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The Corporate Reform Weekly
Vol.
V, #19 May 8, 2006
In
Short
Lobbying
and Ethics Reform
1.US
House approves weak lobbying reform bill
2.
Business owner pleads guilty to bribing Congressman
3.
Drug lobbyists “conspired” with Bill Frist to get liability provision, Public
Citizen report finds
Enron
Trial
4.
Defense expected to rest its case this week in Enron trial
Contractor
Fraud
5.
Corpwatch report documents corporate contracting gone awry in Afghanistan
6.
Investigation into Katrina contracting finds “widespread mismanagement, waste,
and fraud”
PCAOB
7.
PCAOB says 2006 accounting reviews will focus on efficiency
This
Week’s Action Item
Tell
Congress: you want real lobbying and ethics reform, not the sham they passed
Lobbying
and Ethics Reform
1.
US House approves weak lobbying reform bill
The U.S. House
voted 217 to 213 to approve a lobbying reform bill last week. The bill, which
does very little that could actually be classified as meaningful reform, now
moves to a House-Senate conference committee, where conferees will try to work
out the differences between the House bill and the slightly (but only slightly)
better Senate bill approved in March.
The vote was
largely along party lines, with Republicans supporting the reform package and
Democrats decrying it as a sham. "Our friends on the Republican side of
the aisle want to clean up Congress the way teenagers want to clean up their
bedrooms … sweep it under the rug," Rep. Brian Baird (D-Wash) told reporters.
The House bill
does a few things. It requires quarterly instead of semi-annual filing of
lobbying reports. These reports will also now include donations to federal
candidates and political action committees, as well as gifts.
The bill also
requires more disclosure of so-called “earmarks” in some large spending bills.
It requires legislators to get approval from the ethics committee before
taking privately-funded trips. The House bill also places some restrictions on
money flowing to so-called “527” groups.
Unlike the
Senate bill, the House bill does not ban gifts or meals for lawmakers. Nor does
it extend the one year “cooling off” period between the time when lawmakers
retire from Congress and are allowed to lobby their former colleagues.
Neither bill
creates an independent oversight committee to monitor violations, which many
reform groups considered one of the most important reforms. Nor does either
bill do anything to stem the tide of private money in federal elections, which
is what gives lobbyists much of their influence.
Watchdog
groups were unanimous in their disapproval of the legislation.
Joan
Claybrook, president of Public Citizen, called the bill "a fraud on the
American public."
"A vote
for this bill is a vote to spray air freshener to mask the stench of corruption
instead of cleaning up the underlying problems," said Anna Aurilio,
legislative director of the U.S. Public Interest Research Group.
Fred
Wertheimer, president of Democracy 21, called the bill "an outright deceit
that does not change the way lobbyists and House members take care of each
others' interests at the expense of the American people."
The Center for
Public Integrity issued a press release pointing out that the current
disclosure system works poorly because there is no enforcement. Therefore, more
disclosure by itself, without any enforcement, will do little.
According to
the Center:
Zeroth.
Nearly
14,000 lobbying documents that should have been filed periodically with the
Senate Office of Public Records are missing.
0.
Almost one
in five of all companies registered to lobby are missing required disclosure
forms.
0.
Almost 20
percent of all forms are filed late.
· Nearly 300 individuals and entities that
filed some disclosure forms lobbied without registering.
Center for
Public Integrity Executive Director, Roberta Baskin said of the bill.
"This kind of lobbying reform gives the term 'paper tiger' a new meaning.
In its attempt to address the problems at hand, Congress seems to be pursuing a
plan to bury itself in paper, making it even harder to enforce the rules."
“House
Lobbying Rules Call for More Disclosure,” By Jeffrey H. Birnbaum
Washington
Post: http://www.washingtonpost.com/wp-dyn/content/article/2006/05/03/AR2006050301434.html
“House Vote
Stiffens Rules on Lobbyists,” By Faye Fiore, Los Angeles Times: http://www.latimes.com/news/nationworld/politics/la-na-lobby4may04,1,2103250.story
Center for
Public Integrity’s report on lobbying disclosure shortcomings:
http://www.publicintegrity.org/report.aspx?aid=791
For some
thoughts on what to do now, see This Week’s Action Item
2.
Business owner pleads guilty to bribing Congressman
In yet another
exhibit of why Congress needs to pass real lobbying and ethics reform, the
owner of high-tech firm iGate Inc. last week pleaded guilty to paying more than
$400,000 in bribes to Rep. William J. Jefferson (D-La.).
Vernon L.
Jackson admitted that he had bribed Jefferson so that Jefferson would help
promote Jackson’s company’s broadband technology in Nigeria, Ghana and
Cameroon. Jefferson, who is the co-chair of the congressional Africa Trade and
Investment Caucus, allegedly met with African officials in order to promote
iGate.
"Vernon
Jackson got favorable treatment from a Congressman because he paid for it.
Public corruption is not a victimless crime -- all of us lose when people
believe public officials can be bought,” Alice S. Fisher, the assistant
attorney general in charge of the Justice Department's criminal division, said
in a statement:
According to
prosecutors, Jackson used a “professional services” agreement to conceal “the
illegal nature of the payments.” This included $7,500 a month to the Jefferson
family business, 5 percent of all capital investments in iGate, and 5 percent
of any gross sales over $5 million. Jefferson’s family company allegedly sent
numerous fake invoices to Jackson. These invoices were signed by Jefferson’s
wife.
Jefferson
insists he has done nothing wrong, and so far has not been charged.
For more, see:
“Businessman Pleads Guilty To Bribing Rep. Jefferson”, By Allan Lengel
Washington
Post: http://www.washingtonpost.com/wp-dyn/content/article/2006/05/03/AR2006050301055.html
3.
Drug lobbyists “conspired” with Bill Frist to get liability provision, Public
Citizen report finds
¬
A new Public
Citizen report documents how drug industry lobbyists “conspired” with the White
House and Senate Majority Leader Bill Frist (R-Tenn.) in order to craft a
“sweeping liability provision that shields the industry from lawsuits over
products used to treat pandemic illnesses, even in cases of gross negligence or
gross recklessness,.”
The report,
titled “Willful Misconduct: How Bill Frist and the Drug Lobby Covertly Bagged a
Liability Shield,” is based on documents and e-mails from the Biotechnology
Industry Organization (BIO). It shows the extent to which Frist deferred to
drug industry demands and describes how he was able to secure passage of the
provision.
According to
Public Citizen’s press release:
“Frist
inserted the shield provision into an already-completed conference report for
the defense appropriations bill in the dead of night, with the aid of House
Majority Leader Dennis Hastert (R-Ill.). Many of the members of the conference
committee had never seen the language, let alone approved it. Committee leaders
explicitly assured Democrats, made wary by rumors circulating in the preceding
days, that no attempt would be made to insert the liability measure into the
spending bill.”
“The shield is
unnecessary because the government now can – and does – indemnify drug
companies in contracts, using provisions saying that the government will cover
costs in excess of the companies’ insurance.”
“The liability
shield is extremely broad, applying to far more than just avian flu vaccines
and going well beyond the liability protections initially proposed by the Bush
administration. It bars all state and federal claims arising from the use of a
drug, vaccine or medical device related to any government-declared health
emergency. It extends to all companies, state officials, healthcare workers and
others involved in combating an actual or potential health emergency.”
“This is a
case in which the drug industry used clout, stealth and cunning to put one over
on Congress and the American public,” said Joan Claybrook, president of Public
Citizen. “The industry crafted a liability shield that is unprecedented in its
scope and will literally allow it to harm innocent people and get off
scot-free.” Claybrook called for Congress to revoke the provision.
The report
also highlights the lobbying power of the pharmaceutical industry. According to
Public Citizen, “The industry deployed at least 158 lobbyists to influence
policies relating to vaccines and pandemic preparedness in 2004 and 2005,
including 84 who were previously employed by the federal government. Of those,
seven were former members of Congress, two were former top health care aides to
Frist and another was the son of the speaker of the House.”
To read the
full report: http://www.citizen.org/hot_issues/issue.cfm?ID=1367
Enron
Trial
4.
Defense expected to rest its case this week in Enron trial
The trial of
Enron founder Kenneth Lay and former CEO Jeffrey Skilling is finally coming to
a close. The defense is expected to rest its case this week, maybe Tuesday.
Then prosecutors are expected to bring forward 10 rebuttal witnesses. Jurors
are expected to start deliberating by May 17.
Following up
in the testimony from both Skilling and Lay, the defense last week turned to
Christopher Barry, chairman of the finance department at Texas Christian
University, who appeared as an economics expert. In early 2001, Lay had 90
percent of his investments in Enron stock. Barry called that “an extreme lack
of diversity” and suggested that such diversity represented his confidence in
Enron. In 2001, Lay was forced to sell $70 million in company stock that he had
used as collateral on personal loans because he needed it to cover margin
requirements.
Prosecutors
pointed out that Barry’s information came only from documents that Lay’s
defense had provided, and that Barry should have consulted the “former employee
victims” who relied on Lay’s advice about the company stock.
The defense
also brought in Walter Rush, an accounting expert, who testified that the
last-minute changes to the company’s accounting reports documented earlier in
the trial were not necessarily evidence of fraud.
"The
whole process of financial reporting, in a company as large as Enron, to get
financial statements out ."…."…. is an enormous
undertaking," Rush testified. "And people are scrambling,
trying to get these estimates put together. There are changes going on up to
the very last second. It is universal. Every company goes through this."
Earlier in the
trial, Mark Koening, former head of investor relations at Enron, and Paula
Reiker, Koening’s former top lieutenant, related tales of Skilling ordering
last-minute changes to quarterly earnings reports in order to meet or beat
earnings expectations. But Rush offered another possibility: "They could
have just had a bad number. They could have been a couple steps behind the way
the process was evolving.”
As for
Skilling’s stated intentions to “beat the street,” Rush said: “Companies set
goals and forecasts for themselves all the time.”
“Accounting
expert backs Enron's earnings reports,” By Michael Graczyk, Associated Press: http://www.stltoday.com/stltoday/business/stories.nsf/0/4097AF91D33F317786257164000DDB3A?OpenDocument
“Enron defense
set to rest case in few days,” By Michael Graczyk, Associated Press http://www.businessweek.com/ap/financialnews/D8HD71407.htm?campaign_id=apn_home_down&chan=db
“Witness backs
Ken Lay's Enron stock sale defense,” by Matt Daily, Reuters: http://today.reuters.com/business/newsArticle.aspx?type=ousiv&storyID=2006-05-04T224326Z_01_N04175194_RTRIDST_0_BUSINESSPRO-ENRON-TRIAL-DC.XML
“Defense drops
plan to read Enron partner's testimony,” By JOHN C. ROPER
Houston
Chronicle: http://www.chron.com/disp/story.mpl/front/3841931.html
Contractor
Fraud
5.
Corpwatch report documents corporate contracting gone awry in Afghanistan
Corpwatch has
released “Afghanistan Inc.”, an investigative report by Fariba Nawa that
details massive contractor fraud in the rebuilding of Afghanistan as well as
other tales of greed and corruption.
From
Corpwatch’s website:
“A highway
that begins crumbling before it is finished. A school with a collapsed roof. A
clinic with faulty plumbing. A farmers’ cooperative that farmers can’t use.
Afghan police and military that, after training, are incapable of providing the
most basic security. And contractors walking away with millions of dollars in
aid money for the work. The Bush Administration touts the reconstruction effort
in Afghanistan as a success story. Perhaps, in comparison to the
violence-plagued efforts in Iraq and the incompetence-riddled efforts on the
American Gulf Coast, everything is relative. A new report “Afghanistan, Inc.,”
issued by the non-profit organization CorpWatch, details the bungled
reconstruction effort in Afghanistan.”
“Massive
open-ended contracts have been granted without competitive bidding or with limited
competition to many of the same politically connected corporations which are
doing similar work in Iraq: Kellogg, Brown & Root (a subsidiary of
Halliburton ), DynCorp, Blackwater, The Louis Berger Group, The Rendon Group
and many more. Engineers, consultants, and mercenaries make as much as $1,000 a
day, while the Afghans they employ make $5 per day. These companies are
pocketing millions, and leaving behind a people increasingly frustrated and
angry with the results.”
In
Afghanistan, Inc., you’ll get an inside look at a system gone out of control,
with little accountability and plenty of opportunity for graft and abuse. It
isn’t a story you want to read; it’s a story you must read.
To get the
whole report; http://www.corpwatch.org/article.php?id=13518
6.
Investigation into Katrina contracting finds “widespread mismanagement, waste,
and fraud”
In the initial
wake of Hurricane Katrina, critics raised concerns that large,
politically-connected contracting firms like Bechtel, Fluor, and CH2M Hill were
getting sweetheart, no-bid “cost-plus” contractors to provide reconstruction
services in New Orleans. Many predicted a replay of the contracting mess in
Iraq.
Now eight
months later, audits of contracting activity are coming in, and Rep. Henry
Waxman (D-Calif.) released the first assessment of the auditing documents.
According to a
memo by Waxman, “the documents disclose widespread mismanagement, waste, and
fraud in contracts worth billions of dollars. The documents reveal a host of
major problems that occurred in numerous locations under multiple contracts
over a period of many months.”
Four contracts
worth $500 million each were awarded for Debris Removal. According to the
documents, “lax government oversight allowed the contractors to:
-
double bill for the
same debris;
-
overstate
mileage to claim extra frees;
-
haul ineligible
debris from private property to boost reimbursements; and
-
inflate prices
by improperly mixing low-cost vegetative debris into loads of high-cost
construction and demolition debris
The Corps of
Engineers also issued contracts worth $300 million for temporary roof repairs.
According to Waxman’s investigation, auditors found “consistently inflated
charges and unsatisfactory supervision and oversight.” Problems included:
-
Repeated Overbillings
– “One evaluation revealed net overbillings of 43%, a second evaluation found
overbillings of 53%”
-
Inadequate
Supervision of Subcontractors – “Prime contractors failed to inspect work and
had little knowledge of control over the activities of the subcontractors”
-
Lax Oversight –
“Government inspectors found that the Corps officials had an ‘informal
agreement’ not to challenge bills that exceeded estimates by 50%
According to
Waxman’s memo: “The government auditors found multiple other instances of
waste, fraud, and abuse in Katrina contracting. In the contract to provide
housing trailers, for example, Bechtel attempted to double-bill taxpayers for
more than $48 million. Even government-issued credit cards were abused.
Procedures were violated in 83% of the credit card transactions examined by
auditors, leading the auditors to conclude: ‘controls existed to prevent the
inappropriate use of credit cards. The controls were circumvented and ignored.”
So far,
Congress has approved more than $63 billion for disaster relief. Recovery
expenses may ultimately top $200 billion.
For the
complete Waxman report, see: http://www.democrats.reform.house.gov/story.asp?ID=1050
See also:
“Report: Katrina Contractors Bilk Taxpayers,”
By LARRY
MARGASAK, Associated Press http://sfgate.com/cgi-bin/article.cgi?file=/n/a/2006/05/04/national/w125408D26.DTL
For a complete
resource to Katrina contacting: http://www.corporatepolicy.org/topics/katrina.htm
PCAOB
7.
PCAOB says 2006 accounting reviews will focus on efficiency
The Public
Company Accounting Oversight Board announced last week that it will focus this
year’s annual exams of accounting firms on how efficiently the audit firms are
auditing client firms’ internal controls in terms of “expenditure of effort and
resources."
Under Section
404 of the Sarbanes-Oxley Act, firms are supposed to beef up their internal
controls. But these new regulations have lead to widespread complaints of too
much regulation among companies. So far, only large companies have had to
comply, and the SEC is considering a proposal that would exempt 80% of
companies from these requirements.
But accounting
firms have largely benefited from the regulations, because the regulations have
generated more demand for auditing services. This appears to have prompted the
PCAOB to examine how efficiently accounting firms are providing these services.
"As part
of PCAOB's efforts to improve the cost-effectiveness of these audits, our
inspectors, as they go into the field, will be making a focused effort to
ascertain that auditors have achieved the objectives described in the board's
internal control auditing standard with the least expenditure of effort and
resources," said PCAOB Acting Chairman Bill Gradison.
The PCAOB was
established by the Sarbanes-Oxley Act in order to police the accounting
industry.
For more, see:
“Exams by audit watchdog to eye controls, costs,” by Reuters: http://news.yahoo.com/s/nm/20060501/bs_nm/financial_pcaob_exams_dc
This
Week’s Action Item
Tell
Congress: you want real lobbying and ethics reform, not the sham they passed
Last week, the
House passed an awful lobbying reform bill (see #1). Let’s not let them get
away with it. Congress wants nothing more than to pass this bill and then move
on. But we need to keep fighting. Soon, there will be more indictments in the
Abramoff scandal and there will be another opportunity to revisit this issue. We
need to let our elected officials in Washington know that we still want real
reform, and that includes real campaign finance reform.
Public
Campaign is urging people to contact their elected officials in support of the
Clean Money, Clean Elections" Act in the House (H.R. 3099)
Here’s what
Public Campaign has to say:
“At the center
of the political scandals in Washington is the private money lobbyists and
their clients use to curry favor with politicians. The pay-to-play culture
won't be cleaned up by lobbying and ethics reform alone. Until Congress bites
the hands feeding their campaign treasuries, pay-to-play politics will continue
to dominate Washington.”
“Too many in
Washington see politics as a way enrich themselves and reward their big money
donors, all at our expense. Congress must get serious about public financing.”
“So far, the
Tierney-Grijalva "Clean Money, Clean Elections" Act in the House
(H.R. 3099) is the best proposal on the table in Washington.”
“Comprehensive
public financing of elections was just adopted by Connecticut in the wake of
major scandals in that state, and has been in place for three elections in
Maine and Arizona. Other states and cities have adopted full public financing
as well.”
“Why not
Congress?”
To sign the
petition: http://ga3.org/campaign/cleanupcongressnow/
