Forster N. - Maximum performance (2005)(en)

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cigarettes were carcinogenic, and that a clear link existed between cigarette smoking, cancer and many other fatal diseases. Their cynical strategy was to add more chemicals to their cigarettes to make them even more addictive. The Council for Tobacco Research, which was funded by all the major US tobacco companies, regularly produced ‘evidence’ (often from respected academic researchers) that cigarettes caused little or no harm to their users. The first major breakthrough against these companies occurred in 1998, when the US tobacco industry agreed to pay $US200 billion dollars to 46 states over 25 years, in reparations for the widespread damage that their products had caused in the past and will cause in the future (Harnden, 1999). During the 1990s, ‘at least 30 million people’ were killed by cigarettes and ‘at least 500 million people’ will die of cigarette-related deaths in the future (Cancer Press Releases, 2002).

During the 1990s and early 2000s, there has been a succession of cases of corrupt and unethical practices in organizations. These have cost legitimate businesses, employees, taxpayers and nation states throughout the world trillions of dollars. For example, according to both John Pilger (1998) and Jeffrey Robinson (1998), one of the main causes of the explosion in drug-related crime in the 1980s and 1990s was the conduct of the ‘legitimate’ financial and banking sector. Robinson has even suggested that ‘White affluent members of the professional classes throughout the world have turned money laundering into the world’s leading financial growth industry’ (1998: 23). For example, Liechtenstein has been accused of laundering $US203 million between 1996 and 1999, not only on behalf of rich tax-dodgers from around the world, but also for Latin American and European drug cartels, the Italian Mafia and Islamic terrorists (German intelligence report cited in The Australian, 11 November 1999). One IMF loan of $US7 billion to Russia mysteriously disappeared and then reappeared in a private account at the New York Bank a few months later (NR, 2000). According to Pilger (1998), some of this ‘dirty’ money also drove economic growth in East Asia in the 1980s and 1990s.

As a direct result of this financial legerdemain, the fastest-growing business in the world over the last decade has been crime. It has been estimated that that there are eight trillion dollars (US) in laundered money from criminal activities swilling around the world’s banking systems, with many financial institutions turning a blind eye to this scandalous situation. For example, in Australia, the illegal drug market is estimated to be worth $A548 million, and about $A3.5 billion a year in drug and crime money from overseas was laundered through Australian banks in 1998. By 2000, this had risen to nearly 8 billion dollars (Sutherland, 2000). Remarkably, the biggest growth area in the

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international banking business sector, over the last two decades, has been in the creation of offshore tax havens and ‘cyber-domiciles’ (Robinson, 1998). Many of these are still hidden away from the scrutiny of national tax auditors and regulators, and are where the proceeds of global crime (and terrorism) continue to be laundered. In response to these revelations, and under heavy pressure from the US government and the Securities and Exchange Commission, 11 of the world’s leading banks (who collectively controlled more than 50 per cent of banking world-wide), signed up to the first world-wide anti-money laundering scheme. What impact this has had remains to be seen (Sutherland, 2000). This was followed, in the aftermath of 11 September 2001, by the introduction of the US Patriot Act in April 2002. This legislation contained a raft of measures designed to track down funds and financial transactions linked to terrorism, drug trafficking and organized crime.

If you walk one mile in any direction from the main central railway station in any major city in Europe or North America you will pass within an elbow’s distance of a property that is owned by, managed by or has been constructed with dirty money. At some point in the past thirty days you did business, knowingly or unknowingly, with a money launderer or otherwise came into contact with dirty money. What follows are stories about how money launderers manage their business and how that business affects us all; about how dirty money becomes the white powder which is killing our children and the underground economy that is shaping the world. After The Laundrymen, bankers, lawyers, accountants, money managers and more than a few governments will never look quite the same.

(Abridged from the introduction to Jeffrey Robinson’s The Laundrymen, 1998)

Other legitimate businesses and organizations have also been found guilty of unethical conduct in recent years. In 1999, for example, Lloyds of London and the auction houses Christie’s and Sotheby’s were rocked by financial and price fixing scandals, resulting in multimillion dollar payouts to their clients in 2000–2001. This was followed by the imposition of a jail sentence and fines of $US7.5 million on the former head of Sotheby’s, Alfred Taubman, in 2002 (The Times, 2002; Reuters, 2001). Some readers may also recall the downfall of Robert Maxwell in the 1980s and, more recently, the activities of Nick Leeson at Barings Bank:

For ten days Nick Leeson – the man who lost $US1.8 billion and broke Britain’s oldest merchant bank in 1995 – took on more and more contracts from investors. As the 28-year-old rogue trader continued his frantic gambling, the bank’s losses must have loomed like a nightmare to Leeson – 40 000 contracts, each with a potential loss of $US500 000. Leeson – the trader from hell from a working class background in London – was the general manager of Barings’ Futures in Singapore and chief trader for its Nikkei account. He was renowned for wearing expensive suits to the office, but this memory paled in comparison to his frantic flight from Singapore to Malaysia and then Germany, with his soon-to-be-ex-wife. As Barings

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collapsed under debts from his wild trading of derivatives based on Tokyo share prices. Leeson finally had his collar felt in Frankfurt and was jailed for nine months before being deported for trial in Singapore and sentenced to six and a half years in jail. He was freed in July 1999. Leeson now earns about $US1.3 million a year from his film, Rogue Trader, plus publicity events – but half of his earnings are paid to Baring’s liquidators.

(Abridged from Haynes, 2000)

The dotcom collapse of 2000 led to an avalanche of litigation in the USA, with more than 200 class actions processed in the American courts during 2001–2004. Many banks and financial advisers were accused of rigging the flotation of dotcom stocks during the late 1990s and hyping their value to investors. The banks named in these lawsuits included Crédit Suisse, First Boston, Quattrone, CFSB, Bear Stearns, Morgan Stanley and Salomon Smith Barney. The payouts from these court cases will run into billions of dollars. This comes amidst investigations by the US Justice Department and the Securities and Exchange Commission (SEC) into the behaviour of many financial institutions during the Internet boom. At the time, some commentators suggested that the entire American democratic process, and commercial media organizations, had been largely hijacked by big business, oil and energy interests, and alleged that George Bush was little more than a gormless glove-puppet for these powerful lobbies (Moore, 2001; Miller, 2001). Soon after these allegations were made, the energy company Enron filed for bankruptcy on 2 December 2001. At the time, this was the biggest corporate collapse in American commercial history. It was soon discovered that this company had benefited enormously from the deregulation of energy industries in Republican states during the 1990s, including Texas under George Bush’s time as governor. In the investigations that followed, it was also revealed that the company’s CEO, Ken Lay, had been a close friend of the Bush family for many years and Enron had been one of the biggest sources of corporate donations to the Republicans during the 1990s (Swartz and Watkins, 2003).

Documents submitted in New York’s Bankruptcy Court in June 2002 showed that the senior managers of Enron had been lining their own pockets prior to declaring the company bankrupt. Collectively they had awarded themselves $US845 million in cash, stock and ‘incentive payments’. Lay personally received $US103.5 million in salary and ‘performance bonuses’ and a further $US108 million in stock in the late 1990s and early 2000s. In late August 2002, a former senior executive of the company, Michael Kopper, admitted that he and his boss, chief financial officer Andrew Fastow, had made millions of dollars from secret deals that had hidden the full extent of the company’s financial troubles. At a judicial hearing in Houston, he told a judge how he had paid kickbacks to Fastow for running a partnership that did not appear

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on Enron’s formal accounting records (Dalton, 2002c). The collapse of Enron also led to the extinction of one of the world’s biggest accounting and consulting firms, Arthur Andersen (quickly renamed ‘Arthur Daley’ in the UK, after a shady business character in a popular 1980s TV series, Minder). The company was found guilty of shredding documents in June 2002, and several other criminal trials involving Andersen employees, who had ‘audited’ Enron prior to its collapse, were the subject of court cases in the USA during 2002–3 (McLean and Elkind, 2003: 381–4). Andersen Australia was also involved in auditing the bankrupt insurance companies HIH and UMP, which resulted in criminal charges being laid against several Andersen Australia employees during 2002–3.

Communication, Respect, Integrity and Excellence.

(Enron’s ‘Corporate Values’, Annual Report, 2001)

My personal belief is that Enron stock is an incredible bargain at current prices and we will look back in a couple of years from now and see the great opportunity we currently have. Talk up the stock and talk positively about Enron to your family and friends. The third quarter is looking great. We will hit our numbers.

(Ken Lay, former Chairman of Enron, in a company email forum, 26 September 2001)

Load up the truck.

(The advice Jack Grubman, former senior financial adviser at Salomon, Smith, Barney, gave his clients about buying Worldcom stock during 2000. On 22 December 2002, Grubman was fined $US15 million and banned from working in the US securities industry for life.)

The scale of the Enron collapse was soon eclipsed by the telecommunications company Worldcom, with nearly 40 billion dollars unaccounted for and 17 000 redundancies in June 2002. Again, the senior managers of this company had also been lining their own pockets prior to declaring the company bankrupt, and several Federal politicians had sold off their stock in the company prior to its collapse. Sacked Worldcom chief financial officer Scott Sullivan alone cleaned up nearly $US10 million when he sold off 475 000 company shares in 2000. The company’s owner, Bernie Ebbers, had personally ‘borrowed’ $US366 million shortly before the company went bust. For both the employees who lost their jobs and those who remained, this also meant the loss of their entire pension entitlements, which had been tied into the value of the company’s stock. Enron’s 20 000 employees lost two billions dollars of pension contributions during 2001–2. The USA’s biggest pension fund, the California Public Employee Retirement System, faced a $US565 million loss on Worldcom holdings, and New York’s State Retirement Scheme lost $US300 million. In an ironic twist that could have appeared in a John Grisham novel about corporate malpractice, it

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was revealed that the company’s headquarters in Mississippi would shed half of its employees by Christmas 2002. The name of the town in which Worldcom had set up its HQ in 1996 is Clinton. On 2 August, the company’s former chief financial officer, Scott Sullivan, and controller, David Myers, were arrested and charged with seven counts of securities fraud, conspiracy and making false financial statements. The madness that seemed to have gripped some parts of corporate America is exemplified in the conduct of Gary Winnick at Global Crossing during the late 1990s.

‘The emperor of greed’

Gary Winnick had never worked in the telecom industry before he founded Global Crossing in 1997. He had never run a public company either. Yet in the late 1990s, Chairman Winnick was hailed as an industry giant, the creator of a Telco that a year after going public in 1998 was valued at $US38 billion: more than Ford. A little over two years later Global Crossing is in bankruptcy and fighting to survive, part of an industry collapse that wiped out $US 2.5 trillion in market value. Investors and regulators are struggling to figure out what went so wrong so fast. But the real question is how such a company could survive – indeed prosper – for as long as it did. The answer captures all of the insanity and money fever of the dotcom bubble, which saw billions of dollars vanish in pursuit of business that never materialized. Its business plan changed with the phases of the moon. So did its CEOs (there were five in four years). Global Crossing inflated its revenues by swapping capacity with other carriers and lured customers and investors by overstating its reach and the capabilities of its network, a system which former employees say simply doesn’t work that well. It exploited its relationship with both Wall Street and its bankers on a scale unrivalled in the industry.

As our story will show, billions of dollars flowed out of this company and into the pockets of insiders. Gary Winnick and his cronies are arguably the biggest group of greed-heads in an era of fabled excess. Not only did Winnick sell off stock at huge profits, while investors who jumped in later watched their stakes burn to nothing, but he treated Global Crossing from the start as his personal cash-cow, earning exorbitant fees from consulting and real estate deals between the company and his own private investment firm. In all, Winnick cashed in $US735 million of stock over four years – including $US108 million issued to his private company – while receiving ten million in salary, bonuses and ‘other payments’. Enron’s Ken Lay didn’t even come close – he only sold $US108 million of stock.

(Abridged from Creswell and Prins, 2002: 63–64. Although the US Securities and Exchange Commission has investigated Winnick’s conduct at Global Crossing, no criminal charges had been laid at the time this book was published.)

In turn, the collapse of Enron, Worldcom and several other US companies led to a widespread loss of investor confidence in corporate America, and to significant stock market instabilities during 2002–3. On 18 July 2002, the Dow Jones Index (DJI) fell below the level it had previously sunk to in the immediate aftermath of 11 September,

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1986, Harken Oil bought Bush’s near worthless oil company, Spectrum 7, for $US2 million. Part of the deal involved Bush receiving 212 000 Harken shares and being appointed to Harken’s board of directors, as a member of the company’s audit committee. In 1990, the SEC forced Harken to revise its books and account for millions of dollars in losses that it had disguised as profits, through the $US12 million ‘sale’ of a subsidiary to company insiders. On 22 June, Bush sold his stock at four dollars a share. Two months later the company announced a loss of $US23 million, a fact that Bush must have known about. When the loss was made public, Harken’s shares fell to one dollar within 12 months and by 17 July 2002 were trading at 45 cents per share. In other words, Harken had pioneered the accounting tricks that brought Enron and Worldcom to their knees in 2001–2. And guess which company was acting as Harken’s legal and accounting advisers at the time? Arthur Andersen (abridged from Peretz, 2002).

While Bush’s conduct during this affair may not have been illegal, many commentators suggested that it was unethical. More questions were raised when it was discovered that the attorney who represented Bush in the subsequent SEC investigations into Harken was one Robert W. Jordan, a partner at Baker Botts LLP. This man, who knew almost nothing about Middle Eastern politics, was appointed as US ambassador to Saudi Arabia soon after Bush took up the presidency in January 2001. The Baker referred to in the law firm’s title is none other than James Baker, the tactician behind Bush’s extralegal ‘win’ in Florida (which gave him the 2001 presidential victory). In June 2001, it was revealed that one of Bush’s closest advisers, Karl Rove, had held a large portfolio of Enron shares, which he sold prior to the collapse of the company, while advising Bush on US energy policies. You don’t have to be a consumer advocate like Ralph Nader to see the potential for conflicts of interest to have occurred here. To compound Bush’s problems, the public-interest law firm, Judicial Watch, then launched a class action by shareholders against the Vice-President of the USA, Dick Cheney, on 11 July 2002. This lawsuit alleged that Cheney was involved in ‘serious accounting fraud’, as CEO of the Texas energy company, Haliburton, from 1995 to 2000 (Peretz, 2002; KRT, 2002; AFP, 2002a; Newman and Dease, 2002; Ellis, 2002; Agencies, 2002).1

In Europe, Calisto Tanzi, the founder of the Italian multinational agribusiness Parmalat, was arrested in late December 2003, in connection with $US12 billion missing from the company’s accounts and allegations of kickbacks to the Mafia in return for a monopoly on the sale of their products in southern regions of Italy and Sicily (AFP, 2004b). Tanzi was charged with having personally expropriated one billion dollars to fund his lavish lifestyle, which included a TV station, several

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private jets, holiday resorts and ownership of the Parma football club (Bita, 2004). This scandal, which quickly became dubbed ‘Europe’s Enron’, led to several protracted court cases in 2004–5. In early February 2004, Italian police also arrested Segio Cragnotti, in connection with the meltdown of the multinational food firm Cirio in 2003, and began investigating 25 bankers from several Italian banks who had been dealing with the company before it collapsed. The Swiss company Adecco, the world’s biggest provider of temporary workers, and the Dutch retailer Ahold also came under the spotlight of their countries’ financial regulators in January 2004, for possible accounting and compliance irregularities. Following the carnage of the Neuer Markt collapse in Germany, and the ruin of many other telecom and technology industries, more lawsuits were initiated (The Times, 2001a; Bloomberg, 2001).

Further afield, in Australia we can also find many examples of unethical business practices in recent times. These include the 2000 Queensland ALP electoral corruption scandal (still unresolved), the commercial radio ‘Cash for Comments’ inquiry in 2001, and the 2000 Sydney Olympic corruption and ticketing scandals, which are estimated to have cost $A50 million in lost sponsorship. Ironically, the SOCOG Chairman Kevin Gosper then became an extremely well paid adviser to the Chinese government during their successful bid for the 2008 Olympics. There have also been numerous cases of insider dealing, politicians claiming false travel expenses and former Employment Minister Peter Reith being forced to pay back $A50 000 following the ‘phonegate’ scandal of 2000. Company collapses in Australia at this time included the insurance company HIH with losses of $A5.3 billion, the telecom business One.Tel with debts of $A350–400 million in May 2001, The Froggy Group in December 2001, with losses of $A67 million, and New Tel, who managed to burn one hundred million dollars of investors’ money between 1998 and the end of 2002. Like their American counterparts, the senior management of these companies had awarded themselves huge salaries and bonuses within months of their collapse. In turn, these led to thousands of redundancies, financial hardship for suppliers, huge problems for self-employed builders and bankruptcies for numerous small companies. Insurance premiums for small businesses went through the roof, and for Australian households rose by an average of 150 dollars a year in 2002–3. These companies were also the subject of judicial inquiries during 2003–4.2 In March 2004 it was also revealed that four rogue traders at The National Australia Bank had blown $A240 million in speculative currency trading (Woodley, 2001; Montgomery, 2001; Elliott and Magnusson, 2001; Westfield and Elliott, 2001; King, 2001; McGuire, 2001; Conn, 2000; Poprzeczny, 2000).

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These, and many other, examples that could be cited all reinforce the impression that unethical behaviour was alive and kicking in Australia. Recent estimates have put the full cost of company fraud in Australia as high as 20 billion dollars and as low as 3.5 billion dollars a year, or between $4200 and $700 for every Australian taxpayer (S. Wilson, 2002b; various articles in The Australian, 1997–2002). Whatever the true figure, even the lower estimate is more than the annual cost of robbery and extortion, homicide, drug-related offences, property damage, stealing, motor theft, ‘other theft’, assault and breaking and entering put together. In fact, the cost of corporate fraud each year is now greater than the cost of every single bank robbery committed in Australia since it became an independent Federation in 1900 (personal communication from Professor Richard Harding, Professor of Criminology, University of Western Australia). There have also been several well-documented cases in the last ten years of ‘whistle-blow- ers’, in Australia, being harassed and persecuted by large corporations for reporting on their corrupt, dangerous, illegal or underhand activities (Whistleblowers Australia, 2000–4; De Maria, 1999).

In another context, many commentators have suggested that the principal causes of the economic meltdown in East Asia in 1997–8 were corruption, fraud and cronyism. In the early to mid-1990s, as companies and investors flocked to the ‘miracle economies’ of East Asia, ‘irrational exuberance’ and greed once again took over, as tight regulatory supervision, due diligence, honest accounting practices and ethical conduct went out of the window. As the dust settled in the aftermath of the implosion of most economies in this region, hundreds of cases of corporate fraud, embezzlement and corruption emerged. These are still problems in the region, along with industrial espionage and the theft of proprietary information and intellectual capital. These factors continue to be major deterrents to companies investing in countries such as Indonesia, Cambodia, Vietnam and Burma (Watkin, 1999; O’Donnell, 1999a). The World Bank’s president, James Wolfensohn, has argued since 1995 that the biggest single factor prohibiting economic growth and investment in industrializing countries is, you guessed it, corruption. Some countries, such as Russia and Indonesia, are now so riddled with corruption that the CIA’s Foreign Intelligence Bureau now (unofficially) describes these as ‘kleptocracies’ (Australian Broadcasting Corporation, Four Corners report, 14 April 2001). Indonesia, which has huge natural reserves of oil, gas and minerals, should be an investor’s dream. Instead, because of endemic corruption and political instability, many of the world’s major mining and resource companies have either shut down operations there or curtailed new project developments in recent times, particularly in volatile areas such as the province of Aceh.

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What about those to whom we might look to do something about unethical business practices: politicians, the police and the Church? In Chapter 1, we saw that many egotistical and toxic personalities are attracted to careers in politics, and it is therefore no surprise that many have also been accused of engaging in corrupt and illegal activities in recent years. Amongst dozens of examples that could be cited are the former German Chancellor Helmut Kohl (in 1999), the President of France (François Mitterrand) and the former French Foreign Minister, Roland Dumas, in 2001. While Kohl and Mitterrand escaped prosecution, Dumas was jailed for six months and fined $US125 000 for embezzling funds from the state-owned oil company Elf Aquitaine between 1989 and 1992. In 1998, the former NATO Chief, Willy Claes, was found guilty of corruption in awarding military NATO contracts. At least 15 per cent of the annual multibillion dollar budget of the EEC still ‘disappears’ in fraudulent dealings of various kinds and into the pockets of corrupt officials, parliamentarians and influence peddlers of all kinds. Paul van Buitsen, who blew the whistle on fraud in the European Commission in 1999, was forced to resign from his job as an internal auditor for ‘breaching confidentiality rules’ (Johnson, 1999). The entire Commission of the EEC resigned in 2000 as a result of an official inquiry into these losses. No criminal charges were ever laid against these individuals, and the taxpayers of Europe continue to pay for this fraudulent and corrupt behaviour.

Several British politicians have also been caught out on dodgy financial dealings in recent times, including George Galloway, Dame Shirley Porter and one of Prime Minister Blair’s former favourites, Peter Mandelson. Mandelson, one of Tony Blair’s closest advisers and most senior cabinet members, was forced to resign over an undeclared house loan. This followed the earlier resignation of Peter Robinson, who had loaned him this money from an undeclared offshore trust (ibid.). In early April 2004, John Major, the former British Prime Minister, was questioned by financial authorities over a £20 million black hole at one of his former employers, the indebted busmaker Mayflower (Mansell, 2004).

In the USA, one president, Richard ‘Tricky Dicky’ Nixon, was impeached by Congress in the 1970s, Ronald ‘Amnesia’ Reagan escaped prosecution over the ‘Arms to Iraq’ scandal in the 1980s, and Bill ’Teflon’ Clinton was nearly impeached in the late 1990s, over financial dealings earlier in his career and ‘that woman’. The Clintons were again under the media spotlight early in 2001, after Clinton pardoned two criminals who had given money to the Democrats during the 1996 presidential election. It was also revealed that he and Hilary had ‘borrowed’ furniture and other property from the White House when