Citizen Works -

The Corporate Reform Weekly

Vol V, #10 March 13, 2006

In Short

Lobbying Reform

1. Lobbying Reform stumbles in Congress

Scandal

2. Enron CFO Fastow says “We stole” as he takes jury through “culture of corruption

3. Enron reaches settlement with FERC, others for illegal trading practices

4. Custer Battles fined $10 million for contractor fraud in Iraq

5. Disney, Chevron, Citigroup earn “Public Eye” Awards to highlight their destructive behaviors

This Week’s Action Item

Tell your members of Congress: You want real lobbying reform

Lobbying Reform

1. Lobbying Reform stumbles in Congress

With port security grabbing all the headlines this past week, lobbying reform has once again taken a back seat, and there is some doubt as to whether any legislation will actually get passed.

Sen. Susan Collins (R-Maine,), chair of the Government Affairs Committee and one of the leading Senators behind legislation in the Senate, told the New York Times that the lobbying reform bill was "way off track" and fretted that its chances for passage may be jeopardized. "People have turned to other issues," Collins said. "This was our window, and I'm afraid it will be slammed shut."

"People have mixed feelings," Collins added. "On the one hand, they do recognize that we need to boost public confidence in the integrity of our decision-making. On the other hand, members regard themselves as ethical, and some question whether we should be moving to fix the laws, when it was the laws that were broken."

In the House, meanwhile, Rep. David Dreier (R-Calif.), who has been leading the lobbying reform efforts, told the Times that he was having a harder time reaching consensus than he had thought he would. "We have not moved as expeditiously as we would have liked," Dreier said. "There is a wide range of views. There are still people who feel very strongly about the need to make some changes, and there are people who are not as enthused."

Newly elected majority leader Rep. John A. Boehner (R-Ohio), for example is downright hostile to a travel ban. But a report released last week by Campaign for a Cleaner Congress found that Boehner had in fact taken more than 100 trips to locations not in his district that were funded by private groups and his political action committee and his campaign committee, both of which are largely funded by private money.

Before port security came to dominate the agenda, Senators did vote to ban the practice of lobbyists paying for meals. But for such a ban to become law, it would have to be approved by the House as well and signed into law by the President.

``There is an undue advantage given to those who are able to take a member or senior staff member out for a meal,'' said Sen. Christopher Dodd (D-Conn.), who sponsored the amendment.

Other amendments under consideration include proposals to set up an independent ethics committee, require lawmakers to give up corporate jet rides, and to require lawmakers to pay for privately funded trips. ``Perks are a serious issue,'' said Sen. Russell Feingold (D-Wisc.). ``If the bill only involves disclosure, that's not acceptable. That is not anywhere near what the public expects us to do here.''

Some, however, have suggested that the real issue is campaign finance reform, which is largely being ignored in the debate. Roberta Baskin, executive director of the Center for Public Integrity, said, " I think most of the American people already expected their representatives to pay their own way. But there are much more serious issues than that…. It's chump change when you compare it to much bigger-ticket items, like campaign finance."

In the House, Reps. Dave Obey (D-WI) and Barney Frank (D-MA), in January introduced the “Grassroots Clean Campaign Act” which would create a system of full public funding of elections for Congress, effectively banning private money.

For more, see:

“Push to Tighten Lobbying Rules Loses Strength,” By SHERYL GAY STOLBERG: http://www.nytimes.com/2006/03/11/politics/11lobby.html?_r=1&oref=slogin

“Senators Vote to Prohibit Dining on Lobbyists' Dime,” By Maura Reynolds, Times Staff Writer: http://www.latimes.com/news/nationworld/politics/la-na-ethics9mar09,1,524657.story?coll=la-news-politics-national

“Senators Vote to Prohibit Lobbyists From Buying Meals” http://www.bloomberg.com/apps/news?pid=10000087&sid=akOpehwDgIVY&refer=top_world_news

“Lobbying Reform: Limping Along,” By PERRY BACON JR./WASHINGTON: http://www.time.com/time/nation/article/0,8599,1171357,00.html

“Congress split over handling ethics inquiries,” By Deirdre Shesgreen

POST-DISPATCH WASHINGTON BUREAU: http://www.stltoday.com/stltoday/news/stories.nsf/newswatch/story/2FA91FF5627D92888625712E00384813?OpenDocument

Scandal

2. Enron CFO Fastow says “We stole” as he takes jury through “culture of corruption”

Former Enron CFO Andrew Fastow, star witness for federal prosecutors in the trial of former Enron executives Jeffrey Skilling and Kenneth Lay, came to the witness stand list week.

Fastow presented a number of pieces of evidence.

There was, for example, a three-page, handwritten memo, known as “Global Galactic” that covered a series of improper deals, guaranteeing that Fastow’s secretive off-the-books partnerships would not lose money when they took on Enron’s underperforming assets. These deals were key pieces of Enron’s fraudulent accounting.

"I know they incriminate me, and I believe they incriminate others as well," Fastow told jurors. Included in the list of others, he said, is Jeffrey Skilling.

The memo covered a series of improper deals that guaranteed Fastow's partnership would not lose money in exchange for helping Enron unload underperforming assets, is important to the government's case as one of the few pieces of paper to make reference to the secret deals.

Fastow also told of a side deal involving a Brazilian power plant. Fastow described this as one of several “bearhugs” between he and Skillling. Fastow said that Skilling told him: “Don’t worry. I’ll make sure you’re all right on the project. You won’t lose any money.”

When Skilling’s lawyer, Daniel M. Petrocellli confronted him asking "You're saying those 14 words took an otherwise appropriate transaction, properly accounted for, and destroyed the bona fideness of the transaction?" Fastow said, “yes.”

Fastow, who has already pleaded guilty to fraud charges and will spend 10 years in prison for sealing more than $45 million from the company, said that he lied and stole, but so did other members of the “senior management.”

"I was going to scratch their back, and they were going to scratch mine," said Fastow. "I thought I was being a hero for Enron. The stock price goes up, I get a bigger bonus -- what I thought was a win-win situation. The whole point was these were the undocumented deals, these were the side deals. It wasn't a good document to have hanging around."

Fastow said that when he conducted massive fraud, he was responding to the demands of the Skilling, who he said, had told him: “get me as much juice as you can,” and had then sanctioned the deals.

During his testimony, Fastow took jurors through the details of Fall 2001. He said that in August 2001, when Lay became CEO following Skilling’s abrupt resignation, Lay made a series of “false” and “misleading” statements and failed to mention problems in the international unit and the company’s broadband Internet unit. Fastow testified that he met with Lay in August to point out a $5 to $7 billion deficit on the company’s books, and the two discussed “a big hole.” Yet, on August 24, Lay told a reporter Aug. 24 that "there are no accounting issues, no trading issues, no reserve issues, no previously unknown problem issues." He said, "The company is probably in the strongest and best shape that it has ever been."

As late as September 26, Lay told employees that the company was “fundamentally sound,” even after he had seen financial reports showing an earnings gap of $826 million just two weeks prior. Fastow testified: "In the culture of corruption that Enron had, a culture that rewarded financial reporting as opposed to economic value . . . I was a hero. It was not a good thing. That's why I'm here today."

"When you misrepresent the nature of the company, artificially inflate earnings, hide losses, when you do things like this to cause your stock price to rise, that is stealing," Fastow said. "We stole."

For more, see: “Overseeing the greed at Enron,” By LOREN STEFFY

“Fastow Says 'We Stole' as Enron Defense Assails His 'Greed'” By Carrie Johnson

Washington Post Staff Writer: http://www.washingtonpost.com/wp-dyn/content/article/2006/03/08/AR2006030800357.html

“Defense Attacks Fastow's Memo,” By Carrie Johnson

Washington Post Staff Writer: http://www.washingtonpost.com/wp-dyn/content/article/2006/03/09/AR2006030902116.html

“Former Enron CFO Implicates Old Bosses” By Carrie Johnson: http://www.washingtonpost.com/wp-dyn/content/article/2006/03/07/AR2006030700142.html

3. Enron reaches settlement with FERC, others for illegal trading practices

What remains of Enron Corp last week agreed to settle claims with the Federal Energy Regulatory Commission (FERC) relating to electricity and natural gas transactions during the Western power crisis between 1997 and 2003.

Enron granted FERC an “unsecured” claim of $10 million, which is just a fraction of the $400 million FERC claims Enron should pay for illegal trading practices. Enron also settled claims with the city of Santa Clara and Valley Electric Association Inc.

See: “Enron ready to settle disputes,” By DAVID IVANOVICH: http://www.chron.com/disp/story.mpl/front/3716368.html

4. Custer Battles fined $10 million for contractor fraud in Iraq

A federal jury last week ordered defense contractor Custer Battles LLC and its owners Scott Custer and Michael Battles, to pay $10 million for contract fraud in Iraq. The company was found guilty of overcharging by more $3 million. Under federal law, that gets tripled.

During the trial, retired brigadier general Hugh Tant III described the work of Custer Battles LLC as “probably the worst I've ever seen in my 30 years in the Army.”

Tant testified that when he confronted Scott Custer and Michael Battles of Custer Battles about the fact that 34 of the 36 trucks they had provided didn’t actually work, Battles replied: “You asked for trucks and we complied with our contract and it is immaterial whether the trucks were operational."

The case was brought under the False Claims Act, which allows private citizens to bring cases against companies that have defrauded the government. William Baldwin, a former Custer Battles employee who was demoted after complaining about Custer Battles billing practices, was one of the people who brought the case as a whistle-blower. He will get $230,000 in back pay. He and fellow whistle-blower Robert J. Isakson are eligible to receive 30 percent of the damages.

Sen. Chuck Grassley (R-Iowa) criticized the Justice Department for not taking on the case itself, instead leaving it up to private whistle-blowers to hold the company accountable. "The jurors in this case listened to the arguments and sent back a strong statement of intolerance for fraud, waste and abuse of taxpayer dollars,” Grassley said in a statement. “I remain concerned as to why the Justice Department chose not to join this case.”

During the trial, retired Army Brig. Gen. Hugh Tant III told the court that the trucks were "very dangerous," and that brake failure led to a wreck. "I felt these two men turned their backs on us and it crushed me internally," he said. Tant directed the Iraqi currency exchange program for the Coalition Provisional Authority in Iraq in the fall of 2003.

For more, see: “Custer Battles fined $10m on Iraq contract” http://www.upi.com/SecurityTerrorism/view.php?StoryID=20060310-114937-8787r

5. Disney, Chevron, Citigroup earn “Public Eye” Awards to highlight their destructive behaviors

Disney, Chevron, and Citigroup recently were given “Public Eye” Awards to highlight their destructive behaviors. The awards were presented in Davos, Switzerland, by the Berne Declaration and Pro Natura.

Chevron won its award in the “Environment” Category. According to the presenters: “The U.S. oil concern, nominated by Amazon Watch, contaminated large areas of pristine rain forest in northern Ecuador for nearly 30 years (under its former name Texaco). To this day, it refuses to carry out a comprehensive cleanup of this Amazon region.”

The Walt Disney Company won its award in the “Social Rights” category. According to the presenters, “Southern Chinese suppliers to the entertainment giant are guilty of serious labor and human rights violations, thus tarnishing Disney’s family-friendly image. The California-based media and toy manufacturer was nominated by Students and Scholars Against Corporate Misbehavior (SACOM), located in Hong Kong.”

Citigroup Inc., nominated by the Tax Justice Network, won its award in the “Taxes” category. According to the Tax Justice Network, which submitted the nomination, “Citigroup subsidiary Citibank, the largest non-Swiss private bank, has helped wealthy individuals, corporations, corrupt dictators and criminals to discretely avoid tax authorities and invest their money abroad. In many cases, funds flowed into the numerous offshore companies of Citigroup located in tax havens. For the Tax Justice Network, ethical conduct would require that Citigroup stops abetting tax evasion and money laundering.”

The groups also presented the first-ever “Positive Award,” which went to the Mexican labor union SNRTE and the non-governmental organizations (NGOs) Germanwatch and FIAN.

For more, see:

Tax Justice Network: http://www.taxjustice.net/cms/front_content.php?idcat=2

Public Eye Awards: http://www.publiceye.ch

This Week’s Action Item

Tell your members of Congress: You want real lobbying reform

Already, the momentum for lobbying reform seems to be waning. That’s why your elected officials in Washington need to hear from you. They need to know that you will not tolerate anything less than real lobbying reform.

And by real lobbying reform, we mean banning private money from federal elections and replacing it with a system of public funding. Fortunately, Reps. Dave Obey (D-WI) and Barney Frank (D-MA), have introduced legislation to do just that.

The “Grassroots Clean Campaign Act” is the only reform that will truly end the corrupt special interest lobbying because it’s the only reform that makes removes the need for members of Congress to make promises to corporate special interests in order to get elected in the first place.

The ‘Grassroots Clean Campaign Act’ legislation has the following provisions:

- “It establishes a system of financing campaigns for House candidates in general elections based on the returns from the previous two elections.”

- “It provides the vast majority of challengers with more funds to mount their campaign than the current system.”

- “It empowers voters with the knowledge that their vote affects the outcome of the current election and also affects the amount distributed to nominees in future elections.”

“It bans all independent expenditures so that only the candidate is responsible for his/her message.”

- “It provides for expedited consideration of a constitutional amendment allowing these changes if the Supreme Court rejects the plan.”

Please tell your member of Congress today to support the “Grassroots Clean Campaign Act.” It is the only reform that will meaningful reduce the influence of corporate special interests.

Contact your senators: http://www.senate.gov/general/contact_information/senators_cfm.cfm

Contact your congressional representative: http://www.house.gov/writerep/