Iranian schools teach Islamic version of history: CIA contractor
Posted by Pratap Chatterjee on May 30th, 2008
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
Military contractor’s 747 crashes just before Memorial day
Posted by Pratap Chatterjee on May 25th, 2008
A Kalitta Air plane en route to Bahrain in the Middle East has crashed. The Michigan based company has been linked to the CIA rendition program. It is also the main contractor that flies home bodies of U.S. soldiers after they are killed in combat in Iraq and Afghanistan.
Ironically the cargo plane crashed the day before “Memorial Day,” a major U.S. federal holiday that commemorates U.S. men and women who die while in military service.
Amnesty International has reported that Kalitta Air has been linked to “covert intelligence and military operations” but unlike other CIA contractors that appear to be dummy companies run by fictitious individuals, it was founded by a Conrad Kalitta, a retired U.S. drag racing driver.
Kalitta first entered the freight business in 1967 when he started ferrying car parts in a Cessna 310. In November 2000, Kalitta Air, started running domestic and international scheduled or on-demand cargo service and support for the Pentagon’s Air Mobility Command based at Scott Air Force Base in Illinois.
Shortly before the invasion of Iraq, Kalitta started up a scheduled cargo service to Europe and in 2005 the company won a part of a $1.2 billion dollar contract to provide airlift services to the Air Mobility Command.
On Sunday, a 25 year old Boeing 747 Kalitta jet, N704CK, crashed on take-off from Brussels airport. The specific plane is one of four of the company’s 747-200F’s and it regularly flies on Kalitta’s European cargo service to New York and Chicago, according to the company’s web schedule.
The plane broke in half and Belgian firefighters, who rushed to the scene, coated the wings of the plane with special fire retardant foam as a precaution because the plane was still full of jet fuel. The five people on board were slightly injured although none were killed. The plane was carrying 76 tonnes of cargo, half of which Belgian media reported to be mail. Details of the remaining cargo were not revealed.
Back in the U.S., the Wilmington News-Journal reported that the company planes were awaiting Monday’s commemoration ceremonies. “Along Delaware 1 near a busy Dover Air Force Base, travelers could catch glimpses in the distance of the original reason for Memorial Day. White, corporate-size jets owned by Kalitta Air waited in the sun to ferry home fallen troops whose final journey passes through the large military mortuary at Dover.”
(The company also leased one of its 747s to a Columbia Pictures film named “Air Force One,” a 1997 suspense thriller about the hijacking of the U.S. president's plane. The film starred Harrison Ford, Gary Oldman and Glenn Close.)
Pharmaceutical Payola -- Drug Marketing to Doctors
Posted by Rob Weissman on May 22nd, 2008
Last week, a Congressional committee properly raked Big Pharma over the coals for misleading advertising of pharmaceuticals.
A hearing of the House Energy and Commerce Committee's oversight subcommittee focused on advertising campaigns for three drugs, including the remarkable case of Robert Jarvik. Jarvik is featured in endlessly re-run ads for Pfizer's blockbuster cholesterol drug Lipitor. Known as the inventor of the Jarvik artificial heart, he is not a cardiologist, not a licensed medical doctor and not authorized to prescribe pharmaceuticals. He's shown in the ads engaged in vigorous rowing activity, but in fact he doesn't row. Pfizer pulled the ads in February after controversy started brewing.
Among industrialized countries, only the United States and New Zealand permit drug companies to market directly to consumers. It's a bad idea, it drives bad medicine, and it should be banned.
But although it has the highest profile, direct-to-consumer advertising is a small part of Pharma's marketing machine.
Researchers Marc-André Gagnon and Joel Lexchin conclude in a recent issue of the journal PLOS Medicine that direct-to-consumer ads make up less than a tenth of industry marketing expenditures ($4 billion of $57.5 billion in 2004). And Gagnon and Lexchin's estimate of $57.5 billion on marketing excludes many industry expenditures that are really driven by marketing, including clinical trials conducted for marketing purposes.
The bulk of the industry marketing effort -- more than 70 percent by Gagnon and Lexchin's calculation -- is directed at doctors.
Because it works.
The companies spend huge amounts paying firms that carefully track
what doctors prescribe, and then they use the information to tailor messages to doctors, distribute samples and develop continuing medical education programs.
Gagnon and Lexchin report that Pharma spends more than $20 billion a year on "detailers" -- the pharma reps that knock on doctor doors, ply the staff with free coffee and lunches, distribute samples ($16 billion worth), and prod docs to prescribe their drugs.
This is complemented by a host of tactics that in other circumstances might be called bribes.
"Virtually all physicians in America take cash or gifts from the drug companies," says Melody Petersen, author of Our Daily Meds: How the Pharmaceutical Companies Transformed Themselves into Slick Marketing Machines and Hooked the Nation on Prescription Drugs
, and a former New York Times reporter. "A recent survey said 94 percent of physicians took something of value from the drug companies. Some doctors take hundreds of thousands of dollars a year from these companies, and there’s no law that says they can’t."
Petersen says she "had no idea this was so extensive until one day I was writing a story about Celebrex and Vioxx -- this was before Vioxx was taken off the market. The story was about the marketing battle between these two pain drugs. I called one of the large societies of rheumatologists and asked for an expert on arthritis. I specifically said I needed an expert who was not being paid as a consultant to one of the manufacturers of these drugs. A staff person said, 'We have lots of people you can talk to, but all of these doctors are consultants to one or both of the drug companies.'"
Drug companies hire doctors to give lectures, and they hire other doctors as "consultants" to go to fancy dinners and listen to the lectures. "There are more than 500,000 of these dinners or events in America every year," Petersen says.
The drug companies weave these diverse strategems into an elaborate tapestry -- not infrequently to push drugs for inappropriate purposes. One eye-opening case that Petersen details in Our Daily Meds concerns Neurontin, a mediocre drug for epilepsy that Warner-Lambert illegally peddled as an unapproved treatment for bipolar disorder, migraines, attention deficit disorder in children and other conditions. The drug does not work for most of these conditions. Many persons were injured by taking excessive doses of Neurontin, and many others wasted money and emotional energy on hopeless Neurontin treatment strategies. Warner-Lambert ultimately paid $430 million to settle criminal and civil charges
related to Neurontin marketing, but Petersen says that, even so, the illegal marketing scheme was clearly profitable for Warner-Lambert (and Pfizer, which acquired Warner-Lambert in 2000).
Petersen's account of the Neurontin nightmare draws heavily on a whistleblower, David Franklin. She summarizes the central theme of the story Franklin revealed: "The company got doctors to prescribe the drug for all these experimental uses by paying them. They paid physicians to give speeches to other physicians at restaurants or hotels or resorts. The doctors not only enjoyed a nice meal or a weekend vacation, they often also received a $500 check for attending. The physicians giving lectures at these parties were often trained by the drug company’s ad firm to describe how Neurontin could work for conditions like bipolar. … The company tracked the doctors’ prescriptions before and after these dinners or weekend retreats. The executives saw how well it worked."
Which raises an interesting question: How is that industry can so effectively manipulate highly trained doctors?
Answers Adriane Fugh-Berman, a doctor and Georgetown University professor who runs PharmedOut
, a project that focuses on how pharmaceutical companies influence prescribing decisions
and encourages physicians to educate themselves from non-industry sources: "Physicians are trained in medicine, not psychological manipulation. Every bit of flattery, friendship and information offered by reps is aimed at selling drugs."
There is no simple solution to these problems, though ending patent-based marketing monopolies
would transform pharmaceutical marketing practices and likely eliminate most abuses.
In the meantime, a ban on Pharma gifts to doctors would be a modest step forward. In the United States, notes Petersen, "radio disc jockeys can’t take cash from music companies. But when it comes to something like medicines -- which mean life or death for people -- doctors can take as much money as they want from the drug companies. We need a law to stop that."
Note: Rob Weissman serve as managing director for Commercial Alert, which advocates for elimination of direct-to-consumer pharmaceutical advertising.
Wal-Mart and the Chinese Earthquake: Cheap Help for A Cheap-Labor Country
Posted by Philip Mattera on May 19th, 2008
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.
Dirt Diggers Digest is written by Philip Mattera, director of the Corporate Research Project, an affiliate of Good Jobs First.
KBR Questioned on Labor Abuses in Iraq
Posted by Pratap Chatterjee on May 7th, 2008
BE&K is no stranger to KBR: indeed BE&K was sub-contracted to build a temporary tent
city after Hurricane Katrina to house 7,000 military personnel and
others assisting in the disaster response. Both KBR
BE&K came under scrutiny for firing dozens
of unionized electricians, many of them local residents who had their
homes destroyed during Hurricane Katrina, in favor of lower-wage
CorpWatch attended KBR's annual meeting today at the Houstonian
hotel and met with William Utt, the company CEO, to ask him about the
company's policy on the exploitation of migrant workers, particularly
in Iraq, where the many sub-contractors employ at least 35,000 Third
Country Nationals (largely from South and South East
Indeed these are the people who are
responsible for KBR's boast that it has
"served over 500 million meals, delivered 272 million pounds of
mail, produced more than 7.5 billion gallons of potable water,
transported more than 3.5 billion gallons of fuel, hosted more than 87
million patrons at MWR (Morale, Welfare and Recreation) facilities,
logged nearly 3.7 million miles transporting supplies and equipment
for the military, and laundered 32 million bundles of laundry for the
troops." And this work is set to continue far into the
future - KBR
has just been awarded a big chunk of the mammoth new $150
billion troop support contract in Iraq
Utt told CorpWatch that his
company followed the Federal Acquisition
Regulations and paid their staff "world-scale wages". When we
noted to the assembled shareholders and the board of director that
these wages were as low as $9 a day for cleaners and $20 a day for
short-order cooks at the dining facilities we visited in April 2008,
and that many of these workers paid as much as $4,000 to get these
jobs in the first place, he acknowledged that he was aware of the
But our question still remains, what are
companies like KBR
and BE&K going to actually do about their
workers wages other than react and investigate?
We invite Utt and Nash to learn more about the
labor conditions of workers in Iraq by reading some of our coverage of
this matter on the last few years. Our trip to Iraq in April 2008
suggests that very little has changed for the men and women who cook
the food and clean the toilets for the U.S, soldiers living in Iraq on
contract to KBR, its competitors, and their
Adding Insult to Injury
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.
Dirt Diggers Digest is written by Philip Mattera, director of the Corporate Research Project, an affiliate of Good Jobs First.
The Beltway Bandit Behind the Passport Scandal
Posted by Philip Mattera on March 28th, 2008
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.
Dirt Diggers Digest is written by Philip Mattera, director of the Corporate Research Project, an affiliate of Good Jobs First.
Posted by Mark Floegel on March 19th, 2008
You might have heard the story about General Motors Vice Chairman Bob Lutz. At a recent closed-door meeting with reporters, the 76-year-old, who’s in charge of product development said he thinks global warming theory is “a total crock of sh*t” and that hybrid cars “make no economic sense.”
As you might expect, the people who cover both the auto industry and the environment went nuts. Mr. Lutz eventually responded to the uproar with a post on GM’s blog site (or at least a 26-year-old administrative assistant posted a response for him).
In the blog, Mr. Lutz called his remarks “an offhand comment.” “But I think that the people making a big deal out of it are missing the real point,” he wrote. “My beliefs are mine and I have a right to them, just as you have a right to yours.”
I don’t think anyone’s questioning Mr. Lutz’s right to have an opinion. I think, instead, when Mr. Lutz was kind enough to treat the world to his unvarnished thoughts, we all had an “Aha!” moment explaining why Toyota is overtaking GM as the world’s largest automaker.
Hybrid vehicles “make no economic sense” to Mr. Lutz, who undoubtedly basks in a bloated bath of cash thanks to his salary ($8 million per year), bonus and perks, but the for rest of us poor schmucks, trying to pony up what will soon be four dollars per gallon at the pump, hybrid cars make a world of economic sense and again, explains why Toyota is eating Mr. Lutz’s lunch.
“Instead of simply assailing me for expressing what I think, they should be looking at the big picture,” Mr. Lutz wrote. “What they should be doing, in earnest, is forming opinions not about me but about GM, and what this company is doing that is — and will continue to be — hugely beneficial to the very causes they so enthusiastically claim to support.”
Really? As fate would have it, I’ve driven three rental cars in the past week. One was a Hyundai Sonata, one a Dodge Avenger and one a Chevrolet Cobalt, from Mr. Lutz’s beloved GM.
The Cobalt was – to paraphrase Bob Lutz – a total piece of sh*t. It was cramped, handled poorly; the interior was made of such cheap plastic that I was afraid I’d a) die from off-gas fumes or b) snap off the handle when I went to open the door. The icing on this cake of deficiency was the fact that the little monster sucked down gas like a fleet of overloaded semis. Yet another wonderful product from GM, polluting the atmosphere and making people poor and miserable while it careens toward an early grave in the junkyard. Thanks, Bob.
My favorite – by far – was the Hyundai. It was comfortable, roomy, responsive and got decent gas mileage. The Dodge fell somewhere in between.
Mr. Lutz wrote, “My opinions on the subject [of global warming] — like anyone’s — are immaterial. Really.”
Really? GM pays you eight million dollars a year and doesn’t give a sh*t (I hate to keep using this word, but you brought it up, Bob) what you think?
And, really? Everyone’s opinion on global warming is immaterial? Perhaps that’s true. No one’s opinion counts except that of the decider, George W. Bush and he’s decided we need to keep pumping oil and mining coal.
Bob Lutz is a walking embodiment of what’s wrong with America’s industrial policy. He’s got his head so far up his own ass that everything looks like a crock of sh*t to him. Someone find this bozo a gold watch and let’s get on with trying to save ourselves from the internal combustion engine.
Making Company Data Truly Public
Posted by Ian Elwood on March 12th, 2008
For anyone who has private photos on MySpace there is a good chance that their intimate moments are now being laughed at by pimple-faced teenage boys around the world. Rupert Murdoch's News Corp, owner of MySpace, neglected to repair a security vulnerability that made 77,000 "MySpaces" into "OurSpaces" in late 2007. Around 500,000 private photos were extracted from the site and uploaded to a popular file sharing website called the Pirate Bay. Over the course of three months MySpace was notified multiple times about the glitch, but it was only fixed after Wired News reported the story in late January.
Well, what if the scheme that troublemakers used to embarrass amateur photographers was used to publish secret material in the public interest (such as evidence of product failures or toxic waste dumping), and then distributed far and wide for free, so that anyone could access it in a manner that the rich and powerful had no way to prevent it?
One recent event has tipped the scales in favor of corporate accountability. A website called WikiLeaks recently released information on an offshore bank named the Julius Baer Group that exposed a scandal involving Cayman Island tax havens, money laundering and tax evasion. WikiLeaks allows whistleblowers to leak documents to the site anonymously, and has a community of editors and users who vet the information and rate the credibility of submissions. Julius Baer Group asked a U.S. court to issue a gag order against WikiLeaks and had their domain name revoked by court order for a short period of time.
Instantly other organizations sprang to the defense of the public interest, the ACLU, EFF and Public Citizen all recognized the need for whistleblower websites, and as a failsafe WikiLeaks had kept multiple mirror sites, so all of their information stayed online. Eventually more people saw the data than if the bank had ignored the matter, so the Julius Baer Group gave up the fight.
Sites like WikiLeaks provide a good venue for otherwise difficult to find information to be made publicly available. This type of information is crucial for holding corporations accountable, and is not always easy to find. If you have information on any corporate malfeasance, and would like to share it anonymously, please visit our corporate malfeasance wiki, Crocodyl.
Spitzer versus Schwarzman
Posted by Pratap Chatterjee on March 12th, 2008
The news this week is deeply ironic: the main
building of the New York Public Library at Fifth Avenue and 42nd Street will be engraved with the name of Stephen A. Schwarzman, while the periodicals inside may sadly chronicle Eliot Spitzer, the
governor of New York state, as Client Number 9 of a prostitution ring. Both men made their name on Wall Street:
Schwarzman rose from his first job in investment banking at Lehman
Brothers to run the Blackstone Group, a private equity firm, that has
allowed him to stash away an estimated $4 billion today, while Spitzer
got corporations from Samsung to investment bankers like Lehman
Brothers to return almost the same amount to the public
The Wall Street financier is now giving $100
million to support a worthy cause that taxpayers cannot afford: a new library to lend books, wireless Internet access
and new rooms for children and teenagers, to attract as many as three
million new users, most of whom are expected to be from low-income
minority groups. It will be financed by the profits that Schwarzman
at Blackstone by exploiting tax loopholes to cut his tax rate
from 35 percent to 15 percent, costing the U.S. taxpayer tens of millions
Doubtless one of the books
that will be available at the new library will be the play Julius Ceasar, where Mark Anthony is quoted as
saying: "The evil that men do lives after
them; the good is oft interred with their bones." Yet
Schwarzman, like many wealthy people before him, will be able to escape
the curse of history, by buying fame at a public auction.
Spitzer may not escape the curse. The name
"Mr. Clean" may never be applied to him again. But for those
of us that track corporate fraud, who can forget his shining moments?
For example, in 2002 when ten Wall Street
banks from Bear Sterns to UBS Warburg were forced to pay $1.4 billion to settle
charges of "spinning" stock prices to make millions for
wealthy investors? Or in 2003, when his office uncovered how mutual fund brokers allowed select clients
privileges deprived to ordinary customers? Another billion dollars was
paid back to the small investor. How about the $50 million in royalties that his office
discovered that record companies hid from musicians in a
2004 investigation? And let's not forget the
$730 million in fines paid out in 2006 when his office discovered
price-fixing among computer chip manufacturers.
When Spitzer offered his apologies for his
, he asked that the media remember that politics should
not be about individuals but about ideas and the public good. That surely is also the role of
libraries -- ideas and the public good -- not about celebrating the
titans of greed and excess. Perhaps if Wall Street were to pay its
fair share of tax dollars to spend on libraries, then there would be
no need to name the Central Library after one of the men who robbed
the public purse.
Will children who pass through those two stone
lions to enter the library notice that their names are Patience and
Fortitude? Or will they hope that one day they become as rich and
famous as the man after whom the building is named?
I hope that when they look through the shelves
of the New York public library, they will find books and magazines
that remind generations of New Yorkers to come of Eliot Spitzer's
true legacy: of an honest man -- human and fallible no doubt -- who
spoke truth to power.
(And for those on Wall Street who are crowing
about Spitzer's misfortune, shame on
you; your turn may be next to lose your job in
the reckoning over the real scandal on Wall Street: the sub-prime mortgage crisis that threatens to leave many a poor family without a
home of their own.)
The Times Falls for Wal-Mart’s "Authenticity"
Posted by Phil Mattera on March 6th, 2008
Dirt Diggers Digest
The New York Times gave a boost today to Wal-Mart’s effort to raise its coolness quotient. Its account of a new blog
that the giant retailer is allowing some of its merchandise buyers to
produce was filled with references to “candor,” “speak[ing] frankly,”
and “uncensored rambling.” Much is made of the fact that the posters
have made unflattering comments about some of the offerings of
Wal-Mart’s suppliers. Wal-Mart is said to have learned its lesson from
earlier disasters with blogs created in the name of bogus front groups.
This new initiative, the Times assures us, is the real thing.
It is indeed the case that the site allows reader comments that are critical of certain company practices. For example, a posting
by an “associate” named Alex saying he might use spend his federal
economic stimulus check to purchase a TV or a laptop was followed by
comments on how that would do more to help the foreign economies where
such products are made. One person asked: “what happened to the
campaign WalMart used to run advertising its commitment to support
Yet, it appears that the Times was hoodwinked by Wal-Mart.
The appearance of authenticity and candor is just another technique
used by advertising agencies and public relations consultants to win
over skeptical audiences.
As for those critical comments, it’s significant that “Alex” thanked
all those who had corrected a spelling error in his post but had
nothing to say about the company’s sourcing practices. In fact, that
the only real topic covered in the posts apart from product assessments
Those items are posted in the name of Rand Waddoups,
who is no lowly buyer but rather the company’s senior director of
business strategy and sustainability. His part of the blog, at least,
fits in neatly with the company’s dubious campaign to depict itself as
the environmental leader of the corporate world.
As I have previously noted,
Wal-Mart’s green crusade places all the burdens on its suppliers, while
the moves taken by the retailer itself (improving energy efficiency,
etc.) are in fact nothing more than cost-cutting measures that boost
its bottom line. Until Wal-Mart makes some hard choices itself—such as
paying all its workers a living wage—nothing it does in the blogosphere
or elsewhere is going to be very authentic.
McDonald's gets F grade in Florida
Posted by Pratap Chatterjee on January 18th, 2008
Fast food giant McDonald's was just forced to withdraw a controversial program to sponsor report cards in Seminole County, central Florida, in exchange for a Happy Meal coupon on the cover that features an image of Ronald McDonald. (Children with A and B grades, with two or fewer absences or who exhibit good behavior were entitled to pick up a free Happy Meal at their local McDonald's, as long as they presented their report cards. The company paid the $1,600 cost of printing the report cards.)
The promotional campaign by the Illinois-based company was defeated by a small, but feisty, activist coalition named the Campaign For A Commercial-Free Childhood, which is based out of the Judge Baker Children's Center in Boston.
In early December last year, CCFC launched a campaign against McDonald's when outraged parents contacted them. "My daughter worked so hard to get good grades this term and now she believes she is entitled to a prize from McDonald's," Susan Pagan, an Orlando parent, told CCFC. "And now I'm the "bad guy" because I had to explain that our family does not eat at fast food chains. I'm outraged that McDonald's is trying to exploit my daughter's achievement -- and that the Seminole County School Board would help facilitate this exploitation."
It's not the first time that McDonald's has tried to directly influence the eating habits of young children (nor, probably the last, unfortunately). Three years ago the company dropped a national campaign in the UK of providing educational material and teaching assistants to primary schools after a public backlash against the program by groups like McLibel.
And in the 1990s there was a hue and cry by groups like UNPLUG! of Oakland, California, after McDonald's and other companies provided "sponsored educational materials" on subjects like nutrition to teachers to supplement or take the place of approved curriculum in the U.S. The company was also protested for sponsoring McTeacher's Night in southern California, which involved teachers working at local McDonald's restaurants to raise funds for schools by selling burgers to their own students!
Yet perhaps the most devastating blow to McDonald's advertising to school-children was done by documentarian Morgan Spurlock with his film: SuperSize Me (the entire film can be watched for free online at http://freedocumentaries.org/film.php?id=98 ). In the film, Spurlock documents the impact of dining exclusively on McDonald's products for a 30-day time period. The film also explores the fast food industry's corporate influence, including how it encourages poor nutrition for its own profit. (An edited DVD version of the film designed to be integrated into a high school health curriculum is available from Arts Allliance America.)
NB: Full disclosure: This writer is a former fast food food industry employee with almost two years experience working fulltime in the business including stints at Burger King, McDonald's and Pizza Hut which allowed him to finance a diploma course in journalism school.
Stop the Walled Garden!
Posted by Ian Elwood on January 15th, 2008
Many of today's new dot-com corporations, like Facebook and LinkedIn, make money by building "walled gardens" and programs that conduct "data mining" to take advantage of casual users surfing the web who are signing up in their millions for the numerous popular "free" social network sites. (Facebook refuses to reveal its profits but is rumored to be worth $15 billion.)
(A walled garden refers to a media strategy that compels users to one stay on their service. Data mining is the practice of collecting large amounts of personal information on website users by the site itself.)
While Apple's iPhone unabashedly locks users into using AT&T cell phone service, sometimes the strategies are more subtle. FaceBook, the popular social network site, restricts the functionality of their site so that it is easy to remain on facebook.com, while making external linking and emailing difficult. LinkedIn, another social network site, doesn't allow users to delete their profile without contacting customer service.
All of these tactics seek to make it easier for companies to collect information on individuals, with the sole purpose of creating consumer profiles for targeted advertising. The reason is simple: they make their money from the advertisers who will pay to get a captive audience (the kind they were once guaranteed on newspapers and TV) who might buy their products.
It is possible that these companies will soon sell their inventions for vast profits in the same way that YouTube and MySpace did, by taking advantage of ordinary people who would probably not pay for their services unless they were completely free. But activists say that the the Web has enormous potential to be a digital commons, if we assert our rights to use it for purposes other than buying and selling.
An activist group named Freespeech.org has put together a video that they are using to promote their "It's Our Web" campaign. The video, which spoofs the Transformers, is pretty entertaining, and manages to fit some complicated ideas about Internet user freedom into an accessible format. The underlying message of the video is a good one: the Internet is a medium that is best if it remains free. Restricting access to information is a taboo among Wikipedians, Slashdotters, bloggers and Gnubies alike because the free flow of information is what has driven the collective production responsible for the Web as we know it.
The New Business Watergate: Prosecution of International Corporate Bribery is on the Rise
Posted by Philip Mattera on December 18th, 2007
Philip Mattera is director of The Corporate Research Project,
an affiliate of Good Jobs First. The Project is a non-profit center that assists
community, environmental and labor organizations in researching and
analyzing companies and industries. Philip is also author of The Corporate Research E-Letter, and this blog is a re-posting of the November-December 2007 edition.
Chevron has recently been spending heavily on a public relations campaign titled “the Power of Human Energy” to depict itself as a leader in environmental and social responsibility. This image-burnishing effort faced a setback last month when the company was forced to pay $30 million to settle federal charges that it made illegal kickback payments to prewar Iraq in connection with crude oil purchases under the United Nations Oil-for-Food Program.
Chevron is just one of dozens of corporations that have been caught up in a move by the Securities and Exchange Commission and the Department of Justice to step up enforcement of a law prohibiting overseas bribery by U.S.-based corporations. The law—the Foreign Corrupt Practices Act or FCPA—can also be applied to foreign companies with a substantial presence in the United States. There have been reports that electronic and engineering giant Siemens, which recently paid a fine of around $300 million in a global bribery investigation by a German court, may soon be hit with FCPA charges as well.
The rise in FCPA enforcement emerged just as the prosecution of the wave of accounting scandals starting with Enron was winding down. In fact, the limited reforms enacted in response to those scandals—especially the Sarbanes-Oxley Act—have helped bring to light much of the information on which the recent FCPA cases are based. Business apologists who hoped that the public was forgetting about corporate crime now have to deal with new reminders of the sleazy aspects of commerce.
THE “BUSINESS WATERGATE”
It is often forgotten that the Watergate scandal of the 1970s was not only about the misdeeds of the Nixon Administration. Investigations by the Senate and the Watergate Special Prosecutor forced companies such as 3M, American Airlines and Goodyear Tire & Rubber to admit that they or their executives had made illegal contributions to the infamous Committee to Re-Elect the President.
Subsequent inquiries into illegal payments of all kinds led to revelations that companies such as Lockheed, Northrop and Gulf Oil had engaged in widespread foreign bribery. Under pressure from the SEC, more than 150 publicly traded companies admitted that they had been involved in questionable overseas payments or outright bribes to obtain contracts from foreign governments. A 1976 tally by the Council on Economic Priorities found that more than $300 million in such payments had been disclosed in what some were calling “the Business Watergate.”
While some observers insisted that a certain amount of baksheesh was necessary to making deals in many parts of the world, Congress responded to the revelations by enacting the FCPA in late 1977. For the first time, bribery of foreign government officials was a criminal offense under U.S. law, with fines up to $1 million and prison sentences of up to five years.
The ink was barely dry on the FCPA when U.S. corporations began to complain that it was putting them at a competitive disadvantage. The Carter Administration’s Justice Department responded by signaling that it would not be enforcing the FCPA too vigorously. That was one Carter policy that the Reagan Administration was willing to adopt. In fact, Reagan’s trade representative Bill Brock led an effort to get Congress to weaken the law, but the initiative failed.
The Clinton Administration took a different approach—trying to get other countries to adopt rules similar to the FCPA. In 1997 the industrial countries belonging to the Organization for Economic Cooperation and Development reached agreement on an anti-bribery convention. In subsequent years, the number of FCPA cases remained at a miniscule level—only a handful a year. Optimists were claiming this was because the law was having a remarkable deterrent effect. Skeptics said that companies were being more careful to conceal their bribes, and prosecutors were focused elsewhere.
Any illusion that commercial bribery was a rarity was dispelled in 2005, when former Federal Reserve Chairman Paul Volcker released the final results of the investigation he had been asked to conduct of the Oil-for-Food Program. Volcker’s group found that more than half of the 4,500 companies participating in the program—which was supposed to ease the impact of Western sanctions on Iraq—had paid illegal surcharges and kickbacks to the government of Saddam Hussein. Among those companies were Siemens, DaimlerChrysler and the French bank BNP Paribas.
THE REBIRTH OF FCPA PROSECUTIONS
The Volcker investigation, the OECD convention, the Sarbanes-Oxley law and other factors together breathed new life into FCPA enforcement. Stricter internal controls mandated by Sarbanes-Oxley have made it more difficult for improper payments to be concealed, prompting numerous companies to self-report FCPA violations in the hope of receiving more lenient treatment.
In 2005 the number of FCPA prosecutions started to pick up and reached double digits the following year. This year the number of investigations has reportedly been in the dozens, and the resolved cases have gained higher visibility. Among these have been the following:
* Three subsidiaries of British oil services company Vetco International pleaded guilty to FCPA violations in Nigeria and agreed to pay a total of $26 million in criminal fines. This was the largest criminal penalty the Justice Department had ever obtained in an FCPA case.
* Oil & gas distributor El Paso Corporation settled FCPA charges in connection with the Oil-for-Food Program and agreed to disgorge $5.5 million in profits and pay a civil penalty of $2.2 million.
* Dow Chemical paid a $325,000 civil penalty to settle FCPA charges relating to improper payments made by an Indian subsidiary in the late 1990s.
* A subsidiary of oil services company Baker Hughes pleaded guilty to FCPA charges involving bribery in Kazakhstan and paid a criminal fine of $11 million. In related SEC charges, Baker Hughes agreed to pay more than $44 million in criminal fines, civil penalties and disgorgement of profits. This became the new record for FCPA-related penalties.
* Textron Inc. paid more than $3.5 million to settle FCPA charges relating to kickback payments made by a subsidiary to obtain contracts for the sale of humanitarian goods to Iraq under the Oil-for-Food Program.
* Industrial equipment company Ingersoll-Rand agreed to pay more than $4.2 million to settle FCPA charges that four of its subsidiaries made kickback payments in connection with the Oil-for-Food Program sale of humanitarian goods.
FOREIGN COMPANIES IN THE FCPA NET
While the recent rash of FCPA cases has drawn little attention in the United States, the Siemens case has generated a major scandal in Europe. Last year, more than 200 police officers participated in a raid of company offices and homes of managers. Prosecutors in Italy and Switzerland joined in the investigation, which focused on suspicious transactions at the company’s telecommunications equipment unit reportedly totaling more than $2 billion.
The outcry over the bribery charges (and separate controversies over matters such as price-fixing) forced both the chief executive of Siemens and the chairman of its supervisory board to announce their resignation. In October the company agreed to a $300 million fine, hoping that the controversy would die down. But in November the Wall Street Journal gained access to the unpublished court ruling in the case, which provided embarrassing details about the payment of bribes in Nigeria, Libya and Russia. Subsequently, Business Week Online reported that FCPA charges in the United States could generate penalties for Siemens much harsher than what it experienced at home.
Siemens is not the only European company whose bribery problems are becoming an issue in the United States. Earlier this year there were reports that U.S. prosecutors have been investigating improper payments by major military contractor BAE Systems (formerly British Aerospace), including some reportedly involving Prince Bandar bin Sultan, former Saudi ambassador to the United States and a close ally of the Bush Administration, as well as other members of the Saudi royal family.
A quarter century after the Watergate investigation revealed a culture of corruption in the foreign dealings of major corporations, the new wave of FCPA prosecutions suggests that little has changed. There is one difference, however. Whereas the bribery revelations of the 1970s elicited a public outcry, the recent cases have generated little comment in the United States. Companies like Chevron pay their fine and go right on using their ad campaigns to present themselves as paragons of virtue. It took years for the reputation of Richard Nixon to recover from the taint of Watergate in the eyes of mainstream observers. Corporate America seems to be able to purchase instantaneous redemption.
Turning Ethnic Pride into Sales
Posted by Amelia Hight on November 6th, 2007
Listen to this as you read . . . "Air Force Ones" by rappers Nelly, Murphy Lee, Ali, and Kyjuan, 2002
According to a recent article in the Wall Street Journal, Nike is tapping into the sway of cultural “influencers” to attract new types of consumers. Traditionally, celebrity athletes have worn Nike shoes in return for lucrative endorsement deals. However, recent charges brought against famous Nike-sporting athletes like NFL star and criminal dog-fighter, Michael Vick, and more recently, track heroine and self-admitted steroid user, Marion Jones, have dirtied this image of the hard-working athlete and further urged Nike to look beyond the sweat-drenched athlete for culturally influential people to wear their shoes. While still focusing on the athlete as the main consumer, Nike is turning to “under the radar” influencers for inspiration. In many cases, this leads to Nike’s white sneaker being painted, embroidered or dyed the colors of a Latin American flag or taking on “cultural signifiers,” often stereotyped symbols meant to represent a certain heritage or ethnicity.
Nike’s most stylistic shoe, the Air Force 1, provides an excellent case in point. A new series of the shoe, called the “Cultura” collection consists of shoes like The Los Angeles Cortez, inspired by “the traditional images of LA street life,” the Handball Aztec Cortez designed to capture “our Aztec heritage,” and the green, white and red Mexican Airforce, which “pays homage to the Motherland.” Nike designers hired well-known graffiti and tattoo artists to create each shoe’s aesthetic appeal. Each year, Nike releases a new Chinese New Year AF1 (check out the Year of the Dog here). And, in previous years, Nike has introduced a series of West Indies Air Force 1s in time for West Indies Pride Days in New York City. Each shoe has the flag of a different West Indies country on its insole. There are also Jamaica, Philippines, and Puerto Rico Air Force 1s. Deemed “ethnic pride sneakers” by bloggers, these shoes bring up interesting issues about identity and consumerism. Through these shoes Nike present a pre-packaged narrative of identity. They tell consumers that it is possible to express ethnic pride by wearing Nike tennis shoes. Effectively, commodifying ethnicity has become a sales strategy for Nike.
However, according to Nike, developing shoes for certain ethnicities is not only about ethnic pride, but also about promoting health. Earlier this year, Nike introduced the Air Native N7, a shoe designed specifically for Native Americans. In addition to its signature swoosh, the shoe features “heritage callouts,” including sunrise and sunset patterns on the tongue and heel, arrowheads and feathers. Nike claims the new shoe is “an effort aiming at promoting physical fitness in a population with high obesity rates.” As one self-described Native American blogger, David Yeagley, summarizes, “American Indians are fat and have funny-shaped feet.” He continues: “Our own Nikes! What an achievement!” and asks, “A shoe designed especially for Indians is going to make us walk more? A national company name lent to Indians is going to inspire us to better health?” Another critic, Sherman Alexie, a Spokane/Coeur d’Alene Indian had the following to say, “The day it was announced, I thought: ‘Are they going to have dream catchers on them? Are they going to be beaded? Will they have native bumper stickers on them that say, ‘Custer had it coming’?”
Apparently the idea behind these specialized shoes is that they will create a buzz that will spread to consumers closer to the mainstream. That's right, Nike is attempting to attract attention from "under the radar" consumers in order to appeal to the mainstream. Buying "ethnic pride" sneakers from Nike might allow someone to feel like they're expressing their ties to a certain culture or identity, but in the end, they're still just products designed to make profits for the biggest footwear company in the world.
One has to wonder if Nike's switch from risky celebrity endorsements to ethnic pride, is really just about creating a positive spin on its image, which has historically also been sullied by accusations of worker abuse in poor country sweatshops.
Book Review: Stolen Without a Gun
Posted by Ian Elwood on November 1st, 2007
Stolen Without a Gun reads like an Anarchist's Cookbook of Corporate Crime and illustrates well how an international money laundering scheme works (including how to nest embezzled funds in a series of quasi-legal Cayman Island bank accounts) while telling the personal tale of Walter Pavlo, Jr., a convicted white-collar criminal who was busted for embezzling $6 million while working at MCI Telecommunications in the mid-1990s.
Pavlo, who served his time in jail and now gives lectures and advice on the subject of ethics and white-collar crime, is portrayed in the book as an everyman, without any particular bent to stealing money.
The narrative gives an inside perspective of how a business person could get wrangled into a high stakes game of money laundering. Pavlo, good at his job, notices the graft and corruption all around him and sees people hiding debt in accounts that he knows will never be repaid. Millions of dollars are being thrown away all around him. All the myths that he learned in business school, "The corporation as a community run by thoughtful innovators striving to do good while doing well," are shattered before him. As he is being groomed by his superiors in the company and his rise to power begins, he realizes the upper limits of just how much money he will make in his career at MCI. And it isn't enough. Plus, his company is being ripped off by delinquent customers everyday and he is the one responsible when they don't pay up. They are all getting away with it, why can't he?
The entire scheme is viewed by the perpetrators as nothing more than a college prank, they justify it by telling themselves that no one will miss the money, and for a while no one does. They get increasingly bold and sloppy with their methods and start to go after larger customers with higher levels of oversight. It is fun to watch the dizzying high come crashing down as Pavlo realizes that he cannot keep control of all of the accounts he has been siphoning, and he is running out of shells to shuffle money under.
The book does a good job of giving a frank perspective on how the culture of graft and corruption works. The demands to collect money from his clients are so unrealistically high that Pavlo has no choice but to bend the rules to make his quota. Corporate won't tell him explicitly to shirk regulations, but it is understood. Once he sees how easy it is to break the rules, and that everyone is doing it, there isn't much ground to cover for him and his buddies to come to the realization that he could be making money for himself instead of chucking it away into delinquent accounts.
Stolen Without a Gun is a "How-To" guide for students of the U.S Racketeer Influenced and Corrupt Organizations Act (RICO) and shows that too often a white collar criminal pushes externalities on their families and friends; Pavlo loses his wife and two children and his coworkers end up in jail. In the end the protagonist goes to jail, as the cover suggests, and presumably has a change of heart about his life of crime. But a quote from the last pages of the book suggests otherwise, "Bottom line, we are...getting what we deserve. We had our eyes wide open. Our only real regret is that we got caught. Case closed."
Made in the U.S.A.
Posted by Amelia Hight on October 22nd, 2007
In a recent decision reported in the Guardian, a federal appeals court ruled that Caterpillar Inc. could not be sued over the death of an American peace activist who was crushed under bulldozers sold to the Israeli Defense Force (IDF). The story of Rachel Corrie, the activist who was crushed by a 60-ton Caterpillar D9 Bulldozer in Rafah, Gaza in 2003 while trying to prevent the razing of a Palestinian home by the Israeli army, achieved widespread media attention. Reports of the IDF’s razing of homes in Rafah were issued by numerous human rights watchdog organizations, including Human Rights Watch. Corrie’s family, along with four Palestinian families of victims killed while their houses were bulldozed, began legal proceedings against Caterpillar in 2005 for selling machines to Israel. Lawyers arguing for the families insisted that the company sold the bulldozers to the Israeli government on a commercial basis and knew, or should have known, that they would be used to demolish homes and kill innocent victims in violation of international law.
Explaining its decision, the court claimed that it could not rule in favor of the bereaved families "without implicitly questioning, and even condemning, United States foreign policy towards Israel." Of course, this is not the first time that U.S. companies have been implicated in mass human rights abuse and not had to answer for their participation. Indeed, U.S. companies have been intimately connected to the human rights abuses of regimes throughout modern history. Near the turn of the millennium, pressure from Jewish organizations finally forced the U.S. to begin looking at the use of slave labor by U.S. corporations (and their subsidiaries) in Nazi Germany.
A court case brought against Ford Motor Co. was dismissed, but Ford admitted that its German subsidiary, Ford-Werke AG, used labor at the Buchenwald concentration camp to build vehicles. Other major U.S. corporations that continued to operate in Nazi-occupied Europe and used slave labor include General Motors, Chase Manhattan Bank and JP Morgan. ''There are things that have to be faced up to,'' alleged Elan Steinberg, World Jewish Congress executive director, ''American companies were collaborating with Nazi Germany at a time when we were at war, because there was an ethos that demanded huge profits at the expense of everything else.''
Modern history is peppered with examples of corporations seeking profit during periods of mass human rights abuse: In the 1970s, the U.S. manufacturing giant, ITT, and others helped overthrow democracy and install the Pinochet dictatorship in Chile (to listen to the Nixon Whitehouse tape that acknowledges this relationship visit GWU’s website, The National SecurityArchive). Numerous companies supported South African apartheid, including U.S. giants IBM, General Motors, ExxonMobil, J.P Morgan Chase, Citigroup, Caltex Petroleum Corporation, Ford Motor Company and the Fluor Corporation. In 2002 a group of South Africansunsuccessfully sued 20 banks and corporations that did business in South Africa during apartheid. The list goes on and on.
Even if these corporations are not held accountable for their role in mass human rights abuse and economic activities are allowed to take legal precedence over human rights, it is of vital importance to recognize the role that corporations play in this abuse. It appears to be the responsibility of the public to put pressure on corporations to consider where they do business and with whom.
Global Accounting Standards
Posted by Pratap Chatterjee on October 18th, 2007
The world of global accounting is girding up for a trans-Atlantic battle. Last month L'Oreal, Royal Dutch Shell, and Unilever, all gigantic companies, asked the U.S. Securities and Exchange Commission (SEC) to allow them to choose which accounting standards they want to use. (The companies belong to the European Association of Listed Companies, who delivered the letter.)
The reason is that U.S. Generally Accepted Accounting Principles (GAAP) is 25,000 pages long (which are based on very specific rules) and they don't like it. By comparison, the International Financial Reporting Standards (IFRS), is just one tenth the length (which are based on principles which can be more open to interpretation).
There are other good arguments for using the global rules - there are now more than 100 countries either using or adopting international financial reporting standards, or IFRS, including the members of the European Union, China, India and Canada.
But L'Oreal, Royal Dutch Shell, and Unilever, don't just want the easier rules, they want to choose which version of IFRS they can use - a European Commission version that allows them to choose how they value certain assets.
Financial Week, an industry magazine, in New York is up in arms.
" Imagine signing a contract and not having to hold up your end of the bargain. Or being able to say "I do" at the altar when you might sometimes mean "I don't." Having it both ways in such matters sure provides flexibility, to put it charitably. Yet that's exactly what a group of European companies want when it comes to accounting standards for global companies tapping the U.S. capital markets," editors of Financial Week, wrote earlier this month. (see "Converging on Chaos")
Another industry magazine, Accountancy Age in London, has also been critical of companies that use the more flexible European Commission rules. A couple of years ago, Taking Stock, the magazine's blog, asked Rudy Markham, the finance director of Unilver, why he was using flexible IFRS rules in reporting for the company, but he refused to comment, leading them to poke fun at him:
" TS understands that the biggest accounting change for a generation can be a complete turn off. We assume the numbers involved didn't mean that much to Markham anyway - a billion off the top line there, a billion on the bottom line there. He did, after all, personally take home just over £1.1 million last year. Money, money, money, as Abba used to sing... "
The good news is that the U.S. which has long insisted on using its own complex rules, may be open to using the global standard. SEC chairman Christopher Cox has agreed to allow U.S. companies to use the IFRS but has cautioned against local versions of the rules, like the European Union version. Financial Accounting Standards Board chairman Robert Herz has also said that this is a bad idea.
Today the International Accounting Standard Board, which drew up the IFRS, appointed a new chairman, Gerrit Zalm, a former Dutch finance minister, who has already announced that he would try to prevent local variations of the global rules: "One of my first priorities will be no new carve-outs in Europe and trying to get rid of the existing carve-out, because if Europe is doing this, other countries could get the same inspiration and then all the advantages of the one programme fade away," Zalm told the Financial Times. "The fragmentation of standards is costly for the enterprise sector and it doesn't help in creating clarity for investors."
We look forward to his efforts to create a single global standard. Stronger global rules are always welcome, especially if they are easier to follow, but weaker ones that cater to nationalistic interests are not.
Cowboy Capitalism: Chinese Companies in Africa
Posted by Amelia Hight on October 10th, 2007
Transit riders switching trains at the Montgomery BART subway station in downtown San Francisco will find it difficult to miss the new ads covering the walls, the floor and even the stairs with pictures of Sudanese refugees. The advertisements' message is attention catching: "Are you invested in genocide?" As part of the Save Darfur Coalition's Divest for Darfur campaign, the ads urge transit users to visit their website, where they are asked to demand that investment firms - specifically JP Morgan, Franklin Templeton, Fidelity Investments, Capital Group (American Funds), and Vanguard - withdraw investments from companies like the Chinese National Petroleum Corporation (CNPC), which are, according to the website, "filling the coffers of the Sudanese government and helping fund the government's actions in Darfur." (As a side note, the use of the term "genocide" by groups like Save Darfur to describe the conflict in Sudan is highly controversial. For more information, read the transcript of Professor Mahmood Mandani's June 4th interview with Amy Goodman on Democracy Now!, titled "The Politics of Naming: Genocide, Civil War, Insurgency."
The CNPC has been heavily censured for continuing to do business in Sudan, despite the ongoing conflict there. Attempting to place pressure on firms invested in the state-owned CNPC, rather than on the CNPC itself, is a way for activists to circumvent the "no strings attached" stance of the Chinese government toward investment in Africa and other parts of the world. China prides itself on having a different approach to investment than western lending organizations like the World Bank or IMF, which have numerous development and human rights stipulations attached to investments. In Sudan, this means that the government doesn't have to bend to international pressure to, say, allow UN troops into Darfur. Many African governments welcome Chinese investment specifically because of this hands-off approach. In a recent article in the New York Times, Lydia Polgreen comments on the increasing presence of Chinese companies in Africa, especially in the rich natural resources and mining sector. Manganese mines in South Africa, uranium pits in Nigeria and cobalt mines in the Congo are all areas of investment for state-owned Chinese companies, like the Nonferrous Metals Corporation.
African citizens view Chinese investment with ambivalence. Some see economic relationships with China as a source of much needed income and a step up from paternalistic relationships with the West. "Let the Chinese come," said Mahamat Hassan Abakar, a lawyer in Chad. "What Africa needs is investment. It needs partners. All of these years we have been tied to France. Look what it has brought us." Others are more critical, seeing China as just another country robbing Africa of its resources and in the process enriching local elites, bolstering repressive governments and perpetuating Africa's secondary economic status. Cheap Chinese goods flooding Africa inhibit local manufacturing and the jobs that accompany it. Unsafe working conditions lead to industrial accidents like the 2005 blast at a Chinese-owned explosives factory in Chambishi, Zambia, which killed 51 people.
The investment of Chinese state-owned companies in Africa is hardly a win-win situation, but it is easy to recognize the attraction for African governments doing business with Chinese companies. In judging if China is a partner or colonizer in Africa, the answer is probably, a little of both.