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The
Corporate Reform Weekly
Vol
V, #13 March 27, 2006
In
Short
Scandal
1.
Corporations aren’t paying up on fines, and government isn’t collecting, AP
reports
2.
Almost 4,000 federal contractors have combined tax debts of $1.4 billion
3.
Former Enron treasurer testifies that Lay and Skilling knew of company’s
financial troubles
4.
Banker Quattrone gets a third trial
This
Week’s Action Item
Tell
your Senators: You want real lobbying reform
Scandal
1.
Corporations aren’t paying up on fines, and government isn’t collecting, AP
reports
The Associated
Press last week reported that federal officials are doing an awful job of
collecting on fines from criminal and civil cases, mostly from corporate and
white-collar criminals. And it’s getting worse.
According to
the AP, the government is now owed more than $35 billion in fines, which is
almost five times the amount that was uncollected 10 years ago – enough, notes
the AP, “to cover the annual budget of the Department of Homeland
Security.”
Some
highlights from the AP report, based on an exhaustive review of agency records:
“Financial
penalties are regularly touted by agencies and prosecutors as a strict
consequence of lawbreaking. The message - that violators can expect to pay
dearly - can be misleading.”
“The amount of
unpaid federal fines has risen sharply in the last decade. Individuals and
corporations regularly avoid large, highly publicized penalties for wrongdoing
- sometimes through negotiations, sometimes because companies go bankrupt,
sometimes due to officials' failure to keep close track of who owes what under a
decentralized collection system.
“In 2004,
federal authorities ordered $7.8 billion in 98,985 fines, penalties and
restitution demands in criminal and civil cases, but collected less than half
of that.”
“White-collar
crime cases account for the largest amount of uncollected debt. In a study,
Government Accountability Office investigators found that just 7 percent of
restitution in such cases is paid.”
Many agencies
have written policies that allow them to reduce fines. For example, “The
Occupational Safety and Health Administration's written policy explains to
inspectors that they can reduce penalties by as much as 95 percent,
"depending upon the employer's `good faith,' (25 percent) `size of
business,' (60 percent) and `history of previous violations.' (10
percent)"
"Fines
and orders to pay restitution are an important part of how we punish convicted
criminals. When so little effort is made to collect that money, we allow
convicted criminals to avoid punishment for their crimes, weaken our criminal
justice system and ultimately deny justice to the victims of crimes," Sen.
Byron Dorgan, D-N.D., told the AP.
A 2001 GAO
report looking at the collection issue called for more adequate staffing
levels. Two years later, the GAO said that "fragmented processes and lack
of coordination" remained, and until these problems are fully addressed,
"the effectiveness of criminal fines and restitution as a punitive tool
may be diminished."
“Corporations
Stiffing Government on Fines,” By MARTHA MENDOZA and CHRISTOPHER SULLIVAN,
Associated Press Writers: http://www.thestate.com/mld/thestate/business/14133217.htm
2.
Almost 4,000 federal contractors have combined tax debts of $1.4 billion
Almost 4,000
companies – or roughly one in ten government contractors – are receiving
federal taxpayer money while not paying the taxes they owe. The total taxes
owed adds up to $1.4 billion.
According to a
new report by the Government Accountability Office (GAO), 3,800 federal vendors
are not paying up on corporate income taxes, including payroll taxes for Social
Security, Medicare, and other withholding taxes.
"In an
age of increasingly tight fiscal discipline, that $1.4 billion could be put
towards our homeland security, our children's education or job-training
programs," said Sen. Norm Coleman (R-Minn.), chair of the Permanent
Subcommittee on Investigations, which called for the report. "It adds
insult to injury that these tax deadbeats are actually paid enormous amounts of
money every year from American tax coffers."
The General
Services Administration (GSA), which handles contracting, does not screen for
companies that don’t pay their taxes. Nor does the agency have any policies for
terminating contracts for tax offenders.
"One of
the main problems here is that contractors are being allowed into the system in
the first place and are being awarded contracts even though they owe taxes,"
said Sen. Carl Levin, D-Mich.
According to
the GAO report: “GSA contractors with tax debts [to] have an unfair advantage
in costs when competing with contractors that pay their taxes.” By saving money
on not paying their taxes, the GAO notes, companies can submit lower bids,
allowing them to win contracts over law-abiding companies.
The report
also notes that some of the contractors used the money saved on taxes to buy
luxury cars, boats and multimillion-dollar properties. Sen. Coleman said it all
sounded like "a new reality TV show, lifestyles of rich and famous tax
deadbeats.”
However, the
situation may be improving. In 2004, the GAO found that 27,000 Pentagon
contractors owed a combined $3 billion in back taxes – more than twice the $1.4
billion owed in the latest report.
For more, see:
“Companies that owe billions in back taxes get federal contracts,” By Mary
Dalrymple, Associated Press: http://www.usatoday.com/money/industries/2006-03-15-contractors-taxes_x.htm
3.
Former Enron treasurer testifies that Lay and Skilling knew of company’s
financial troubles
The
blockbuster trial of Enron founder Ken Lay and former CEO Jeffrey Skilling
finished its seventh week with last week’s testimony of former treasurer Ben F.
Glisan Jr., who is serving a five-year prison sentence for conspiracy to commit
wire fraud.
Glisan, the
government’s last major witness, told jurors that even as Lay was consulting
with company managers about what to do about the company’s “dire” financial
situation, he was telling credit-rating agencies, employees and Wall Street
analysts that everything was just fine.
Glisan
described an early September 2001 managers’ retreat outside Houston, which was
largely focused on Enron’s financial problems, including overvalued
international assets, about $1 billion in losses in the company’s broadband
unit, and about $1 billion in losses in the company’s Azurix division, which
was trying to get into the global water business. Glisan said that the
use of “aggressive accounting” was discussed.
"It was
ugly," Glisan testified. "We were struggling greatly."
This was still
a month before October 2001, when Lay told employees that the "underlying
fundamentals of our business are very strong."
At one point,
Glisan said he admitted to making $1 million in a kickback scheme set up by
former CFO Andrew Fastow and subsequently offered to resign, Glisan said that
Lay’s “response was I shouldn't, that my participation was O.K. and the worst
thing I could do is resign."
Glisan also
testified that he had told the finance committee that the off-the-books
partnerships known as “Raptors” had “no economic value.” But they did help
Enron meet its earnings targets, and Glisan said that when Lay heard that, he
giggled “in delight.” Glisan also said that Skilling’s reaction to the Raptors
was that they were not normally something he would recommend, “except that it
would allow us to circumvent accounting rules.”
Also
testifying last week:
Ronald Barone,
a corporate director of finance at debt rating agency Standard & Poor’s,
told jurors that Lay was able to head off a reduction in Enron’s credit rating
by making a call to Barone.
John R. Sult,
who oversaw the books on Enron's Azurix water venture for Arthur Andersen, told
jurors that the venture promoted a $1 billion growth strategy in order to avoid
having to write down hundreds of millions of dollars in losses. Sult described
Enron’s plan as: "By merely standing up and making the assertion that the
strategy exists somehow makes the problem go away.”
Thomas Bauer,
also a former Andersen accountant, who testified that Enron improperly dipped
into reserves to increase earnings. "It is not discretionary to pick a
number that helps with an earnings target," Bauer said.
For more, see:
“Defense Tries to Raise Doubts About Enron's Ex-Treasurer,”
By ALEXEI
BARRIONUEVO and VIKAS BAJAJ: http://www.nytimes.com/2006/03/23/business/businessspecial3/23cnd-enron.html
“In Enron
trial, top execs still hold sway,” By Kristin Hays
Associated
Press: http://www.chicagotribune.com/business/chi-0603200151mar20,1,6232495.story?coll=chi-business-hed
“Jury Told Lay
Lied on Enron,” By ALEXEI BARRIONUEVO: http://www.nytimes.com/2006/03/23/business/businessspecial3/23enron.html
4.
Banker Quattrone gets a third trial
Frank
Quattrone, the Credit Suisse First Boston technology banker who was convicted
last year of telling employees to destroy documents in the face of a government
investigation after one mistrial, will get yet another trial instead of 18
months in prison.
Last week, a
federal appeals court threw out his conviction for obstruction of justice and
witness tampering, saying that “jury instructions were erroneous” and
contained “a glaring deficiency.” The alleged problem was that the U.S.
District Judge Richard Owen did not tell the jury that in order to find
Quattrone guilty, they had to find that Quattrone knew the government wanted
the documents. The judge, however, did not do this.
The appeals
wrote: “Ultimately we believe that the interest and appearance of justice are
better served by reassignment'' to a new judge. Quattrone’s lawyers had argued
that Judge Owen was biased against Quattrone.
Now the
Justice Department has to decide if it wants to pursue a third trial. The
government has already spent thousands of hours and millions of dollars on
pursuing the trial. However, the prosecutors who brought the original case have
since gone into private practice. U.S. Attorney Michael Garcia said: ``We
are reviewing the opinion and considering our options.''
The case
highlights what happens when a determined white-collar criminal can afford to
hire enough lawyers to try every trick in the book. Quattrone made $120 million
in 2000 working for Credit Suisse First Boston.
For more, see:
“Wall Street Banker Quattrone Wins Right to New Trial,” http://quote.bloomberg.com/apps/news?pid=10000006&sid=aLQkUABeT9sM&refer=home
This
Week’s Action Item
Tell
your Senators: You want real lobbying reform
The Senate is
expected to take up lobbying reform this week. Now is a good time to call your
Senators and let them know that you want real lobbying reform. The most
contentious issue that actually has a chance of passing is the creation of an
independent ethics oversight committee to monitor lobbying.
Though such a
plan did not pass in the Senate Government Affairs Committee, several senators
have promised to fight for an oversight committee by offering an amendment on
the floor.
Please let
your Senators know that you support an independent oversight committee.
As Sen. Barack
Obama (D-Ill.), a strong supporter of an independent committee, has said, it
doesn’t matter what other reforms get passed. None of those reforms "will
make a difference if there isn't a nonpartisan, independent body that will help
us enforce those laws."
Contact your
senators: http://www.senate.gov/general/contact_information/senators_cfm.cfm
You can also
visit Public Citizen’s “Clean Up Washington” website for a click-and-send
letter to your Senators on lobbying reform; http://action.citizen.org/dia/organizationsORG/publiccitizen/campaign.jsp?campaign_KEY=2890&t=CleanUpWashington2col.dwt
Help
spread the word about The People's Business
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you to tell everyone you know about the Citizen Works book, The People's
Business and to distribute promotional flyers locally. Flyers are available
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The People's
Business, which is available in stores everywhere, examines the very nature of
corporate power, presenting a range of strategies to curtail it, explaining how
ordinary people can restore citizen control. Bringing together the
recommendations of the Citizen Works Corporate Reform Commission—a coalition of
leading authors, activists, scholars, and professionals—The People's Business
is a vital, clearheaded plan for strengthening individual rights, transforming
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life-respecting society where the people have the power.
Bolstered with
relevant history and examples, The People's Business is a lively book that will
appeal both to deeply-committed long-time activists looking for a coherent
approach in the struggle for corporate accountability as well as thoughtful
citizens everywhere who may be looking for immediate measures that serve as
effective means of corporate reform.
It is our hope
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