Enron Style Corporate Crime and Privatization

A look at the U.S. Coalition of Service Industries
Publisher Name: 
Polaris Institute

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

The degree to which members of the USCSI were among the corporations
most involved in the recent wave of corporate scandals is disturbingly high.
For example,
Enron ,

Andersen
,
and

WorldCom

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

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

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

  • Corporate scandals - A look many of the USCSI members which have
    been implicated in the recent corporate scandals (Part II)

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

PART I - Background: Corporate power and the USCSI

About the US Coalition of Service Industries

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

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

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

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

In addition to the influence of making enormous contributions to political campaigns
(go to
http://www.opensecrets.org/

and search using almost any

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

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

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

II. USCSI Members and the corporate scandals of 2002

Many of us know about the the scandals involving

Enron
,

Andersen
,
and

Worldcom

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

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

Citigroup has very much been a
part of the Enron scandal. There are currently probes by
Federal and New York State prosecutors, an investigation by the
Securities and Exchange Commission, and a large number of investor
lawsuits. According to a

July
23rd, 2002 NY Times article
, internal bank documents have
revealed that Citigroup intentionally manipulated the written record
of a 1999 transaction with Enron so that Enron could ignore
accounting requirements and hide its financial condition. This
kept $125 million in debt off the books, helping Enron to look
better publicly and falsely keep its share price up.
Citigroup, along with JP Morgan and other banks, is being
scrutinized in Congressional investigations for its role in setting
up complex energy deals which allowed Enron to boost its cash
flow. Citigroup and JP Morgan made $200 million in fees off of
these deals.

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

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

Citizen Works

commentator Lee Drutman in the Providence Journal-Bulletin,
as it represents less than 1% of Citigroup's annual revenues of $100
billion.

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

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

Halliburton

In addition to lawsuits recently settled for over $4 billion US over use of
cancer causing Asbestos inherited when Halliburton bought Dresser
Industries, many other questions abound around Halliburton - the
company Dick Cheney ran before becoming US Vice President. One
question which has placed Halliburton in legal trouble is whether or
not Halliburton improperly recorded revenue from cost overruns on
various big construction jobs during and after the time that Cheney
ran the company in order to boost revenue and profits. This
has brought forth a formal

Securities and
Exchange Commission (SEC) probe
into the potential wrongdoing
and has prompted numerous securities fraud lawsuits as well,
including a

lawsuit
against Cheney himself
for fraud from the right-leaning
government watchdog group Judicial Watch. On May 30th, 2003
Halliburton announced that it has agreed to settle approximately 20
shareholder lawsuits, combined into a class action.
Halliburton did not disclose the amount of the settlements, but
stated that the payment "is immaterial and will not impact second
quarter results". As is usually a corporate demand in
such settlements so that the corporation will be able to more easily
rebuff other suits, Halliburton refused to accept any wrongdoing as
a condition of the settlement. It is noteworthy that current
Halliburton CEO David Lesar, while defending Halliburton's
accounting practices,

publicly
acknowledged
that Cheney knew about the firm's accounting
practices, stating that "the Vice President was aware of who owed us
money, and he helped us collect it."

Over the years, Halliburton has also left its mark internationally. The
Environmental Rights group EarthRights International put together a

scathing report of
Halliburton's practices
in Burma called "Halliburton's
Destructive Engagement: How Dick Cheney and USA Engage Subvert
Democracy both at home and abroad". According to the report,
Halliburton subsidiary European Marine Contractors (EMC) helped lay
the offshore portion of the Yadana natural gas pipeline and, though
Halliburton's involvement with the pipeline was not as thorough as
Unocal's, it certainly helped in propping up the Burmese government
though its work on the project. This was a Burmese government
that was routinely violating human rights through rape, torture,
human slavery, and murder as a means to ensure full compliance -
including using human slavery to ensure the Yadana pipeline was
completed. As

Dick
Cheney told the crowd
at the [Texas] Panhandle Producers and
Royalty Owners Association
annual meeting in 1998: "You've got
to go where the oil [or, in the Burma case, natural gas] is. I
don't think about it [political volatility] much."

Halliburton is also notorious for receiving enormous

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

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

Halliburton also has long standing connections to Iraqi oil. The

Washington
Post reported
that through foreign subsidiaries, Halliburton
under Cheney did $73 million in business with Iraq in 1998-99,
helping rebuild Saddam's damaged post-Gulf War oil fields - despite
Cheney publicly saying Halliburton had a "firm policy" against
dealing with Iraq.

According to
a Boulder Daily Camera column by Molly Ivins
, this was made
possible by a 1998 UN resolution allowing Iraq to avert sanctions to
buy spare parts for its oil fields, which is tragic considering that
hundreds of thousands of Iraqis were still denied medicine and
similar supplies under the sanctions because of concerns that
medicines could be used for making weapons. Many Iraqi children died
directly because of this policy. It therefore appears to
be highly hypocritical that Dick Cheney was a key booster for the
U.S. war on Iraq, after having made enormous money off of the Iraqi
people for Halliburton just a few short years before.

Cigna

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

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

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

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

Other cases of USCSI members connected to corporate scandals:

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

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

AOL Time Warner

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

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

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

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

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

Regarding cost and accountability, the contracts were filled with problems such as
Accenture billing the state up to $450/hour per manager.
According to a

scathing
report
from the Ohio Inspector General, work done by Cochoran
public relations to convince the public of the necessity of
Accenture's services was marked up by 63%, costing taxpayers
$67,300. As well, taxpayers paid up to $93,750 a month for
coffee, lunches, California hotel rooms, office furniture, office
rental, carpeting, and a husband for rent repair service

In the late 1990s, Arnold Tompkins, then welfare director of Ohio, awarded nearly $26
million in unbid contracts to Accenture. Soon after this award,
Tompkins left public office and was given a $10,000 a month contract
from Accenture. The largest of the contracts he signed with
Accenture ($16.1 million) was approved less than a month before he
left office and was done over the objections of his whole
contractual review committee, which said the contract was too
expensive and had not been competitively bid. The Ohio
Inspector General

recommended

that Tompkins, and Donna Givens, a consultant who was
"'instrumental' in facilitating the unbid contracts", both be
charged criminally for this steering of contracts for
Accenture. Ohio's state's inspector general Thomas
Charles did ultimately charge Tompkins with improper steering of
contracts to set up work for himself after leaving office and
conflict of interest.

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

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

click
here
]

Vivendi Universal-

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

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

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

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

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

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

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

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

To be sure, Vivendi Universal and
Accenture are just two corporate members of the USCSI companies
involved in the privatization of public services. To name only
a few others,

EDS

is active in the privatization of government services,

UPS

is using international trade rules to challenge public postal
services in many countries (including Canada and Germany),

General
Electric
in active in energy privatization projects, and the
members of the

National
Committee on International Trade in Education (NCITE)
are
looking for access to the national education sectors of countries
around the world. These corporations and many others on the
USCSI are eagerly looking for opportunities within the GATS and
other international trade and investment agreements to open up
opportunities for them to privately provide what have traditionally
been public services. And they use the connections and
collective leverage of the CSI to do so.

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

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

Vivendi Universal and the World Bank

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

Citigroup, JP Morgan, the IMF and Brazil

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

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

Conclusion

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

Darren Puscas is researcher at the 1310 Polaris Institute in Canada.

AMP Section Name:Money & Politics