Bechtel: A Tale of Corruption

Sometime late last year, FBI agent Fred Cundy and federal attorney Joseph Covington quietly opened what may prove to be the most politically explosive case of the Reagan era. Their target is the Bechtel Group of Companies, the giant San Francisco-based construction conglomerate that pioneered nuclear power plant construction. They suspect Bechtel of violating the 1977 Foreign Corrupt Practices Act between 1978 and 1980 by bribing South Korean officials in order to obtain nuclear construction contracts.

Bechtel by itself is not a particularly surprising target. Company officials have been convicted of bribery before, and little attention has been paid to the fact. What makes this case potentially explosive is the fact that Secretary of Defense Casper Weinberger and Secretary of State George Schultz were working as top executives for Bechtel at the time the alleged violations took place, and both were in positions to know about them. A whistleblower who was highly placed in Bechtel and familiar with the alleged corruption has told the FBI that he has reason to believe that Weinberger knew about it. We will return to Weinberger, Schultz and the FBI in a moment. First, some background.

When Bechtel made its big move into South Korea in 1977, the country was in the midst of one of the fastest economic expansions of the century. In 12 years the Korean GNP had quadrupled. Exports had increased from $119 million in 1964 to more than $10 billion. Sophisticated transportation and communications infrastructures had been built and a massive program of heavy industrialization was under way. To businesspeople and bankers from Tokyo to New York to Munich, it was clear that a "second Japan" was coming.

With rapid industrialization came a demand for energy unprecedented among developing countries. Bechtel had been building electric power plants in Korea since 1954, when company chairman Stephen D. Bechtel, Sr., had convinced President Syngman Rhee to abandon Korea's hydro projects and build coal-fired plants instead. Korea was a good market for Bechtel, but the power plant business had been just like any other for American construction companies until the mid-1970s, when Korea's heavy industry began to overload the electric power grid. Power outages were frequent and energy use for street lights, advertising, and other "non-essentials" had to be strictly controlled by the government. With the price of oil on the rise and predictions of 15 to 20 percent annual economic growth through the 1990s, Korea's technocrats frantically sought more reliable and less expensive sources of electricity than oil- and coal- fired plants. Nuclear power, still being touted overseas as cheap, safe, and reliable, began to loom as the solution to Korea's energy crisis.

In 1977, the Seoul government announced plans to build 21 nuclear power plants by the end of the century. Overnight, South Korea became the salvation of the world's deeply depressed nuclear industry, which was then facing the beginning of its long slow slide into bankruptcy. American, Japanese, French, Swiss, Canadian and German reactor makers and engineers descended on Korea - with Bechtel, Westinghouse, General Electric and Combustion Engineering leading the pack.

American companies had the advantage of 30 years of close ties between South Korea and the U.S., as well as an embassy that acted more like a chamber of commerce than a diplomatic mission. But the massive sums required for nuclear power plants (the billion-dollar price tag for a single plant represents four percent of Korea's 1977 GNP) were beyond the reach of the Korean treasury. If Bechtel, Westinghouse, or anyone else was going to sell Korea a nuclear power plant, they were going to have to find someone outside of Korea to finance it. Enter the Export-Import Bank of the United States (Eximbank), a tax-supported federal agency that assists in financing the exports of American-based companies.

When American nuclear companies first went to the bank in 1968, its officials told them they were "not prepared... to consider financing of the scale and magnitude required by such a project," and suggested they try the private sector. But a concerted lobbying campaign led by Westinghouse, the U.S. Agency for International Development, and the U.S. Embassy in Seoul forced changes in the bank's attitude. In October 1986, the bank board voted to include nuclear power plants in its loan portfolio for Korea. Once the Korean government decided to build nuclear power plants, all the Korea Electric Company (KECO) needed to do was apply for a loan. (KECO was renamed the Korea Electric Power Company or KEPCO in 1980, but is referred to as KECO in this article for consistency.) South Korea's requests for nuclear financing have since made it the largest recipient of Eximbank money of any country in the world,

Since the Eximbank was founded 50 years ago, Bechtel has seen it as a promising funding source for its gigantic construction projects. Before he retired, Stephen Bechtel Sr. was on the bank's influential advisory committee. And the Bechtel Group, upholding its reputation as an attractive workplace for high government officials, this March created a new position - executive vice president for financing services - for John Moore, a former president of Eximbank. It was Moore who was dispatched to South Korea by President Jimmy Carter in June 1980 to convey the bank's support for the newly installed military regime of General Chun Doo Hwan. During his visit - which came only a week after the Korean military had put down a rebellion in the southern city of Kwangju at the cost of some 2,000 lives - Moore promised an additional $600 million in Eximbank funds, mainly for the country's nuclear program. An ardent supporter of nuclear lending, Moore is very likely to become n asset to Bechtel in its quest for the billions required by Third World countries with nuclear aspirations.

In 1977, with Eximbank credits flowing and locations selected for 21 power plants, Jack Damm was ready to make his move. Damm, a widely renowned high tech supersalesman, works out of Bechtel's Los Angeles office. He travels the world selling the company's nuclear wares. He is eager to a fault, and occasionally embarrasses his employer with his zeal, as he did in 1975 when he offered nuclear enrichment technology to Brazil at the same time the U.S. State Department was trying to persuade the West German government not to do so. Korea was an important test for the bold and gregarious Damm. He and Bechtel both had impressive reputations to live up to in the nuclear industry. Their reputations, as well as America's, were on the line.

But Bechtel was striking out in Korea. The company was excluded from bidding on the first two nuclear units, which were turnkey contracts won by Westinghouse, with Gilbert Associates performing the engineering and construction work coveted by Bechtel. (A turnkey plant is designed and built at a fixed cost by a consortium of companies who then "turn the key" of a completed plant over to the utility.) Then Canada sold Korea one of its unique CANDU reactors, the plant for which was built by Atomic Energy of Canada. By early 1978, three units were under construction in Korea, and Bechtel, the largest construction company outside the Soviet Union, still didn't have an order. Damm was desperate. So was his boss Harry Reinsch, the feisty, harddriving former ironworker who had risen to the presidency of Bechtel Power Corporation.

One thing that became obvious to Reinsch, Damm and other Bechtel officials as they watched the lucrative nuclear work elude them was that they lacked connections with influential people in the Korean government and in KECO, the government-controlled utility, people who could change the rules and allow Bechtel to bid on future nuclear plants. Damm found it nearly impossible to reach these people. When he did, they snubbed him.

One day in late 1977 Damm shared his woes with Harold Wilson, Bechtel's senior regional representative in Jakarta. Wilson knew Korea well and had an intriguing suggestion for Damm. When he had been employed by Dillingham Corporation in Hawaii, Wilson had worked with a flamboyant Korean American named Yoon Sik Cho. The 55-year-old Cho was reputed to have connections that reached all the way into the Blue House, the residence of President Park Chung Hee. Find Cho, said Wilson, and your troubles will end. Damm soon located Cho in Seoul and Harry Reinsch flew out from San Francisco to meet him. Damm and Reinsch were impressed and hired Cho as a consultant.

Wilson was right. Soon after Cho's employment things began to improve noticeably for Bechtel. With his assistance, a joint partnership was formed between Bechtel and Taihan Engineering Company. Taihan was at the time being courted by Bechtel's major American competitor, Ebasco. Both Ebasco and Bechtel had been told that KECO was unlikely to let contracts to companies that were not at least partly Korean.

Taihan was a particularly promising partner because its president, Moon Yong Hwae, was related by marriage to KECO's president. Cho promised Moon that if together they landed construction contracts for nuclear units 5 and 6, Bechtel would train Moon's engineers in nuclear science and transfer the technology that could eventually make Taihan "the Asian Bechtel" -an attractive offer for an engineering firm that was perhaps the seventh or eighth largest in Korea. Moon and his Taihan associates were excited about the opportunity. The joint venture was named AMTAI Company (for American Bechtel and Taihan Engineering).

With a Korean name on the calling card and Yoon Sik Cho on the payroll, doors began to open for Bechtel. Contracts for units 5 and 6, both billion-dollar plums already financed by Eximbank, were now clearly in its sight. Reinsch could see that Cho, not Damm, was his ticket to success. He kept Damm on the payroll, but he also negotiated a $90,000 annual contract with Cho (along with a $60,000 expense account). Reinsch then ordered Bechtel's regional representative in Korea, Robert Lynn, to sign the contract and give Cho whatever he needed, "no questions asked." Lynn, who had been reluctant to hire Cho in the first place, signed the contract.

(We were able to reach Lynn, who has since retired, at his home in San Rafael, California. As soon as we mentioned Y.S. Cho, however, Lynn ended the conversation. "That's part of my life I'd just as soon put behind me," he said before hanging up.)

According to testimony given to the FBI by another former high-level Bechtel employee, what Cho needed was expensive American appliances and cash-lots of cash. In the weeks that followed the signing of Cho's contract in 1978, Bechtel employees, who were allowed to bring their own belongings into Korea dutyfree, would arrive with brand-new golf clubs, TV sets, video recorders, and refrigerators. The FBI's informant, whom we interviewed in Seoul and Washington, has told the bureau that the appliances would be taken from the port of entry to Cho's house, and distributed from there as gifts to key Korean officials. The informant, who knows that he could possibly be charged as an accomplice, has not yet asked for immunity. He has asked that his name be withheld until there is a trial, at which he has said he will testify using his own name.

Periodically, according to the whistleblowing official, Cho would ask for a large amount of cash. He would say it was an "advance." Anyone who questioned the purpose of the advance would be reminded that Harry Reinsch had left orders to give Cho whatever he wanted-"no questions asked."

At that point in the proceedings, the informant has told the FBI, either he or another Bechtel staffer would take a check to the Seoul branch of the Bank of America, cash it and carry the proceeds to Cho, who would be waiting in the Bechtel office. Cho would stuff the cash in an ' envelope, hand the envelope to a driver and order it delivered to an official somewhere in Seoul. The informant told us that this happened perhaps once a week. Someone from Bechtel had to go to the bank he said, because "when the Koreans went down they always came back with small bills" and Cho wanted large ones. One of Cho's most strategic payoffs is described in an affidavit given to the U.S. Internal Revenue Service by Kang Ki Won, one of the drivers who delivered the cash. In this affidavit, Kang testifies that on several occasions he delivered large sums of money from Cho to Shin Ki Cho, a vice president of Korea Nuclear Engineering Company, a subsidiary of KECO. One envelope, he recalls, contained two million won (about $4,000).

In the course of our investigation we interviewed a retired American intelligence officer who had been stationed in Korea for most of his career. He refused to discuss classified matters, but agreed to talk generally about U.S.-Korean business and political relations. Although he was not familiar with Cho or Bechtel's activities in Korea, he did not seem surprised at our discoveries.

"There's a Korean word for the payoffs: ttok-kap," he said. "It means ricecake money. It goes on all the time." The construction industry, he added, was one of the worst offenders. Corruption was so rampant, in fact, that "the Korean Central Intelligence Agency formed a special division to police it."

Bribery of public officials is illegal in Korea and the law forbidding it is occasionally enforced. "No one wants to go jail," said the intelligence officer. "So they hire some peon who wants fast money to do this kind of work." Consultants like Cho, he explained, are called "cut-outs" because their contracts are written in such a way that if a legal problem arises, they can easily be "cut out" or abandoned. Cho's contract is illustrative. "All of Consultant's activities will be at its own risk," it reads. "As an independent contractor, Consultant will be solely responsible for determining the means and methods for performing (his) services."

"Our Pal"

On May 1, 1978, Bechtel won its first Korean nuclear construction contract-for units 5 and 6. With work underway it was now time for Bechtel to focus on winning the engineering contracts for units 7 and 8, which, like 5 and 6, would also be jointly put up for bid. Executives at Taihan had learned that the Ministry of Energy Resources (MER) was planning to recommend granting this contract to Ebasco. Early in 1979, Cho met with Taihan executives to ask them to help Bechtel make its case to MER.

Taihan's President Moon was upset with this request because he felt that Bechtel had not lived up to its promise to include Taihan in earlier projects. (As far as he knew, Cho had been working for him, not for Bechtel. Taihan at the time was paying Cho about $70,000 a year. According to Moon, Cho had told him that he was not being paid by Bechtel but was merely doing a favor for his old friend Harold Wilson.)

Cho conveyed Moon's complaint to Bechtel and shortly thereafter, on May 17, 1979, a new memorandum of agreement was signed between Taihan and Bechtel. Moon seemed satisfied and the way was cleared for Bechtel to obtain work on units 7 and 8. According to two former Bechtel employees, Bechtel was granted a one-day delay in submitting final bids for these units, and apparently the company was able to read the bids of its competitor Ebasco 24 hours before submitting bids for these units. Employees then at Ebasco are certain that their original bid was lower than Bechtel's.

As time went on, Taihan executives discovered more about the duplicitous behavior of the man they believed to be their agent, Y.S. Cho. In frustration, President Moon and Taihan director Sohn Tae Yom sought out someone else in Bechtel who spoke Korean. In the Seoul office they found Daniel Charboneau, an employee who agreed to translate a white paper they wanted to give to Harry Reinsch. This paper, which was formally presented by Moon and Sohn to Reinsch on September 20, 1980, detailed the questionable activities of Cho. It revealed that he was lying to Taihan by claiming that he did not work for Bechtel. Moon and Sohn further informed Reinsch that they were paying Cho enormous retainers and that Cho was also borrowing from Taihan to purchase shares in AMTAI, their joint project. Moon and Sohn also stated that Cho had told them that Bechel �chairman Stephen D. Bechtel, Jr., was not favorably impressed with Taihan's personnel or capabilities. For 30 million won (about $62,000), Cho had said, "the matter could be fixed." Taihan gave it to him "but we do not know to this day what happened to the money," reported Moon and Sohn. "Why," the Korean executives pleaded, "does a big company like Bechtel need a person like this?"

In the meantime, word reached Bechtel that Korean customs authorities were investigating Cho. According to the FBI's informant in Seoul, when Harry Reinsch learned that Cho was in trouble, he dispatched a Bechtel employee to help him, as quickly as possible, document the large outlays of cash that Bechtel had given him, "no questions asked," over the preceding three years. According to the informant, the employee brought over Korean receipts from California-"it was obvious that they were fake, they were forgeries"-including the $18,000 membership fee in a private Korean golf club.

Evidently the Korean authorities were not impressed, nor did customs officials believe Cho's explanation for the whereabouts of the refrigerators, golf clubs, and television sets that had passed through his house. With the assistance of Bechtel staffers, Cho managed to borrow these items back in order to show Korean officials that he had purchased them for himself.

As Cho mired himself in controversy, Bechtel's officers in Korea began to' distance themselves from him. Assistant project manager Eugene Nelsen even went so far as to issue an order that Cho's name should never be used in the office: "He is to be referred to only as `our pal.' "

Back in San Francisco, shortly after the meeting of September 20, 1980, with Sohn and Moon of Taihan Engineering, Harry Reinsch convened another meeting on the 23rd floor of Bechtel's headquarters building. Flown back from Seoul to attend were company employees who had knowledge of Cho's activities. Reinsch told them he did not want them to return to Korea. "We will send a nurse to pack up your wife and your children, and your household goods will be sent to you," he told Daniel Charboneau, who had translated the white paper for Sohn and Moon. When Charboneau balked and insisted on returning, according to the FBI's informant, who was at the meeting, Reinsch then said, "I have to check with my lawyer," presumably corporate counsel, and left the room.

Reinsch returned to the meeting ten minutes later, not with Weinberger but with John Weiser, Weinberger's secondin-command at the time who became general counsel after Weinberger joined the Reagan administration. Weiser overruled Reinsch and said that Charboneau could return to Korea and help his family move back to the U.S.

Weinberger, as general counsel, was Bechtel's top legal adviser and troubleshooter. He was also a vice president and a director of the Bechtel Group. "It was common knowledge among lawyers at Bechtel," said the FBI informant, "that anyone who didn't keep Weinberger informed would be on the street the next day." It was, however, not so common knowledge, according to a Bechtel consultant close to Weinberger, that "Cap only wanted to know what it was safe to know." So while Weinberger insisted on being completely informed by his staff about Bechtel's legal problems, it was all to be communicated to him in a way designed to not land him in trouble.

A central question raised by our investigation and the FBI's remains unanswered: on whose authority was Weiser acting-his own, Weinberger's or someone else's?

To Justice

Procedurally, when the FBI receives notice that a crime has been committed, the bureau submits its findings to the appropriate personnel of the Justice Department. If Justice Department lawyers agree that the case is worth pursuing, they order a full investigation. U.S. attorney Joseph Covington thought the Bechtel case was worth pursuing, and in October of 1983 he subpoenaed the Bechtel whistle-blower to appear before a federal grand jury in Washington. He was, however, flown there in January of 1984 for meetings with FBI agent Fred Cundy. Toward the end of the second of two meetings, which lasted the better part of a day, Cundy telephoned Covington, who was in Houston working on another Foreign Corrupt Practices case.

"Yeah, there's something there all right," said Cundy. His informant didn't hear Covington's response, but shortly thereafter the case was transferred from Cundy to agent Tim Traylor. Transferred with the case were some of the following documents now in the FBI's Bechtel file:

• Bechtel's contract with Y.S. Cho.
• The U.S. Tax Court file on Cho, who has been charged by the IRS with failing to declare $34,000 paid to him by Taihan Engineering Company in 1979 and with declaring $146,000 of insufficiently documented expenses that same year.
• The affidavit of driver Kang Ki Won, given in Seoul to an agent of the IRS investigating Cho's 1979 tax return. The IRS turned the affidavit over to the FBI.
• The white paper from Moon and Sohn to Harry Reinsch.
• The dates, numbers, and amounts of questionable checks written between September 27, 1979, and August 20, 1980, on Bechtel accounts at the Bank of America. The FBI has been informed that complete records of these transactions, estimated at well over $50,000, may be found in the Los Angeles office of Bechtel Power Corporation. These records should be carefully examined by the bureau because, if any of the checks were written on project accounts rather than on ordinary Bechtel bank accounts, the amounts would ultimately be billed to the client, KECO. And since KECO's nuclear projects are financed by the U.S. ExportImport Bank, the ultimate victim of any fraud or malfeasance could be the U.S. taxpayer.

The Shultz Angle

Since the Bechtel file has been transferred, we have met twice with agents Traylor and Dan Sullivan, supervisor of the fraud division in the FBI's District of Columbia office. The two were quick to explain that they were bound by law not to discuss details of the case with us. They were clearly interested, though not terribly surprised, that we were looking into the possible involvement of Caspar Weinberger in the Korean bribery scandal. While Shultz's connection to the case seems more tenuous than Weinberger's, there is cause for further investigation.

As we explained to the FBI agents, some knowledge of Bechtel's corporate structure is necessary to understand why Shultz may be implicated. Bechtel is not really one company. It is many companies incorporated in different states of the U.S., and even in other countries, notably Panama. However, they are all controlled by one organization called the Bechtel Groups of Companies, which has its own separate board of directors chaired by Stephen D. Bechtel, Jr. Various members of the Bechtel Group board are also "executive sponsors" of operational functions in the other Bechtel corporations.

Before he accepted his job as Secretary of State, George Shultz, who was vice chairman of the Bechtel Group board, was also the executive sponsor of the "internal auditing" division of Bechtel. Sullivan asked why that was significant, although he probably already knew. As his informant had told him, two separate audits had been canceled by Bechtel at the insistence of Yoon Sik Cho, one in January of 1980 and the other in June of the same year. Those audits would have revealed the large undocumented cash "advances" being paid to Cho. What agent Sullivan had no way of knowing, however, was that while Shultz may not have actually ordered the cancellations of the audits, as executive sponsor of the function, according to a Bechtel consultant, he ought to have been informed that they were cancelled. In fairness to Shultz, though, it should be pointed out that he may not have been informed that the audits would have revealed the amount of cash funneled through Bechtel accounts to Cho.

As we go to press, the FBI and the Justice Department continue their investigation. The next step, should Covington feel there is enough evidence on which to build a case, is to take the matter before a federal grand jury and ask for indictments. We have no way of predicting whether or when that will happen. There is currently only one Foreign Corrupt Practices case, involving seven defendants, in federal court. By all indications, things move very slowly in that part of the federal judiciary. The Foreign Corrupt Practices Act is clearly not a high priority in the Reagan administration, and a violation of the act is felt by multinational executives, in moments of candor, to be only slightly more serious than a traffic ticket.

The act explicitly forbids any American corporation or its agents from making gifts of any value to foreign officials who are in a position to affect companythe bureau submits its findings to the appropriate personnel of the Justice Department. If Justice Department lawyers agree that the case is worth pursuing, they order a full investigation. U.S. attorney Joseph Covington thought the Bechtel case was worth pursuing, and in October of 1983 he subpoenaed the Bechtel whistle-blower to appear before a federal grand jury in Washington. He was, however, flown there in January of 1984 for meetings with FBI agent Fred Cundy. Toward the end of the second of two meetings, which lasted the better part of a day, Cundy telephoned Covington, who was in Houston working on another Foreign Corrupt Practices case.

"There is bribery and there is bribery," said a San Francisco-based Bechtel engineer who claimed no knowledge of Cho's activity, but was not surprised when we asked about it. "If we give cash advances to a consultant whose job it is to make contacts for us and who uses the cash to open doors, are we bribing or is he bribing?"

We raised this question with FBI agents Sullivan and Traylor. Sullivan, who claims considerable experience with whitecollar criminal investigations, said that it involved an interpretation of the act that remained unclear, that needed to be tested in court. It seems certain to be tested if the Bechtel case ever comes to trial. The law explicitly states that if a corporation has "reason to know" that its employees or agents are involved in bribery, then the corporation is liable for their actions.

If it does come to trial, this case could create serious problems, not only for Justice but also for the State and Defense Departments. The U.S. maintains 40,000 troops and an estimated 250 atomic weapons in South Korea, and has joint operational authority over the 600,000-man Korean military. Since Caspar Weinberger became Secretary of Defense in 1981, South Korea's status as a U.S. ally has been upgraded from "significant" to "vital" to the U.S. national security. Under Weinberger - who has visited South Korea twice during his tenure at the Pentagon-the size of the annual "Team Spirit" military exercises staged by the U.S. and South Korea has continued to grow rapidly. Investigating Weinberger for a violation of the Foreign Corrupt Practices Act now would be certain to jeopardize this alliance. As FBI agent Sullivan explained to us, the intricacies of international relations often make enforcement of the Foreign Corrupt Practices Act a "delicate matter."

Neither our own investigation nor, we suspect, the FBI's has gathered enough specific evidence to legally implicate Weinberger or Shultz, although some action seems possible against Bechtel. "The FBI is bound by law," said Sullivan, "to follow all leads before closing a case." Multinational Monitor and Mother Jones will follow the same principle. The reason we go to press now is to assure that the file on this case is not ordered closed, as quietly as it was opened, until all the evidence is examined. The investigation has reached a point where subpoena power and public exposure are required to move it along. We hope that by releasing the story now we will prompt other media organizations and congressional committees to join the inquiry.

In the meantime, Bechtel continues its hard sell in Korea, where the government is expected to open bids on reactors 11 and 12 sometime soon. But this time around, the company goes into the bidding process with a somewhat tarnished reputation as a result of the huge cost overruns it incurred on units 5, 6, 7, and 8. Negotiations with the Korean government over a joint venture in nuclear engineering recently fell through after Korean engineering companies protested to the government that such a venture would deprive Korean engineers of jobs.

But with many of its own nuclear engineers on permanent layoff, Bechtel is still anxious for work in Korea. Harry Reinsch was back in Seoul in February, this time accompanied by former U.S. Ambassador to Korea Philip Habib, who has been on the Bechtel payroll since 1981. Yoon Sik Cho, who continues as a $90,000-a-year Bechtel consultant, is still there to assist him.

This report is the result of a joint investigation by Mother Jones, Multinational Monitor, and Nautilus Research. Financial support was provided by the Mother Jones Investigative Fund and the Project for Investigative Reporting of Money in Politics.

The Anti-Bribery Law... ...Unenforced and Under Attack If the current probe by the Justice Department into the Bechtel Group's activities in South Korea turns up decisive evidence of bribery, the company and some of its present and former officers might be prosecuted under the Foreign Corrupt Practices Act, the law which forbids American companies from bribing foreign officials to gain business contracts overseas. Press and congressional scrutiny of the case could also draw attention to the Reagan administration's lax enforcement of the anti-bribery law and the attempts by business and the administration to weaken it. The corrupt practices act was passed unanimously by Congress in December 1977, after congressional hearings disclosed that major U.S. corporations had made millions of dollars in payoffs to foreign government officials. Some of the revelations had major political impact, as in the case of Lockheed Corporation, which paid more than $25 million to foreign officials between 1968 and 1975, including then Japanese Prime Minister Tanaka Kakuei, who was forced to resign from office and was eventually convicted of accepting the money. Other disclosures of secret payments by Lockheed named Prince Bernhard of the Netherlands and Italian defense officials. The pervasiveness of such practices became even clearer when over 450 companies admitted to the Securities and Exchange Commission (SEC) that they had made questionable payments. Congress, embarrassed to discover that no law actually banned foreign bribery and eager to avoid further damage to U.S. prestige abroad, passed the prohibition against bribery several months after many of these disclosures came to light. The law is strong, outlawing payments to "any person" where corporate officials knew or "had reason to know" that some portion of the money or gift would flow to foreign officials. To prevent off-the-book "slush" funds and laundering of funds through foreign bank accounts-once common channels of bribe money-the law requires companies to keep detailed and accurate financial records and to devise a system of controls over internal accounting. Penalties for breaking the law include fines of up to $1 million for corporations, $10,000 for individuals, and jail terms of up to five years. Few charges, however, have been brought under the law throughout its seven-year history. The Justice Department and the SEC, which share responsibility for enforcing the law, have prosecuted only 13 anti-bribery cases involving six corporations since 1977. Meanwhile, the Justice Department has closed a total of 96 cases without prosecution. No one has gone to jail as a result of the corrupt practices act. "It is clear that this administration is lenient and is not devoting many resources to enforcement," says Gene Kimmelman, an attorney who monitors foreign bribery issues for the public interest organization Congress Watch. Kimmelman notes that the present Justice Department legal staff for foreign bribery cases has been pared down to less than half its 1977 size. A congressional staff study recently conducted for Representative Tim Wirth (D-Colorado), who heads a subcommittee that oversees enforcement of the law, asserts that a review of Justice Department records "raises serious questions as to the adequacy of the Department's investigations in certain cases, the Department's interpretation of its charge under the statute, and the Department's enforcement policies with respect to the law." The study cites instances where the agency dismissed cases too hastily, ignored obvious lines of inquiry, or failed to pursue cases altogether. It also notes the Department's strong resistance to congressional scrutiny of its activities. While going lightly on enforcement, the Reagan administration has joined the business community in attacking sections of the act as unfair to business. Corporations, primarily through probusiness zealots such as the National Association of Manufacturers, the Chamber of Commerce, and the Emergency Committee for American Trade, have waged a determined campaign to weaken the act's provisions. The business community has a long list of complaints about the Foreign Corrupt Practices Act. They claim it has increased the burden of paperwork and that it has a "chilling effect" on companies, causing them to pass up legitimate business opportunities for fear of criminal punishment. They also claim that American firms are suffering a competitive disadvantage because business goes to other foreign companies that engage in bribery. And they argue that the law is a misguided attempt to impose American standards of ethics and morality on other countries. While most corporations stop short of calling for a repeal of the law, many make no secret of the fact that they consider bribery 'a necessary cost of doing business in foreign countries. Corporations often cite surveys conducted by the General Accounting Office and the State Department to back their assertions of lost trade due to the act. But the surveys measure business opinion of lost trade, leading critics to charge that they are unscientific and heavily biased. The survey by the State Department, for example, was compiled from responses to a cable to U.S. embassies that was prefaced by the administration's negative view of the act. U.S. Trade Representative William Brock has led the administration's effort to revamp the law, while both the Justice Department and the SEC have testified before Congress in favor of weakening the law. However, congressional staffers have told United Press International that administration and business lobbying "strangely subsided" in recent weeks, the time frame in which rumors of the Bechtel investigation began to surface in Washington. Together, the administration and the business community lobbied successfully in the last Congress for Senate passage of an amended statute that satisfied their concerns, but the legislation hit a snag in a House subcommittee chaired by Tim Wirth, who has been leading the fight in Congress against attempts to change the law. An identical bill introduced in the present Congress has already cleared the Senate Banking Committee and may come up before the full Senate as early as May, though a House companion bill is again stalled in Wirth's subcommittee. Public disclosures of Bechtels' dealings in Korea are certain to affect the debate. The proposed law creates broad exceptions to bribery as it is defined under existing law. For example, the present law permits what are commonly known as "grease" payments to clerical or lowlevel officials in order to expedite minor business dealings such as moving shipments through customs or obtaining needed permits. The proposed law, however, would allow what it calls "courtesy" payments or "tokens of esteem" of any monetary value to officals at any rank. The new law would also exempt from prosecution any payments considered legal in the country in which they are made and any "ordinary" business expense. In addition, violations of accounting standards would not carry criminal penalties under the proposed law, as they do under existing law. Most significant for the Bechtel case at hand, the proposed law would drastically reduce corporate and individual liability for the actions of their foreign agents. When it became clear during the 1970s investigations that a large proportion of the illegal or improper payments flowed through agents, consultants, or other third parties, Congress adopted a broad standard that made a company guilty of violating the law if it had any "reason to know" that money was being used as bribe. Businesses hope to replace this standard with one that would find a company or its officers responsible only when they "direct or authorize" bribery by a third party. According to Kimmelman of Congress Watch, Bechtel might well be found guilty for Cho's actions under present law, but could probably avoid prosecution under the amended version. Kimmelman asserts that this proposed standard "would give corporate officers an incentive to know as little as possible about their agents' past or present activities." As a former accountant with the SEC has noted, "Any executive worth his salary knows full well how to make sure he 'doesn't know' what his agent is doing." Business and administration officials often present their proposed amendments as "clarifications" to a "vague and ambiguous" law that was passed hurriedly in the heat of the scandals of the moment. Kimmelman admits that passage of the law in 1977 was a "rush justice" effort, but he argues that the language of the statute is probably as clear as can be expected from any antibribery law. He points out that in the absence of lengthy court interpretation of the act, the Justice Department and the SEC have issued guidelines and adopted advisory procedures to dispel confusion about the law's terms. But Kimmelman argues that in any case, the pending legislation is "no less ambiguous, and perhaps more so" than current law. "The suggestions presented are anything but clarifications," he says. "They call for loopholes so broad and ambiguous that they may gut the law completely." - Kathleen Selvaggio

How We Got the Story Our story on Bechtel grew out of a three year investigation of South Korea's nuclear program conducted by Peter Hayes and Lyuba Zarsky of Nautilus Research, and Tim Shorrock, editor of the Multinational Monitor. In 1981, after completing a major study of the role of Westinghouse and the U.S. Export-Import Bank in the controversial reactor slae to the Philippines (500 Mile Island, published by Pacific Research), Nautilus launched an investigation into the Korean nuclear program, then the world's largest. For months the research team combed files of the government, the Congressional Research Service, and companies involved in the program. A request under the Freedom of Information Act for cable traffic between the U.S. Embassy in Seoul and Washington concerning U.S. reactor sales to Korea produced hundreds of documents, some of them quoted in this issue. In early 1981, Tim Shorrock, at the time a researcher with Nautilus, spend two months in South Korea interviewing Korean and American officials about the program. On the visit, he learned of a former Bechtel official who "had a story to tell." But it took over two years to finally interview the official - Daniel Charboneau - who contacted Multinational Monitor after we exposed serious problems with Nuclear Safety in Korea (see MM, February, 1983). Last August, we conducted a six hour interview with Mr. Charboneau in Seoul. My Charboneau's startling tale of bribery had to be collaborated by other sources. To complete the research team, Nautilus and Multinational Monitor called in Mark Dowie, the investigative editor of Mother Jones and the author of an award winning expose of Bechtel. Together, our research team interviewed several former and present employees of Bechtel in Korea, businessmen who were in Seoul during the late 1970s, and government officials knowledgeable about South Korea and the way of doing business in that country. The results of our work are published in this issue and will appear in the June issue of Mother Jones. Because of the serious nature of the story, we decided to pre-release it to the press on Friday, April 20. The article received extensive news coverage by both the print and broadcast media, and gave way to further developments on the case, which we will report on in the future.