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
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
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
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
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
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
"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
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.
The one redeeming feature of the abominable Supreme Court ruling
on corporate electoral expenditures is the majority’s retention of the
rules on disclaimers and disclosure. While opening the floodgates to
unlimited business political spending, the Court at least recognizes
that the public has a right to know when a corporation is responsible
for a particular message and a right to information on a corporation’s
Writing for the majority, Justice Kennedy states: “The First
Amendment protects political speech; and disclosure permits citizens
and shareholders to react to the speech of corporate entities in a
proper way. This transparency enables the electorate to make informed
decisions and give proper weight to different speakers and messages.”
There’s no question that steps must be taken to mitigate the
Citizens United ruling, whether through changes in corporation law,
shareholder pressure, enhanced public financing of elections, or even a
Yet while these efforts progress, it is also worth taking advantage
of the Court’s affirmation of the principle of transparency and push
for even greater disclosure than what we have now. Groups such as the
Sunlight Foundation are already moving in this direction.
The effort could begin with pressing the Federal Election Commission
to tighten the existing reporting rules on what are known as “electioneering communications” and to enforce them more diligently. But that’s not enough.
In the wake of Citizens United, we’ve got to demand more information
on the many ways corporations exercise undue influence not only on
elections but also on legislation, policymaking and public discourse in
general. Now that Big Business is a much bigger threat to popular
democracy, we have to subject corporations to intensive full-body scans
to find all their hidden weapons of persuasion. The following are some
of the areas to consider.
Lobbying. In his State of the Union Address,
President Obama said that lobbyists should be required to disclose
every contact with the executive branch or Congress. That’s fine, but
why stop there? Many corporations do their lobbying indirectly, through
trade associations which disclose little about their sources of
funding. How about rules that require those associations to disclose
the fees paid by each of their members and require publicly traded
companies to disclose exactly how much they pay to belong to each of
their various associations?
Front Groups. Corporations also indirectly seek to
influence legislation and public opinion by bankrolling purportedly
independent non-profit advocacy groups. Such front groups—such as those
taking money from fossil-fuel energy producers to deny the reality of
the climate crisis—do not have to publicly disclose their contributor
lists. Why not require publicly traded companies, at least, to reveal
all of their payments to such organizations?
Union-Busting. Encouragement of collective
bargaining is still, in theory, official federal policy. Yet many
companies violate the principle—and the rights of their workers—by
using corporate funds to undermine union organizing campaigns. The
existing rules on the disclosure of expenditures on anti-union
“consultants” are too narrow and not vigorously enforced. That should
These are only a few of the ways that undue political influence and
other forms of anti-social corporate behavior could be addressed
through better disclosure. Yet, as we’ve seen, transparency by itself
does not counteract corporate power unless something is done with the
This came to mind in reading the last portion of the Citizens United
ruling. Not all five Justices in the majority went along with the idea
of maintaining the disclaimer and disclosure rules. Parting with
Kennedy, Roberts, Scalia and Alito, Justice Thomas argued not only that
corporate independent expenditures should be unrestricted, but also
that they should be allowed to take place under a veil of secrecy.
He bases his argument not on legal precedent, but rather on dubious
anecdotal evidence that some supporters of California’s
anti-gay-marriage Proposition 8 were subjected to threats of violence
after their names appeared on public donor lists. Thomas thus suggests
that corporations should be able to make their political expenditures
anonymously to avoid retaliation.
While I am in no way advocating violence, I think activists need to
use the information that becomes public as the result of expanded
disclosure to make corporations pay a price for any attempts to buy our
political system. If we can get them to worry about (non-violent)
retaliation to the point that they limit their expenditures, then we
will have gone a long way toward neutralizing the pernicious effects of
the Citizens United ruling.
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
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
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
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
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
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.
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.
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.
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.
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
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.
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.
arguing to uphold the existing corporate expenditure restrictions, the
Federal Election Commission has emphasized these common sense
"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.
Citizen is organizing people to protest against a roll back of existing
restrictions on corporate campaign expenditures. To join the effort, go
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.
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
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.
The RDM case may become the first test for the Netherlands’ new anti-corruption legislation and for its will and ability to prosecute corporations for making foreign bribes.
The RDM bribery scandal dates back to 1998 when the company sold 202 Leopard tanks to the Chilean army. The Rotterdam-based company had purchased the tanks as scrap metal from the Dutch Department of Defense and rebuilt them. It then paid bribes to Chilean army officials facilitating the sale.
Joep van den Nieuwenhuyzen, the Dutch businessman, and officials of his company—who offered and facilitated the bribes—have never been prosecuted in relation to this case. The Dutch Public Prosecutor’s Office told CorpWatch that at the time of RDM’s bribes, the Netherlands had no laws against offering bribes to officials overseas. Legislation to make these practices illegal was introduced in 2001. Further muddying the waters, RDM went bankrupt in 2006, and Joep van den Nieuwenhuyzen, its owner, was jailed for fraud. He was released two years ago.
The current Dutch government investigation will delve further into the extent and mechanics of the bribery scheme, and interview key politicians active at the time. A Dutch parliamentary team is following up on the case in the Netherlands and in Chile. Key targets of the investigation include Edmundo Perez Yoma, Chile’s former minister of defense and currently its interior minister, along with his then deputy Mario Fernandez, now member of the Constitutional Court. Both are suspected of facilitating the bribery. Chile has announced similar investigations.
One Dutch official at the time of the tank sales, then Minister of Defense Joris Voorhoeve, joined the call for parliament to undertake a broad investigation into RDM’s bribes. He defended his own role. While Voorhoeve acknowledges that he issued an export license for the 202 Dutch Leopard tanks, he maintains he is appalled and shocked by the allegations of bribery. “The Netherlands government would never agree to pay bribes to get a deal closed,” he said, “nor participate in any other form of corruption.” The sales were justified, he said, because when they took place in 1998, Chile had become a democracy and General Augusto Pinochet, who had ruled from 1973 to 1990, was no longer president. But in fact, the former dictator still wielded considerable influence as senator for life and commander-in-chief of the armed forces, positions he retained until his death in 2006.
The parliamentary investigation, while welcomed by many, is late in coming. For years politicians ignored requests by the Netherlands Socialist Party for a formal investigation—again, sparked in part by CorpWatch’s reporting on the money RDM paid to the former dictator and his entourage.
According to a Swiss newspaper, van den Nieuwenhuyzen, currently a Swiss resident, said that he was not aware that the company he once owned was under investigation for payments to Chilean army officials.
But former RDM workers and associates charged that the company paid millions to Chilean colonels and brigadier generals through a third party, with $1.6 million going to a private consultant to the late general Pinochet. RDM said the $1.6 million was a donation to the Pinochet Foundation, a Santiago-based organization that promotes the general’s legacy.
Chilean and cooperating Dutch private investigators that examined the Pinochet’s overseas bank accounts have found that the dictator had stashed almost $28 million overseas, mainly in European bank accounts. Dutch investigators will look for links between that money, the two recently jailed Chilean army officers, and Pinochet.
The spokesperson of the Dutch Socialist Party in Rotterdam told CorpWatch that there have been no successful prosecutions of corporations in the Netherlands for foreign bribes, because it is extremely difficult to secure evidence in foreign countries. Of the scores of cases under consideration, none have yet reached the courts. If RDM is charged, it will be the first time Dutch officials or businesspeople are prosecuted under the new regulations.
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
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.
Wal-Mart has taken the latest in a long series of steps to make
itself look good by imposing burdens on its suppliers. The mammoth
retailer, which is thriving amid the recession, recently announced
plans to require its more than 100,000 suppliers to provide information
about their operations that would form the basis of a product
Rating products is a good idea. It’s already being done by various
non-profit organizations that bring independence and legitimacy to the
process. Wal-Mart, by contrast, brings a lot of negative baggage. In
recent years, Wal-Mart has used a purported commitment to environmental
responsibility to draw attention away from its abysmal record with
regard to labor relations, wage and hour regulations, and employment
discrimination laws. It also wants us to forget its scandalous tax
avoidance policies and its disastrous impact on small competitors. The
idea that a company with a business model based on automobile-dependent
customers and exploitative supplier factories on the other side of the
globe can be considered sustainable should be dismissed out of hand.
Yet Wal-Mart is skilled at greenwashing and is, alas, being taken
seriously by many observers who should know better.
On close examination, Wal-Mart’s latest plan is, like many of its
previous social responsibility initiatives, rather thin. All the
company is doing at first is to ask suppliers to answer 15 questions.
Ten of these involve environmental issues such as greenhouse gas
emissions, water use, waste generation and raw materials sourcing. The
final five questions are listed under the heading of “People and
Community: Ensuring Responsible and Ethical Production.”
Two of them involve “social compliance.” It is an amazing act of
chutzpah for Wal-Mart, which probably keeps more sweatshops in business
than any other company, to claim moral authority to ask suppliers about
the treatment of workers in their supply chain.
The questions in this category seem to assume that suppliers don’t
do their own manufacturing. This is a tacit acknowledgement of how
Wal-Mart has forced U.S. manufacturers to shift production offshore,
and often to outside contractors. Now Wal-Mart has to ask those
companies to be sure they know the location of all the plants making
their products and the quality of their output.
The point about quality was one that CEO Mike Duke (photo) emphasized
when announcing the rating system. This is also highly disingenuous.
For years, Wal-Mart was notorious for pressing suppliers to reduce the
quality of their goods to keep down prices. Now the behemoth of
Bentonville is suddenly a proponent of proponent of products that “are
more efficient, that last longer and perform better.” Will Wal-Mart pay
its suppliers higher prices to cover the costs of improving quality?
can’t bring myself to jump on Wal-Mart’s bandwagon. If I want product
ratings I will turn not to Mike Duke but rather to someone like Dara
O’Rourke, who founded a website called Good Guide
that rates consumer products and their producers using independently
collected data from social investing firms such as KLD Research and
non-profits such as the Environmental Working Group. It uses criteria
such as labor rights, cancer risks and reproductive health hazards that
are unlikely to ever find their way into the Wal-Mart index.
Good Guide also rates companies, including Wal-Mart, which receives a mediocre score
of 5.3 (out of 10), and it reaches that level thanks to its marks on
p.r.-related measures such as charitable contributions and some but not
all environmental measures. In the category of Consumers it gets a 4.1,
Corporate Ethics 3.9, and for Labor and Human Rights 4.1 (which is
Maybe Wal-Mart should focus on improving its own scores before presuming to rate everyone else.
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
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 Chronicleinterview
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
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.
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.”
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
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.
More than 800
representatives from organizations throughout the Americas made their
way to the northern city of La Esperanza, Honduras to take a strong
stand against the militarization of their nations and communities.
Following three days of workshops, the participants read their final
declaration in front of the gates of the U.S. Army Base at Palmerola,
Honduras, just hours from the conferencesite. The first demand on the list was to close down this and all U.S.
military bases in Latin America and the Caribbean. By the end of the
demonstration, the walls of the base sported hundreds of spray-painted
messages and demands that contrasted sharply with their prison-like
formally called the Soto Cano Air Base, brought back some very bad
memories among the hundreds of Central American participants. The U.S.
government installed the base in 1981 and used it to launch the illegal
contra operations against the Nicaraguan government. The base was also
used to airlift support to counterinsurgency operations in Guatemala and El Salvador and train U.S. forces
in counterinsurgency techniques during the dirty wars that left over
100,000 dead, and is now used as a base for the U.S.-sponsored "war on
The demilitarization conference also called for an immediate halt to the recently launched "Merida Initiative,"
the Bush administration's new Trojan horse for remilitarization of the
region. The resolution asserts that the measure "expands U.S. military
intervention and contributes to the militarization of our countries"
and representatives from the Central American nations and Mexico
included in the military aid package committed to a process of
monitoring the funds and defeating further appropriations.
The Merida Initiative was announced by President Bush
as a "counter-narcotics, counter-terrorism, and border security"
cooperation initiative in October 2007. The model extends the Bush
administration's infamous national security strategy of 2002 to impose
it as the U.S.-led security model for the hemisphere. The approach
relies on huge defense contracts to U.S. corporations, and military and
police deployment to deal with issues ranging from drug trafficking to
illegal immigration and seeks to extend U.S. military hegemony in
foreign lands. It has been proven in Colombia
and other areas where it has been applied to have the effect of
increasing violence, failing to decrease drug flows, and leading to
extensive human rights violations.
Among the 14
resolutions of the conference, three others reject aspects of the
Initiative: the repeal of anti-terrorist laws that criminalize social
protest and are a direct result of U.S. pressure to impose the
disastrous Bush counter-terrorism paradigm; the demand to replace the
militarized "war on drugs" model with measures of citizen
participation, community heath, etc.; and the demand for full respect
for the rights of migrants.
Although on the
surface, Latin America is experiencing a period of relative calm after
the brutality of the military dictatorships and the dirty wars,
grassroots movement leaders from all over the continent described a
context of increasing aggression. The indigenous and farm organizations
that occupy territories coveted by transnational corporations have
become targets of forced displacement. Social movements that protest
privatization and free trade agreements have been dubbed terrorists and
attacked and imprisoned under new anti-terrorist laws that are a poor
legal facade for outright repression. The use of the military troops in
counter-narcotic activities has become commonplace and often hides
other agendas of the powerful. Police forces have come to deal with
youth as if being young itself were a crime.
In viewing the
threats of militarization in their societies, participants use a
broader definition than just the presence of army bases and troops.
"Militarism," states the Campaign for Demilitarization of the Americas,
is " the daily presence of the military logic in our society, in our
economic forms, in our social links, and in the logic of gender
domination and the supposed natural superiority of men over women."
Using this concept, the conference covered the profound need to change
the educational system and social norms, to work from within
communities, as well as making demands for changes in the external
conditions that affect them.
Despite days of
testimonies that sometimes included tears and anger, delegates to the
conference expressed hope above all else. Ecuador's new constitution
and decision to kick out the U.S. army base at Manta was cited as proof
plans for action and an encouraging consensus emerged: the breadth of
the challenge can be overwhelming but the dream of lasting peace
provides an irresistible light at the end of the tunnel.
concludes on this note: "... through these campaigns and actions on the
grassroots level, organized within each nation and throughout the
continent, we can reach a day not long from now when we fulfill the
dream of living free of violence, exclusion, and war."
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.
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
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
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
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.
The U.S. Department of National Intelligence (the body that oversees spy agencies like the Central Intelligence Agency and the National Security Agency) recently decided it wanted to know what Iranian students were taught in school these days.
Most people might have considered the obvious: pick up the phone and ask an Iranian student or perhaps their parents, who have already had to spend many days and probably nights reading the books.
But fortunately for the DNI, such a treasonous act was not necessary.
Instead they hired SAIC, a major CIA and NSA contractor, to do the job. On December 31st, 2007, the company published the results: a 17 page report on 85 Iranian textbooks that the company downloaded off the Internet from the Iranian government's website. The final report was not made public, but Secrecy News, an excellent electronic newsletter written by Steven Aftergood and published by the Federation of American Scientists, obtained a copy.
The textbooks that are used in Iranian schools "reveal a clear emphasis on Islam, as it has been interpreted by the leadership of the Islamic Republic of Iran," is one of "the most important conclusions" of the study and they "provide a distorted view of Shia Islam as the only true path in Islam, and among religions."
Beyond this shocking headline, SAIC can also reveal that the Iranian government may be censoring detailed news of discrimination: While page 74-77 of the sociology textbook for the third year of high school makes reference to discrimination, there are no specific cases of discrimination in Iran mentioned, according to the company's analysts.
The CIA will be delighted to learn that, in accordance with popular belief, the textbooks do spread hate against the U.S. Page 64 of the Islamic Teaching textbook for the fifth grade contains a quote from Ayatollah Khomeini that reads: "The Muslims must use the power of the Islamic Republic of Iran for crushing the teeth of this oppressive government [the USA] in its mouth."
Although SAIC says it studied Iranian mathematics and chemistry textbooks, the geeks at the NSA will be disappointed that they contained no smoking guns or secret equations.
The question CorpWatch wants to know - how much did the government pay for this study? For any of our readers out there with access to the spy budget, here's a clue: it is contract number: 2003*N443600*022
Wal-Mart Stores has put out a press release
patting itself on the back for promising the equivalent of about
$430,000 for disaster relief and reconstruction for the area of China
hit by a massive earthquake this week. The gesture was laudable but the
amount was less than impressive.
After all, the giant retailer would be nowhere today without the
countless Chinese workers who toil in sweatshops so that American
consumers can be offered the cheap goods that are at the core of the
company’s business model. Last year those largely Chinese-made goods
brought Wal-Mart profits of $12.7 billion, or about $1.4 million every
hour of every day. The $430,000 contribution thus represents less than
20 minutes of profit.
Wal-Mart also profits from Chinese consumers. The company operates more than 200 stores in
China (through joint ventures and minority-owned subsidiaries), several
of which have been shut down because of the tremblor. Wal-Mart was so
eager to operate stores in China that it agreed to let its employees
there be represented by unions (though of the government-dominated
Wal-Mart has a history
of using relatively inexpensive amounts of disaster relief to boost its
reputation. After Hurricane Katrina hit the U.S. Gulf Coast in 2005,
Wal-Mart maneuvered to get maximum exposure for its prompt delivery
of relief supplies. A fairly routine operation for a company possessing
the most advanced logistics infrastructure was seen as nearly
miraculous, given the ineptitude of federal and state public officials.
The company made an initial faux pas (quickly reversed) in
announcing that employees at its stores shut down by the storm would be
paid for only three days.
It also started out offering a measly $2 million in relief but soon
overcame its parsimonious instincts and upped the figure by $15 million, thereby winning wide praise. The wave of favorable coverage went on for several months, thanks at least in part to the efforts of
its army of p.r. operatives from Edelman and a conservative blogger who
was paid to tout Wal-Mart’s hurricane work in the blogosphere.
Wal-Mart may have to part with more than $430,000 to get a similar public relations bonanza from China’s suffering.
My hunch from last night was correct: Stanley Inc.
(also known by the name of its subsidiary Stanley Associates) is one of
the employers of contract workers who improperly viewed the passport
file of Sen. Barack Obama. It now seems that the files of Senators
McCain and Clinton were violated as well, so perhaps the speculation
about political skulduggery is unfounded.
Yet that still leaves a host of questions related to the growing
reliance of the State Department and other federal agencies on
contractors such as Stanley, which until today was far from a household
name. Yet it’s been around for more than three decades, making its
money—like the scores of other Beltway Bandits that populate the office
buildings of the Washington, DC area—from the federal spigot.
Stanley started as a maritime consultant and now provides “information technology services and solutions.” In its most recent 10-K filing,
Stanley reported getting 65% of its revenue from the Pentagon and 35%
from more than three dozen civilian agencies, most notably the State
Stanley used to be a pretty small operator, but over the past decade
it has grown at the remarkable rate of 33% a year, reaching more than
$400 million. Although the company is publicly traded, it is
majority-owned by officers, directors and employees (the latter through
an employee stock ownership plan).
While the passport contract is the one in the news, Stanley is
largely a military contractor. It brags that some 53% of its 2,700
employees have Secret or Top Secret security clearances. CEO Philip
Nolan is ex-Navy, and his board includes retired generals from the Army
and the Marine Corps. Stanley doesn’t produce weapons—it provides the
systems engineering, operational logistics and other services that keep
the high-tech war machine running.
In the 10-K filing, where it is addressing investors rather than the
public, the company is blunt about why it expects continuing growth:
“increased spending on national defense, intelligence and homeland
security” and “increased federal government reliance on outsourcing.”
In other words, its business strategy is fundamentally based on the
continuation of the “War on Terror” and the steady hollowing out of the
The company goes on to list the specific risk factors that might
affect the value of its shares. Here’s one of particular interest (see
Security breaches in sensitive government systems could result in the loss of customers and negative publicity.
Many of the systems we develop, integrate and maintain involve
managing and protecting information involved in intelligence, national
security and other sensitive or classified government functions. A
security breach in one of these systems could cause serious harm to our
business, damage our reputation and prevent us from being eligible for
further work on sensitive or classified systems for federal government
customers. We could incur losses from such a security breach that could
exceed the policy limits under our professional liability insurance
program. Damage to our reputation or limitations on our eligibility for
additional work resulting from a security breach in one of the systems
we develop, install and maintain could materially reduce our revenues.
It will be interesting to see if the passport scandal has this
negative effect, or if the federal government protects Stanley from its
Note: It’s just been reported that another company–Analysis Corporation–is also involved in the passport scandal. More on them later.
The news this week is deeply ironic: the main
building of the New York Public Library at Fifth Avenue and 42nd Street will be engraved with the name of Stephen A. Schwarzman, while the periodicals inside may sadly chronicle Eliot Spitzer, the
governor of New York state, as Client Number 9 of a prostitution ring. Both men made their name on Wall Street:
Schwarzman rose from his first job in investment banking at Lehman
Brothers to run the Blackstone Group, a private equity firm, that has
allowed him to stash away an estimated $4 billion today, while Spitzer
got corporations from Samsung to investment bankers like Lehman
Brothers to return almost the same amount to the public
The Wall Street financier is now giving $100
million to support a worthy cause that taxpayers cannot afford: a new library to lend books, wireless Internet access
and new rooms for children and teenagers, to attract as many as three
million new users, most of whom are expected to be from low-income
minority groups. It will be financed by the profits that Schwarzman
made at Blackstone by exploiting tax loopholes to cut his tax rate
from 35 percent to 15 percent, costing the U.S. taxpayer tens of millions
Doubtless one of the books
that will be available at the new library will be the play Julius Ceasar, where Mark Anthony is quoted as
saying: "The evil that men do lives after
them; the good is oft interred with their bones." Yet
Schwarzman, like many wealthy people before him, will be able to escape
the curse of history, by buying fame at a public auction.
Spitzer may not escape the curse. The name
"Mr. Clean" may never be applied to him again. But for those
of us that track corporate fraud, who can forget his shining moments?
For example, in 2002 when ten Wall Street
banks from Bear Sterns to UBS Warburg were forced to pay $1.4 billion to settle
charges of "spinning" stock prices to make millions for
wealthy investors? Or in 2003, when his office uncovered how mutual fund brokers allowed select clients
privileges deprived to ordinary customers? Another billion dollars was
paid back to the small investor. How about the $50 million in royalties that his office
discovered that record companies hid from musicians in a
2004 investigation? And let's not forget the
$730 million in fines paid out in 2006 when his office discovered
price-fixing among computer chip manufacturers.
When Spitzer offered his apologies for his
private folly, he asked that the media remember that politics should
not be about individuals but about ideas and the public good. That surely is also the role of
libraries -- ideas and the public good -- not about celebrating the
titans of greed and excess. Perhaps if Wall Street were to pay its
fair share of tax dollars to spend on libraries, then there would be
no need to name the Central Library after one of the men who robbed
the public purse.
Will children who pass through those two stone
lions to enter the library notice that their names are Patience and
Fortitude? Or will they hope that one day they become as rich and
famous as the man after whom the building is named?
I hope that when they look through the shelves
of the New York public library, they will find books and magazines
that remind generations of New Yorkers to come of Eliot Spitzer's
true legacy: of an honest man -- human and fallible no doubt -- who
spoke truth to power.
(And for those on Wall Street who are crowing
about Spitzer's misfortune, shame on
you; your turn may be next to lose your job in
the reckoning over the real scandal on Wall Street: the sub-prime mortgage crisis that threatens to leave many a poor family without a
home of their own.)
The 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... "
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.
Billy Rautenbach, a South African mining kingpin, was deported from Lubumbashi airport in the Democratic Republic of Congo (DRC) on July 18th. “He was accused of fraud, theft, corruption and violating commercial law [the expulsion document] said. He was persona non grata. He would have to leave,” writes Ben Laurence in the Sunday Times (UK).
Best known in South Africa and Botswana for his activities in assembling Hyundai cars, Rautenbach faces hundreds of charges of fraud, corruption and other crimes in his home country of South Africa (the reasons cited in the documents prepared for his deportation last week). South Africa is currently considering asking Zimbabwe to extradite him to stand trial.
But Rautenbach was also once a powerful man in the DRC. He ran Gecamines, the DRC’s state-owned copper mining company, from 1998 to 2000. At the time he was accused of under-reporting exports of sales of huge quantities of DRC cobalt when he was in charge – and diverting the profits to a company he controlled in the British Virgin Islands.
Although Rautenbach lost his job, he continues to play an important role in the mining sector, as he also happens to be a major shareholder of Central African Mining & Exploration Company (CAMEC), which won major contracts in the DRC a couple of years later.
CAMEC’s contracts were the result of an investor-friendly mining code introduced by the World Bank in July 2002. (An informative analysis of this code was done by the Bank Information Center.) While the code calls for a much-needed regulatory framework and environmental protection, it hands the responsibility for mining development to private companies.
However, it is doubtful that the Congolese public institutions charged with regulating the mining sector have the resources to carry through with it, and the World Bank certainly has not been successful in providing oversight. A memo leaked to the Financial Times in November 2006 details the World Bank’s failure to provide sufficient oversight in three major contracts made between Gecamines and international mining groups like CAMEC. Worth billions of dollars, these contracts reportedly gave these groups control over 75% of Gecamines mineral reserves. (In May 2007, the Financial Times also revealed that the World Bank withheld the findings of an inquiry into alleged mismanagement of funds in the Democratic Republic of Congo.)
More details on the business dealings of Rautenbach and CAMEC may emerge from a DRC commission that recently began a three-month review of mining contracts signed in the last decade. The commission is the first attempt of a new “democratically elected” government to investigate ongoing corruption in the DRC’s valuable mining sector. The new commission follows a string of attempts by previous governments and international financial institutions to investigate the exploitation of natural resources in the DRC.
If the commission hopes to be successful it must take a look at whose interests are being promoted/protected in the Congo and how. This would include an investigation into local elites, regional influences, international financial institutions and the powers they represent, and international corporations along with the relationships between these different actors.
History has shown that the more resources a nation or region possess, the more conflict and poverty the people of that nation are forced to endure. The DRC is the third largest country in Africa and is rich in natural resources, particularly cobalt, copper, diamonds and gold. It is home to one third of the world’s cassiterite, the most important source of the metallic element tin and holds 64-80% of the world’s coltan reserves, an ore that is the source of the metal tantalum, which is used in cell phones and other devices.
In an article for Alternet, Stan Cox quotes a miner responsible for digging the valuable cassiterite: "As you crawl through the tiny hole, using your arms and fingers to scratch, there's not enough space to dig properly and you get badly grazed all over. And then, when you do finally come back out with the cassiterite, the soldiers are waiting to grab it at gunpoint. Which means you have nothing to buy food with. So we're always hungry."
This cassiterite will inevitably end up in cheap cell phones and laptops laying abandoned in American landfills.
Despite (or indeed because of) its abundance of resources, the DRC has been plagued by conflict, famine and political instability since its independence in the 1960s. Following the end of the 30-year dictatorship of Mobutu Sese Seko (who was brought to power by the U.S. in the 1960s), the greed of neighboring countries for natural resources forced the DRC into the center of what organizations like Human Rights Watch have deemed, “Africa’s first world war.” The war resulted in the death of three to five million people, many from famine, exposure and disease.
A cease-fire ended the war in 1999, but the DRC has continued to suffer the extraction of resources and wealth through corrupt deals between local elites and international companies. A 2006 report from the London-based watchdog organization, Global Witness, describes how copper and cobalt are mined informally and illicitly exported, robbing the Congolese people of any opportunity to reduce poverty.
The new commission’s plan to revisit mining contracts between the state and private companies is a response to years of domestic and international pressure. Hopefully, once the review is completed (assuming that it is a transparent and non-corrupt process), the international companies involved will be willing to re-negotiate contracts in a way that is more beneficial to the Congolese state and its citizens. An interesting precedent was established last year in Liberia when Mittal Steel, the world’s largest steel company, agreed to step down from an unbalanced concessionary agreement made with a corrupt transitional government once a democratically elected government was in place.
We knew no good could come of Rupert Murdoch's acquisition of MySpace, the popular community web space, and of course we were right.
Last week, following the sad demise of the net neutrality amendment at the hands of Big Telecom and Big Media, the web was alive with the video of Sen. Ted Stevens of Alaska explaining why equal access to the Internet is bad, because it clogs the system. He explained how it took him a long time to get an email (Stevens called it "an internet") from his staff because it was getting tangled up in all of the stuff on the web.
Apparently feeling the American people did not understand what the Internet is and needed to have it explained to them by an expert such as himself, Stevens described the netwrk as a "system of tubes." His jolly cluelessness has made for tons of fun for bloggers and other web denizens, including a MySpacer who put Stevens' embarrassing video on his page, along with a groovy backbeat.
The page was exceedingly popular. Too popular apparently. MySpace deleted the user's page and all of its contents. MySpace spokespeople have since claimed the enitre incident was the result of a glitch. Uh huh.
Former U.S. Attorney General John Ashcroft's lobbying firm, the Ashcroft Group, has been hired by General Dynamics to represent it on "trade and defense issues," reports O'Dwyer's PR Daily. Working on the account are Juleanna Glover Weiss, Vice-President Dick Cheney's former press secretary; Lori Day Sharp, who worked under Ashcroft at the Justice Department; and Willie Gaynor, a former Commerce Department official who was western finance director for the 2004 Bush campaign. The Washington Times reports that General Dynamics "received a $30.7 million U.S. Navy contract last week and was selected -- along with Lockheed Martin in Bethesda -- to submit a bid to design and implement part of the government's Integrated Wireless Network. ... The steady stream of orders from the U.S. Army -- which now total about 25 percent of the company's sales -- provides a solid base that will continue for years. ... The defense contractor's net sales have more than doubled since 2000 to $21.24 billion last year."