy. The repeal of the Glass-Steagall Act, separating traditional banks from investment banks, was the culmination of a progressive deregulation of the banking sector. In the current environment, banks are gobbling up the investment banks. But this arrangement is paving the way for future problems. When the investment banks return to high-risk activity at scale (and over time they will, unless prohibited by regulators), they will directly endanger the banks of which they are a part. Meanwhile, further financial conglomeration worsens the "too big to fail" problem -- with the possible failure of the largest institutions viewed as too dangerous to the financial system to be tolerated -- that Treasury Secretary Hank Paulson cannot now avoid despite his best efforts. In this time of crisis, it may not be obvious how to respect and extend competition principles. But it is a safe bet that concentration and conglomeration will pose new problems in the future.

11. Adopt a financial consumer protection agenda that cracks down on abusive lending practices. Macroeconomic conditions made banks interested in predatory subprime loans, but it was regulatory failures that permitted them to occur. And it's not just mortgage and home equity loans. Credit card and student loan companies have engaged in very similar practices -- pushing unsustainable debt on unreasonable terms, with crushing effect on individuals, and ticking timebomb effects on lenders.

12. Support governmental, nonprofit, and community institutions to provide basic financial services. The effective governmental takeover of Fannie Mae, Freddie Mac and AIG means the U.S. government is going to have a massive, direct stake in the global financial system for some time to come. What needs to be emphasized as a policy measure, though, is a back-to-basics approach. There is a role for the government in helping families get mortgages on reasonable terms, and it should make sure Fannie and Freddie, and other agencies, serve this function. Government student loan services offer a much better deal than private lender alternatives. Credit unions can deliver the basic banking services that people need, but they need back-up institutional support to spread and flourish.

What is needed, in short, is to reverse the financial deregulatory wave of the last quarter century. As Big Finance mutated and escaped from the modest public controls to which it had been subjected, it demanded that the economy serve the financial sector. Now it's time to make sure the equation is reversed.

http://www.multinationalmonitor.org/editorsblog/

Robert Weissman is managing director of the Multinational Monitor.



The SEC’s Risky New IDEA

Posted by Philip Mattera on September 3rd, 2008

When you go to the Securities and Exchange Commission website these days, the first thing you see is an animation that looks like something out of The Matrix films or the TV show Numb3rs. It seems the agency’s accountants and lawyers are trying to look cool as they move toward the creation of a new system for distributing public-company financial information on the web.

Recently SEC Chairman Christopher Cox (photo) unveiled Interactive Data Electronic Applications (IDEA, for short), the successor to the EDGAR system that corporate researchers have relied on since the mid-1990s for easy access to 10-Ks, proxy statements and the like. The big selling point of IDEA is tagging. Companies (and mutual funds) will be required to prepare their filings so that key pieces of information are electronically labeled—using a system called XBRL—and thus can be easily retrieved and compared to corresponding data from other companies. The first interactive filings are expected to be available through IDEA late this year. EDGAR will stick around indefinitely as an archive for pre-interactive filings.

“With IDEA,” the SEC press release gushes, “investors will be able to instantly collate information from thousands of companies and forms, and create reports and analysis on the fly, in any way they choose.”

I just finished watching the webcast of Cox’s press conference earlier this week and came away with mixed feelings about IDEA. In one respect, it will be great to be able to readily extract specific nuggets of information. My concern is the emphasis being placed on disclosure as simply a collection of pieces of data. This may serve the needs of financial analysts and investors, but as a corporate researcher, I find that some of the most valuable portions of SEC filings are narratives rather than numbers—for example, the descriptions of a company’s operations, its competitive position and its legal problems that appear in 10-Ks.

As Cox finally mentioned about an hour into the press conference, tagging can be applied to text as well as numbers. Yet I can’t help worry that the direction the SEC is going in will tend to reduce narratives to bite-size portions that serve to diminish the full scope of disclosure. It was not comforting to hear William Lutz, the outside academic who is advising the SEC on a complete overhaul of its entire disclosure system, suggest during the press conference that the forms (10-K, 10-Q, etc.) companies are currently required to file will be phased out. Perhaps it was unintentional, but the impression Lutz and Cox gave is that future disclosure will be mainly quantitative.

This shift in focus from text to numbers would, I believe, increase the risk that company reporting on social and environmental matters, already inadequate, will be scaled back. That may not mean much for short-sighted investors, but it would be a major setback for corporate accountability.

http://dirtdiggersdigest.org/archives/173 

Dirt Diggers Digest is written by Philip Mattera, director of the Corporate Research Project, an affiliate of Good Jobs First.

Giant Mining Firm’s Social Responsibility Claims: Rhetoric or Reality?

Posted by Philip Mattera on August 1st, 2008

The recent decision by the U.S. Supreme Court to slash the damage award in the Exxon Valdez oil spill case and the indictment of Sen. Ted Stevens on corruption charges are not the only controversies roiling Alaska these days. The Last Frontier is also witnessing a dispute over a proposal to open a giant copper and gold mine by Bristol Bay, the headwaters of the world’s largest wild sockeye salmon fishery. Given the popularity of salmon among the health-conscious, even non-Alaskans may want to pay attention to the issue.

The Pebble mine project has been developed by Vancouver-based Northern Dynasty Ltd., but the real work would be carried out by its joint venture partner Anglo American PLC, one of the world’s largest mining companies. Concerned about the project and unfamiliar with Anglo American, two Alaska organizations—the Renewable Resources Coalition and Nunamta Aulukestai (Caretakers of the Land)—commissioned a background report on the company, which has just been released and is available for download on a website called Eye on Pebble Mine (or at this direct PDF link). I wrote the report as a freelance project.

Anglo American—which is best known as the company that long dominated gold mining in apartheid South Africa as well as diamond mining/marketing through its affiliate DeBeers—has assured Alaskans it will take care to protect the environment and otherwise act responsibly in the course of constructing and operating the Pebble mine. The purpose of the report is to put that promise in the context of the company’s track record in mining operations elsewhere in the world.

The report concludes that Alaskans have reason to be concerned about Anglo American. Reviewing the company’s own worldwide operations and those of its spinoff AngloGold in the sectors most relevant to the Pebble project—gold, base metals and platinum—the report finds a troubling series of problems in three areas: adverse environmental impacts, allegations of human rights abuses and a high level of workplace accidents and fatalities.

The environmental problems include numerous spills and accidental discharges at Anglo American’s platinum operations in South Africa and AngloGold’s mines in Ghana. Waterway degradation occurred at Anglo American’s Lisheen lead and zinc mine in Ireland, while children living near the company’s Black Mountain zinc/lead/copper mine in South Africa were found to be struggling in school because of elevated levels of lead in their blood.

The main human rights controversies have taken place in Ghana, where subsistence farmers have been displaced by AngloGold’s operations and have not been given new land, and in the Limpopo area of South Africa, where villagers were similarly displaced by Anglo American’s platinum operations.

High levels of fatalities in the mines of Anglo American and AngloGold—more than 200 in the last five years—have become a major scandal in South Africa, where miners staged a national strike over the issue late last year.

Overall, the report finds that Anglo American’s claims of social responsibility appear to be more rhetoric than reality.  Salmon eaters beware. 

http://dirtdiggersdigest.org/archives/148

Dirt Diggers Digest is written by Philip Mattera, director of the Corporate Research Project, an affiliate of Good Jobs First.

An Afternoon with L-3 Communications/Titan

Posted by Tonya Hennessey on April 30th, 2008


A funny thing happened on the way to exercising my presumed right, as a shareholder, to attend yesterday’s annual shareholder meeting of private military contractor L-3 Communications, held at the Ritz-Carlton Hotel in Manhattan’s financial district.

I was one of a group including a translator, Marwan Mawiri, who worked for a year and ½ for Titan, now an L-3 subsidiary, in Iraq. Marwan has witnessed first-hand numerous problems with the way interrogation and translation contracting is being handled in Iraq – a practice that may be putting at substantial risk the national security and lives of the Iraqi people, of U.S. and multinational troops, officials and contractors, and of the United States itself.

The problem is clear: inadequate and downright bad vetting and hiring practices for analysts, interrogators and linguists. Indeed, the U.S. military has recently cancelled Titan’s translation contract due to poor practices along with waste, fraud and abuse.

What is also crystal clear is that the war in Iraq can neither be won, effectively prosecuted, nor competently withdrawn from until these problems are solved and until proper oversight is in place.

If people hired to translate in critical battlefield and other situations are not even fluent in at least Arabic and English; if screeners monitoring the entry and exit of people to U.S. military bases at times have no more qualification and training than having been a baggage screener at a U.S. airline (see CorpWatch’s new report [note: updated December 2008] "Outsourcing Intelligence in Iraq":); if interrogators are not qualified, experienced and trained to the highest standards possible, how can we ensure that we avoid future travesties due to bad intelligence? Such as the bad intelligence around the supposed Iraqi weapons of mass destruction program (which was, of course, Bush/Cheney and neocon-driven, not L-3-driven), that got the U.S. into this war  in the first place? (And remember, even when U.S. soldiers start coming home from Iraq, large numbers of private contractors will stay, making proper oversight all the more crucial.)

It turned out that L-3’s management wasn’t so happy to see us, and that my co-worker, Pratap Chatterjee and I, were supposed to have received a certain admission ticket to attend the meeting. The same went for our companions from the Iraq Campaign 2008 – a major coalition to oppose the war, which is now taking on private military contractors as part of their broader campaign on the high cost U.S. taxpayers are paying for the war in Iraq – and Foreign Policy in Focus, who were holding proxies. Funny that.

Looking out at the Statue of Liberty from the hotel lobby downstairs, where we gathered to figure out how to proceed, I pondered the damage this war has done to the liberties of so many Iraqi people, and to so many U.S. liberties and values that I hold dear. Like respect for human rights, compliance with the Geneva Conventions around torture, appropriate security that is handled with skill and integrity. I wasn’t surprised that L-3/Titan didn’t want to hear our message; though I sincerely hope some of the shareholders, managers, directors, staff and  financial analysts do take the time to read our report and to talk to current and former contractors like Marwan. We didn’t go in malice.

We went in genuine concern over business operations that, while they may be earning a pretty profit for large shareholders, pose a genuine reputational risk to the company for future liability. And are causing harm on the ground, to real people. We challenge L-3 Communications to become a truly ethical leader in business practices, not just in products and sales. Surely the sixth-largest U.S.  defense industry company (according to their website) has the intelligence to recognize bad practices and the ability to change them for the better.

Or are we simply destined for years more, as Huffington Post blogger Charlie Cray put it, of companies and investors milking a “Baghdad Bubble as a result of the Bush administration's refusal to hold them accountable”?

As the meeting ended, and the muckety-mucks began leaving the Ritz-Carlton to be chauffered away in their Lincoln Town cars and limousines, we gave these decision makers another opportunity to take a copy of CorpWatch’s report, or even to talk to us directly. The vast majority kept their blinders on and marched resolutely past.

Suddenly we saw General Carl Vuono (ret.). Vuono is former chief of staff of the U.S. Army, and long-time president of private military consulting firm MPRI, which is now also an L-3 subsidiary. Pratap and Marwan rushed to try and speak  with him, while a reporter and cameraman from Al-Jazeera English filmed and stood at the ready for the general’s reply. The general didn’t want to talk, but you can see some of the footage on YouTube. You can also watch Pratap and Marwan describe their experiences on Democracy Now!, where they were interviewed live this morning.

Pratap gave the general a copy of “Outsourcing Intelligence In Iraq” – maybe he’ll decide to have one of his staffers give it a read. We’d love to talk, and welcome any dialogue with officials of L-3.

Paulson Blueprint Promotes Insurance Industry Shell Game

Posted by Philip Mattera on April 5th, 2008


There’s something peculiar in the report on financial market regulation issued March 31 by Treasury Secretary Henry Paulson. The plan, touted by some as a bold expansion of federal control over capital markets and dismissed by others as a mere rearranging of the deck chairs on the financial Titanic, includes an incongruous section on the insurance industry.

While insurance is a financial service, it hasn’t been at the center of the implosion of the housing market or (aside from the bond insurance crisis) linked to the instability on Wall Street. The Paulson plan, nonetheless, provides a resounding endorsement of a “reform” that key players in the insurance industry have been seeking for at least 15 years—allowing large national carriers to do an end run around the current state-based insurance regulatory system. Such carriers would be permitted to adopt an “optional federal charter” and thereby put themselves under the supervision of a federal regulatory agency that does not yet exist.

Big Insurance has not sought federal oversight because it wants more regulation. After all, this is the industry that pioneered offshoring when some carriers moved their official headquarters to tax havens such as Bermuda. While it is true that many state regulators have been toothless watchdogs, other states have been aggressive in protecting the interests of policy holders and the public.

In fact, the Paulson proposal comes just a couple of weeks after insurers were celebrating the downfall of New York Gov. Eliot Spitzer in a prostitution scandal. During his time as New York’s attorney general, Spitzer pursued major insurance companies such as Marsh & McLennan and American International Group for offenses such as bid rigging. Marsh ended up settling for $850 million in 2005, and AIG paid a whopping $1.6 billion the following year. While it is true that Spitzer went after the industry as a prosecutor rather than a regulator, he did so in the overall context of state oversight.

The insurance industry swears that it supports the optional federal charter in the name of modernization (as does the Paulson report), but it is significant that the reform has been supported by groups such as the Competitive Enterprise Institute and the American Enterprise Institute that are no friends of regulation (some Democrats in Congress are also in favor). When word of Paulson’s insurance proposal leaked out over the weekend, the American Insurance Association rushed out a press release hailing it, saying that the optional federal charter “will be more efficient, effective and rational given the ‘increasing tension’ a state-based regulatory system creates.”

Throughout its history, the insurance industry has avoided “tension” by trying to minimize government interference in its affairs. In 1945 the industry supported the McCarran-Ferguson Act, which responded to a Supreme Court ruling by affirming the regulatory role of the states. In recent times, the industry has wanted the option of federal oversight on the assumption that it would be less onerous. I’ll let the legal scholars decide whether state or federal regulation is inherently more appropriate. The issue is whether an industry not known for generous treatment of its customers (think of Katrina victims denied coverage) is going to be subjected to some strict oversight somewhere.

http://dirtdiggersdigest.org/archives/23

Dirt Diggers Digest is written by Philip Mattera, director of the Corporate Research Project, an affiliate of Good Jobs First.

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. 

 

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.

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 bars.

Remembering Oil Spills, Old and New

Posted by Sakura Saunders on February 13th, 2007

The week opened with the start of a four month trial against France's oil giant, Total, by groups like Friends of the Earth France.

The Paris tribunal will examine the 1999 Erika tanker disaster that poured 20,000 tonnes of oil into the sea, polluted 250 miles of coastline and caused $1.3 billion in damage. At least 150,000 seabirds were found dead on the coast and up to 10 times as many were probably lost in the oil-blackened seas. Observers say this may also turn into a trial of the "globalized" international shipping system as the Erika was crewed by Indians, sailing under a Maltese flag, chartered by a shipping company registered in the Bahamas for a French oil company.

Meanwhile, a lawsuit between the state of New York against Exxon and four other companies has recently been announced. This suit addresses an oil spill from the 1950's that was several times the size of the Exxon Valdez oil leak in Alaska, but lay undiscovered until 1978. According to New York state attorney Andrew Cuomo, Exxon has been slow to clean up, with an estimated eight million gallons of oil and petroleum byproducts still underground and toxic vapors from the ground threatening neighborhood health.

A Bloomberg article quotes local residents:

"There are people who live above this that still don't know about it,'' said Basil Seggos, chief investigator for Riverkeeper, an environmental group that sued in 2004 to try to force Exxon Mobil to clean up the creek. Others in Greenpoint have become spill experts, according to Seggos, and they say the fumes that rise from basements and sewers are especially bad when the barometer drops before a storm. "The locals tell you they know when it's going to rain because they can smell the oil.''


In other oil spill news, Lagos' Vanguard newspaper reported today that ten Ijaw communities had been displaced and 500 made homeless by a Chevron Nigeria oil spill.

The report quotes Gbabor Okrika, the councilor representing the affected communities:

"Chevron is not bothered about the health of the people they are only concerned about their operations and they have now started a process that can only divide the people and create further division among them."

Also, last month's massive leak in the Chad Cameroon Pipeline caused a storm of criticism regarding the environmental safety of this project. This Exxon-managed pipeline extends from landlocked Chad through Cameroon and extends 11 kilometers off the coast into the Atlantic. This project, which is overseen by the World Bank, has already received much criticism due to money from this project fueling conflict in Chad.

IRIN News quoted Kribi Mayor Gregoire Mba Mba:

"Our town lives on fishing and tourism. If more incidents like this or worse occur it is the economic future of the town that is threatened."

Environmental groups are warning that a similar spill could happen in the Baku-Ceyhan pipeline operated by BP that transports crude 1750 kilometers from the Caspian to the Mediterranean Sea. On Monday, a coalition of Azeri, British and US watchdog groups leaked a report from the U.S. Overseas Private Investment Corporation, which says that cracks and leakages in the coating of the pipeline will need to be monitored closely.