The Front

Rigging the System

Riggs Bank in Washington, D.C. illegally operated bank accounts for former Chilean dictator Augusto Pinochet, and routinely ignored evidence of corrupt practices in managing more than 60 accounts for the government of Equatorial Guinea, according to a scathing July report issued by the Senate Permanent Subcommittee on Investigations of the Committee on Governmental Affairs.

The report also raises questions about potentially corrupt payments made by U.S. oil companies to Equatorial Guinea officials, their families and associates. Based on the report's revelations, in August, the Securities and Exchange Commission commenced investigations of ExxonMobil, Amerada Hess, Chevron Texaco and Marathon Oil Company for allegedly paying bribes in Equatorial Guinea.

In general, the Permanent Subcommittee on Investigations report found that Riggs disregarded its anti-money laundering obligations, maintained a dysfunctional program despite frequent warnings from regulators, and allowed or actively facilitated suspicious financial activity.

The Subcommittee found that regulators did a poor job of compelling Riggs Bank to comply with anti-money laundering requirements. The regulators were too tolerant of the bank's weak anti-money laundering program, too slow in reacting to repeat deficiencies and failed to make prompt use of available enforcement tools, the Subcommittee found. One key regulator went to work for Riggs after leaving his government post.

The Pinochet Connection

From 1994 until 2002, the report found, Riggs opened at least six accounts and issued several certificates of deposit (CDs) for Augusto Pinochet, former President of Chile, while he was under house arrest in the United Kingdom and his assets were the subject of court proceedings.

The aggregate deposits in the Pinochet accounts at Riggs ranged from $4 million to $8 million at a time.

The report found that the bank's leadership directly solicited the accounts from Pinochet, and Riggs account managers took actions consistent with helping Pinochet evade legal proceedings seeking to discover and attach his bank accounts.

A delegation of top bank officials went to Latin America, met with Pinochet, and explicitly asked him to open an account with Riggs. The Subcommittee found conflicting reports of who solicited the account, but it apparently was either Riggs Bank Chair Joseph Allbritton, President of Riggs National Corporation Timothy Coughlin or Head of International Banking Paul Cushman.

Riggs opened multiple accounts and accepted millions of dollars in deposits from Pinochet with no serious inquiry into questions regarding the source of his wealth, in apparent violation of anti-money laundering laws. According to the report, Riggs:

• Helped Pinochet set up offshore shell corporations and open accounts in the names of those corporations to disguise his control of the accounts;
• Altered the names of his personal accounts to disguise their ownership;
• Transferred $1.6 million from London to the United States while Pinochet was in detention and the subject of a court order to attach his bank accounts;
• Conducted transactions through Riggs' own accounts to hide Pinochet's involvement in some cash transactions; and
• Delivered over $1.9 million in cashiers checks to Pinochet in Chile to enable him to obtain substantial cash payments from banks in that country.

Under U.S. federal "Know Your Client" (KYC) regulations, banks must compile and verify background information on customers in order to guard against money laundering. Riggs' KYC forms solicit a variety of useful information. But the forms were not adequately completed for Pinochet.

For example, the form for a Pinochet shell corporation stated that the owner's name is "Kept in Vault." The profile stated, "Client is a private investment company domiciled in the Bahamas used as a vehicle to manage the investment needs of the beneficial owner, now a retired professional, who achieved much success in his career and accumulated wealth during his lifetime for retirement in an orderly way." The source of the wealth is identified as: "High paying position in investment income. Family wealth. Ö High paying position in the Public Sector for many years. Investment income."

The report found that Riggs concealed the Pinochet accounts from bank examiners at the Office of the Comptroller of the Currency (OCC) for two years, initially resisted OCC requests for information, and closed the accounts only after a targeted OCC examination in 2002.

Despite Riggs' track record of repeat anti-money laundering deficiencies, the OCC's concern about the Pinochet accounts, and Riggs' concealment of them from the agency, the OCC took no enforcement action against the bank after it learned of those actions in 2002.

In July 2002, the OCC examiner at Riggs instructed the examiners who had investigated the Pinochet accounts not to include their examination memorandum or supporting workpapers in the OCC's electronic files for Riggs Bank.

About a month later, the OCC examiner accepted a job at Riggs.

Money Laundering

From 1995 until 2004, Riggs Bank administered more than 60 accounts and CDs for the government of Equatorial Guinea, Equatorial Guinea government officials or their family members.

Combined, these accounts represented the largest relationship at Riggs Bank, with aggregate deposits ranging from $400 to $700 million at a time.

Equatorial Guinea is a small, oil-rich West African country dominated by a dictator, President Teodoro Obiang Nguema Mbasago.

The investigation determined that Riggs Bank serviced the Equatorial Guinea accounts with little or no attention to the bank's anti-money laundering obligations, turned a blind eye to evidence suggesting the bank was handling the proceeds of foreign corruption and allowed numerous suspicious transactions to take place without notifying law enforcement.

The investigation found that Riggs opened multiple personal accounts for President Obiang, his wife and other relatives, and from 2000 to 2002 accepted $13 million in cash deposits into these accounts with few questions asked.

The report also found that Riggs opened an account for the Equatorial Guinea government to receive funds from oil companies doing business in Equatorial Guinea, under terms allowing withdrawals with two signatures, one from Obiang and the other from either his son, the minister of mines, or his nephew, the secretary of state for treasury and budget. Riggs subsequently allowed wire transfers withdrawing more than $35 million from the government account, wiring the funds to two companies which were unknown to the bank and had accounts in jurisdictions with bank secrecy laws. Investigators said that they believe that at least one of these recipient companies is controlled in whole or in part by Obiang.

The senior leadership at Riggs Bank were well aware of the Equatorial Guinea accounts, according to the report, and met on several occasions with Obiang and other Equatorial Guinea officials.

Big Oil's Role

During its analysis of the Equatorial Guinea accounts, the subcommittee staff learned of a number of substantial payments made by oil companies doing business in Equatorial Guinea to individual Equatorial Guinea officials, their family members, or entities controlled by these officials or family members.

These payments, which sometimes exceeded $1 million, paid for Equatorial Guinea land leases or purchases, Equatorial Guinea embassy expenses, in-country security services, or expenses for Equatorial Guinea students studying abroad. In a few instances, oil companies entered into business ventures with companies owned in whole or in part by Obiang, other Equatorial Guinea officials, or relatives.

For example:

• In 1998, ExxonMobil established an oil distribution business in Equatorial Guinea of which 85 percent is owned by ExxonMobil and 15 percent by Abayak S.A., a company controlled by Obiang.
• Marathon paid or agreed to pay $2 million to Obiang for the purchase of land.
• Hess and ExxonMobil told the Subcommittee that they buy their security services through Sonavi, a firm controlled by the President's brother. The companies said that Sonavi has a monopoly on security provision in Equatorial Guinea, and its rates were non-negotiable. Payments from the two oil giants to Sonavi totaled over $1 million from 2000 to 2004.

The Subcommittee's report concludes with a series of recommendations. It calls for:

• Tightened enforcement of anti-money laundering rules;
• A one-year cooling-off period that would prevent bank regulators from immediately going to work for the banks they had overseen;
• International arrangements that would ensure U.S. and foreign bank affiliates can share client information across international lines to safeguard against money laundering;
• Implementation by oil companies of Publish What You Pay standards, so that the public in oil countries and elsewhere can track oil revenues; and
• Amendment of the U.S. Foreign Corrupt Practices Act, so that U.S. companies must disclose substantial payments to foreign government officials or their family members.

Lay Does Perp Walk

Former Enron CEO Kenneth Lay was indicted in July on federal fraud charges. He pled not guilty, was handcuffed and paraded in front of reporters in the traditional perp walk. He then held a press conference at the Doubletree Hotel in Houston where he defended himself.

"As CEO of the company, I accept responsibility for Enron's collapse, as I've said before," Lay told a jammed press conference. "However, that does not mean I knew everything that happened at Enron, and I firmly reject any notion that I engaged in any wrongful or criminal activity."

"It was going to take a lot more courage for a prosecutor to not indict me than to indict me," Lay told reporters.

The collapse of Enron cost thousands of employees their jobs, millions of investors their savings, and, according to the New York Times, "for a time, forced a nation to question the capital markets system."

"The collapse of Enron was devastating to tens of thousands of people and shook the public's confidence in corporate America," said FBI Director Robert Mueller. "The charges against Ken Lay, Jeffrey Skilling and Richard Causey take us one step closer to restoring the public confidence in our financial markets."

The indictment alleges that at various times between at least 1999 and 2001, Lay, Skilling, Causey and other Enron executives engaged in a wide-ranging scheme to deceive the investing public, the U.S. Securities and Exchange Commission and others about the true performance of Enron's businesses.

The alleged scheme was designed to make it appear that Enron was growing at a healthy and predictable rate, consistent with analysts' published expectations, that Enron did not have significant write-offs or debt and was worthy of investment-grade credit rating, that Enron was comprised of a number of successful business units, and that the company was maintaining an appropriate cash flow.

It had the effect of artificially inflating Enron's stock price, which increased from approximately $30 per share in early 1998 to over $80 per share in January 2001, and artificially stemming the decline of the stock during the first three quarters of 2001.

Upon Skilling's abrupt departure from Enron in August 2001, Lay resumed his position as CEO of the company, intensified his oversight of Enron's day-to-day operations, and took control as leader of the conspiracy.

Federal officials alleged that, starting in August, Lay was briefed extensively about mounting and undisclosed financial and operational problems, including overvaluation of Enron's assets and business units by several billion dollars.

Prosecutors alleged that Lay failed to disclose Enron's problems to the investing public and affirmatively misled the public about Enron's financial condition, while falsely claiming that he was disclosing everything that he had learned.

For example, the indictment states that during August 2001, Lay participated in Management Committee meetings at which reports were presented showing earnings shortfalls in virtually every Enron business unit, totaling approximately $1 billion. During early September 2001, Lay attended a Management Committee retreat in the Woodlands, Texas, at which the serious problems besetting Enron, including underperforming business units and troubled assets, were further discussed.

Among other things, executives discussed the need to take at least a $1 billion charge in the third quarter of 2001 and that Enron had committed an accounting error in the amount of $1.2 billion.

Then, on September 26, 2001, in an online forum with thousands of Enron employees, many of whom were investors in Enron stock, Lay allegedly stated that Enron was going to "hit [its] numbers."

Lay allegedly created the false impression that his confidence in Enron's stock was such that he had increased his personal ownership of Enron stock in the past two months as a sign of his belief in what he was espousing.

Meanwhile, in August, John M. Forney, one of Enron's former top energy executives and the inventor of the "Death Star" trading scheme, pled guilty of conspiring to commit wire fraud for the purpose of manipulating California's energy markets during the height of California's energy crisis.

As part of his guilty plea, Forney and two other convicted Enron executives will be required to assist the citizens of California in obtaining restitution for the losses they suffered during the energy crisis.

Forney admitted that as part of the conspiracy, he and others at Enron fictitiously relieved congestion on California transmission lines and otherwise improperly collected congestion management fees; misrepresented the origin of energy; misrepresented that Enron intended to supply types of energy it did not have; and did so for the purpose of maximizing the profit Enron would receive from its energy trading operations.

Forney admitted that the acts of Enron energy traders affected the price of electricity.

- Russell Mokhiber

"The Shame of Humanity"

Maraba, Brazil -- For five days now, Jorge has been waiting for work, and each day it's costing him money. And the 20 other men waiting for jobs they've been told will pay well -- it's costing them money too.

The long wait in this small dusty town in Piaui State is going to be expensive for these men. Because with each passing day, they are building a debt that will illegally bind them to backbreaking work.

These are the escravos, or slaves, of Correntes, poverty-stricken people who've been unwittingly trapped into a cycle of manipulation. They are mostly illiterate and innumerate, with few skills. They are also modest, and often really believe they have a debt to pay.

Forced labor affects some 30,000 to 40,000 men, women and children in Brazil today. The exact number is unknown because of the remoteness of the locations and the illegality of the work.

This kind of work can take many forms. It may be seasonal, or can last for many years. Its victims often fall into the same trap time and again.

"After I ran away from the last fazenda (farm), I could not believe that this would happen to me again," says Guilherme Pedro of his work herding cattle. "But it did, for the third time!"

According to a government survey, up to 40 percent of victims are in Guilherme's shoes, gaining their freedom only to return to the fields again as forced laborers.

Forced labor in Brazil invariably involves debt bondage -- a type of forced labor often used in remote agricultural areas. People incur debt, sometimes as small advances, or unknowingly build debt through accommodations, supplies or travel -- like the men waiting in Correntes, eating chicken and drinking beer -- even before they start working.

Recruiters, known as "Gatos," or cats, have no trouble exploiting the vulnerability of the poor and unemployed. In Brazil's northeast, where most forced laborers are recruited, recent estimates classified 49 percent of the population as poor. In their search for work, many people will take anything on offer in the hope of escaping poverty, starvation and idleness.

The Gatos visit small towns and villages looking for victims suitable for heavy work. These victims are almost always poor and uneducated, and they are easily seduced by the promise of stable employment at good rates of pay.

The workers then travel to a collection point, normally in another state hundreds of miles away from their homes. From there they are taken to a fazenda, but only after waiting several days or even weeks. And while they wait in ramshackle dormitories, they are constantly building a debt. When the bill for room, food and drink is paid by the farm supervisor, the worker is bound to a lengthy term of labor.

Somehow, their debt can never be paid. In such remote places, landowners run the stores selling food, drink and other items at inflated prices. Workers are told not to worry about the price and the store manager has the only record of their purchases. When the work is completed, the landowner gives them an exorbitant bill.

Many of the work sites are deep in the undeveloped areas of the Amazon, in the remote Far West, as the edge of the jungle is called.

"We traveled by boat and on foot for 15 days to reach a fazenda we knew was using forced laborers," recalls a federal prosecutor of his last raid. "It was almost impossible to reach them."

Even outside the Far West, families of forced laborers suffer.

"I was starving with my kids, worrying about [my husband] there. I had to beg people for food. And I begged for any kind of daily work. That's how I survived," says one woman, her eyes welling with tears.

These forced laborers are the hidden victims of a global phenomenon which affects millions of people in both developing and developed countries. But across the world, governments, employers' and workers' organizations, and civil society groups, are starting to face up to the problem with the support of the international community.

Under the leadership of its new President, Ignace Lula da Silva, Brazil has recognized the reality of forced labor, and has formally committed itself to eradicating this practice. Under a new initiative, a multi-agency approach to eradicate forced labor has been put into motion.

The plan calls for increasing raids by inspectors on ranches, logging operations and mines which lure people into servitude. These inspection teams, called "mobile squads," investigate and track forced labor based on information from escaped workers. Most rescues have taken place in Bahia and Mato Grosso States. In a recent raid in Bahia, 850 workers were released in the biggest single operation to date. The mobile squads successfully released 2,306 and 4,779 enslaved workers in 2002 and 2003, respectively.

The government is also moving to increase fines and criminal penalties for offenders, as well as to pass legislation to allow the seizure of businesses and properties where forced labor is used. These seized assets can be used to compensate forced laborers, as well as to offset the costs of eradicating the practice.

A broad-based partnership is providing information about patterns and locations of forced laborers to international organizations and government agencies. Institutions like the Pastoral Land Commission are providing vital assistance to freed workers, such as shelter, food, and medical treatment.

Raising awareness of the practice of forced labor is another major challenge. Through workers' organizations, workers are trained on how to recognize and avoid potential forced labor situations.

Local unions provide workers with information about work destinations, alerting them to potential abuses. The workers are also given contact numbers and locations, in case they need to flee forced labor.

A national campaign, targeting rural workers and their families, has been launched to help them avoid being ensnared into forced labor.

The complex nature of forced labor recruitment and the remoteness of the locations where the people work have hobbled eradication efforts. And with a quarter of the population living on less than $2 a day, grinding poverty will continue to make people vulnerable to forced labor.

Even more difficult to overcome is the general perception that landowners have impunity. Freed forced laborers often fear for their lives because landowners are wealthy and have many friends in powerful places. When these workers denounce the landowners to the authorities, they can be at risk of retaliation. Even government officials and prosecutors have been targeted with death threats.

In January 2004, four Labor Ministry officials were ambushed and killed in a shooting which the authorities believe is related to the discovery of slavery in a farming region dominated by large soybean farms, about 90 miles from the capital, Brasilia. These officials often travel with armed federal police officers. However, since this was a routine inspection, they were not accompanied by police.

This event has renewed calls for the passage of a constitutional amendment, which, if passed, will enable confiscation of lands where slavery is found. The bill has already passed the Senate, but due to pressure from the rural landowners' lobby, a vote is still pending in the House of Representatives.

The President of the Superior Labor Court, Francisco Fausto, calls forced labor "the shame of humanity" which must be eradicated. "We still need stronger laws. Someone who does not respect human rights, who assaults the human dignity of people, should be subjected to a stronger punishment. It is a war we must win."

-- Third World Network Features/World of Work-International Labor Organization

Grief for the Reefs

Okinawa, Japan -- "Degradation of coral reefs worldwide has now reached a critical stage," declared the world's foremost reef experts in a July statement issued at the conclusion of the 10th annual International Coral Reef Symposium. "Additional destruction of coral reefs must be avoided," they asserted.

Warming waters, offshore pollution and landfill projects, said the top scientists, represent the foremost dangers to coral reefs, threats that increase every day. Scientists estimate that more than a quarter of the world's reefs have already been lost, and project that, if present rates of degradation continue, more than 60 percent will be destroyed in the next three decades.

Some 1,400 scientists representing 87 countries gathered in Okinawa, Japan this summer to discuss the latest science and best available measures to protect coral reservoirs of marine biodiversity.

Though each scientist brought a different perspective, all spoke with one voice on the conference's central issue: coral reefs -- the ocean's rainforests, with unparalleled repositories of marine biodiversity -- must be protected now, because the clock is rapidly approaching midnight. From June 28 to July 2, researchers, environmental group representatives and government officials from around the world repeated this central theme.

"Coral reefs serve as homes for a wide array of life, and protect human life as well," said Keisuke Sunada, Japan's parliamentary secretary of the environment. Although reefs make up .2 percent of the ocean floor, they support roughly a quarter of all marine life.

Global warming poses a chief threat to coral, explains U.S. scientist and attorney Brendan Cummings. Cummings, marine policy director for the U.S. advocacy group, the Center for Biological Diversity, also says that scientific opinion is virtually unanimous that coral reefs are dying.

"The only dispute is how fast and how irreversible that is," he says. "There's no dispute that warm water kills coral. The questions are, what species will go extinct -- or will we lose reefs as we know them entirely?"

Climate change, however serious, is far from the only danger to reefs. Each local community faces other threats, including pollution from myriad sources. In some parts of the world, land reclamation projects smother coral populations. Invasive species such as the crown of thorns starfish represent another major threat to the world's reefs. "Coral reefs and associated ecosystems are now under serious threat of collapse because of over-fishing, development of the coastal zone, including dredging and landfill and terrestrial run-off," states the Okinawa Declaration.

"Long-term, there's hardly a reef in the world that we can truly say is pristine and secure," says Cummings.

Okinawa was a fitting choice for the first global coral conference of the 21st century. This is a critical time for coral in Okinawa, an island which itself is a case study in the benefits of healthy coral. The island's waters are second only to Australia's in the variety of wildlife they support, and fishers have been reaping the rewards for hundreds of years. But development, soil erosion, pollution and global climate change have put the place some call "the Galapagos of the east" under grave threat as well.

Climate change is already having a dramatic effect here, says Seishu Tanahara, a local scuba guide whose volunteer organization, Reef Check, monitors the health of Okinawa's coral. The island possesses about 400 different species of coral, most of which have been impacted by climactic disruptions and other factors.

To take just one reef near the village of Henoko as an example, Reef Check surveys found that 66 percent of the area's coral was healthy in 1998. By 2002, that number had dropped to 7 percent. This is due to two separate coral bleaching events in those four years, as well as two powerful typhoons. Scientists say storms are increasing in intensity as a result of climate change, to the detriment of coral populations.

The good news is that the Henoko reef is recovering from these disruptions: "I expect it will keep reviving," says Tanahara, "though we need to carefully watch the recovery of this coral reef."

The bad news is that a planned U.S. military base threatens to devastate reefs in the Henoko area as well, habitat that shelters sea turtles and the critically endangered Okinawa dugong, a sea-going manatee.

Representatives of the Center for Biological Diversity, including Cummings, traveled to the coral conference in part to build momentum for a lawsuit against the U.S. Department of Defense aimed at stopping the base. Six ecology groups, some U.S. and some Japanese, are suing to stop the U.S. military base project.

Scientists at the conference also suggested that there is still time to change course. In regulations that took effect this summer, Australia has forbidden fishing on about one-third of its world famous Great Barrier Reef. Overfishing is another factor harming coral, since fishers often harvest "cleaner" fish that prevent reefs from being over-run with algae.

"If the U.S. and other countries follow Australia's lead, there's cause for hope. If we rein in other threats and manage global warming, there may be a future for reefs," says Cummings. "It's daunting, but not irreversible."

- Jeff Shaw is a freelance writer based in Oregon