[corp-focus] Drip, Drip, Drip: Eroding the Barriers to Corporate Crime

[Robert Weissman]

Drip, Drip, Drip: Eroding the Barriers to Corporate Crime
By Russell Mokhiber and Robert Weissman

The collapse of Enron is a story far too rich to be reduced to a single
story line.

But one crucial narrative is how a series of seemingly small and
technical decisions purchased in Washington, D.C. eventually combined to
enable Enron's implosion -- and how recent and evolving policy decisions
are paving the way for future Enron-level disasters.

Consider the following: In 1995, the accounting industry's powerful
lobby muscled through Congress the Private Securities Litigation Reform
Act. Under this accountants' immunity law, it has become much harder to
sue accounting companies for signing off on bad financial reviews,
removing an important check on the accountants at Andersen and in the
rest of the industry.

As accounting firms decided in the 1990s that they wanted to shed their
stodgy image and solid profitability for the super-profitability of the
high-flying financial hipster elite, conflicts of interest emerged
between the firms' audit function and the lucrative consulting business.
To win and maintain consulting contracts, companies like Andersen have
an incentive to go easy when they are auditing companies like Enron.
Former Securities and Exchange Commission (SEC) Arthur Levitt sought to
impose a regulatory prohibition on firms working as auditors and
consultants for the same clients. But the accounting industry's money
blotted out his prudent proposal, as Congress made it clear it expected
no such regulatory prohibition to be put in place.

In 1997, Enron obtained from the SEC an exemption from a law that would
have prevented the company’s foreign operations from shifting debt off
their books and barred executives from investing in partnerships
affiliated with the company, according to the New York Times. If Enron
had not finagled this exemption, negotiated for Enron by a former
director of the investment management division at the SEC, the company
would have been prohibited from engaging in many of the financial
shenanigans that led to its collapse.

Drip. Drip. Drip. Thus did a series of small regulatory and deregulatory
actions and non-actions -- of which this is only a small sampling --
erode the law-and-order barriers to the commission of Enron and
Andersen's corporate crime and abuse.

The Enron revelations have not stopped this steady dribble.

Case in point: In late December of this past year, the Bush
administration struck from the books a regulation that had considerable
potential to deter corporate crime.

In a Christmas mini-coup, the administration repealed an anti-scofflaw
rule that would have given federal contracting officials authority to
deny contracts to repeat law-breaking corporations.

The contractor responsibility rule had been enacted following a tortuous
process. Then-Vice President Al Gore floated the idea in 1997. A
concerted campaign against the proposal led the administration to keep
it on hold until 1999, when the Clinton White House formally issued
clarifying rules to put the proposal into effect. Another corporate
outcry led to it being put back on ice. Finally, the Clinton
administration included the anti-scofflaw rule in the raft of
regulations issued in its final days.

The rule went into effect on January 19, 2001. The Bush administration
suspended implementation on January 20. The Christmas coup -- repealing
the rule altogether -- was the last chapter in the defeat of the rule.

The Chamber of Commerce applauded the repeal of the rule, which it had,
spectacularly, denigrated as "blacklisting." In the fanciful scenario
spun by Randel Johnson, Chamber vice president for labor and employee
benefits, under the anti-scofflaw rule, "government agents could have
wielded virtually unlimited power."

Although Johnson and the business opponents of the anti-scofflaw rule
wildly exaggerated the potential scope of the rule, the rule's common
sense direction that government contracting officers should exercise
caution before contracting with recidivist corporations would have
exerted some deterrent effect on corporate law-breaking.

And the rule did pose a threat to more than a few corporations.
Multinational Monitor magazine found that nine of the top 100 corporate
criminals of the 1990s were among the 200 largest federal government
contractors in 1998, and that of the 50 largest defense and non-defense
contractor, 20 had received more than 10 "serious" citations from the
Occupational Safety and Health Administration. The General Accounting
Office (GAO), the congressional research agency, has found that 261
federal contractors, receiving more than $38 billion in federal
government business in fiscal year 1994, received penalties of at least
$15,000 for violating OSHA regulations, and that 80 federal contractors,
receiving more than $23 billion in federal government business in fiscal
year 1993, had violated the National Labor Relations Act. (See
http://www.essential.org/monitor/mm1999/99july-aug/crime.html.)

For some large companies, the prospect of endangering government
contracts would have been sufficient to prod them to greater respect for
the law. But the administration's concern for law-and-order or
individual responsibility evidently does not extend to corporations.

Sometime in the future, when another Enron-scale corporate debacle
breaks into the front pages, it will be possible to look back to
December 2001, and point to the repeal of the contractor responsibility
rule as an enabler of the corporate criminals.

Drip. Drip. Drip.


Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime
Reporter. Robert Weissman is editor of the Washington, D.C.-based
Multinational Monitor http://www.essential.org/monitor. They are
co-authors of Corporate Predators: The Hunt for MegaProfits and the
Attack on Democracy (Monroe, Maine: Common Courage Press, 1999;
http://www.corporatepredators.org)

(c) Russell Mokhiber and Robert Weissman

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