BY EVA CHENG
As US corporate crime scandals spread by the day, even US President George Bush and vice-president Dick Cheney have been implicated in the shady practices that have triggered panic on stockmarkets around the world.
The US Securities and Exchange Commission (SEC) has launched an investigation into Cheney's role, while chief executive of the Halliburton oil and construction corporation, in allowing the company to cook its books in 1998.
Meanwhile, US deputy attorney general and head of Bush's new multi-agency task force on corporate-crime, Larry Thompson, is also being investigated. Thompson was a board member of credit card outfit Providian Financial Corporation between June 1997 and May 2001.
According to the July 13 Washington Post, Providian paid more than US$400 million to settle allegations of consumer and securities fraud. The company had inflated its financial results by charging excessive fees and engaging in other practices that broke consumer-protection rules.
Apart from being a director, Thompson was also chairperson of the company's audit and compliance committee. Its main task was to spot and report any fishy dealings within the company.
Even though Thompson has not been able to clear his name on these corporate irregularities, Bush went ahead and named him to head the fight against corporate crime. Little wonder many commentators likened it to foxes guarding the hen house.
Bush's Enron
Bush has also been involved in shonky corporate deals. In mid-1989, Harken, a Dallas-based oil firm, was about to report a substantial loss. To conceal the appalling result, Harken's board approved a fictitious sale of 80% of one of its subsidiaries, Aloha Petroleum, to itself. Bush was a board member at the time.
Even though Harken was not going to receive the first payment of US$1 million of the US$12 million sale price until three years later (and Harken loaned the "buyer" US$11 million loan to cover the rest of the payment), it booked a US$7.9 million profit for the transaction. This fraudulent trick enabled Harken to report a loss of only US$3.3 million for 1989 rather than a more truthful $13.4 million deficit.
Aloha's nominal buyer was a group controlled by the family of Harken chairperson Alan Quasha. Accounting firm Arthur Andersen, its external auditor, did not object to this act of "creative accounting".
However, even the normally docile SEC disapproved of such absurd accounting and ordered a "restatement" of Harken's 1989 results. After negotiations with the SEC, the loss was adjusted to US$12.6 million. However, the SEC didn't even try to prosecute anyone involved and allowed the correction be published as a footnote.
Alfred King, former adviser to the US Financial Accounting Standards Board, commented on the deal in the July 12 Los Angeles Times: "They sold to themselves and recorded a profit. That's exactly what Enron did on a number of those off-balance-sheet transactions."
When challenged about this fraudulent accounting, Bush explained at a July 7 news conference: "All I can tell you is that in the corporate world, sometimes things aren't exactly black and white when it comes to accounting procedures."
Brushing Harken's scam aside as "counting future income prematurely", Bush stressed there was an "honest difference of opinion as to how to account for a complicated transaction".
The July 9 web newsletter, the Daily Enron, reported that Bush stated that not all things the SEC deems improper from an accounting standpoint are necessarily illegal. With these statements, Bush has provided a key line of defence for corporate crooks.
There is no limit to the forms of mutual back-scratching within the ruling class. While his father was the top dog in the White House, Bush junior's disastrous business ventures repeatedly attracted unbelievable bailout offers from big businesspeople looking for influence in Washington. Bush junior was offered substantial loans which were later "forgiven". Bahrain chose his disastrous Harken firm for an exclusive oil contract in 1990 before the experienced oil giant Amoco.
Caught again
Bush was caught out again in 1990, this time for allegedly profiting from privileged information not generally available to other shareholders, better known as "insider trading".
On April 20, 1990, Harken president Mikel Faulkner wrote to the board to warn of the company's "liquidity [cash flow] crisis". Another written warning, according to SEC files, was sent a month later to a Harken special committee, of which Bush was also a member. By June 1990, the company was in the midst of a "severe cash crisis", Harken vice-president Bruce Huff acknowledged in a 1991 letter to the SEC.
On June 22, 1990, two months before the company reported a shocking US$23.2 million loss, Bush sold 212,000 Harken shares. At US$4 a share, Bush collected US$848,000 from the sale. The price of Harken shares fell to US$3 each immediately after the loss was reported, then to US$1 a few months later.
Unless Bush was asleep while he was Harken director — in which case he was falling short of his legal fiduciary duty — there is no way he could not have been aware of Harken's financial problems. However, Bush still claims that he did not know things were so bad.
Whether the sale of Bush's shares constituted insider trading is a matter that the SEC has yet to pass judgement. Corporate insiders are legally required to inform the SEC of all sales and purchases of shares in publicly traded companies in which they play a management role. Such sales must be reported to the SEC by the 10th day of the month after the transaction.
Bush did not report his windfall sale until eight months later. The SEC investigated the delay but decided, despite the fishy circumstances, that Bush had no case to answer. Bush's father was US president at the time.
Since the saga was rediscovered in recent days, there are growing calls for the SEC to reopen the file on the case. But the SEC is not ready to cooperate.
In 1994, Bush blamed the reporting delay on a "clerical error". However, Bush has now claimed in a White House statement that he did report the sale promptly but the SEC lost the paperwork.
According to the July 10 British Guardian, "half of corporate America was filing forms late at that time".
Was "half of corporate America" also engaging in the accounting scams like those of AOL, Enron, Arthur Andersen, Global Crossings, WorldCom, Xerox, Tyco, Qwest, Computer Associates, Cendant, Waste Management, Livent, Rite-Aid, Microstrategy, Oxford Health, Informix, McKesson and Boston Scientific?
The answer seems to be yes, if the defence put up by Halliburton — the firm that Cheney headed for five years before he became US vice-president — is anything to go by.
Halliburton is currently under SEC investigation for having booked US$89 million of disputed receivables (unpaid bills) in 1998 as actual revenue. The July 9 New York Times reported that a Halliburton spokesperson said such "accounting" was widely practised and generally accepted in the construction industry.
Such shonky accounting continues. In the following three years, Halliburton booked another US$445 million in unrealised income as real cash. In this way, the company's share price was propped up enough for Cheney to bag nearly US$39 million in share price-linked stock options by the time he left for the White House. Halliburton gave Cheney a further $20 million as a retirement gift.
Since the 1940s, Halliburton has been an integral part of the US military-industrial-ruling class complex. In the 1990s, it was chosen as the beneficiary of lucrative US military contracts in Haiti, Somalia and the Balkans.
Windfall contracts
With Cheney in the White House, the US government's "appreciation" of Halliburton's expertise has grown. It has been granted windfall contracts, ranging from the building of cells to hold al Qaeda suspects in Guantanamo Bay, Cuba, to feeding the thousands of US troops stationed in Uzbekistan.
According to the July 13 New York Times, a Halliburton unit, Kellogg Brown & Root (KBR), is "the exclusive logistics supplier for both the Navy and the Army, providing services like cooking, construction, power generation and fuel transportation". That report adds: "The contract recently won from the Army is for 10 years and has no lid on costs, the only logistical arrangement by the Army without an estimate cost."
That NYT report goes on: "Like other military contractors, KBR has numerous former Pentagon officials who know the government contract system in its management ranks... The senior vice president responsible for KBR's Pentagon contracts is a retired four-star admiral, Joe Lopez, who was Mr Cheney's military aide at the Pentagon in the early 1990s. Halliburton said Mr Lopez was hired in 1999 after a suggestion from Mr Cheney."
TC McIntosh, an agent with the Defense Criminal Investigative Service, told the July 13 NYT that KBR "had the upper hand with the Pentagon because they knew the process like the back of their hand" and was able to get away with a lot. For example, according to McIntosh, KBR got the US army to agree to pay US$750,000 for electrical repairs at a base in California that cost only $125,000 to carry out.
Bush, Cheney and their big business mates are routinely in and out of government. They form part of the complex web of the US ruling class, whose members constantly take care of one another's interests. This is classic "cronyism". It is not unique to America, but is the foundation of a greed-based system that is capitalism.
From Green Left Weekly, July 24, 2002.
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