The Multinational Monitor

December 2003 - VOLUME 24 - NUMBER 12


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Multiple Corporate
Personality Disorder
The 10 Worst Corporations of 2003

By Russell Mokhiber and Robert Weissman

We hate to sound like your parents, but you must take responsibility for your actions.

Steal from the grocery store, go to jail.

Double park, pay the ticket.

But why doesn't this simple principle apply to corporations and their executives?

As of this writing, of all of the U.S. corporate financial crimes committed that have cost hundreds of billions of dollars over the past couple of years, only two top level executives are in prison.

That's it -- two.

Now, ask yourself, if working class people committed crimes that cost hundreds of billions of dollars -- inconceivable as it is -- how many would be in prison? The whole lot of them.

So, how is it that corporations and their executives get away with it?

It's the nature of the beast.

And perhaps that's why we should consider doing away with it -- the corporation that is.

Let's say that a corporation is caught fixing its books, committing in effect a $2.7 billion fraud. That would be a case similar to HealthSouth.

Under U.S. law, if a healthcare corporation is convicted of a felony, that company can no longer do business with the United States government, in this case the Medicare and Medicaid program. And in HealthSouth's case, that means life and death.

So, the company hires one of the nation's best corporate crime defense attorneys -- Bob Bennett -- and says to him, "Save us from the corporate death penalty."

Bob goes to the U.S. Attorney prosecuting the case and says, "Hey look, here's my phone number, we'll give you everything you want. Just don't indict us. Please don't indict us."

And the U.S. Attorney indicts 16 top executives. But the company manages to escape indictment.

That's one way a corporation morphs to get out of accepting responsibility for its sins -- blame the human beings.

But sometimes, the corporate executives say, "Hey, we don't have to take the heat. Let's cough up a defunct subsidiary to plead guilty -- and the government can ban that unit from doing business with Medicare. Who cares -- that unit never did business with Medicare anyway."

So, there's a guilty plea, there's a corporate fine, there is a touch of adverse publicity -- but nobody's hurt. Crime without punishment.

Or let's say that the corporation wants to plea to a lesser offense, but not get any publicity to the case. This too happens. The corporate lawyer can go to the Justice Department and cut a deal where the Department will not put out a news release about the case. A number of criminal defense lawyers have told the Monitor they have done this.

The Justice Department issued a memo earlier this year titled "Federal Prosecution of Business Organizations."

The memo, authored by former Assistant Attorney General Larry Thompson, gives prosecutors discretion to grant corporations immunity from prosecution in exchange for cooperation.

These immunity agreements, known as deferred prosecution agreements, or pre-trial diversion, were previously reserved for minor street crimes.

They were never intended for major corporate crimes.

In fact, the U.S. Attorneys' Manual explicitly states that a major objective of pretrial diversion is to "save prosecutive and judicial resources for concentration on major cases."

Since the Thompson memo was issued, there has been a rash of deferred prosecution agreements in cases involving large corporations, including a settlement with a Puerto Rican bank on money laundering charges and a Pittsburgh bank on securities law charges.

And some corporate crime defense attorneys believe that it is possible to enter these agreements with the Justice Department so as to avoid any publicity.

"This is a favorable change for companies," says Alan Vinegrad, a partner at Covington & Burling in New York. "The memo now explicitly says that pre-trial diversion, which had been reserved for small, individual, minor crimes, is now available for corporations."

Vinegrad says that while there have been a handful of publicized pre-trial diversion cases by corporations, it is conceivable that the Justice Department can cut these kind of deals with companies without filing a public document -- and therefore without any publicity to the case.

Harry Glasbeek is a professor of criminal law at York University in Toronto. He has studied corporate crime and written a book about it called Wealth By Stealth: Corporate Crime, Corporate Law, and the Perversion of Democracy.

Glasbeek says that the creation of the corporation allowed for this "fungibility of responsibility."

"Sometimes the executives plead the corporation to relieve the executives from responsibility," Glasbeek says. "Sometimes the corporation causes the executives to plead, a couple of people take the fall. And it is very difficult. We have created a separate entity with separate property. You have a functional notion that property yields the income stream and wealth to people outside the separate entity. You have in-between actors who belong to both classes, the corporation and the outsiders. So, you have multiple personalities with different legal duties and rights that the actors are allowed to take on at any one time. That allows a shifting of responsibility that we cannot control."

Call it Multiple Corporate Personality Disorder (MCPD).

Glasbeek says this disorder undermines our notion of responsibility, which "supposedly depends on the individual taking responsibility for his or her own actions."

"What we have designed is a creature that allows that responsibility to be shifted at the whim of those people who are actually operating that system," Glasbeek says. "That's an endemic design flaw."

Glasbeek has no illusions that criminal prosecution will bring corporate criminals to justice.

"My notion of prosecuting more often is to bring attention to this embedded difficulty -- it is not because I believe that this will actually change the situation in and of itself," he says.

And we write The 10 Worst Corporations of the Year, not because we believe that by focusing attention on these crooks and miscreants we will actually change the situation.

We do it hoping that we can bring attention to this embedded difficulty -- and move to a society where once again, we -- flesh and blood human beings -- are held responsible for our crimes and misdeeds.

Here are Multinational Monitor's 10 Worst Corporations of 2003, presented in alphabetical order:

BAYER
Everyone Is Expected To Obey The Law
Bayer's got a headache, and aspirin ain't going to help.

Earlier this year, the company pled guilty to defrauding the federal government out of hundreds of millions of dollars in Medicare payments.

How did this crime come to light?

On February 9, 1999, George Couto, a Bayer Corporation marketing executive, attended a mandatory ethics training session at a Bayer office in Connecticut.

The training session was kicked off by a video address by Helge Wehmeier, the head of Bayer's entire U.S. operation.

"Everyone is expected to obey the law -- not only the letter of the law, but the spirit of the law as well," Wehmeier told the assembled Bayer executives. "You will never be alone to adhere to the high standards of the law. Should you feel prodded, speak with a lawyer, or call me. I'm serious about that."

The assembled employees in the room erupted into laughter.

But Couto had something on his mind. He knew that Bayer had engaged in an elaborate scheme to defraud the Medicaid program out of $100 million.

On February 11, 1999, two days after the ethics training class, he wrote his boss a one paragraph memo asking how the company reconciled the Medicaid scheme with the company's expectation to adhere to the spirit and letter of the law. No one ever got back to him.

So, Couto decided to pursue the matter elsewhere. He sought legal assistance from attorneys Neil Getnick, Lesley Skillen and Scott Tucker -- and filed a qui tam lawsuit against Bayer. That lawsuit was filed in early 2000.

He quit Bayer soon thereafter.

The case was filed under seal. In April 2002, Couto, age 39, was diagnosed with pancreatic cancer. He knew he was going to die, but wanted to make sure that the case would not die with him.

So his lawyers, over the strenuous objections of Bayer's lawyers, demanded that Couto be deposed on videotape. In August 2002, he was deposed, and withstood a grueling cross-examination.

"In my view, all that cross-examination did was to underscore the strength of the case and demonstrate what an extraordinary person George was," says Getnick. "As a litigator, I came to the conclusion -- and I believe everyone in that room where the deposition was taken came to the same conclusion -- that no defendant company would ever have wanted that videotape played before a jury at trial."

Couto died in November 2002. But in April 2003, his wishes came true, as Bayer pled guilty to one federal criminal count and agreed to pay a $5.5 million criminal fine.

The company also agreed to pay $251 million to settle Couto's civil False Claims Act case.

Couto's estate will get a $34 million relator's fee. GlaxoSmithKline, which engaged in a similar fraud against Medicaid, will pay $87 million to settle its case.

Bayer was charged with knowingly providing Medicaid incorrect data regarding pricing of prescription drugs, preventing Medicaid from receiving discounts to which it was entitled.

And it's not just stealing with Bayer.

Check this out:

The Times of London reported earlier this year that the giant pharmaceutical company used students to test a "highly hazardous" pesticide linked to serious disorders.

Bayer CropScience, of Mannheim, Germany, paid the students, mostly from Heriot Watt University, Edinburgh, about $450 each to consume the pesticide, according to the report by Times medical correspondent Lois Rogers. Experts are worried that cash-strapped students are vulnerable targets for researchers.

According to the report, Bayer is using the results of the study, conducted between 1998 and 2000, to argue that restrictions on pesticide use should be eased, because no immediate adverse effects were suffered.

In April, the company said it was trying to settle an additional 500 lawsuits brought over its anti-cholesterol drug Baycol. The company has already settled 400 of the cases. The announcement came after the New York Times ran a front-page article reporting that newly disclosed company documents indicate that some senior executives at Bayer were aware that their anti-cholesterol drug had serious problems long before the company pulled it from the market.

According to the Times, they include e-mail messages, memos and sworn depositions of executives that suggest that Bayer promoted the drug, Baycol, even as a company analysis found that patients on Baycol were falling ill or dying from a rare muscle condition much more often than patients on similar drugs.

Bayer, which developed Baycol, says the drug was marketed appropriately and is safe when used properly.

But approximately 100 deaths and 1,600 injuries worldwide have been linked to a muscle disorder caused by the drug, according to regulatory filings by the company.

The drug, which studies found to be less effective at its initially approved strength than competing medicines, caused more problems at higher doses.

Senior executives at Bayer and GlaxoSmithKline were aware that this might be possible as early as 1997, the Times reported.

More than 10,000 patients who took Baycol or the families of those who died have filed lawsuits against Bayer and GlaxoSmithKline.

Bayer and GlaxoSmithKline have settled more than 400 of the cases for individual amounts ranging from $200,000 to $1.2 million, according to lawyers for the patients.

The company denies that it was aware of possible dangers with Baycol long before it voluntarily withdrew the cholesterol-lowering drug from the market.

"Bayer continuously monitored ongoing Baycol data post-launch to ensure that the drug was being used safely and correctly, and in accordance with labeling recommendations," the company says in a statement. It says it withdrew the drug as soon as it was apparent that its dangerous side effects could not be avoided.

Baycol wasn't the only case in which Bayer was accused of deadly delay in removing hazardous products from the market.

In June 2003, the New York Times reported that a Bayer unit sold millions of dollars of blood-clotting medicine for hemophiliacs -- medicine that carried a high risk of transmitting AIDS -- to Asia and Latin America in the mid-1980s while selling a new, safer product in the West.

The Bayer unit, Cutter Biological, introduced its safer medicine in late February 1984 as evidence mounted that the earlier version was infecting hemophiliacs with HIV. Yet for over a year, the company continued to sell the old medicine overseas, prompting a U.S. regulator to accuse Cutter of breaking its promise to stop selling the product, the Times reported.

The company says it "emphatically denies misconduct in the marketing of these products in the mid-1980s."

BOEING
Soaring Through Turbulence
It's not as if Boeing doesn't deserve the bad publicity that it's been getting this year.

First, the tanker deal. The Pentagon cuts a deal with Boeing. Boeing will lease tanker planes -- 767s that refuel fighter planes in mid-air.

Well, wouldn't it be cheaper for taxpayers just to buy the planes?

Of course, but don't be silly.

This is the military-industrial complex.

So, the Pentagon official in charge of this fiasco, Darleen Druyun, favors Boeing. And she facilitates the deal. And then she goes to work for Boeing.

It's just the way Washington works.

As a result of the political pressure created by Senator John McCain, R-Arizona, the Project on Government Oversight and others, Boeing hires a fancy outside law firm to do an internal investigation.

And lo and behold -- Druyun in November is fired from her new job. And so is Boeing's chief financial officer -- Michael Sears.

"Compelling evidence of this misconduct by Mr. Sears and Ms. Druyun came to light over the last two weeks," said Boeing Chair and CEO Phil Condit. "Upon review of the facts, our board of directors determined that immediate dismissal of both individuals for cause was the appropriate course of action."

"Boeing must and will live by the highest standards of ethical conduct in every aspect of our business," Condit said. "When we determine there have been violations of our standards, we will act swiftly to address them, just as we have today.

"We hope this sends a message across the defense industry that there has to be an end to conflicts of interest," POGO's executive director Danielle Brian said. "The tanker deal is obviously bad for everyone except Boeing."

Then one week later, Condit resigned.

Boeing said there was "nothing whatsoever" connecting Condit to the ethics issues.

"Maybe right now the best thing we can do is change leadership, let the company go forward and remove some clouds along the way," Condit said during an interview on CNBC. "My decision really was what was best for the company."

POGO says that Boeing could lose its $27.6 billion contract in the Druyan-Sears scandal.

The company might also lose military deals for rocket contracts because it was caught with documents allegedly stolen from Lockheed Martin, a competitor.

In July, federal officials in Los Angeles charged two former Boeing Company managers with conspiring to steal Lockheed Martin trade secrets concerning a multi-billion rocket program for the United States Air Force.

Later the Air Force suspended Boeing from two rocket projects worth $1 billion.

"We understand the U.S. Air Force's position that unethical behavior will not be tolerated," Condit said at the time. "We apologize for our actions."

Late in the year, the Wall Street Journal reported that the relationship between Druyan and Sears was not the only example of Boeing's coziness with Pentagon insiders. In recent years Boeing committed to invest about $250 million in around 29 venture-capital funds, some of which either employ or are advised by Washington insiders, the Journal reported. For example, the company committed to invest some $20 million in Trireme Partners, which invests in homeland-security technologies. Trimeme's principal is Richard Perle, who until March was chair of the Defense Policy Board, a group that advises the defense secretary.

Right before he was fired, Sears had his publisher send galley copies of his new book to book reviewers.

The book, is titled Soaring Through Turbulence: A New Model for Managers Who Want to Succeed in a Changing Business World.

According to press reports, the first part of the book focuses on business ethics.

In the first section, titled "Soar with Credibility," Sears runs through Enron, Adelphia and other corporate scandals that have "left managers confused as to what the new standards of business ethics and professional accomplishments are."

Uh, yeah.

BRIGHTHOUSE
Brave New World
Joey Reiman wants to bring into being a Brave New World, and he's created BrightHouse (www.thoughtsciences. com) to help us get there.

BrightHouse is a new-agey advertising/consulting/ strategic advice company. (Typical gibberish: "BrightHouse not only uncovers and articulates The Master Idea for our clients, we create an actionable plan for transforming the organization. We deliver unprecedented insights linked to your organization's ethos and culture that will dramatically impact intellectual, emotional, and financial revenues.") Its clients include Coca-Cola, Georgia-Pacific, Home Depot, Met Life, Southern Company and K-Mart.

But that's not what makes it noteworthy.

What makes BrightHouse noteworthy is the BrightHouse Neurostrategies Institute. The institute undertakes research to see how the brain responds to advertising campaigns, and to use this information to craft more effective marketing strategies.

Here's how the company describes its work:

"We are a novel form of consumer consultancy that leverages scientific knowledge about how the human brain motivates consumer behavior to deliver strategic insights that are intended to enhance the relationship between the consumer and the product, brand and company. Our goal is to define the neural basis of behaviors that are of specific interest to strategic business decision making, as well as of generic interest to the field of neuroscience. We are not interested in telling companies what people think about their products, but rather how they think. Our focus is decidedly from the consumer perspective with the direct intent to influence the behavior of companies, rather than consumers."

Or, as the company said a bit more directly in a 2002 news release: "The Thought Sciences team uses functional Magnetic Resonance Imaging (fMRI), a safe and non-invasive technique, to identify patterns of brain activity that reveal how a consumer is actually evaluating a product, object or advertisement. Thought Sciences marketing analysts use this information to more accurately measure consumer preference, and then apply this knowledge to help marketers better create products and services and to design more effective marketing campaigns."

Winning advertising approaches spark activity in the medial prefrontal cortex. This shows an instinctive identification with a brand or product. There may be interest and desire for a product if activity appears elsewhere in the brain, but not the same unbridled identification. Or at least that's the theory.

Says Gary Ruskin of the Portland, Oregon-based Commercial Alert, "It sounds like something that could have happened in the former Soviet Union, for purposes of behavior control. Yet it is happening right here in America."

Atlanta-based BrightHouse maintains a close relationship with neighboring Emory University, and is sponsoring research there.

Commercial Alert has seized on the BrightHouse-Emory relationship to request the U.S. government investigate the research at Emory and, if a finding is reached that the research violates federal ethical research guidelines, debar the university from receiving any federal funds.

"The ethical basis for this research is not readily apparent," Ruskin writes in a December letter to the U.S. Office for Human Research Protections. "According to news accounts, it is being done at Emory through an institute that does market research for corporate clients. Whatever its theoretical and hypothetical uses (and these are chilling for their own reasons) in actual practice it most likely will be used directly by these corporations to push products that are implicated in disease and human suffering and that impose great costs upon individuals, families and the society at large."

CLEAR CHANNEL
Poor Character
Believe it or not, you own the airwaves.

Public servants at the U.S. Federal Communications Commission (FCC) give licenses to major for-profit corporations.

For free. It's like a license to print money.

In return, all that we ask -- and certainly we should ask for more -- is that the corporation be of good character.

One thing is for sure: Clear Channel, the behemoth of the airwaves, is anything but a corporation with good character, no matter how you define it.

So, earlier this year, in a desperate, yet public-spirited move, Jim Donahue of Essential Information, the publisher of Multinational Monitor, petitioned the FCC to deny renewal of broadcast licenses for 63 radio stations owned by Clear Channel Communications.

"The FCC is required by statute to deny applications for license renewal if a licensee exhibits poor character," Donahue says. "In the three years since Clear Channel became the largest holder of station licenses in the nation, it has demonstrated that it lacks the requisite character to hold broadcast licenses."

Donahue says that Clear Channel had compiled a record of "repeated law-breaking."

"Clear Channel and its subsidiaries have violated the law on 36 separate occasions over the last three years, demonstrating its poor character," says Donahue. "Clear Channel is not qualified to hold a broadcast license under the FCC's own character rules."

Donahue released a report documenting Clear Channel's illegal activities, including:

  • Misleading the public about the rules for radio contests, including its "So You Want to Win 10,000" contest which offered a prize of "10,000" to listeners who could accurately answer 10 questions -- without informing the audience that the prize was 10,000 Italian lira (or $53), not $10,000;
  • Deceptive advertising;
  • Broadcasting conversations without obtaining permission of the second party to the conversation;
  • Broadcasting obscene and indecent material during daylight hours when children are likely listening;
  • Illegally taking operational control of a radio station;
  • Repeatedly flouting the rules pertaining to the testing of the emergency alert system, maintenance of station logs, and antenna construction;
  • Conviction for animal cruelty in violation of state law for the purpose of promoting an on-air personality;
  • Pleading guilty to criminal mischief in violation of state law for the purpose of promoting an on-air personality;
  • Disturbing the peace in violation of state law for the purpose of promoting an on-air personality;
  • Defacing public property in violation of state law for the purpose of promoting an on-air personality; and
  • Falsely causing a public emergency to be reported for the purpose of promoting an on-air personality.

On September 3, 2003, FCC Chair Michael Powell stated on C-SPAN that Clear Channel "may have concentrated too much" after Congress enacted the 1996 deregulation law and that "there may be issues associated with that company" which the FCC should consider scrutinizing.

But Powell did nothing. And neither did the FCC.

All talk, no action.

DIEBOLD
Pulling Its Own Political Levers
If you were going to involve a private company in any way in the voting process, what qualities would you insist the company display?

Political neutrality? Demonstrated ability to maintain security? Respect for the democratic process?

Meet Diebold, a North Canton, Ohio-based company that is one of the largest U.S. voting machine manufacturers, and an aggressive peddler of its electronic voting machines.

In 2003, Diebold has managed to demonstrate that it fails any reasonable test of qualifications for involvement with the voting process. Its CEO has worked as a major fundraiser for President George Bush. Computer experts revealed serious flaws in its voting technology, and activists showed how careless it was with confidential information. And it threatened lawsuits against activists who published on the Internet documents from the company showing its failures.

According to Diebold, 33,000 of its voting machines are in use across the United States.

Computer scientists have sounded alarm bells about such technologies, warning that they are open to abuse. Simply maintaining a printed copy of each vote would alleviate much of the potential for trouble, they say, but Diebold rejects this call.

In July, Diebold announced that Maryland had entered a $55.6 million contract with the company to purchase 11,000 electronic voting machines, making Maryland the first state in the United States to begin implementation of state-wide touch-screen voting systems.

Soon after, researchers at Johns Hopkins and Rice Universities issued a study that found Diebold's voting system "far below even the most minimal security standards applicable in other contexts." Voters, they said, "without any insider privileges, can cast unlimited votes without being detected by any mechanisms within the voting terminal." They found outsiders might be able to tamper with election results as they are uploaded over the Internet or by other means.

This report prompted Maryland to hire consultants SAIC to review the issue. A subsequent SAIC report noted that the Hopkins study explicitly looked only at computer source code and did not consider some other protections built into the Diebold system. Nonetheless, SAIC agreed with the essential conclusions of the Hopkins study, finding that "several high-risk vulnerabilities" in the Diebold system could be exploited to undermine the "accuracy, integrity and availability of election results."

As the Maryland review was underway, Ohio was holding a hyper-competitive qualification process to see which companies should have the rights to sell voting machines to Ohio counties.

Then, in August, the Cleveland Plain Dealer reported that Diebold CEO Walden O'Dell was actively involved in fundraising for George Bush's re-election. O'Dell attended a meeting of Bush Rangers and Pioneers -- those who raised at least $100,000 for the Bush campaign -- and then sent letters to potential contributors inviting them to a $1,000-a-plate Bush fundraiser at his mansion in a Columbus suburb.

About this revelation, Ohio Secretary of State Ken Blackwell, a Republican, remarkably told the Plain Dealer: "Let me put it to you this way: If there was one person uniquely involved in the political process, that might be troubling. But there's no one that hasn't used every legitimate avenue and a bit of leverage that they could legally use to get their product looked at. Believe me, if there is a political lever to be pulled, all of them have pulled it."

In September, Blackwell certified Diebold as one of the companies eligible to sell machines in Ohio, though the state subsequently raised issues about the company's security.

Meanwhile, Seattle-based activist Bev Smith had been devoting long hours to investigating Diebold and electronic voting machines. (She's got a book on the sordid story, available on the Internet at www.blackboxvoting.org) Early in 2003, she discovered an ftp site on the Internet that contained 40,000 Diebold documents. The vaunted security company had left available to anyone who looked thousands and thousands of documents, including internal e-mail that acknowledges flaws in its voting systems. The documents also contained personal information on hundreds of thousands of Texans, Smith reports.

Smith put the documents on her web site, and they were soon copied by other activists and placed elsewhere on the web.

This upset Diebold. A lot.

The company's lawyers sent cease-and-desist letters to more than a dozen Internet Service Providers and universities, demanding that they take down the webpages with the documents and even that they disable hyperlinks to pages with the documents. Posting the material, Diebold argued, infringed on its copyright.

In November, Representative Dennis Kucinich, D-Ohio, posted some of the documents on his official website.

In the wake of the Kucinich action and litigation conducted by the Electronic Frontier Foundation (EFF), Diebold withdrew its cease-and-desist letters.

"Instead of paying lawyers to threaten its critics, Diebold should invest in creating electronic voting machines that include voter-verified paper ballots and other security protections," says EFF Legal Director Cindy Cohn.

The company's strategy of aggressively claiming copyright protections clearly backfired, drawing much more attention to the underlying issue of the security of the firm's machines.

As the Monitor was going to press, Diebold announced "a complete restructuring of the way the company handles qualification and certification processes for its software, hardware and firmware."

"We are committed to improving the effectiveness and efficiency of the procedures we employ to address certification issues, and to communicate with the respective governing and certification authorities and our customers," says Bob Urosevich, president of Diebold Election Systems.

HALLIBURTON
The Cheney-Industrial Complex
Sometimes corporate practices are so outrageous, they seem ripped from the pages of a Gabriel Garcia Marquez novel.

Take Tyco's Dennis Kowzlowski spending millions of shareholders' money on an extravagant party for his wife, complete with an ice replica of Michaelangelo's David, with vodka spurting through David's penis.

Or take Halliburton.

After the first Gulf War, then-Secretary of Defense Dick Cheney hired Brown & Root to conduct a crucial study on outsourcing of military operations.

Brown & Root would eventually be merged into Halliburton.

So would Dick Cheney.

In 1995, Cheney took over as Halliburton CEO. The company's military contracts doubled during the five years he headed the company. Reports from the General Accounting Office, the Congressional research arm, would eventually charge the company with cost overruns.

But that was nothing compared to what would happen after Cheney returned to government, as one of the most powerful vice presidents in U.S. history. Cheney still receives annual deferred compensation payments from Halliburton, of more than $150,000 a year.

In 2001, Halliburton subsidiary Kellogg Brown & Root won the U.S. Army's third Logistics Civil Augmentation Program (LOGCAP) contract. LOGCAP contracts establish an ongoing relationship between the army and the contractor, which supplies an array of support for field operations -- including even combat support -- as the Army requests it. The contract is "cost-plus," with the contractor paid a percentage of expenditures on each "task order" as profit. According to the Center for Public Integrity, Halliburton pulled in more than $2 billion in contract work under the LOGCAP contract as of September 2003.

In March 2003, the Army placed five task orders worth up to $7 billion with Halliburton under the LOGCAP contract. Because these orders were placed under the rubric of the LOGCAP contract, they were no-bid, sole-source arrangements -- meaning no other company had the right to bid on them, and the Army is relying on only one company to perform the requested operations.

This contract award, issued in what were at best murky circumstances -- its existence wasn't known publicly for two weeks, and it took more than a month before the Army revealed the actual scope of the contract -- raised a few eyebrows, even in Washington, D.C.

Representatives Henry Waxman, D-California, and John Dingell, D-Michigan, the ranking members of the House of Representatives Committee on Government Reform and Commerce Committee, respectively, began a series of correspondence with Pentagon and White House officials over the matter.

In April, the Army Corps of Engineers offered an initial defense of the contract award.

"Competition for initial performance of portions of the Central Command's (CENTCOM) classified contingency support planning was not possible due to the requirements of the CENTCOM mission," wrote Lt. General Robert Flowers. "To invite other contractors to compete to perform a highly classified requirement that [Halliburton] was already under a competitively awarded contract to perform would have been a wasteful duplication of effort. It would also have delayed CENTCOM's war planning."

One of the tasks assigned to Halliburton was to import oil into Iraq, while the country's oil operations are repaired.

Halliburton has been charging very high prices for the oil, with some analysts saying the charges amount to "highway robbery."

Halliburton flatly denies any wrongdoing. "The claims made about our fuel delivery mission in Iraq are inaccurate, misleading and unwarranted," says company CEO Dave Lesar.

For oil imported from Kuwait, the company is charging $2.64 a gallon. According to evidence uncovered by Waxman and Dingell, this fee includes $1.17 to purchase the gasoline in Kuwait -- during a period when the spot price in the Middle East averaged $.71 a gallon. The company is spending $1.21 to transport the gasoline from Kuwait to Iraq, even though experts told Waxman and Dingell the cost should be only about one-fifth that level. And, Halliburton is tacking on a $.26 charge for markup and "other" costs -- even though its profits are paid on top of its expenses.

In contrast to the Halliburton $2.64 price, the Iraqi state oil company, SOMO, is importing gasoline from Kuwait -- using the same transportation and distribution mechanisms -- for $.96 a gallon. Halliburton argues that its charges are higher because it cannot engage in the long-term contracting that SOMO can. "KBR is bound by guidelines in its contract to negotiate fuel prices on a short term basis only," the company said in a statement, "from suppliers acceptable to the US Army Corps of Engineers. Contractually, KBR has been prevented from procuring fuel contracts for longer than a 30-day period. In addition, all services and their associated costs to execute the mission are subject to the same 30-day procurement limit including trucks, trailers, depots and labor. Simple economics dictate that companies who are not bound by these guidelines, and are able to negotiate price on a long-term contract basis, can negotiate lower prices."

Halliburton is importing hundreds of millions of gallons of gasoline, so "literally hundreds of millions of taxpayer dollars are at stake," note Waxman and Dingell in a December letter to National Security Adviser Condoleeza Rice.

In December, a Pentagon audit agency found that Halliburton had overcharged the Army $61 million for gasoline, but that the profits had been accrued by a Kuwaiti subcontractor, not by Halliburton.

Halliburton continues to maintain that it has not overcharged. Says a company statement, "The Defense Contracting Audit Agency (DCAA) is conducting a routine audit and has requested additional information from KBR [Halliburton's subsidiary]. There have been no conclusions reached. ... It would not be appropriate to discuss the specifics of the questions until our conversations with DCAA are complete."

HEALTHSOUTH
Getting Away Scot Free
It's a wonder, isn't it? The U.S. Attorney in Alabama gets 15 former top HealthSouth executives to plead guilty and cooperate in the government's ongoing criminal case against the company's founder and former CEO, Richard Scrushy.

It's a $2.7 billion fraud.

The government alleges that Scrushy was in charge. Fifteen of his underlings have pled guilty -- but the company is not going to be held criminally responsible.

How did that happen?

Well, one answer might be this: Bob Bennett, the lawyer for HealthSouth, went to U.S. Attorney Alice Martin earlier this year and turned over the store.

"At our first meeting, Mr. Bennett came in and said HealthSouth wanted to waive its privileges," Martin told us. "He said, We want to cooperate, and we want to do whatever we can to help you determine who, what, when and why this fraud occurred. Here are my telephone numbers, including my home number, and you call me directly, because I want to make sure whatever you need gets done.'"

For his part, Bennett says he's trying to save the company.

"If you want to save a company for the benefit of the shareholders and the employees, you have little choice but to cooperate," Bennett says. "We did not point fingers, but we fully cooperated with them, and made as many arguments as we could that no legitimate purpose would be served in indicting the company. The company has not been forced into bankruptcy."

"Our full cooperation has given us a chance to make an argument to the government that we come within the Thompson guidelines and the company shouldn't be indicted," Bennett says. "Nothing will be served by putting 4,000 people out of work in Birmingham and 40,000 people out of work in the country and destroying what everybody believes is a first rate health care company."

So far, 15 executives have pled guilty. Except for Scrushy. He's set up a web site to declare his innocence. He didn't mind answering Mike Wallace's questions on "60 Minutes." But Scrushy refused to answer questions under oath before Congress. Congressional investigators had some information about document destruction. Nobody wants anything to do with that hot potato -- not Scrushy, not Martin, not Bennett. That would sink the company, la Andersen.

At Scrushy's trial, there will be no Tyco-like video of an ice sculpture of Michelangelo's David. But HealthSouth did erect a monument to Scrushy. In March of this year, a vandal used spray paint to scrawl the word "thief" on the bronze statue of Scrushy outside a HealthSouth building in downtown Birmingham. The statue was quickly cleaned.

When the case comes to trial, Scrushy says he will take the stand in his own defense.

The government should win a conviction.

But one question for federal prosecutors: How is it that 16 high level executives of HealthSouth get criminally charged, but the corporation gets away scot free?

INAMED
Basic Questions Not Answered
Eleven years ago, the U.S. Food and Drug Administration (FDA) announced it was pulling silicone breast implants from the market, leaving them available only to breast cancer survivors who needed them for reconstruction or to women enrolled in limited clinical studies.

The reason for the action, announced then-FDA Commissioner David Kessler, was that, under the law, "these types of products have to be shown by their manufacturer to be safe and effective before they may be distributed and used. ... The burden of proof is an affirmative one and it rests with the manufacturer. In this instance, the manufacturers have not shown these devices to be safe."

Although silicone breast implants had been on the market for three decades, Kessler said, "the list of unanswered questions is long."

"We do not know how long these devices will last," he said.

"We know that some of these implants will rupture, but we don't know how many of them will rupture," he pointed out.

And, he said, "We don't know whether there is any link between the implants and immune-related disorders and other systemic diseases."

"Until these basic questions are satisfactorily answered, we cannot approve these devices."

Fast forward to the present.

Dow Corning, the leading manufacturer of silicone implants more than a decade ago, is in bankruptcy.

Inamed, a California-based company, is now seeking marketing authorization from the FDA for silicone breast implants.

More than a decade has passed since the FDA restricted sales of silicone implants, but Inamed only submitted to FDA three years worth of data from a study projected to continue for 10 years.

The company sells silicone implants in Europe and more than 60 countries worldwide, but it hasn't collected any safety information from women in those countries that is of high enough quality to submit to FDA.

As a result, many of the questions Kessler identified remain unanswered, and most of what is known is frightening.

  • Painful breast hardening which can lead to deformity, dead tissue, loss of nipple sensation, infections and rashes are common complications from silicone implants.
  • Rupture rates leading silicone to spread throughout the body are extremely high over the long term -- occurring in more than half or two thirds of women after 10 years, according to two studies.
  • It remains uncertain whether there is any link between the implants and immune-related disorders and other systemic diseases, though there is worrying evidence that there is a connection.

Asked about these matters, Inamed spokesperson Peter Nicholson says only that the data Inamed submitted to the FDA is available on the web, and the company will not comment further.

Inamed's data are indeed striking.

Even though the company reported on only three year's test results, the numbers show significant short-term problems. After just three years, one in five augmentation patients and almost half of reconstruction patients required additional surgeries.

Inamed's data did not show particularly high rupture rates during the three-year period of study -- in no small part because it only provided MRIs to about a third of the women in the study, and silicone rupture can only be detected through MRIs.

Inamed's data were replete with other flaws. For example, the company misleadingly claimed a low incidence of lactation problems, by comparing the incidence of problems to the overall population of women receiving augmentation, not just those who tried to breastfeed.

These and other problems were pointed out by advocacy groups at an FDA advisory committee hearing convened in October to issue a recommendation on whether Inamed's marketing application should be approved.

The advisory committee also heard heart-wrenching testimony from more than two dozen women with silicone implants. They described the extreme pain and life-changing problems they have suffered as a result of silicone implants in terms that could fail to move only those with hardened hearts. And several highlighted an important economic component -- health insurance plans generally do not cover surgeries to remove implants for augmentation patients, placing a huge financial burden on sick women.

Nonetheless, the advisory panel, a quarter of whom were plastic surgeons, and at least one of whom was swayed by empty promises from Inamed to do ongoing follow-up research, voted 9-6 to recommend the FDA approve Inamed's request.

The failure for a larger majority to support the application leaves it awkward for FDA to recommend approval.

Inamed's chances of approval worsened soon after, when Dr. Thomas Whalen, the non-voting chair of the advisory panel, in a highly unusual move, sent a letter to FDA commissioner Mark McClellan. Whalen called the panel decision "misguided," emphasizing the lack of data on long-term safety. He felt "morally compelled" to urge the FDA to deny approval, he told reporters.

Now the decision rests with FDA Commissioner Mark McClellan.

The law hasn't changed since the time the FDA ordered silicone implants off the market. The agency faces the same choice it faced in 1992, with little new information -- and much of the recent information indicating the implants' hazards.

If the FDA upholds its obligation under the law to approve products only that afford "a reasonable assurance of safety," it has no choice but to deny approval.

Given the agency's pro-corporate proclivities, however, it is unclear how it will ultimately rule on Inamed's application.

What is clear is that Inamed never should have sought approval for a medical device with such poor safety data.

MERRILL LYNCH
Don't Trust Them
Remember the Merrill Lynch analysts who told their customers, "Trust me, buy this stock, this stock is highly rated?"

And then they would turn around and e-mail their buddies, "Hey, this stock is crap, why are we recommending this to our customers?"

New York Attorney General Eliot Spitzer got ahold of the e-mails, brought an enforcement action, went before the television cameras, and said the case was settled, with Merrill paying $100 million.

But Spitzer did not get Merrill to admit wrongdoing.

And he signed an unenforceable agreement with the company.

He later acknowledged that had he forced Merrill to admit wrongdoing, the firm would have gone kaput.

Just like Arthur Andersen.

Well, Spitzer should have put the company out of its misery.

Because they keep coming back and messing up.

And prosecutors keep letting them off the hook.

Case in point: Earlier this year, Merrill Lynch offered up three former executives to federal prosecutors and in return saved the company from the full wrath of the criminal law.

After being stung by defense bar criticism over its death penalty prosecution of Arthur Andersen, federal prosecutors have shown remarkable flexibility in dealing with corporate defense counsel who insist on working out global settlements by offering up individual executives in exchange for leniency for the corporation.

These settlements usually come in the form of deferred prosecution agreements.

But with Merrill Lynch, Justice Department officials offered a new wrinkle -- no prosecution in exchange for oversight.

Merrill's sacrificial victims:

  • Daniel Bayly, 56, of Darien, Connecticut, the former head of the firm's Global Investment Banking division;
  • James A. Brown, 51, of Darien, Connecticut, the head of Merrill Lynch's Strategic Asset Lease and Finance group; and
  • Robert S. Furst, 42, of Dallas, Texas, the Enron relationship manager for Merrill Lynch in the investment banking division.

The indictment of these executives alleges that Enron and Merrill Lynch engaged in a year-end 1999 deal involving the "parking" of Enron assets with Merrill Lynch.

That arrangement allowed Enron to enhance fraudulently the year-end 1999 financial position that it presented to the public and used to pay its executives unwarranted bonuses.

The indictment alleges that Bayly, Brown and Furst knowingly participated in this illegal scheme, along with co-conspirators Andrew S. Fastow, Enron's then-chief financial officer, and Daniel Boyle, then-vice president of Global Finance at Enron.

Fastow and Boyle were both charged in a May 2003 indictment, and Fastow's case is scheduled for trial in April 2004.

Federal prosecutors said that "Merrill Lynch accepted responsibility for the conduct of its employees" and that "Merrill Lynch also agreed to cooperate fully with the continuing Enron investigation and to implement a series of sweeping reforms addressing the integrity of client and third-party transactions."

An independent monitor, along with an outside auditing firm, will monitor Merrill Lynch's compliance with these new reforms, federal officials said.

For its part, Merrill happily said in a statement that, "In this matter, Merrill Lynch, as always, has cooperated fully with regulators and required all of its employees to cooperate as well. Those who did not were terminated. As part of its effort to cooperate, Merrill Lynch informed the SEC about one of the transactions at a time when the firm believed the commission was unaware of the transaction."

SAFEWAY
Unhealthy Demands
Wal-Mart is coming! Wal-Mart is coming!

That's the industry emergency that Safeway, one of the largest U.S. grocery chains, is using to justify its anti-worker drive in California.

Safeway is leading the charge to demand givebacks from striking and locked out grocery workers in Southern California. Along with Albertsons and Ralphs (Kroger's), Safeway's Vons and Pavilion stores are asking employees to start paying for a major chunk of their health insurance. Under the companies' proposals, workers and their families will lose $4,000 to $6,000 a year in health insurance benefits.

The companies' ultimate goal, says Jill Cashen of the United Food and Commercial Workers (UFCW), which represents the grocery workers, is "effective elimination of health benefits in their stores, and ultimately in the entire industry."

Refusing to accept the companies' concessionary demands, Safeway workers went on strike in October. In a show of corporate solidarity, Albertsons and Ralph's then locked out their employees. Safeway, Kroger's and Albertsons control 60 percent of the Southern California grocery market.

As the labor dispute has dragged out into its third month, the striking and locked out workers have seen their strike pay cut -- down to $100 a week -- and their health benefits run out.

But the workers "will not be starved into giving up their health insurance," says Cashen.

Safeway and the other chains' justification for their concessionary demands is the threat posed by non-union grocery sellers, foremost among them Wal-Mart.

"There is a lot of uncertainty surrounding this negotiation because of the dramatic changes we have seen and experienced in our industry," according to Vons President Tom Keller. "We are seeing a significant influx of non-union, discount stores and unionized independent operators with union contract agreements that provide lower wages and significantly fewer benefits than we provide. These formats pay much lower labor expenses than we do. This gives them an unfair advantage over other union operators."

But while Wal-Mart is certainly a serious threat to economic justice and worker well-being (see "Corporations Behaving Badly: The Ten Worst Corporations of 2001," Multinational Monitor, December 2001), the Wal-Mart menace is not the real reason for Safeway's demands.

The real reason is simply the company's greed, and its desire to offset a series of bad business moves.

Wal-Mart isn't yet even in the Southern California market. The company has announced plans to open 40 supercenters throughout California; analysts estimate that would give Wal-Mart 1 percent of the regional market.

Not exactly a big enough threat to explain why Safeway and the others would weather a strike and lock-out that is costing them hundreds of millions of dollars in lost earnings.

Safeway remains hugely profitable, but it has suffered setbacks in recent years. But these are due to its own missteps, not high health costs or competition from non-union, low- or no-insurance competitors.

As Hope Crifo, a consultant to the AFL-CIO's Office of Investment, points out, Safeway competes with Wal-Mart at less than a fifth of its stores. Kroger competes with Safeway at more than half of its stores. Yet Kroger is doing better than Safeway. For all grocery chains combined, net profits are at historically high levels.

Crifo points to a range of missteps at Safeway that explain the company's difficulties:

  • A series of poorly planned, overpriced acquisitions;
  • Mistimed stock repurchases;
  • Underinvestment in store redesign and upkeep;
  • Generally poor management and failure to deliver on promised marketing and financial targets.

The stakes are high in the Safeway fight. If unionized companies that together dominate the local market can shunt their responsibility to provide healthcare benefits, then the prospect of the service economy in the United States providing good jobs that can support working families is bleak indeed. n