NEITHER HONEST NOR TRUSTWORTHY: THE 10 WORST CORPORATIONS OF 2007


by Russell Mokhiber and Robert Weissman

The U.S. public holds Big Business in shockingly low regard.

A November 2007 Harris poll found that less than 15 percent of the population believes each of the following industries to be “generally honest and trustworthy:” tobacco companies (3 percent); oil companies (3 percent); managed care companies such as HMOs (5 percent); health insurance companies (7 percent); telephone companies (10 percent); life insurance companies (10 percent); online retailers (10 percent); pharmaceutical and drug companies (11 percent); car manufacturers (11 percent); airlines (11 percent); packaged food companies (12 percent); electric and gas utilities (15 percent). Only 32 percent of adults said they trusted the best-rated industry about which Harris surveyed, supermarkets.

These are remarkable numbers. It is very hard to get this degree of agreement about anything. By way of comparison, 79 percent of U.S. adults believe the earth revolves around the sun; 18 percent say it is the other way around.

The Harris results are not an aberration. The results have not varied considerably over the past five years – although overall trust levels have actually declined from the already very low threshold in 2003.

The Harris results are also in line with an array of polling data showing deep concern about concentrated corporate power.

An amazing 84 percent told Harris in a poll earlier in 2007 that big companies have too much power in Washington. By contrast, only 47 percent said that labor unions have too much power in Washington (compared to 42 percent who said labor has too little power), and 18 percent said nonprofit organizations have too much power in Washington.

These results have proven durable. At least 80 percent of the public has ranked big companies as having too much power in Washington since 1994. In 2000, Business Week and Harris asked a broader question: Has business gained too much power over too many aspects of American life? Seventy-four percent agreed.

The November 2007 poll also asked about support for measures to control corporations. These results are eye-opening as well, though perhaps not in the expected way.

Harris asked which industries “should be more regulated by government – for example for health, safety or environmental reasons – than they are now?” Only oil companies (53 percent), pharmaceutical companies (53 percent) and health insurance companies (52 percent) crossed the 50 percent threshold. Even the tobacco industry managed to escape in the survey with only 41 percent favoring greater regulation. The data trends significantly negative – against greater regulation – over the last five years.

Does this show that while people distrust Big Business, they equally distrust the government to constrain corporate power?

No.

The U.S. skepticism to regulation is only skin deep. When polls present specific regulatory proposals for consideration, U.S. public support is typically strong and often overwhelming – even when arguments against government action are presented.

For example:

  • After hearing arguments for and against, 76 percent favor granting the Food and Drug Administration (FDA) regulatory authority over tobacco, with 22 percent opposed.
  • After hearing arguments for and against, 75 percent favor legislation that would significantly increase energy efficiency, including auto fuel efficiency standards, and the use of renewable energy.
  • Eighty-five percent favor country-of-origin labeling for meat, seafood, produce and grocery products, and three quarters favor a legislative mandate.
  • Seventy-one percent say it is important that drugs remain under close review by the FDA and drug companies after they have been placed on the market.
  • And, from a Harris finding a week after the poll showing skepticism about industry regulation in general, the polling agency found that those who think there is too little government regulation in the area of environmental protection outpaced those who think there is too much by a more than 2-to-1 margin (53 to 21 percent).

What the Harris findings on attitudes to regulation do show is that the business campaign against regulation as an abstract concept has been very successful.

It highlights the need for consumer, environmental, labor and other corporate accountability advocates to defend the concept of regulation, and to connect the rampant corporate abuses in society with the deregulation and non-regulatory failures of the last three decades. There’s little doubt that the general public attitude toward regulation significantly affects the willingness of politicians – none too eager to offend business patrons in the first place – to take on corporate power.

With the 10 Worst Corporations of 2007, we aim to show – again – that Big Business is out of control and to connect comparable abuses to the failure of government overseers, regulators and enforcers.

The task ahead is to reassert the supremacy of the people over corporations, and for democratic government to impose controls and limits on what corporations can and cannot do.

Presented alphabetically, here are the 10 Worst Corporations of 2007:

Abbott: Blackmailing Thailand

Imagine you are the only pharmacist in an isolated town. You impose massive mark-ups on the drugs you sell. A customer needs a life-saving medication, but can’t afford your high price. So, the customer finds a pharmacy in a faraway town, which agrees to supply the medicine for a quarter of your price.

Then the customer comes back. She needs several other medicines that you sell, and is willing to pay your standard profiteering price. At least one of those medicines is not available at the other pharmacy, or anywhere else.

You refuse to sell the medicines, unless the customer agrees to stop buying the life-saving medicine from the other pharmacy.

If you engaged in this kind of behavior in the United States, you would be in violation of the U.S. pharmacist code of ethics, which commands that “a pharmacist promotes the good of every patient in a caring, compassionate and confidential manner.” You would also be breaking the law in most, if not all, states.

Should the ethical and legal treatment be any more lenient if it’s not a pharmacist refusing to serve an individual, but a pharmaceutical company – motivated solely by retaliatory animus – denying medicines to an entire country? Doesn’t denying medicines on a mass scale out of animus merit harsh punishment?

Consider the case of Abbott Laboratories in Thailand. In January 2007, Thailand issued a compulsory license on an AIDS drug made by Abbott. A compulsory license is a lawful authorization of generic competition for a product that remains on patent. In Thailand’s case, the government issued a license that would enable its public health sector to buy generic versions of lopinavir/ritonavir, sold by Abbott under the brand-name Kaletra.

Kaletra is a very important second-line AIDS drug, used for patients who have developed resistance to first-line drugs. One reason Kaletra is so important is that Abbott has endeavored to prevent other companies from combining ritonavir, which makes other AIDS drugs more effective, with products they control [see “The 10 Worst Corporations of 2004,” Multinational Monitor, December 2004].

Thailand is a leader among developing countries in providing treatment to people living with HIV/AIDS. Its treatment program started early and covers most people with HIV. The natural progression of treatment is that people need to shift drugs over time, and an increasing number of Thais living with HIV now need Kaletra.

Abbott has a discount program for Kaletra for developing countries, but its discount price for middle-income countries like Thailand was $2,200 per person per year. Thailand’s per capita income is under $3,000, according to the World Bank.

In a detailed white paper explaining its decision, the Thai government estimated that 50,000 Thais will need second-line treatment in the near future. The cost of providing lopinavir/ritonavir at Abbott’s price to this population would be more than the entire current budget for AIDS drugs, according to the government. Within a year of the license, according to Thailand’s National Health Security Office, the government had managed to triple the number of people receiving lopinavir/ritonavir, to roughly 2,500. The white paper estimated the government would be able to shift 8,000 people onto lopinavir/ritonavir based on the immediate cost savings from buying generic. That number will grow as generic costs fall over time.

Big Pharma viewed Thailand’s actions as a major threat. Most worrisome to the industry was the example Thailand set. “There could be ‘a spreading epidemic of disrespect for IP [intellectual property] rights,'” Billy Tauzin, head of PhRMA, the U.S. pharmaceutical industry trade association, said in May.

Although Thailand’s actions were consistent with its obligations under national and international law, Big Pharma was able to employ the U.S. government (as well as the European Union) to pressure Thailand. In April 2007, the U.S. Trade Representative designated Thailand a “priority watch” country, a designation indicating it to be a serious violator of U.S. patent and copyright interests, and triggering close scrutiny from U.S. trade officials [see “Big Pharma and AIDS: Act II Patents and the Price of Second-Line Treatment,” Multinational Monitor, March/April 2007].

Abbott executives also took matters into their own hands. In March, the company withdrew applications to market seven new medicines in Thailand. One of those medicines was the heat-stable formulation of lopinavir/ritonavir – meaning it does not require refrigeration, an important consideration in a tropical country like Thailand.

Public health advocates in Thailand and around the world reacted with outrage.

What Abbott has done by withdrawing seven drugs from Thailand is using drugs as a bargaining chip,” says Jon Ungphakorn, the executive secretary of the AIDS Access Foundation in Thailand. “This is unacceptable; it is a moral outrage that Abbott is doing this. It’s playing games, not only with the patients in Thailand, but with patients all over the world. Abbott knows that what it’s doing is intimidating the whole developing world against using the same measures – legal measures – that Thailand has used to get access.”

Dr. Tido von Schoen-Angerer, director of Médecins Sans Frontières/Doctors Without Borders’ Campaign for Access to Essential Medicines, agreed. “What Abbott is doing is trying to protect high drug prices by actively denying an entire population access to new medicines it produces,” Dr. von Schoen-Angerer said. “This is as unprecedented as it is shocking. We consider it unethical and utterly unacceptable.”

Abbott declined repeated requests from Multinational Monitor to comment on the dispute.

Campaigners in Thailand called for a boycott of Abbott. In April, health advocates around the world held coordinated protests against the drug multinational.

Its hard-line approach notwithstanding, Abbott was not immune to the market pressure applied by Thailand. In demonstrating how it could reduce prices for Kaletra by 75 percent, Thailand was laying out a road map for other middle-income countries. In April, Abbott reduced its price for Kaletra for middle-income countries from $2,200 to $1,000.

The pressure campaign on Abbott also had some effect. In July, the company announced it would register its pediatric formulation for Kaletra in Thailand.

Otherwise, Abbott continues to maintain its new-drug boycott of Thailand.

Should denying medicines as a form of collective punishment be legal in a civilized world?

Actually, it’s not so obvious that Abbott’s actions are legal.

In April, a coalition of Thai consumer and health organizations – the Foundation for Consumers, AIDS Access Foundation, the Thai Network of People Living with HIV/AIDS and the Thai NGO Coalition on AIDS – filed a complaint with the Thai Trade Competition Commission. It called for the instigation of criminal prosecution against Abbott.

Sean Fynn, associate director of the Program on Information Justice and Intellectual Property at American University’s Washington College of Law, prepared a supporting memorandum for the health and consumer groups’ complaint.

Explains Flynn,Abbott’s response to the compulsory license – withholding a new version of its Kaletra product from the Thai market – appears to directly contravene the Thai Competition Act which prohibits ‘suspending, reducing or restricting services, production, purchase, distribution, deliveries or importation without justifiable reasons.’ An unwillingness to comply with a legal and justifiable government order cannot be a ‘justifiable reason’ for suspending the supply of life-saving medicines to Thai citizens.”

In December, however, the Thai Trade Competition Commission declined to pursue the complaint. It argued that Abbott does not have sufficient market share – even though it has a monopoly on its patented medicines – to trigger the terms of the country’s competition law.

Blackwater: Deadly Cowboys in Iraq

On September 16, 2007, Blackwater private military contractors escorting a State Department convoy in Iraq fired machine guns and grenade launchers at civilians at a busy intersection. Seventeen civilians died.

The incident crystallized Iraqi fury at the unaccountable, cowboy-like actions of foreign military contractors (the polite term for mercenaries). Iraqi Prime Minister Nouri al-Maliki said the company should be ejected from Iraq. The Iraqi Minister of Interior reportedly suspended the company’s right to operate outside of the Green Zone.

Blackwater said its personnel operated properly in the incident, but numerous reports and news accounts blamed the company’s contractors for the slaughter.

In the wake of the incident, attention in Washington suddenly focused on the legal Twilight Zone in which U.S.-employed private contractors operate – not subject to Iraqi law, U.S. military law or U.S. civilian law.

But, in the subsequent months, attention has died down. Blackwater continues to operate in Iraq, with no more accountability than existed on September 15.

The investigations that followed the September 16 massacre did establish two things beyond any doubt. First, the September 16 incident was not exceptional. It fit a pattern of outrageous conduct by Blackwater contractors. Second, Blackwater was representative of a broader problem of reliance on private contractors.

Blackwater was founded in 1997 by Erik Prince, an ex-Navy Seal and scion of a prominent Michigan Republican family.

Its business is based almost entirely on servicing the U.S. government, though it has designs on providing military services to other countries. Prince says that 90 percent of the company’s business is contracts with the U.S. government. He testified before the House Oversight Committee in October that he could not – or would not – say how much the company earned. He did testify that key contracts paid the company a 10 percent profit rate.

Blackwater obtained more than $1 billion in contracts from the U.S. government from 2001 to 2006, rising from $736,000 in 2001 to more than half a billion dollars in 2006.

Blackwater’s main contract is providing security to State Department operations in Iraq. It has roughly 1,000 personnel in Iraq.

In October, the majority staff of the House Oversight Committee prepared a devastating report that concluded, “The Blackwater and State Department records reveal that Blackwater’s use of force in Iraq is frequent and extensive, resulting in significant casualties and property damage.” Blackwater is legally and contractually bound to only engage in defensive uses of force to prevent “imminent and grave danger” to themselves or others. In practice, however, the vast majority of Blackwater weapons discharges are preemptive, with Blackwater forces firing first at a vehicle or suspicious individual prior to receiving any fire.

The House Oversight Committee report found that from 2005 to 2007, Blackwater personnel were involved in almost 200 incidents involving firearms discharge. In 84 percent of cases, Blackwater personnel were the first to fire.

The Committee’s report showed that reckless activity by Blackwater mercenaries was common. It described one case as follows:

On November 28, 2005, a Blackwater motorcade traveling to and from the Ministry of Oil for official meetings collided with 18 different vehicles during the round trip journey (six vehicles on the way to the ministry and 12 vehicles on the return trip). The written statements taken from the team members after the incident were determined by Blackwater to be “invalid, inaccurate and, at best, dishonest reporting.” According to a Blackwater contractor who was on the mission, the tactical commander of the mission “openly admitted giving clear direction to the primary driver to conduct these acts of random negligence for no apparent reason.” The only apparent sanction resulting from this incident was the termination of two of the employees.

The State Department is supposed to exercise oversight of Blackwater, but the House Oversight Committee found the department had utterly failed in this duty. “Even in cases involving the death of Iraqis, it appears that the State Department’s primary response was to ask Blackwater to make monetary payments to ‘put the matter behind us,’ rather than to insist upon accountability or to investigate Blackwater personnel for potential criminal liability.”

The oversight committee’s report was issued just prior to a high-profile hearing in which Erik Prince defended the company.

“We have to provide that protective screen,” he testified. “We only play defense, and our job is to get those reconstruction people that are trying to weave the fabric of Iraq back together, to get them away from that X, the place where the bad guys, the terrorists, have decided to kill them that day.”

Prince emphasized repeatedly that no individual protected by Blackwater had ever been killed or seriously injured.

He said the company had fired more than 100 personnel for violating company and State Department rules, but besides also fining them, could do no more to punish them for wrongful acts. It was up to the Justice Department to prosecute them, he said.

Representative Danny Davis, D-Illinois, asked, “You do admit that Blackwater personnel have shot and killed innocent civilians, don’t you?”

Prince replied, “No, sir. I disagree with that. I think there have been times when guys are using defensive force to protect themselves, to protect the package they are trying to get away from danger. There could be ricochets. There are traffic accidents. Yes. This is war. You know since 2005, we have conducted in excess of 16,000 missions in Iraq and 195 incidences with weapons discharged. In that time, did a ricochet hurt or kill an innocent person? That is entirely possible. Again, we do not have the luxury of staying behind to do that terrorist crime scene investigation to figure out what happened.”

Concluded Representative Henry Waxman, D-California, “We have never had anything of this magnitude before, where we have turned so much of our military activity over to private military – [activity] that used to be, for the most part, provided by the U.S. military itself.” As Waxman noted, the October hearing showed that relying on Blackwater is incredibly expensive – more than $400,000 per contractor per year – and has undermined the U.S. military objective, by fostering animosity toward the United States.

It has also led to the deaths of untold numbers of Iraqis, terrorized the Iraqi civilian population, and added to the lawless atmosphere in Iraq in which violence is pervasive and (Iraqi) life is cheap.

BP: Taking the Public

BP is a giant multinational oil company. It spends a lot of money trying to get us to believe that it is something else: a decent, clean, conscientious corporation.

It is not.

It kills workers in Texas. It pollutes Alaska. It manipulates markets. And it uses the tricks of the corporate criminal class to escape penalties commensurate with the seriousness of the harm it causes.

In October, BP cut a deal with the Justice Department to pay $373 million in fines and restitution related to a series of crimes and instances of wrongdoing: a felony violation of the Clean Air Act connected to a 2005 refinery explosion that killed 15 contract employees, a violation of the Clean Water Act related to major pipeline leaks in Alaska, and a conspiracy to manipulate the propane market.

The $50 million fine in connection with the Texas refinery explosion was the largest ever under the Clean Air Act, a source of pride at the Justice Department.

Not everyone was impressed. “I note with curiosity that when an average citizen commits a felony it usually leads to a prison sentence,” says Representative John Dingell, D-Michigan, the chair of the House Energy and Commerce Committee. “Yet, apparently, when a big oil company commits a felony that causes 15 deaths, it pays a criminal penalty equal to less than a day’s corporate profits. Until the Department of Justice starts holding corporate executives accountable, I am not sure that there will be a meaningful shift in corporate culture.”

“It is troubling,” says Representative Bart Stupak, D-Michigan, chair of the Subcommittee on Oversight and Investigations of the House Energy and Commerce Committee, “that many of the same BP executives who were responsible for the management failures that led to the criminal charges and settlements announced today are still employed by BP, and, in some cases, have been promoted to the highest levels of the company. This does not reflect the kind of corporate culture change we would expect if the company’s leadership took to heart the consequences of its mismanagement.”

For BP, the October settlement put to rest a series of debacles that has beset the company over the last several years.

But it’s certainly not the end of the company’s mischief.

In February 2007, the company announced that it had chosen the University of California (UC) at Berkeley, in collaboration with the Lawrence Berkeley National Laboratory and the University of Illinois at Urbana-Champaign, to host the Energy Biosciences Institute (EBI).

Funded with $500 million over 10 years, the agreement would double the amount of corporate funding for research on campus, and change the direction of biofuels research at UC Berkeley for years to come.

“In launching this visionary institute, BP is creating a new model for university-industry collaboration,” says Beth Burnside, UC Berkeley vice chancellor for research.

That’s one way to look at things. Another is to characterize the BP-Berkeley deal as the farthest-reaching effort by a corporation in recent U.S. history to colonize a major university.

The agreement drew harsh criticism from much of the university community in part because the deal was hatched without input from professors, students and others in the university community.

In March 2007, students opposing the deal demonstrated outside the Chancellor’s office on the Berkeley campus.

Two students were arrested for dumping molasses on the steps of a university building (it looked like oil).

They had a lot to protest.

The Energy Biosciences Institute, dedicated to problems related to global energy production and primarily expected to research biofuels, is projected to encompass 24 laboratories on the three campuses, representing an unprecedented occupation of university space and cooptation of public resources by a corporation.

BP will actually construct a building on the UC Berkeley campus, where it will be able to conduct proprietary research, off limits to Berkeley personnel. There may be no precedent for such absolute ceding of public university space to secret, for-profit industry research.

The deal will enable BP to expropriate a major public investment. Various public institutions are kicking in tens of millions of dollars to the project. Much more importantly, BP will be able to capitalize on the long-term public investment in UC-Berkeley and the other institutions, including the students and faculties who enjoy very significant public support.

BP gets to control whatever useful technologies emerge from its colonial project. The terms of the Energy Biosciences Institute contract between BP and the public partners give BP the right to exclusively license and commercialize inventions developed in the Institute’s shared university/BP facilities, even inventions developed entirely by university scientists (provided they are BP-funded). The company will almost surely be able to cherry pick publicly funded inventions.

The deal also likely gives BP power to direct the research agenda at the Energy Biosciences Institute. The deal specifies that BP representatives will serve in “high-level” positions on the Institute’s governing committees.

“BP researchers will be able to suck up the best of what Berkeley’s scientists have to offer, retreat behind locked, guarded doors and pursue their corporate agenda without giving anything back,” says John Simpson of the the Foundation for Taxpayer and Consumer Rights in Santa Monica, California. “Academic research is based on an exchange of ideas and information. This is a one-way street benefiting only BP.”

Chiquita: Payments to Paramilitaries

In March, Chiquita entered into a plea agreement with the U.S. Department of Justice, in which it admitted making illegal payments in Colombia to a right-wing militia designated as a terrorist organization by the United States. Under terms of the deal, Chiquita agreed to pay $25 million in fines to the U.S. government.

The victims of that terrorist paramilitary have a simple question: Why is Chiquita paying the U.S. government, but not them?

The Justice Department’s announcement of the deal was damning enough.

“From sometime in 1997 through February 4, 2004,” explained the Justice Department’s release, “Chiquita paid money to the AUC [the Spanish acronym for a paramilitary organization whose English name is United Self-Defense Forces of Colombia] in two regions of the Republic of Colombia where Chiquita had banana-producing operations: Urabá and Santa Marta. Chiquita made these payments through its wholly-owned Colombian subsidiary known as ‘Banadex.’ By 2003, Banadex was Chiquita’s most profitable operation. Chiquita, through Banadex, paid the AUC nearly every month. In total, Chiquita made over 100 payments to the AUC amounting to over $1.7 million.”

The U.S. government designated the AUC as a foreign terrorist organization in September 2001. That designation – which made it a crime for U.S. persons or companies to make payments to the AUC – “was well-publicized in the American public media,” notes the Justice Department’s release. “The AUC’s designation was even more widely reported in the public media in Colombia.” Yet Chiquita’s payments continued – 50 payments totaling more than $800,000 followed.

In February 2003, top Chiquita officers learned of the payments and consulted with outside counsel. Chiquita’s outside lawyers unequivocally stated payments should stop. The advice from numerous communications:

“Must stop payments.”

“Bottom Line: CANNOT MAKE THE PAYMENT.”

“Advised NOT TO MAKE ALTERNATIVE PAYMENT through CONVIVIR.”

“General Rule: Cannot do indirectly what you cannot do directly.”

Concluded with: “CANNOT MAKE THE PAYMENT.”

“You voluntarily put yourself in this position. Duress defense can wear out through repetition. Buz [business] decision to stay in harm’s way. Chiquita should leave Colombia.”

“[T]he company should not continue to make the Santa Marta payments, given the AUC’s designation as a foreign terrorist organization[.]”

“[T]he company should not make the payment.”

But the company continued to make payments.

Two months later, Chiquita self-reported the payments to the Justice Department. But even then payments continued – 20 more payments of more than $300,000 through June 2004, at which time Chiquita sold its Colombian subsidiary.

Chiquita’s version of the story is that it had been in a horrible dilemma. The then-leader of the AUC, Carlos Castaño, met with a senior executive of Banadex and threatened that he would harm Banadex personnel and property if the company did not pay protection money.

“The payments made by the company were always motivated by our good faith concern for the safety of our employees,” says Chiquita CEO Fernando Aguirre. “Nevertheless, we recognized – and acted upon – our legal obligation to inform the Department of Justice of this admittedly difficult situation.” The plea deal, he says, “is in the best interests of the company.”

Says company spokesperson Michael Mitchell, “Our payments were entirely motivated by safety concerns.”

“It was a difficult ethical dilemma,” he says. “The Department of Justice admitted it was a difficult situation.”

A lawsuit filed in July 2007 by family members of Colombians killed by the AUC paints a less sympathetic view of Chiquita’s dilemma. The family members are represented by the Washington, D.C.-based EarthRights International and other lawyers.

“The stability and social control provided by the AUC was to Chiquita’s benefit,” charges the suit, “in allowing exportation of bananas without interruption due to conflict. The influence of the AUC in the leadership of the banana workers’ trade unions was also to Chiquita’s benefit, as it reduced labor strife. The AUC also provided protection services to banana plantations dealing out reprisals against real or suspected thieves, as well as against social undesirables, suspected guerrilla sympathizers or supporters, and anyone who was suspected of opposing the AUC’s activities and social programs.”

The lawsuit also charges that Chiquita facilitated the illegal transfer of thousands of assault rifles to the AUC.

The family members filing the suit – all named as John or Jane Doe to protect them from retaliation – allege the AUC killed their relatives because they were active in labor organizing and advocating for marginalized groups.

The suit seeks to represent a class of all people harmed by the AUC’s “campaign of military and social control” aiming to “exert total control over the land and inhabitants of the banana-growing region of Colombia.” The family members ask that the class include “individuals who were the objects of acts constituting extrajudicial killing, forced disappearance, torture, cruel, inhuman or degrading treatment, kidnapping, rape, forced displacement, crimes against humanity, or crimes against civilians constituting war crimes.”

Chiquita “categorically denies” the allegations in the lawsuit, according to company spokesperson Mitchell. “We reiterate that Chiquita and its employees were victims and that the actions taken by the company were always motivated to protect the lives of our employees and their families.”

“The company,” he says, “was forced to make payments to both left- and right-wing paramilitary organizations to protect the lives of our employees at time when kidnappings and murders were frequent, and government authorities were unable to provide security and protection.”

In the 1990s, Mitchell says, the company’s workforce was put in grave danger by the escalation of violence in the region. “Among hundreds of documented attacks by left- and right-wing illegal groups were the 1995 massacre of 28 innocent Chiquita employees who were ambushed and killed on a bus on their way to work, and the 1998 cold-blooded murder of two more of our workers on a farm while their colleagues were forced to watch.”

In this context, the company was “forced to make protection payments to safeguard our workforce. It is absolutely untrue for anyone to suggest that these payments were made for any other purpose.”

Countrywide: Subprime Kings

Many factors combined to create the current housing crisis in the United States.

Low interest rates after the 2001 stock market crash spurred the housing boom. Housing prices skyrocketed above historic trendlines. People were duped into thinking prices would rise forever, but it was inevitable that the housing bubble would burst, and houses would suddenly be worth a lot less. With house prices falling, lots of people are now finding they owe more than their house is worth. This problem is exacerbated by predatory loan arrangements that have left millions facing suddenly rising mortgage payments.

A lot of people and corporations deserve blame for this state of affairs.

Instead of warning consumers about the housing bubble – which would have gone a long way to counter the excessive price run-ups – then-Federal Reserve Chair Alan Greenspan denied a bubble was occurring.

Wall Street firms created exotic investment instruments that made possible the purchase and trading of large numbers of mortgages. This created conditions so that banks and initial lenders took less care in issuing mortgages – since they wouldn’t be responsible for mortgages gone bad. The Wall Street firms not only sold these instruments to duped investors, they took on major liabilities on their own – even though it was obvious the housing bubble would have to burst.

Rating agencies like Moody’s and Standard & Poor’s, which evaluated the riskiness of these new mortgage investment instruments, failed utterly. The housing bubble meant mortgage investments were sure to lose money, but the ratings agencies gave them top ratings anyway. Along with the “innovation” of the Wall Street firms, the ratings agencies helped maintain a market that dramatically exacerbated, and to a considerable degree may have created, the housing bubble.

Financial bubbles create an incentive for criminal and shady activity. Just like the stock bubble of the late 1990s created the climate for Enron and dozens of other companies to cook their books, the housing bubble created incentives for predatory lenders to exploit consumers.

The predatory lenders offered low rates, at least at first. Rates would rise later, but the lenders said that – because home prices were rising so fast and would continue to do so – borrowers could always refinance with a new loan.

The biggest of the predatory lenders was Countrywide, a mortgage lender acquired by Bank of America in January 2008. The company and its CEO, Angelo Mozilo, made a bundle, while setting up thousands and thousands of families for financial ruin.

“Over the past few years,” says Martin Eakes of the Center for Responsible Lending, “by steering millions of people into bad loans, Countrywide has been the largest rogue mortgage lender in the country. According to Countrywide’s own data, more than 80 percent of its exotic adjustable-rate loans were made to borrowers that do not meet current banking standards. Countrywide knew that these homeowners would not be able to make their monthly loan payments after dramatic payment increases became effective.”

The Center for Responsible Lending has compiled a dossier on Countrywide’s irresponsible practices, presented in a report, “Unfair and Unsafe.” Its devastating report, based on customer complaints, lawsuits, regulatory actions, news accounts, government reports and company documents, shows how Countrywide engaged in rampant wrongdoing:

o Predatory lending. “Lawsuits filed around the country have accused Countrywide of preying on borrowers through a variety of unfair and fraudulent tactics that have siphoned equity out of their homes and pushed many into foreclosure,” notes “Unfair and Unsafe.” “Borrowers and regulators have accused the company of: steering borrowers with good credit into higher-cost ‘subprime’ loans; gouging minority borrowers with discriminatory rates and fees; working in cahoots with mortgage brokers who use bait-and-switch tactics to land borrowers into loans they can’t afford; targeting elderly and non-English-speaking borrowers for abusive loans; and packing loans with inflated and unauthorized fees.”

In one lawsuit, Albert Zacholl, a 74-year-old man living in Southern California, alleges that Countrywide and a pair of mortgage brokers “cold-called and aggressively baited” him. They promised him $30,000 cash, and a monthly payment that would not exceed $1,700. Zacholl told the brokers that his income consisted of a pension of $350 a month and Social Security payments of $958, and that with help from his son, he could afford a mortgage up to $1,700. According to the lawsuit, the broker falsified his loan application by putting down an income of $7,000 a month, and then arranged for a high-interest mortgage that required him to pay more than $3,000 a month (and failed to deliver the $30,000 cash payment). The motivation for the scam, according to the lawsuit, was to collect $13,000 in fees.

In court papers, the Center for Responsible Lending reports, Countrywide responded that Zacholl “consented to the terms of the transaction” and that any problems were the result of his own “negligence and carelessness.”

  • Dangerous products. Countrywide has been a leader in pushing unsound mortgage terms. These include “exploding” subprime adjustable rate mortgages – with reasonable interest rates in the first year that jump in subsequent years, often by as much as 30 percent to 50 percent.
  • Conflicts of interest. “Countrywide has created a corporate structure designed to allow its subsidiaries to work hand-in-hand in squeezing borrowers with excessive fees and penalties,” according to “Unfair and Unsafe. Countrywide affiliates handle appraisals, credit reports, flood certifications and other documentation for new loans; provide “force-placing” insurance for borrowers whose homeowners insurance has lapsed; and serve as a foreclosure trustee. The interconnections enable Countrywide to charge high fees, and deny borrowers the benefit of third parties’ independent judgment and independent interests.
  • Broken promises on loan modifications. The company has a history of failing to fully live up to its promises to help borrowers keep their homes by modifying onerous loans, according to “Unfair and Unsafe.” The report cites a Fall 2007 Credit Suisse review that ranked Countrywide as one of the mortgage lenders least willing to adjust loan terms.

Countrywide says it is committed to working out fair arrangements to keep homeowners in their houses. In December, it entered into an arrangement with the community group ACORN designed to help subprime borrowers.

“During the first 11 months of 2007, Countrywide helped more than 69,000 customers retain their homes through solutions such as loan modifications, long-term repayment plans, special forbearance and other options,” says Steve Bailey, a Countrywide senior managing director of loan administration. “Regardless of the reason for the payment difficulties, Countrywide wants to try to find reasonable solutions for our borrowers.”

  • Abusive loan servicing. Borrowers claim that Countrywide has engaged in sloppy and fraudulent loan servicing that has produced unwarranted fees and foreclosures.

With the collapse of the housing market in 2007, Countrywide’s fortunes turned, its mortgage-backed securities plummeted in value, and the company seemed on the edge of bankruptcy. In January 2008, Bank of America agreed to buy the company.

Do not weep for company co-founder and long-time CEO Angelo Mozilo, however. Mozilo grabbed compensation worth $185 million from 2002-2006, according to an analysis by the U.S. House of Representatives Committee on Oversight and Government Reform. Between November 2006 and December 2007, Mozilo sold $150 million in stock – effectively jumping from a sinking corporate ship for which he was supposedly at the helm, or at least on the captain’s deck.

“Particularly, the discrepancy between Mr. Mozilo’s compensation and Countrywide’s performance is striking,” concludes the Oversight Committee analysis. “In 2007, Countrywide announced a $1.2 billion loss in the third quarter and an additional loss of $422 million in the fourth quarter.” By the end of the year, the company’s stock fell 80 percent from its February peak. “During the same period, Mr. Mozilo was paid $1.9 million in salary, received $20 million in stock awards contingent upon performance, and sold $121 million in stock.”

Mozilo retired as CEO in 2006, remaining as company chair and an employee. The House Oversight Committee analysis shows that his compensation contract, taking effect in 2007, was outrageous, and based in part on recommendations from a compensation consultant loyal to Mozilo rather than Countrywide.

Even so, Mozilo was bitter that the company did not give him everything he wanted. In an e-mail message turned up by the Oversight Committee, Mozilo wrote to the compensation consultant:

“I appreciate your input but at this stage in my life at Countrywide this process is no longer about money but more about respect and acknowledgement of my accomplishments. … Boards have been placed under enormous pressure by the left wing anti business press and the envious leaders of unions and other so called ‘CEO Comp Watchers’ and therefore Boards are being forced to protect themselves irrespective of the potential negative long term impact on public companies. I strongly believe that a decade from now there will be a recognition that entrepreneurship has been driven out of the public sector resulting in underperforming companies and a willingness on the part of Boards to pay for performance.”

With attention focused on the discrepancy between Mozilo’s compensation package and Countrywide’s well-being, he waived various payments – totaling $37.5 million – he could have received once Bank of America finalizes its takeover.

In March 2008, Mozilo appeared before the House Oversight Committee to explain his compensation.

“Countrywide’s board,” he testified, “has aligned the interests of our top executives, including me, with shareholders by making our compensation primarily performance-based – namely, tied to earnings per share and share price appreciation. Since 1982 through early 2007, Countrywide’s stock appreciated over 23,000 percent, reaching a peak market value of over $25 billion from a starting value of zero. As a result, over recent years, I have received substantial income from bonuses under a formula that was approved by our shareholders on at least two occasions.”

He also received substantial stock options, explaining, these were “options that required the price of the stock to rise above the option price before any income could be realized, thereby aligning me squarely with our shareholders.” In anticipation of his retirement, he testified, he put in place a plan to cash in some stock options earned in earlier years. His sales were thus planned in advance of Countrywide’s downturn. But he continues to hold substantial shares in Countrywide – shares worth much less than before the company’s stock collapsed.

Mozilo testified that he is “very proud of the home ownership opportunities that Countrywide has provided for over 20 million families,” while acknowledging the hardship faced by homeowners and Countrywide employees and shareholders.

“In my 55 years in the industry,” he said, “this by far is the worst housing crisis I have ever seen, combined with an unprecedented collapse of the credit and liquidity markets.”

“The problem we face,” he said, “is the deterioration of the value of homes. As values were going up, we had no problem. We had no delinquencies and no foreclosures, because people had options, because people run into three things in their lives generally – loss of job, loss of marriage, loss of health. When that happens and they own a home, and it impacts their income, they generally have a way out – sell the house, refinance, do something.

“That equity that they have in their homes has been virtually wiped out. And that’s what’s exacerbating this whole foreclosure problem.”

Wasn’t that problem entirely foreseeable? Didn’t Countrywide’s lending policies – which generously might be called aggressive – depend on constantly rising housing values in what was obviously a bubble market?

ExxonMobil: Planetary Endangerment

It is no longer possible for even ExxonMobil to deny the reality of climate change.

Here is the current company line, as elaborated by CEO Rex Tillerson in a November 2007 speech: “Many more questions on this complex subject remain and require continued research. But it has become increasingly clear that climate change poses risks to society and ecosystems that are serious enough to warrant action – by individuals, by businesses and by governments.”

Well, sure, lots of questions remain. And action is certainly “warranted.”

But that understates things by several orders of magnitude.

The Intergovernmental Panel on Climate Change (IPCC), a collaboration of hundreds of the world’s leading climate scientists that won the 2007 Nobel Peace Prize, always presents its findings in the most cautious and restrained language.

The IPCC concludes in its Fourth Assessment report, issued in April 2007: “Warming of the climate system is unequivocal, as is now evident from observations of increases in global average air and ocean temperatures, widespread melting of snow and ice and rising global average sea level.” Not only were 11 of the 12 years from 1995 to 2006 among the 12 warmest years recorded, the last 50 years in the Northern Hemisphere were probably the warmest in the last 1,300 years.

“Most of the observed increase in global average temperatures since the mid-20th century is very likely due to the observed increase in anthropogenic [greenhouse gas] concentrations.”

The IPCC details a series of horrors likely to befall the planet to rival the 10 Plagues the Bible says were visited upon Egypt. Projections include:

  • By 2020, between 75 and 250 million people in Africa are projected to be exposed to increased water stress.
  • By 2020, in some countries, yields from rain-fed agriculture could be reduced by up to 50 percent. Agricultural production throughout Africa is projected to be severely compromised.
  • Sea level rise will affect heavily populated coastal areas in Africa by the end of the century, imposing costs on affected countries of at least 5 percent to 10 percent of gross domestic product (GDP).
  • African desertification will increase by 5 percent to 8 percent by 2080.
  • Freshwater availability throughout Asia will be a serious problem by the 2050s.
  • Flooding in heavily populated Asian coastal areas will intensify (posing risks to lives and imposing massive economic costs).
  • New patterns of flood and drought will lead to more infant and child deaths from diarrhea in Asia.
  • By 2020, significant loss of biodiversity is projected to occur in Australia’s Great Barrier Reef.
  • By 2050, ongoing coastal development and population growth in some areas of Australia and New Zealand are projected to exacerbate risks from sea level rise and increases in the severity and frequency of storms and coastal flooding.
  • Mountainous areas in Europe will face glacier retreat, reduced snow cover and winter tourism, and extensive species losses (in some areas up to 60 percent under high emissions scenarios by 2080).
  • By mid-century, increases in temperature and associated decreases in soil water are projected to lead to gradual replacement of tropical forest by savanna in eastern Amazonia. Semi-arid vegetation will tend to be replaced by arid-land vegetation.
  • Biodiversity will be lost everywhere.
  • Heatwaves will increase in number, intensity and duration in North America and Europe.

In a company statement, ExxonMobil responded to the April report from the IPCC, with its new line that “Because the risks to society and ecosystems could prove to be significant, ExxonMobil believes that it is prudent now to develop and implement global strategies that address the risks …”

But there was a caveat. Here’s the end of that sentence: “keeping in mind the central importance of energy to the economies of the world.”

The company therefore favors “putting policies in place that start us on a path to reduce emissions, while understanding the context of managing carbon emissions among other important world priorities, such as economic development, poverty eradication and public health.”

It’s hard to find words to describe this posture. If the world fails to mobilize the needed, increasingly urgent response to climate change – a disturbingly likely scenario – future generations will look back on this kind of talk, and the global warming denialism that Exxon so long funded, and know who to blame for the misery and suffering that could have been avoided.

If in fact addressing climate change would interfere with other important world priorities like poverty eradication and public health, perhaps there would be some moral hand-wringing about doing what must be done to prevent the worst climate change projections from being realized.

However, the very cautious IPCC report conveys in unmistakable terms that global warming will impose the greatest burdens on the world’s poorest countries. Climate change will devastate agricultural production and rural societies in Africa. New disease challenges will be worst in tropical countries. Flooding will be most severe in developing countries. Adapting to climate change will be expensive but ultimately affordable for rich countries; it will drain poor countries’ economies, however.

You only need common sense to know that the rich will be better able to buy their way out of both the hardships and inconveniences imposed by climate change.

Many people concerned about global warming are seeking ways to pressure or incentivize ExxonMobil and the rest of Big Oil to change their business model. The idea is for the companies to shift from providing oil and gas to becoming energy service corporations, as ready to deliver solar power as gasoline.

We’re not in that camp. We think ExxonMobil and Big Oil will need to be displaced, and will be.

The most serious problem is that ExxonMobil, as the largest and most vociferous of the oil majors, exerts its political and economic power to distort policy debates and stop governments from taking proportionate action to address climate change.

We’re not upset that ExxonMobil refuses to invest its obscenely large profits – $39.5 billion in 2007 – in renewable energy research and development. We place the company on the 10 Worst list because it continues to deploy its political power to stop the U.S. Congress from enacting a windfall profits tax, or ending tax and royalty subsidies for the oil industry, and directing the proceeds for renewable energy.

Gen Re: Case Closed. Why?

In 2006, the Justice Department abruptly dropped a federal criminal probe into allegations of insurance fraud at Berkshire Hathaway’s General Reinsurance (Gen Re) unit.

Paul McNulty was the U.S. Attorney in Alexandria, Virginia at the time. In March 2006, McNulty went on to become the Deputy Attorney General. He is currently a partner at Baker & McKenzie in Washington, D.C. McNulty did not return a call seeking comment for this article.

Did anyone pressure McNulty or his successor, Chuck Rosenberg, the current U.S. Attorney, to close down the investigation?

The case was looked at by the Justice Department’s Inspector General, Glenn Fine. Fine’s office will not comment on the current status, if any, of the investigation.

Fine was dragged in after evidence was presented to his office that federal officials may have incinerated more than 100 boxes of grand jury information in April 2007, just days after the Virginia Lawyer’s Weekly published an article titled, “Further Federal Indictments In Reciprocal Case Unlikely.”

The driving forces behind the criminal investigation of Gen Re were Thomas Gober, a certified fraud examiner based in Glen Allen, Virginia – and David Maguire, the Assistant U.S. Attorney in Alexandria charged by McNulty with shepherding the case.

For 12 years of his 18-year career, Gober has worked with federal investigators and prosecutors, ferreting out significant insurance and reinsurance fraud schemes.

Most recently, he worked closely with Maguire on the criminal prosecution of the top executives at Reciprocal of America (ROA), a major Virginia insurance company that went belly up in January 2003. ROA provided malpractice insurance to lawyers, doctors and hospitals. When the company went out of business, the policy holders were left without coverage – and victims of malpractice, in many cases, were left with no way to collect damages.

The collapse of ROA resulted in unpaid liabilities totaling $500 million.

The work of Maguire, Gober and a handful of FBI agents led to the February 2003 guilty pleas of former ROA president Kenneth Patterson and former ROA CFO Carolyn Hudgins. The two pled guilty to manipulating ROA’s books. By cooking the books, the ROA executives concealed from regulators the company’s financial weakness. Their failure to maintain sufficient reserves paved the way for the company’s collapse.

In Richmond, Virginia, Judge James Spencer sentenced Patterson to 12 years in prison and Hudgins to five years in prison.

Also caught up in the ROA case was the giant Gen Re company – a unit of the Omaha, Nebraska-based Berkshire Hathaway. Gen Re is a reinsurer, a company which effectively provides insurance to insurers

Between 2004 and 2007, McNulty, Maguire and their team of a half dozen FBI agents, Assistant U.S. Attorneys and forensic auditors began to build their case against Gen Re. They believed they had accumulated evidence that Gen Re had entered into sham transactions with ROA. The Justice Department lawyers believed these deals helped ROA hide its losses from regulators.

Gober says that McNulty “repeatedly championed the ROA case and all of our diligent work,” until McNulty left in March 2006 to become the Deputy Attorney General at Main Justice.

The prosecution team believed that the evidence against Gen Re was overwhelming. Maguire, Gober and FBI agent David Hulser drafted a more than 60-page indictment against top Gen Re executives.

At the same time, lawyers for the giant reinsurer were pressuring the government to drop the case or settle it as part of an overall global settlement with other matters the government was looking at involving Gen Re.

When McNulty left for Main Justice in March 2006, he was replaced by Chuck Rosenberg. Soon thereafter, the case was derailed.

In March 2007, in an effort to salvage years of work on the case, Gober wrote a seven-page letter to Judge Spencer – the judge who had sentenced ROA executives Patterson and Hudgins to long jail terms – chronologically laying out the derailment and pleading for advice.

“First, David Maguire was totally removed from working the case,” Gober wrote. “Dave called me into his office and apologized about leaving the case, telling me that Main Justice had told him he was being removed due to ‘health concerns,'” Gober wrote. “Dave had lost about 10 pounds while working on the ROA matter … something I did not consider very troubling (or even unusual) because this has been a very large and very complex case. Dave is a brilliant prosecutor and he knows all of the facts of the ROA case; indeed, he can literally recite them from memory.”

Maguire was replaced by Assistant U.S. Attorney Mike Gill, another Texas import.

In his letter to Judge Spencer, Gober says that in the very first “team meeting” after Maguire’s removal, Gill announced to the team of FBI agents and prosecutors that he was “glad we are all in agreement that this case is all about [name redacted] and that Gen Re is no longer a target.”

“To say the least, the team was a bit shocked about this ‘announcement’ concerning ‘how we all felt.'” Gober wrote.

Gill said he wanted to focus on an in-house ROA lawyer “who essentially had made many of the day-to-day reinsurance decisions that had impacted ROA and resulted in its eventual collapse.”

But the “team” also wanted to focus on Gen Re and top Gen Re executives because they believed, as Gober put it, that “the Gen Re issues were significant and far-reaching.”

“We discovered a fraud scheme which included, but was not limited to, the execution of ‘side letter agreements’ between the reinsurer and ROA which resulted in a misleading balance sheet impression for the insurance regulators,” Gober wrote. “In effect, we found that Gen Re was permitting the insurer to ‘rent’ reinsurance certification but there was no true shifting back of risk.”

“Because Gen Re is owned by the parent company of Berkshire Hathaway, and the two richest men in the world (Warren Buffett and Bill Gates) serve on the Berkshire Hathaway Board of Directors, I became quite concerned when the case against Gen Re was allowed to ‘go away,'” Gober wrote. “Why, I wondered, was this happening when the entire team – prior to Mr. McNulty’s elevation at the Justice Department – had been so absolutely sure we had a ‘slam dunk’ case? Nevertheless, I decided to make the best of a bad situation. If Gen Re was going to be let go, that was a decision over my head. At least, I thought, the case was going to be forcefully and professionally pursued” against the ROA lawyer.

Because the prosecutorial team felt that the case against the ROA lawyer was so strong, they prepared a prosecution memo outlining their case. That memo was submitted to Gill in February 2007. But the team heard nothing from Gill.

All Gill would say to Gober was that he just “felt” there was not a strong enough case against the lawyer.

Gober was so upset with the decision not to proceed against Gen Re and the ROA lawyer that he wrote a letter to McNulty outlining his concerns.

McNulty never responded to the letter.

“What has happened to this case?” Gober rhetorically asked Judge Spencer. “The facts are the same (or better) as they were when Paul McNulty left to become the #2 man in the Justice Department. The only thing that is ‘different’ is that two fellows from Texas have been brought in and they do not seem to want to do anything with this matter but let it die. I am very troubled that everyone on our team, and we are talking about seasoned professionals, concluded this was (and remains) a very important case that needs to go forward. Yet, somehow, the U.S. Attorney goes to D.C. and the new guy comes in and the case is over, for all intents and purposes. Something is just wrong about all of this.”

Gober is concerned not just because a criminal prosecution of a powerful U.S. corporation has been derailed.

He’s concerned not just because the case involved the largest single insurance collapse in the history of Virginia that cost $500 million and has left more than 80,000 policyholders with an insolvent and liquidated insurer. Gober is concerned also because the case “has exposed a serious problem in the reinsurance industry which is going to have to be addressed and corrected,” he wrote to Judge Spencer.

“Hundreds of millions of dollars are at stake, and very powerful people are interested in this matter simply dying,” he wrote. “I am not one of them. Nothing would be worse than to see a case like this one pushed ‘under the radar’ by greedy people who simply want more and more money through fraud. Based on what has been going on lately at the Justice Department, I am very worried about how all of this has happened and what should be done to correct it.”

Judge Spencer, through his clerk, suggested that Gober directly and personally approach Glenn Fine, the Inspector General.

On April 2, 2007, the Virginia Lawyer’s Weekly wrote the first article outlining Gober’s account. (A few months later, in July 2007, the McClatchy Newspapers ran a more detailed article titled “Justice Department Drops Massive Accounting Fraud Case,” by Marisa Taylor.)

On April 3, the day after the Virginia Lawyer’s Weekly article hit the stands, Gober wrote a frantic e-mail to Fine’s office warning that the FBI was planning on incinerating crucial evidence in the case.

“I know from working past FBI cases that documents are stored for years,” Gober wrote to the Office of Inspector General’s (OIG) Keith Bonanno. “The agents must not know of your inquiry.”

On April 5, Gober wrote again to Bonanno. “Yesterday, all documents were hauled off from our site office to the FBI incinerator,” Gober wrote. “My hard drive which held all of the case data was taken as well. It is my hard drive and it was to be ‘wiped clean’ before its return to me. I pushed for them to back it up before wiping clean or all case data would be gone. Please request that the data be copied before my drive is re-formatted. Otherwise, the investigation may be for naught. Two independent sources told me that the agents were going to incinerate them to ‘get ahead of the ball’ and ‘not let this drag on forever.'”

OIG’s Bonanno responded later that day. “Our office contacted the USAO [U.S. Attorney Office] in Richmond and instructed that they (and/or the FBI) cease destruction of documents related to the case since there is a pending OIG/OPR review,” Bonanno wrote.

Before the whip came down, the government was in pretty serious negotiations with Gen Re to settle the ROA case amicably.

Joshua Hochberg was at the time head of the Justice Department’s Fraud Section. Hochberg is currently a partner at McKenna Long & Aldridge in Washington, D.C. Hochberg did not return a call seeking comment for this article.

In May 2005, Hochberg wrote to Maguire about the settlement of the Gen Re case. “The bottom line has always been – what do we want to do with Gen Re.” Hochberg wrote. “The options range from indicting the company, to a plea by a subsidiary to a deferred prosecution or a non-pros [non-prosecution] agreement with lots of favorable terms for the government, including large $, monitors, cooperation. … Indicting the company would have enormous collateral consequences. As you know, when we met with Gen Re’s counsel, we made no promises about any final resolution.”

Thomas Hanusik was at the time assistant chief of the Fraud Section. He’s now a partner at Crowell & Moring. Hanusik said he would have no comment on this story.

On July 20, 2005, Hanusik wrote to Maguire to detail negotiations he had with Ron Olson, a partner at Munger Tolles & Olson in Los Angeles.

Olson is an attorney for Gen Re and a member of the Berkshire Hathaway board of directors.

Olson could not be reached for comment. But he told McClatchy’s Marisa Taylor that “there was no knowledge at Gen Re that people at Reciprocal of America were hiding information from regulators or auditors.”

He said the Gen Re had entered into “side deals” with ROA, and that these were the industry norm. The company has since banned such arrangements as bad business practice, he told Taylor.

He described the criminal case as “maybe the longest investigation I remember being associated with. We were extremely frustrated.”

Maguire responded to Hanusik’s July 2005 note the next day. “I think we need a strong united front on Gen Re’s culpability on ROA in order to get them to fess up and pay a share of the $450 million ROA loss commensurate with their conduct,” he wrote.

“From the mid-1980s until approximately 2001, ROA grew from a small, marginally capitalized Virginia reciprocal insurer of approximately 100 hospitals and a few hundred doctors and lawyers into four commonly managed reciprocal insurers of more than 80,000 insureds in many different states across the country,” Maguire wrote. “This phenomenal growth, however, could not have happened without the world believing that ROA was fully and truly reinsured by Gen Re and the receipt of consistently high ratings from A.M. Best (A Ratings from 1983 to 2001), a national respected ratings service of insurance companies, which also believed ROA was truly backed by Gen Re.”

“Unfortunately, for more than 18 years, material facts about the true nature of ROA’s reinsurance relationship with Gen Re were falsely represented and concealed from Best, the insurance commissioners, state legal and medical societies and hospital associations that endorsed ROA to its members, and the insureds themselves. Indeed, the losses that drove ROA into insolvency were the very losses that were supposedly covered by reinsurance contracts with Gen Re,” Maguire wrote. “The dark little secret we have uncovered is that when Gen Re has to pay larger that [sic] expected losses, it uses it [sic] might to dump the losses back on the reinsured.”

The Gen Re investigation ultimately did not come out entirely to the company’s liking – and company executives have not escaped accountability, at least as relates to other matters. The ROA case led federal prosecutors to investigate a similar alleged arrangement between Gen Re and the insurer AIG. A federal jury would later find four top Gen Re executives and an AIG executive guilty of conspiracy and securities fraud, in a scheme also allegedly involving sham transactions, these intended to make AIG’s finances appear stronger than they actually were.

Murray Energy: Collapse of Decency

Mining disasters can transfix a nation.

Miners trapped underground, and the uncertainty of whether they survived a collapse, evokes empathy for the miners, their families and their community in even the hardest of hearts. Not many people have experience deep underground, but until the fate of the involved miners is established, the drama and suspense feels very personal to the millions waiting for updates, desperately hoping for good news and fearing the worst.

In the United States, the millions following the rescue typically watch the disasters play out according to a familiar script. Families, miners and mine operators are stricken with fear, supportive of each other, and articulate about the raw emotional urgency of rescue operations.

In August 2007, a major calamity struck the Crandall Canyon coal mine in Utah. Six miners were killed in the mine collapse. Ten days later, two rescue workers and a mine inspector were killed trying to reach the six trapped men. The second set of fatalities marked Crandall Canyon as particularly tragic.

There was something else unusual about the Crandall Canyon disaster. With the nation watching, the mining company did not display the usual humility.

Rather than relying on PR professionals, Robert Murray, CEO of Murray Energy, the operator of Crandall Canyon, stepped into the spotlight.

A day after the mine collapse, he began a nationally televised new conference by proudly relating how he had built up the company, and fulminated against climate change legislation.

“Without coal to manufacture our electricity,” he exclaimed, “our products will not compete in the global marketplace against foreign countries, because our manufacturers depend on coal, low-cost electricity, and people on fixed incomes will not be able to pay their electric bills. And every one of these global warming bills that has been introduced in Congress today to eliminate the coal industry will increase your electric rates four- to five-fold.”

He went on to insist, against all evidence at the time – and the very detailed evidence now available – that the disaster was caused by an earthquake.

He concluded his lengthy remarks by denouncing former mine industry regulators and the leaders of the United Mine Workers of America, as well as reporters from the Associated Press and Fox News. Referring to the experts and the union, he said, “These individuals have given very false statements to the media and to America, for their own motives. They know nothing about the natural disaster that occurred here. They know nothing about the damage in the mine and the circumstances surrounding the trapped miners, or the rescue efforts that are under way. And I caution the media to very much question the veracity of these sources and their motivations.”

Murray maintained the same tone in subsequent interviews, belligerently denying that he knew of previous cave-ins in the same mine, or that the trapped miners were engaging in a particularly dangerous operation known as “retreat mining.”

The Ohio-based Murray Energy and its affiliates mine more than 20 million tons of coal annually, according to the Cleveland Plain Dealer.

From 2004 through the end of 2007, a Multinational Monitor analysis found, the U.S. Mine Safety and Health Administration (MSHA) cited companies controlled by Murray for safety violations more than 7,500 times.

That astounding fact says quite a bit about the culture at Murray Energy.

But nothing can match the chilling report issued in March 2008 by Senator Edward Kennedy, D-Massachusetts, chair of the Senate Health, Education, Labor and Pensions Committee. The report shows a callous and utter indifference to miners’ lives and well-being. There were countless opportunities to recognize the dangers posed by Murray Energy’s perilous plans for Crandall Canyon, but Murray Energy ignored, discounted or suppressed the warning signs, and feckless regulators let the company proceed.

Summarizes Kennedy, “The Committee’s investigation has revealed that the owner of Crandall Canyon mine, Murray Energy, disregarded dangerous conditions at the mine, failed to tell federal regulators about these dangers, conducted unauthorized mining and – as a result – exposed its miners to serious risks.”

The report explains that “the mining operations proposed by Murray Energy, and approved by MSHA, at Crandall Canyon were among the most dangerous ever attempted.” Murray Energy was undertaking retreat mining or pillar extraction – pulling out the mine’s supporting pillars, in the opposite direction from which the mine advanced. Often the plan is designed to provided for controlled roof collapse. The retreat mining at Crandall Canyon was the deepest MSHA had ever authorized. The deeper the mine, the greater the stress on supporting pillars, and the more dangerous it is to remove them.

Murray Energy took over Crandall Canyon mine from a previous operator, Andalex, in August 2006. It immediately began to pressure MSHA to lessen safety inspections, according to the Kennedy report.

A few weeks after Murray Energy began operating Crandall Canyon, an MSHA official e-mailed a colleague, “[Murray Energy] also told my supervisor they have been very successful at getting MSHA people removed in other districts. I expected we would have trouble with this operator, but didn’t expect it on the 2nd day after they took over [the mine].”

Six weeks later, another MSHA official wrote to the administrator of MSHA’s Office of Coal Mine Safety and Health, “Over the course of the first 10 days of Murray Energy ownership they have aggressively opposed enforcement actions taken by [MSHA] Inspectors Durrant and Shumway, accused them both of retaliation, met with Supervisor Farmer and attempted to dictate how inspections should be performed at the mines. All indications so far are that this operator intends to use whatever means available to try to leverage enforcement at their mines.”

By August 2007, if not earlier, internal company documents show, Murray Energy had adopted a policy of contesting all MSHA safety violations, regardless of the merits.

The Kennedy report shows that Murray Energy’s pressure tactics worked, and the agency lightened up on enforcement activities. Internal company memos relate MSHA commitments to “pul[l] back enforcement.”

The August tragedy at Crandall Canyon could have been avoided if the retreat mining had never been undertaken.

Andalex, the previous operator of the mine, had concluded that retreat mining could not be conducted safely in the area where the mine collapse occurred. The company even argued against the retreat mining encouraged by the Utah state department overseeing mine leases, which earns royalties from the sale of extracted coal.

Murray Energy had an entirely different approach.

The company presented a plan based on a technical analysis of retreat mining safety at Crandall Canyon performed by a consultant, Agapito. In a review conducted after the disaster, the National Institute of Occupational Safety and Health found Agapito’s work to be deeply flawed.

Under federal law, MSHA must review and approve plans for underground coal mining. The Kennedy report concludes that “the record shows that MSHA’s review of the company’s mine plan was often rushed, superficial and pro forma. Indeed, mining expert and former MSHA engineer Robert Ferriter described MSHA’s review of Crandall Canyon’s mine plan as a ‘broken system.'”

The MSHA engineer initially reviewing Murray Energy’s plans urged rejecting the proposal. A supervisor told the engineer that his analysis was flawed. Rather than conducting a new one, according the Kennedy report, the supervisor “seems to have simply accepted the company’s rebuttal of Del Duca’s analysis at face value,” authorizing the plan to go forward.

Even after the plan was approved, however, the Kennedy report shows, “there were multiple warning signs during mining operations – including heightened seismic activity and a major mine bounce [a bounce is a mine collapse in which the pressure on pillars leads them literally to explode outward] – that should have raised red flags for both MSHA and the mine operator. The company ignored these signs of danger and did not tell MSHA about them, as the company promised it would do.”

In February 2007, Murray Energy began retreat mining in a northern section of the mine. Internal company records show 17 separate reports of roof falls, cave-ins and bounces. An internal memo to Robert Murray identified these problems, beside which Murray wrote “noted.”

Only one of the 17 incidents listed in internal company records was reported in the official logs Murray Energy is required to maintain by law, according to the Kennedy report.

On March 11, the northern section where the retreat mining was being conducted – 900 feet away from the southern section that would be the site of the August tragedy – collapsed. Because the collapse occurred at night, when no miners were nearby, no one was hurt.

“The multiple warning signs that preceded the March bounce and the force of the collapse itself should have alerted MSHA and the company to fundamental flaws in the barrier pillar retreat mining plans,” asserts the Kennedy report. “MSHA and Murray Energy knew that the depth of cover and other geological characteristics of the South barrier pillar were extremely similar to the North, yet they allowed retreat mining to go forward in the South.”

Internal company documents make clear that Robert Murray had been notified of the March collapse. This directly conflicts his claim in the wake of the August disaster that he did not know about similar, earlier problems.

Murray Energy also failed to formally report and investigate the March collapse, likely in violation of federal law, according to the Kennedy report. The report notes, “A possible – and inexcusable – reason for this reporting failure was a tacit agreement between Murray Energy and MSHA to excuse the company from the Mine Act’s reporting requirements.”

On July 17, the company began retreat mining in the southern section of the mine. Problems, including bumps and bounces, quickly became apparent and were reported to Robert Murray (who marked “good” on an internal memo saying progress was being made though significant warning signs were evident). Only one of the bumps and bounces was noted in mine pre-shift reports. The memo to Murray, which he marked, makes clear that – his subsequent claims notwithstanding – he did know that retreat mining had been underway in the southern section of the mine.

Although the company had badgered and perhaps misled MSHA into authorizing an unreasonably dangerous retreat plan, it is possible it was deviating even from the approved plan, the Kennedy report concludes. “It is impossible to know to a certainty what happened in the moments before the August 6th collapse,” the report states. “However, the investigation has uncovered evidence indicating that, at the time of collapse, the company was conducting unauthorized mining.”

There is evidence that the company was both conducting unauthorized mining of floor coal, and extracting coal from a barrier pillar MSHA had specifically prohibited mining.

Murray Energy flatly denies, without elaboration, the findings of the Kennedy report. Its subsidiary UtahAmerican Energy issued an official statement, but refused to comment further. “We are shocked and outraged that the Senate Health, Education, Labor and Pension (HELP) Committee, after conducting a superficial review of only some of the facts, would level such serious and biased allegations. This report is politically motivated, irresponsible and unjustifiable,” Michael O. McKown, general counsel of UtahAmerican Energy, said in the statement. “This matter merits considered and non-political judgements.”

“This sensational and irresponsible report makes slanderous allegations against innocent individuals,” McKown said. “We are confident that, with a full review of the facts, this will be established. It is clear that the Senate HELP Committee report is precipitous and wrong. It is obviously political grandstanding to certain constituents of some of its members. Given the complex technical nature of this matter, the incompleteness of the factual record and the lack of knowledge of the Committee, we consider the Senate HELP Committee’s report to be completely unreliable.”

“Mr. Robert E. Murray, UtahAmerican and our employees all mourn the loss of our miners and grieve for their families,” McKown said. “Mr. Murray, our Company and our employees have always been totally committed to the safety of our employees. Mr. Murray and the Company would never knowingly expose any employee to danger, and he hasn’t in his 50 years of experience. For anyone to imply otherwise is blatantly false. Once the facts are known, they will show that Mr. Murray deserves tremendous credit for his courage and leadership under very difficult conditions. We are confident that the comprehensive review of the facts will render a far more accurate and unbiased accounting of what happened in this tragedy. We will reserve further comment until such time as the facts can be clearly known.”

The Kennedy report concludes that enough is already known. “Miners were exposed to unnecessary and extreme risks,” the report states. “The mine operator and MSHA must be held accountable for their failures of diligence, care and oversight. The Secretary of Labor should refer the case to the Department of Justice for prosecution.”

Purdue Pharma: White-Collar Drug Dealers

How does street crime work? You commit the crime, you do the time.

How does corporate crime work? Big Pharma corporation commits a crime and hires a high-paid white-collar crime defense lawyer.

Defense lawyer approaches prosecutor and says, “Let’s make a deal.” You agree not to prosecute the company. I’ll give you a shell company that does little business but has a similar name. That company pleads guilty to the crime. It no longer sells drugs and thus when Medicare lists the shell as a company with which Medicare will not do business, it loses nothing. We turn over a couple of executives. They plead guilty. And you promise no jail time.

You can hold a press conference and say, “We cracked down on corporate crime.” And we can get on with our business of making millions of dollars off average people addicted to our opiate of choice.

That’s pretty much what came down in 2007 when the Justice Department went after the maker of OxyContin, the addictive pain killer that addicts will die for.

OxyContin offers major benefits for cancer patients and others in chronic pain.

But it’s also an easy high for thousands of down and out Americans.

Crush the pill and snort it.

It’s like heroin – without the needles. It’s big in Appalachia. You don’t need to ship it in from overseas. You can get it at your local doctor’s office or pharmacy.

Talk to family doctors working in hill country and one of the first issues they raise is Oxy addiction. Abuse is so rampant that some hill doctors have stopped prescribing it. No more break-ins and harassing phone calls from addicts claiming back pain.

In 2007, John Brownlee, the U.S. Attorney in Roanoke, Virginia, charged that “Purdue, under the leadership of its top executives, continued to push a fraudulent marketing campaign that promoted OxyContin as less addictive, less subject to abuse and less likely to cause withdrawal.”

“In the process,” said Brownlee, “scores died as a result of OxyContin abuse and an even greater number of people became addicted to OxyContin; a drug that Purdue led many to believe was safer, less abusable and less addictive than other pain medications on the market.”

Brownlee charged that Purdue officials drafted an article published in a medical journal claiming that OxyContin had less euphoric effect and less abuse potential than short-acting opioids. The company then had its sales representatives distribute the article to healthcare providers.

Said Assistant U.S. Attorney General Peter D. Keisler, Purdue “misled physicians about the addiction and withdrawal issues involved with OxyContin.”

Brownlee tried to pin the blame where it rightly belongs – on the company and executives who pushed the drug on an unsuspecting public with claims that it was less addictive than other painkillers.

Emphasis on the word “tried.”

If you read the papers, you might now believe that Purdue Pharma, the Stamford, Connecticut-based maker of OxyContin, pled guilty to illegally touting OxyContin. You might believe, as the Los Angeles Times and other newspapers reported, “Purdue Pharma pleaded guilty to one felony count of fraudulently misbranding a drug.”

One problem. Purdue Pharma did not plead guilty to this crime. It was Purdue Frederick that pled guilty.

Why is this distinction important? Under federal law, pharmaceutical companies convicted of a felony are automatically excluded from federal insurance programs like Medicare.

The idea behind mandatory exclusions is clean government – if a party commits a serious crime, the federal government shouldn’t do business with it.

Unless you are a giant corporation with hundreds of millions of dollars in profits at stake.

Then you get a deal.

In this case, the deal was brokered by Howard Shapiro, a partner at WilmerHale in Washington, D.C. – the lawyer for Purdue Pharma. Shapiro did not return calls seeking comment for this story.

Shapiro offered up Purdue Frederick to plead guilty.

What is Purdue Frederick?

We sent an e-mail off to company spokesperson James Heims.

We asked, “What is the difference between Purdue Frederick and Purdue Pharma?”

He wrote back immediately. “They are independent, associated companies. Please let me know if you have further questions.”

Well, yes, we do have further questions. Why did Purdue Frederick plead guilty and not Purdue Pharma? No answer.

We call Mr. Heims. Now he’s busy. No response.

So, we turn to the press packet sent out by Heidi Coy, the public affairs representative for U.S. Attorney Brownlee. It’s 89 pages. It contains Brownlee’s statement, the press release, the information, the agreed statement of facts, the plea agreements with Purdue Frederick, Michael Friedman, the president and CEO, Howard Udell, the company’s general counsel, and Paul Goldenheim, the company’s former medical director. But it doesn’t contain the non-prosecution agreement.

And, not surprisingly, out of the hundreds of mainstream news outlets that carried this story, not one mentioned the non-prosecution agreement. The non-prosecution agreement is the one that protects the companies that make the money.

Purdue Frederick takes the hit. It’s the felon. It is excluded from government programs. But so what? We can assume it has little if any government business to lose. (Brownlee says he doesn’t know. The company won’t return calls.)

The more than 200 other affiliated Purdue Pharma companies scattered around the world and listed in Appendix A of the non-prosecution agreement get off. No felony charge. No exclusion. Business as usual.

Purdue is a privately held, very secretive company controlled by the Arthur Sackler family. Arthur Sackler is the guy who, before he delivered OxyContin, brought to you the marketing for Librium and Valium. Walk on the Mall in Washington and you walk by the Freer Gallery of Art and Arthur Sackler Gallery.

Purdue was very happy with the deal to resolve the OxyContin criminal charge. In a statement, Purdue said, “Nearly six years and longer ago, some employees made, or told other employees to make, certain statements about OxyContin to some healthcare professionals that were inconsistent with the FDA-approved prescribing information for OxyContin and the express warnings it contained about risks associated with the medicine. The statements also violated written company policies requiring adherence to the prescribing information.” The company said that, since 2001, it has cured these problems.

It also insisted that “any attempt to connect the agreed to plea of misbranding by Purdue with abuse and diversion of OxyContin is completely false.”

In his statement that he read before the cameras, U.S. Attorney Brownlee said that Purdue Frederick is the “manufacturer and distributor” of OxyContin.

Well, as it turns out, they used to be. No longer. Now, that’s Purdue Pharma.

In an interview, Brownlee admitted that Purdue Frederick was chosen to plead guilty because “we didn’t want to ban the future sale of the drug.”

Had Purdue Pharma been forced to plead guilty, OxyContin would have been excluded from Medicare coverage, he said. “And we didn’t want that,” Brownlee said.

Actually, it’s the company that would have been excluded from Medicare. It’s up to the government to decide what this means. Could it have ordered Purdue to let other companies make OxyContin and sell it to Medicare? Yes, it could.

The other document that was not sent out in the press packet was the corporate integrity agreement. This was the agreement that Purdue Pharma entered into and that requires the company to hire an independent monitor to make sure it doesn’t engage in future criminal activity.

Brownlee won’t give the name of the independent monitor who has been appointed. Why not? He won’t say.

The bottom line is that Brownlee prosecuted a case that few other U.S. Attorneys would touch. He proceeded against a powerful privately held and secretive pharmaceutical company with major resources at its disposal. He secured a guilty plea against an entity and three top executives.

As part of the settlement, the company will pay over $600 million in fines, restitution and a civil settlement. The three executives will pay collectively over $34.5 million in penalties.

But in the end, he pulled his punches. Purdue Pharma was not charged. The independent monitor’s name has not been made public.

And perhaps most importantly, the executives will not face jail time. Why not?

Brownlee dodges the question.

This irks Sidney Wolfe of Public Citizen’s Health Research Group.

Wolfe calls the fines and guilty pleas “an important message to the drug industry that this kind of malicious, death-dealing behavior will not be tolerated.”

But the government could have come down much harder on what he calls “white-collar drug pushers.”

Wolfe points out that from 2000 through 2006 alone, according to data from Drug Topics, the news magazine for pharmacists, there have been $9.6 billion in retail U.S. sales of OxyContin. It was one of 25 top-selling drugs from 2000 to 2005 – it was the 11th largest selling prescription drug in 2003.

“The government should have forced the company to disgorge far more of its ill-gotten profits in this case,” Wolfe says. “Hundreds of thousands of people are languishing in jail for relatively minor drug possession or distribution crimes involving illegal drugs or, in a smaller number of cases, prescription drugs such as OxyContin. Why have the three wealthy Purdue executives, who have pleaded guilty to orchestrating this dangerous promotional campaign, escaped jail time, and why are they paying merely $34.5 million in penalties? The damage to the public from these white-collared drug pushers surely exceeds the collective damage done by traditional street drug pushers. Why do we have such a double standard of justice?”

SAIC: The Government-Contractor Complex

When investigative reporters Donald Barlett and James Steele were fired from Time magazine in May 2006, the magazine cried poverty.

“They’re very good, but very expensive, and I couldn’t get anyone to take them on their budget,” said John Huey, editor in chief at Time.

Time magazine then turned around and paid $4 million for photographs of Brad Pitt and Angela Jolie’s baby.

“That $4 million would pay for about 10 more years of salary and expenses for Barlett and Steele and their research help,” said Steve Lovelady, of the Columbia Journalism Review, at the time.

Luckily, Brangolina central – Vanity Fair – picked up Barlett and Steele. They came back with an exposé of SAIC – Science Applications International Corporation – the mega-giant defense and intelligence contractor that straddles the Potomac. Through a spokesperson, SAIC told Multinational Monitor it would not comment on the Vanity Fair article.

Buried deep inside Vanity Fair’s 500-page Hollywood issue, surrounded by anorexic male and female models pushing bras, perfume, jewelry and handbags – is a 10-page profile of the permanent government on the Potomac.

Barlett and Steele open with a nod to Hollywood:

“One of the great staples of the modern Washington movie is the dark and ruthless corporation whose power extends into every cranny around the globe, whose technological expertise is without peer, whose secrets are unfathomable, whose riches defy calculation, and whose network of allies, in and out of government, is held together by webs of money, ambition and fear. …

“To be sure, there isn’t really such a corporation: the Omnivore Group, as it might be called. But if there were such a company – and, mind you, there isn’t – it might look a lot like the largest government contractor you’ve never heard of: a company known simply by the nondescript initials SAIC (for Science Applications International Corporation), initials that are always spoken letter by letter rather than formed into a pronounceable acronym.”

In 2006, SAIC raked in nearly $8 billion, almost all of it from the government. The company holds more than 9,000 contracts with the federal government.

Barlett and Steele say that while Halliburton and Bechtel supply the muscle – building infrastructure – SAIC sells brainpower.

Founded almost 40 years ago in San Diego, the core of the company’s sprawling operations are now in the Washington, D.C. suburbs, where it serves the Pentagon and the National Security State, as well as other arms of the federal government.

Two developments over the last 15 years have spurred SAIC’s growth. One is the outsourcing of federal government operations, an ongoing trend that got a huge boost with then-Vice President Al Gore’s “Reinventing Government” initiative. Under the Bush administration, contracting out has gone into overdrive. A permanent government of contractors like SAIC now do what the government once did – typically at greater expense than when the same functions were performed in house.

The second boost for SAIC was the 9/11 terrorist attack, and the U.S. response – which includes the Iraq War, despite the fact that Iraq and Saddam Hussein had nothing to do with 9/11.

“There isn’t a politically correct way to put it, but this is what needs to be said: 9/11 was a personal tragedy for thousands of families and a national tragedy for all of America, but it was very, very good for SAIC,” Barlett and Steele write. “In the aftermath of the attacks, the Bush administration launched its Global War on Terror, whose chief consequence has been to channel money by the tens of billions into companies promising they could do something – anything – to help. SAIC was ready.”

Ready to capitalize on the business opportunity, that is. The extent to which the company delivers useful services to the government is not so clear.

Barlett and Steele document a long list of whistleblower lawsuits and federal criminal investigations of the company, and describe how several of SAIC’s projects have turned out to be colossal failures.

One example is the Iraqi Media Network.

A week before the invasion of Iraq, Barlett and Steele write, “SAIC was awarded yet another no-bid contract, this one for $15 million, which within a year would balloon to $82 million. The contract gave SAIC the responsibility for establishing a ‘free and independent indigenous media network’ in Iraq, and for training a cadre of independent Iraqi journalists to go with it. The selection of SAIC for this job may have seemed counter-intuitive. A year earlier, SAIC had been involved in a Pentagon program designed to feed disinformation to the foreign press.”

“The job of establishing the Iraqi Media Network’s infrastructure – cables, transmitters, dishes – was rife with corruption and waste,” Barlett and Steele write. In March 2004, the Pentagon’s inspector general found widespread violations of normal contracting procedures. “One of the more blatant transgressions concerned SAIC’s overall manager of the media effort in Iraq. The investigators discovered that he had bought a Hummer and a pickup truck in the United States and then chartered a DC-10 cargo jet to fly them to Iraq. When a Pentagon official refused to allow the charge, the inspector general reported, ‘SAIC then went around the authority of this acquisition specialist to a different office within the Under Secretary of Defense for Policy to gain approval and succeeded.'”

SAIC hired Don North, a former NBC news staffer, to help build the Iraqi Media Network. North and his colleagues aimed to create an independent media operation. Their hopes were quickly dashed.

“With SAIC’s cooperation,” Barlett and Steele write, “the network quickly devolved into a mouthpiece for the Pentagon – ‘a little Voice of America,’ as North would put it. Iraqis openly snickered at the programming. Every time North protested, he recalls, he was rebuffed by SAIC executives. ‘Here I was going around quoting Edward R. Murrow,’ North says, ‘and the people who were running me were manipulating and controlling a very undemocratic press and media that was every bit as bad as what Saddam had established.'”

With no authentic independent culture, the Iraqi Media Service was just a pawn of its controllers. When it was turned over to the Iraqi government, it continued as a propaganda machine, but with a different message. Today, in an ironic twist, it “spews out virulently anti-American messages day and night.”

Failure does not seem to hurt SAIC much. Nor do elections seem to matter much for the company that has become a fixture in Washington.

“Political change causes scarcely a ripple,” Barlett and Steele write. “As one former SAIC manager observed in a recent blog posting: ‘My observation is that the impact of national elections on the business climate for SAIC has been minimal. The emphasis on where federal spending occurs usually shifts, but total federal spending never decreases. SAIC has always continued to grow despite changes in the political leadership in Washington.'”

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: