Bad Apples in a Rotten System
The 10 Worst Corporations of 2002
2002 will forever be remembered as the year of corporate crime, the year even President George Bush embraced the notion of "corporate responsibility."
While the Bush White House has now downgraded its "corporate responsibility portal" into a mere link to uninspiring content on the White House webpage, and although the prospect of war has largely bumped the issue off the front pages, the cascade of corporate financial and accounting scandals continues.
Consider this partial list of developments in the United States just in the month following the November 5 elections:
* The Securities and Exchange (SEC) told Goldman Sachs that it was facing potential charges for steering preferred customers to highly profitable Initial Public Offering (IPO) opportunities;
* WorldCom disclosed that its falsely claimed profits may exceed $9 billion;
* Adelphia sued its accountant, Deloitte & Touche, saying it was partially responsible for Adelphia’s financial improprieties;
* A shakeup in Tenet Healthcare management followed revelations that Medicare is investigating the company for improper billing;
* Harvey Pitt resigned as chair for the SEC;
* Unsealed court documents show Mastercard and Visa collaborated to discourage use of rival debit cards;
* Five Wall Street firms, including Goldman and Citigroup, were hit with $8.3 million in fines for failing to save e-mails desired by state and federal regulatory authorities;
* The Grubman e-mails became public, indicating a leading Citigroup analyst altered his assessment of AT&T at the behest of Citi’s CEO, and in exchange for efforts to get the analyst’s kids into an elite nursery school;
* The SEC commenced an investigation of Tenet, concerned about high levels of stock trading in advance of announcements that affected share price;
* Media accounts reported an expected $1 billion in fines to be levied against Wall Street firms for purposefully presenting overoptimistic analysis of stocks to the public, with Citigroup reported to be hit with a $500 million fine;
* The Sunday Times of the United Kingdom reported that Goldman Sachs internal e-mails show analysts were privately concerned about the future of telecom firms, but did not lower their public ratings of the firms;
* The SEC took action against Raytheon, Secure Computing and Siebal Systems for providing "market moving" information to analysts and investors, without conveying the same information to the public;
* An ex-Enron manager pled guilty to filing false tax returns in connection with a controversial Enron partnership;
* An insurer lawsuit against J.P. Morgan, alleging J.P. Morgan deceived the insurers into taking on Enron risk, commenced in court;
* William Webster indicated he will resign as chair of the newly formed accounting board before its first meeting in January;
* El Paso Corporation pled its case before the Federal Energy Regulatory Commission, arguing it did not withhold energy from California -- helping precipitate the California energy crisis ó as an administrative judge earlier found; and
* Mattel agreed to a $122 million settlement of a shareholder suit related to false statements the company allegedly made during its purchase of the Learning Company.
We easily could have filled our 10 worst list with some of the dozens of companies embroiled in the financial scandals.
But we decided against that course.
As extraordinary as the financial misconduct has been, we didn’t want to contribute to the perception that corporate wrongdoing in 2002 was limited to the financial misdeeds arena.
We asked Lee Drutman and Charlie Cray from Citizen Works to review the 2002 accounting and financial malefactions in a separate article, which appears after this one.
For our 10 Worst Corporations of 2002 list, we included only Andersen from the ranks of the financial criminals and miscreants. Andersen’s assembly line document destruction certainly merits a place on the list. (Citigroup appears on the list as well, but primarily for a subsidiary’s involvement in predatory lending, as well as the company’s funding of environmentally destructive projects around the world.)
As for the rest, we present a collection of polluters, dangerous pill peddlers, modern-day mercenaries, enablers of human rights abuses, merchants of death, and beneficiaries of rural destruction and misery.
The overarching picture that emerges from these profiles: Not only are Enron, WorldCom, Adelphia, Tyco and the rest indicative of a fundamentally corrupt financial system, they are representative of a rotten system of corporate dominance.
It may just be that the criminal prosecution of Arthur Andersen will be the last such prosecution of a large institution caught up in this year’s corporate fraud scandals.
The criminal prosecution and conviction of Andersen (the company was fined $500,000) on obstruction of justice charges was an effective death sentence for the giant accounting firm.
The lesson it taught to federal prosecutors: don’t indict a big accounting or financial firm unless you want to kill it off and throw out of work thousands of employees.
In an indictment filed earlier this year, federal officials alleged that on October 23, 2001, Andersen partners assigned to the Enron audit launched "a wholesale destruction of documents" at Andersen’s offices in Houston, Texas.
"Andersen personnel were called to urgent and mandatory meetings," the indictment alleged. "Instead of being advised to preserve documentation so as to assist Enron and the SEC, Andersen employees on the Enron management team were instructed by Andersen partners and others to destroy immediately documentation relating to Enron, and told to work overtime if necessary to accomplish the destruction."
During the next few weeks "an unparalleled initiative was undertaken to shred physical documentation and delete computer files," according to the indictment.
"Tons of paper relating to the Enron audit were promptly shredded as part of the orchestrated document destruction," the indictment alleges. "The shredder at the Andersen office at the Enron building was used virtually constantly and, to handle the overload, dozens of large trunks filled with Enron documents were sent to Andersen’s main Houston office to be shredded. A systematic effort was also undertaken and carried out to purge the computer hard-drives and e-mail system of Enron-related files."
And the feds alleged the shredding wasn’t isolated to Houston, as Andersen claimed.
Federal officials said that instructions were given to Andersen personnel working on Enron audit matters in Portland, Oregon, Chicago and London.
The shredding did not stop until November 8, 2001, when the SEC served Andersen with the anticipated subpoena relating to its work for Enron.
Only in response to the subpoena did Andersen send out a "no more shredding" message, because the firm had been "officially served" for documents.
Federal law makes it a crime for anyone to "corruptly persuade" another person to destroy documents "with intent to impair" the use of the documents "in an official proceeding."
Many white collar defense lawyers interpret this to mean that document destruction may occur right up until, or right before, a subpoena arrives.
For example, in a 1994 article in the Cardozo Law Review titled "When Bad Things Happen to Good Companies: A Crisis Management Primer," Harvey Pitt, the outgoing chair of the Securities and Exchange Commission, wrote:
"Ask executives and employees to imagine all their documents in the hands of a zealous regulator or on the front page of the New York Times. Each company should have a system for determining the retention and destruction of documents. Obviously, once a subpoena has been issued, or is about to be issued, any existing document destruction policies should be brought to an immediate halt."
At a press conference earlier this year, Pitt was asked about this advice.
"Whatever advice anyone gives as a private lawyer -- and I stand by the advice I gave, I might add -- when you are representing the public interest, you have to put on your public interest hat and make absolutely certain that the public’s interest is protected," Pitt said.
At the Justice Department press conference announcing the indictment against Andersen, Deputy Attorney General Larry Thompson was asked about Pitt’s advice.
"I know Mr. Pitt," Thompson said. "He’s a fine lawyer. And I haven’t read the article that you’re talking about, but I would direct your attention to 18 USC 1512(e), which makes it clear that an official proceeding does not have to be pending in order for someone to come within the ambit of the obstruction of justice statute."
Richard Favretto is a partner at Mayer, Brown, Rowe & Maw and one of Andersen’s criminal defense lawyers.
Favretto hand delivered a six-page letter to Michael Chertoff, the head of the criminal division, on March 13, 2002, the day before the indictment was announced.
In it, Favretto argues that there is no support for the allegation that the firm believed that "any destroyed documents would be used in an ‘official proceeding.’"
"During the last week, counsel for the firm repeatedly have asked Justice Department prosecutors to identify the partners or other Andersen personnel who acted ‘corruptly’ and had the requisite criminal intent to withhold documents from an ‘official proceeding,’" Favretto wrote. "The Department’s lawyers repeatedly have declined to provide a meaningful response to this critical question."
But this was a grave miscalculation on Andersen’s part.
"Under that provision of the obstruction statute, if a person acts -- knowingly -- to encourage or cause a person to destroy potential evidence, it doesn’t matter that the official proceeding has not yet been initiated," says Susan Koniak, a professor of law at Boston University Law School. "What matters is that the encouragement to destroy was given with the intent to keep the material from an official proceeding."
"If the person giving the instruction or encouragement to destroy could see that an official proceeding was coming and encourages in advance, he comes under the terms of the statute and may be prosecuted for his conduct," she says.
Andersen was convicted in June in a controversial decision by a jury. The conviction effectively put out of business the accounting firm and threw out of work most of its 26,000 person workforce.
BRITISH AMERICAN TOBACCO
"Some say that ‘tobacco and responsibility’ just don’t go together -- that a business can’t be responsible if its products can harm people."
So writes Martin Broughton, chair of British American Tobacco (BAT), the second largest tobacco multinational in the world, just behind Philip Morris.
Rejecting that view, Broughton writes in BATís Social Report 2001/2002 that, "We have much to offer in helping address the problems that concern our stakeholders, including supporting soundly-based tobacco regulation and reducing the impact of tobacco consumption on public health."
Broughton raises an interesting philosophical question about how a tobacco company could be "responsible." Unfortunately, as far as BAT is concerned, the question is only theoretical. The company continues to engage in a series of egregious practices, made all the worse because they involve the pushing of an addictive and deadly product.
BAT’s social report itself represented a major public relations ploy by the company, which along with the rest of Big Tobacco is eager to distance itself from what the companies acknowledge to be the bad old days -- when they denied any harms to their product and recklessly promoted them.
As they have throughout history, the companies, with BAT and Philip Morris at the helm, are positioning themselves to accept minimal marketing and product restrictions while their cutting-edge activities remain unhampered.
In advance of the release of the Social Report, Action on Smoking and Health UK (ASH UK) issued a counter report, "British American Tobacco -- The Other Report to Society." Anticipating Broughton’s claim, the ASH UK report stated, "The problem with BAT is not only that it makes a deadly and addictive product. We judge BAT by how it behaves, its business practices, the directions it takes and its truthfulness. We find BAT to be irresponsible because of the way it conducts its business, not simply because of what it makes."
The ASH report notes that it took until 1998 before BAT acknowledged smoking caused any harm at all. "Up until then they had undertaken an elaborate public relations exercise to maintain a ‘controversy’ about data that had convinced most respectable scientists some 40 years earlier that smoking was a cause of serious diseases like cancer. This is perhaps the greatest exercise in corporate mendacity the world has ever known and one of the most serious corporate crimes of the twentieth century. No admission has ever been made, no apology has been forthcoming and no one has lost their job."
But the report does not condemn the company only for past practices. Among many other indictments, it documents how:
* BAT’s worldwide programs supposedly designed to prevent youth smoking actually make the practice more attractive to kids (by suggesting smoking is an adult activity), while diverting attention from the issue of getting adult smokers to quit. (BAT says it "does not want children to smoke" and hopes its programs "will have a positive effect on preventing youth smoking.")
* BAT continues to deny the harmful health effects of second-hand smoke. (BAT says "there is no convincing evidence that ETS [environmental tobacco smoke or second-hand smoke] is a cause of chronic diseases," and the company advocates indoor ventilation instead of smoke-free areas.)
* BAT has worked to oppose efforts at the World Health Organization to adopt a strong Framework Convention on Tobacco Control, including a recommended ban on tobacco advertising and promotion. (BAT says that, while it accepts that tobacco advertising should be subjected to special rules, existing regulations already go too far.)
Perhaps the most explosive news to emerge about BAT this year came from Australia, where a judge found the company to have engaged in an elaborate, carefully considered, company-wide document-destruction scheme.
In a case filed against BAT by a dying smoker named Rolah Ann McCabe, Judge Geoffrey Eames found that BAT systematically destroyed key documents including reports, memoranda and other materials specifying what the company knew about the addictiveness of nicotine and when it knew it, what it knew about health impacts of smoking and when it knew it, and matters relating to marketing cigarettes to children, among other topics.
"The predominant purpose of the document destruction," the judge found, "was the denial to plaintiffs of information which was likely to be of importance in proving their case, in particular, proving the state of knowledge of the defendant of the health risks of smoking, the addictive qualities of cigarettes and the response of the defendant to such knowledge."
BAT defended, and continues to defend, the shredding on the grounds that the company was not obligated to hold on to documents that may be useful to an opposing party in some future litigation. But the judge stated that while corporations are not obligated to store documents indefinitely, they are not free to destroy them in anticipation of future litigation.
Finding the harm from the document to be unknowable and irreparable, the judge issued a verdict in favor of McCabe without allowing BAT to mount a defense. The jury awarded McCabe more than $350,000. Because McCabe was dying, and in an effort to expedite the case, her attorneys agreed before the litigation that no punitive damages would be sought. BAT appealed the decision.
As Multinational Monitor was going to press, the appellate court handed down a decision reversing Judge Eames’ holding. The Court of Appeal ruled that, although BAT did destroy vast troves of documents, it was not required to preserve them, or at least the obligation was not such that the judge was justified in denying BAT the ability to mount a defense. The appellate court said it did not offer judgment on whether BAT’s conduct might be considered an effort to pervert justice. But it did effectively rule that BAT’s actions were not wrongful in the way found by Judge Eames, and that some of BAT’s internal documents were protected by attorney-client privilege, as the company had claimed.
The case will now be considered on the merits of McCabe’s claim for damages. Rolah Ann McCabe died shortly before the appellate ruling. Her family intends to continue the case.
There is total devastation, no whole standing house, as though someone has bulldozed a whole community.
If anyone was in a house they could not have survived.
There is nothing but rubble and people walking around looking dazed.
There is a smell of death under the rubble.
These are the words of an Amnesty International delegate who entered Jenin refugee camp in the occupied West Bank minutes after the Israeli Defense Forces (IDF) lifted the blockade on April 17, 2002.
IDF forces that entered Jenin and Nablus brought tanks or bulldozers through roads, often stripping off the front of houses.
In Hawashin and neighboring areas of Jenin refugee camp, 169 houses with 374 apartment units were bulldozed, mostly after the fighting had ceased.
As a result, more than 4,000 people were left homeless.
In both Jenin and in Nablus, there were instances where the IDF bulldozed houses while residents were still inside.
The report found that IDF soldiers either gave inadequate warnings or no warnings before houses were demolished and subsequently failed to take measures to rescue those trapped in the rubble and prevented others from searching for them.
Amnesty International documented three such incidents leading to the deaths of 10 people. Six others on the hospital lists of those killed in Jenin were recorded as being crushed by rubble.
This year, a group of university professors and students have organized Sustain (Stop U.S. Tax-funded Aid to Israel Now).
One of its first campaigns is to pressure Caterpillar to stop selling house demolishers to Israel.
Sustain points out that the Israeli Defense Forces have destroyed more than 7,000 Palestinian homes since the beginning of the Israeli occupation in 1967, leaving 30,000 people homeless.
Most home demolitions target civilians who have not been charged with any crime. They are conducted as collective punishment or to clear the way for illegal Israeli settlements on Palestinian land.
The Fourth Geneva Convention prohibits collective punishment and the destruction of personal property in occupied lands.
The Caterpillar D-9 bulldozer is used by the Israeli military to carry out its program of home destruction.
The Sustain activists are demanding that Caterpillar uphold its own code of conduct by halting sales to the Israeli Defense Forces until civilian home demolitions cease.
The Caterpillar code states: "As a global company we can use our strength and resources to improve, and in some cases rebuild, the lives of our neighbors around the world."
"How can Caterpillar claim to rebuild lives when its products are used to uproot and punish civilians?" says Afifa Ahmed, a Sustain activist.
The Sustain campaign will conduct coordinated national pickets and direct action at Caterpillar manufacturing and sales sites, in addition to street theater and other creative tactics.
Caterpillar has said in response to the campaign that it never intended its machinery to be used as the IDF uses them. The company declined to respond to requests for comment from Multinational Monitor. In May, a spokesperson told a British paper, the Leicester Mercury, "Caterpillar shares the world’s concern over unrest in the Middle East. While we have compassion for those affected by the escalating political strife, we have neither the right nor the means to police customer use of Caterpillar equipment."
But as Georgetown University professor Mark Lance points out in a letter to Caterpillar CEO Glen Barton, "you know precisely how your equipment is being used."
"You are therefore knowingly facilitating crimes and there is no way to avoid the responsibility that comes with this," Lance writes.
Some Rich Bastard’s Son
The New Yorker ran a cartoon this year showing four U.S. soldiers sitting around talking. One says to the other three: "I just hope it doesn’t turn out that we’re going after Saddam to get some rich bastard’s son into some school."
This is an apparent reference to Jack Grubman, the former Salomon Smith Barney analyst.
Salomon is a unit of Citigroup.
Citigroup, formed by a 1998 merger of Travelers and Citibank, is the country largest bank holding company.
In January 2001, Grubman wrote that he had a reason for upgrading AT&T stock ó Citigroup CEO Sanford Weill wanted him to upgrade it, because Weill was in a power struggle and wanted AT&T CEO Michael Armstrong’s help in unseating Weill’s rival, John Reed.
In one e-mail, Grubman wrote, that, in exchange for his assistance to Weill, Weill helped him get his kids into an exclusive Manhattan nursery school. Grubman now says he was fibbing in the e-mail.
Meanwhile, federal and state officials are investigating Citigroup and other investment banks for recommending stock that they described internally as "crap."
And Citi faces hundreds of millions in fines.
And the media and public are focused on Grubman’s kids and the nursery school.
Not the subject of endless commentary is how Citigroup, the nation’s largest banker, was, at the same time, screwing the poor out of house and home.
Earlier this year, Citigroup Inc. was forced to pay $215 million to resolve Federal Trade Commission (FTC) charges that Associates First Capital Corporation and Associates Corporation of North America engaged in systematic and widespread deceptive and abusive lending practices.
Citigroup acquired The Associates in November 2000, and merged The Associates’ consumer finance operations into its subsidiary, CitiFinancial Credit Company.
The company engaged in subprime lending -- the extension of loans to persons who are considered to be higher risk borrowers.
The Associates was one of the nation’s largest subprime lenders.
In 1999, the total amount of all outstanding loans in The Associates’ U.S. consumer finance portfolio was approximately $30 billion.
In March 2001, the FTC sued The Associates, alleging that it had violated the FTC Act through deceptive marketing practices that induced consumers to refinance existing debts into home loans with high interest rates and fees, and to purchase high-cost credit insurance.
The complaint also named as defendants Citigroup and CitiFinancial, as successors to The Associates.
The FTC also charged that The Associates engaged in deceptive practices designed to induce borrowers unknowingly to purchase optional credit insurance products, a practice known as "packing."
These insurance products were intended to cover the borrower’s loan payments in various circumstances, such as death or illness, and the premiums were added to the principal amount of the loan.
If the consumer noticed that the credit insurance products were being added to the loan, The Associates’ employees used various tactics to discourage them from removing the insurance, the complaint alleged.
The complaint also charged The Associates with additional deceptive practices and law violations.
Citigroup says the problems at The Associates stem from the old regime, and that it is acting to clean things up. "When we bought Associates we found certain unacceptable practices that needed to be changed," said Citigroup President Robert Willumstad at the time of the settlement with the FTC. "We are confident that today’s settlement provides redress to those former Associates customers who were harmed. We’re gratified this matter is behind us."
"Since the acquisition of Associates in late 2000, we have implemented a series of significant best practices throughout our consumer finance operation," said Willumstad. "These reforms are grounded in our longstanding commitment to providing access to credit to those who need it most while setting consumer protection standards that lead the industry. Some of these, including our discontinuation of single premium credit insurance on real estate-based loans, have driven industry-wide change. We also recently announced enhancements to our sales practices and a substantial reduction in the maximum points on real estate loans made at CitiFinancial branches from 5 to 3 percentage points. This reduction sets us apart from our competitors in the industry."
In a separate settlement this year, Citibank, a unit of Citigroup and the nation’s largest credit card issuer, was forced to pay $1.6 million to settle allegations brought by 26 state attorneys general that it engaged in unfair and deceptive practices by telemarketing firms that solicited business using Citibank’s customer lists and encrypted credit card numbers.
"When a company sells its customer lists to telemarketers, it has some obligation to protect these consumers from unfair and deceptive solicitations," said Illinois Attorney General Jim Ryan "This agreement will hold Citibank responsible for the way these telemarketers do business with Citibank customers."
The agreement settles a multi-state, two-year investigation led by Ryan and attorneys general in New York, California and Vermont.
The states were looking into consumer complaints about the marketing practices of Citibank’s business partners.
The investigation revealed that since the mid-1990s, Citibank received a percentage of sales made by companies selling various products and services to bank customers. Consumers complained that deceptive pitches by these companies resulted in consumers being charged for products and services that they did not knowingly agree to purchase.
In some cases, telemarketers promoted free trial offers on dental plans or credit card loss protection service.
When the trial period ended, consumers did not understand that the companies would charge their credit card for continued use unless the consumers canceled during the trial period.
Around the world, Citigroup finances environmentally unsound and destructive projects such as Peru’s Camisea natural gas project and Ecuador’s controversial OCP oil pipeline (see "The Cost of Living Richly: Citigroup’s Global Finance and Threats to the Environment," Multinational Monitor, April 2002).
The great German sociologist Max Weber wrote that the definition of a state was that it claims a monopoly on the legitimate use of physical force.
Maybe it’s time for a post-modern update, because governments are now happy to share that monopoly with private corporations.
Case in point: DynCorp, a $2 billion-a-year company that describes itself as "a leading provider of diversified outsourcing and information technology services to government agencies." Some critics say the company is better described as a mercenary firm.
DynCorp is among the leaders in a fast-growing industry to take over privatized functions of the U.S. military. Some of these functions, like providing food services, are relatively benign. Others are less so, and involve the takeover of quasi-military functions.
For example, the U.S. government is relying on DynCorp to provide protection for Afghan President Hamid Karzai. This fall, responsibility for Karzai’s security was shifted from the Pentagon to the State Department’s Diplomatic Security agency. A State Department spokesperson says, "Diplomatic Security is a civilian law enforcement and security service that operates where the rule of law governs. That is not necessarily the situation in Afghanistan. We looked to bring on board necessary specialists to do the job properly. This required the use of contractors." The spokesperson declined to comment on whether DynCorp security personnel would be armed.
This type of privatization of military matters "is another way to give the government deniability," says William Hartung, director of the New York-based Arms Trade Resource Center. The military "pays the private company to do the dirty work. They hope that gives them more distance if personnel are killed than if they were uniformed service people. If [private company employees] are engaged in unethical behavior or repressive acts, the government is removed" from that.
What this really involves, Hartung says, is "unaccountability." He warns that it is even more difficult to find out what private military contractors are doing than it is for the Pentagon, and that contractor activity tends to fly below Congressional and media radar screens.
One example of how contractors are able to escape accountability surfaced earlier this year in Congress. The Subcommittee on International Operations and Human Rights of the House of Representatives International Relations Committee heard testimony from Ben Johnston, a former DynCorp employee. Johnston, who worked with DynCorp in Bosnia, reported that he witnessed DynCorp employees trading in sex slaves, as young as 12. When he reported what he had seen to army authorities, Johnston says, DynCorp fired him. DynCorp fired the implicated DynCorp employees and sent them home, but because they were civilians they were not subjected to military discipline; and they escaped any kind of prosecution in Bosnia.
Among DynCorp’s other activities, it is flying planes that spray herbicides on coca crops in Colombia. Farmers on the ground allege that the herbicides are killing their legal crops, and exposing them to dangerous toxins.
A group of farmers in Ecuador has filed a class action lawsuit against DynCorp in U.S. court, alleging the herbicides sprayed from the company’s planes drifted across the Ecuador-Colombia border, with toxic effect. The plaintiffs allege the spraying has had particularly serious effects on their children, causing serious deformities, major internal bleeding, and, in some cases, deaths of infants.
The lawsuit, which is being handled by the Washington, D.C.-based International Labor Rights Fund and the Amherst, Massachusetts Law Offices of Cristobal Bonifaz, alleges that the spraying of the farmers’ lands is "nothing less than an act of mercenary war carried out surreptitiously by the DynCorp Defendants in total defiance of international law, and outside the parameters of any legal contract to implement ‘Plan Colombia,’" the U.S. effort to wipe out illegal drug plantations in Colombia.
They claim that the DynCorp program is designed not just to spray drug plantations, but to maintain an aggressive military presence on the Ecuador-Colombia border, "to intimidate the local population into submission and prevent disruption to [the] extremely profitable oil ventures" carried out in the region, or planned for the area, by ChevronTexaco, BP Amoco and Occidental.
DynCorp could not be reached for comment.
Is it too much to ask corporations not to sell products made with child slave labor?
Why should an industry whose products are made with child slave labor need to be dragged kicking and screaming into taking modest measures to address the problem?
Following breakthrough investigations by Knight-Ridder reporters, there have been a flurry of reports about the trafficking in child indentured workers to labor on cocoa plantations and farms in the Ivory Coast, which supplies 43 percent of the world’s cocoa.
Many of the children are traded across borders, from Mali, Benin, Togo and Burkina Faso. The U.S. State Department estimates 15,000 children have been sold into bondage from these countries and transported to cocoa plantations in the Ivory Coast.
The child workers -- most aged 12 to 16, with some as young as 9 -- do the hot and miserable work of harvesting cocoa beans. Many are whipped and poorly fed. They have no idea what chocolate, the ultimate product of their labor, tastes like.
Behind the regional trade in children, and the widespread use of indentured and abusive child labor on cocoa farms, as well as elsewhere in the economy, are a number of inter-related factors. Extreme poverty leads families to sell their children. International Monetary Fund (IMF) and World Bank-recommended structural adjustment policies have intensified poverty in the region. A tradition of moving children within the extended family to facilitate educational opportunities has been perverted to enable trafficking in children. Low cocoa prices have pushed farmers to use the cheapest labor they can find.
Chocolate companies in the rich countries have nothing to do with most of these underlying factors.
But the industry has responded tepidly to revelations about child slaves in the fields where their raw materials are grown. Initial denials of the problem gave way to grudging acknowledgement, and ultimately to an industry-wide plan.
In June 2001, the industry acknowledged and denounced the use of child labor slaves. "As an industry, we strongly condemn abusive labor practices, and our goal is to be part of the worldwide effort to solve this problem. If one child is affected, that is one child too many," Larry Graham, president of the Chocolate Manufacturers Association, said at the time.
In September 2001, the industry signed a protocol designed to ensure that its products were not made with child slave labor. It said cocoa should be grown in accordance with International Labor Organization (ILO) Convention 182 on the elimination of the worst forms of child labor, and committed to taking further action in 2002.
In May 2002, the Chocolate Manufacturers Association signed a Memorandum of Cooperation with a number of nongovernmental organizations and trade unions. In July, they established an "International Cocoa Initiative -- Working Towards Responsible Labor Standards for Cocoa Growing." The Initiative set as its goals to:
* Support field projects and act as a clearinghouse for best practices that help eliminate abusive child and force labor in the growing of cocoa;
* Develop a joint action program of research, information exchange and action to enforce internationally recognized abusive child and forced labor standards in the growing of cocoa; and
* Help determine the most appropriate, practical and independent means of monitoring and public reporting in compliance with these labor standards.
* Critics, however, say the industry plan falls short. "The industry led initiative has resulted in a privatized mechanism without binding and enforceable labor rights," says a statement from the International Labor Rights Fund. "Privatized self-regulation may serve well in various contexts, but when it comes to child labor, we must demand more."
The critics are looking for solutions that give farm jobs to adults and pay farmers a fair price. As part of a solution, activists are asking the chocolate companies to buy Fair Trade cocoa. The San Francisco-based Global Exchange is asking companies to purchase a modest 5 percent of their product from Fair Trade providers.
Cocoa certified as Fair Trade by Transfair USA and other international certifying organizations is sold for a sustainable 80 cents a pound and must be grown and harvested in compliance with ILO conventions on both child and forced labor.
In 2001, Fair Trade cocoa growers produced 89 million pounds of cocoa, but only sold 3 million at Fair Trade prices.
Mars is one the largest chocolate makers in the United States, and the third largest private companies in the country. M&Ms are among the world’s best-selling chocolate brands. The three Mars siblings who own the company are each ranked tenth on the Forbes list of richest people in the United States, and estimated to be worth a combined $30 billion.
The company’s rejection of Global Exchange’s 5 percent Fair Trade proposal leaves an awfully bitter taste.
PROCTER & GAMBLE
Mugging the Third World
Here’s the problem:
"There is a crisis destroying the livelihoods of 25 million coffee producers around the world," reports Oxfam. "The price of coffee has fallen by almost 50 percent in the past three years to a 30-year low. Long-term prospects are grim. Developing country farmers, mostly poor smallholders, now sell their coffee beans for much less than they cost to produce ó only 60 percent of production costs in Vietnam’s Dak Lak Province, for example. Farmers sell at a heavy loss while branded coffee sells at a hefty profit."
For many coffee-producing countries, plummeting prices are devastating their national economies. Central American countries have seen revenues fall 44 percent in a year, from 1999/2000 to 2000/2001. In Ethiopia, coffee export revenues declined 42 percent. In Uganda, where a quarter of the population depends on coffee for their livelihood, coffee earnings dropped 30 percent.
For individual farmers around the world, declining prices have pushed them to the edge of survival, or destroyed their means of livelihood altogether. Tens of thousands are losing their land in Central America alone, and thousands of plantation workers have been thrown out of work.
The low prices are due to a global surplus of coffee beans. The surplus reflects a variety of forces, including the collapse of domestic and international marketing controls by producer countries ó in part a consequence of IMF and World Bank policies, the entrance of Vietnam into the global coffee market and a surge in Brazilian production, and stagnant demand in rich countries.
The market imbalance has further shifted power to the giant coffee roasters. Coffee farmers get 1 percent or less of the price of coffee at Starbucks, and about 6 percent of the cost of a supermarket pack of coffee, according to Oxfam.
Meanwhile, the coffee roasters are operating with extremely high profit margins.
Between them, the four largest companies -- Philip Morris/Kraft (Maxwell House), Nestle (Nescafe), Procter & Gamble (Folgers) and Sara Lee (Douwe Egberts and others) -- plus a fifth, German company, Tchibo, buy almost half of the world supply of green coffee beans.
These companies do not have complete control of the market, but they have the power to move to a global solution. They have not.
There will be no solution without management of price and supply.
Activists are demanding the companies buy a modest 5 percent of their beans from Fair Trade-certified growers. Fair Trade coffee ensures farmers get a sustainable price. Procter & Gamble, among others, has refused.
A global solution will also require a public system of supply management. The International Coffee Organization says destruction of 5 million bags of low-grade coffee would lead to a 20 percent rise in the commodity price. Oxfam has called for such measures -- estimated to cost $100 million, but likely to bring producers an extra $600 million to $700 million in revenue -- as a central element of its coffee campaign. It is urging the roasters and consumer countries to donate money to pay for the impoundment of 5 million bags.
Procter & Gamble’s response is dismissive. P&G says it supports the National Coffee Association’s (NCA’s) position on the coffee crisis. NCA supports a number of proposals, including farmer education regarding crop diversification, roaster use of long-term contracts, efforts to expand the coffee consumer market, gathering more data, and opposing U.S. tariffs on agricultural products which purportedly discourage farmers from switching to non-coffee crops (tariffs are low or non-existent on coffee), but does not have a single, coherent plan to address the crisis. P&G says it is not prepared to support the International Coffee Organization’s scheme because it is not the NCA position.
P&G says its response to the coffee crisis is its newly formed alliance with TechnoServe, a non-profit organization, to help small-scale coffee growers in Latin America. P&G donated $1.5 million to TechnoServe, to "help create long-term solutions to make coffee growing profitable for as many people as possible. This will be accomplished by improving the quality of coffee, exploring alternatives to coffee production and other initiatives."
Here Come the Feds
This has been a bad year for the maker of Claritin and other allergy drugs, anticancer drugs and Dr. Scholl’s foot products.
Let us count the ways.
First, in August, the Justice Department opened an investigation of both Schering Plough and Wyeth to see whether they had engaged in price fixing by, on the same day, reducing fees to their pharmaceutical brokers.
Second, Schering is the subject of an ongoing criminal investigation by federal prosecutors in Boston. They are looking at whether the company is ripping off Medicaid by repacking drugs at higher prices. A 1990 law requires companies to report to Medicaid the best price it offers its private customers.
In conjunction with this investigation, prosecutors in Boston in November issued two more subpoenas to the company requesting information on the company’s honoraria and other payments to doctors, insurers and educational institutions.
Third, in June, federal prosecutors in New Jersey began investigating whether or not the company imported ingredients that had not been approved by the Food and Drug Administration for use in the United States. Schering denies these allegations.
Fourth, in May, the New York Times reported that the Food and Drug Administration (FDA) had initiated a criminal probe into two Puerto Rican plants that make Schering’s Nasonex nasal spray and Celestone, a corticosteroid.
After news of the criminal investigation leaked out, Schering announced that it will pay $500 million to settle charges of repeated failure over recent years to fix problems in manufacturing dozens of drugs at four of its facilities in New Jersey and Puerto Rico.
The $500 million settlement shatters the previous FDA record settlement amount of $100 million.
The government sought the $500 million to disgorge profits made by the firm on drug products that were produced over the last three years.
The company also agreed to future monetary payments of up to $175 million and to disgorge additional profits should it fail to adhere to timelines established in the consent decree.
The government’s action follows 13 inspections at four New Jersey and Puerto Rico facilities since 1998 during which the FDA found significant violations of quality control regulations related to facilities, manufacturing, quality assurance, equipment, laboratories, and packaging and labeling.
The company has had a history of failing to comply with quality control requirements at these plants, which produce about 90 percent of the firm’s drug products.
The decree affects about 125 different prescription and over-the-counter drugs produced at the Puerto Rico and New Jersey facilities.
As part of the decree, the company agreed to suspend manufacturing 73 other products.
"This agreement builds upon the efforts we have undertaken to date to resolve these manufacturing issues," CEO Richard Jay Kogan said at the time of the settlement, "The company has worked closely and cooperatively with the FDA throughout this process and achieved two key objectives: keeping our plants open and operating, and continuing to make available our major pharmaceutical products to meet the needs of patients. We are confident of our ability to move forward under the agreement and complete our improvement programs successfully."
Fifth, in April, European Community regulators initiated a safety review of Claritin after reports from Swedish studies showed that about 1 percent of boys born to mothers who used Claritin during early pregnancy were born with a malformed penis. The condition occurred at a rate of three times the normal rate.
Finally, the company’s longstanding efforts to price gouge on Claritin were dealt a major blow at the end of the year, when health insurer pressure forced the company to make the drug available over the counter.
What have the oil companies been up to this year?
BP Amoco said that it was pulling out of a major lobbying effort to open the Arctic National Wildlife Refuge in Alaska to oil drilling, and has been running ads around the United States touting its environmental credentials.
BP wants people to believe that the company is moving "beyond petroleum" -- BP -- get it? -- into the solar age.
ExxonMobil announced that it was donating $5 million to the National Fish and Wildlife Foundation in an effort to save the tiger.
At a press conference announcing the company’s donation to the Save the Tiger Fund, ExxonMobil handed out cuddling little tiger beanie baby dolls for the kids.
ExxonMobil wants people to believe that it cares about the natural world and all of its living creatures.
In May 2000, Royal Dutch Shell set up a $30 million foundation to push for sustainable energy and social investment projects around the world.
The Shell Foundation announced that it was spending $3 million on a campaign to raise awareness of how the loss of Louisiana’s wetlands will affect the state and to gain support for efforts to save coastal Louisiana.
Shell called on environmentalist Amory Lovins to do an energy audit of one of its petrochemical facilities in Denmark.
Shell also has pledged $7 million to the World Resources Institute in Washington, D.C. to find environmentally sound solutions to the problems of urban transport.
And Shell donated $3.5 million to form the "Shell Center for Sustainability" at Rice University.
Now, of course these are good deeds.
But why are the oil companies doing this?
Are they doing it because they want to move the world away from the fossil fuel economy that is destroying the environment?
Are they doing it because they actually want to move the world to a solar energy economy?
Or are they doing it to greenwash their image and buy silence from their environmental critics?
Are they doing it to cover up their past history of oil spills, workers injured and killed on the job, and the spewing of cancer-causing pollutants into the environment?
It was John D. Rockefeller, the turn of the century millionaire, who gave out dimes to children. Why did Rockefeller give out dimes to children? To buy silence and good will.
Similarly, the oil companies today are giving millions to environmental groups and activists to buy silence and good will.
Now comes Jack Doyle, who has just completed a remarkable corporate history of Shell, Riding the Dragon: Royal Dutch Shell & the Fossil Fire.
The book is published by the Boston based Environmental Health Fund and is also available on-line on www.shellfacts.org.
In documenting hundreds of cases of human rights abuses, oil pollution, worker injuries and deaths, and the manufacture of cancer-causing chemicals, Doyle makes the point that Shell and the big oil companies have a lot to hide.
Despite all the rhetoric of moving "beyond petroleum," they continue to secure long-term contracts that tie them to the fossil fuel economy, with all of its geopolitical hazards, all of its human rights abuses and all of its environmental destruction.
Shell is spending millions of dollars to create the impression that it is a socially and environmentally responsible oil company.
Principle 6 of the company’s nine business principles is "To conduct business as responsible corporate members of society, to observe the laws of the countries in which they operate, to express support for fundamental human rights in line with the legitimate role of business and to give proper regard to health, safety and the environment consistent with their commitment to contribute to sustainable development."
But Doyle makes the point that the world’s second or third largest oil company remains one of the world’s biggest environmental violators.
The book documents a concerted campaign by Shell to halt critical government reports, rewrite history and cover-up its misdeeds.
Since Shell’s alleged involvement in the execution of its highest profile critic, Ken Saro-Wiwa of Nigeria, the company has claimed to adopt a new set of principles aimed at reforming its internal practices and re-making their image.
"Despite an ongoing civil trial in New York on Shell’s alleged role in the execution of Saro-Wiwa and other activists, Shell has the temerity to advertise itself as a new company committed to human rights, environmental protection and sustainable development," Doyle said. "There is ample reason to be skeptical about this manufactured image, which is wildly at odds with the facts."
Shell has a long history of disregard for employees and the environment.
In 1995, Shell attempted to dispose in the North Sea a huge offshore oil storage facility ó the Brent Spar. There was an enormous worldwide protest and a boycott of Shell products. Under pressure, Shell decided to dismantle it and used it to make some docking facilities.
Doyle says that the "new" Shell continues to run an "apartheid era" facility in Durban, South Africa, where there are leaking pipes, fires, explosions and ongoing pollution, and where more than one million liters of oil have been dumped so far.
In the appendix to his book, Doyle lists more than 300 environmental and public safety incidents between 1947 and 2002 -- spills, leaks, fires explosions, lawsuits and fines.
Here are a few examples of Shell’s problems just this year:
In May, federal officials sued Shell Pipeline in connection with the June 1999 gasoline pipeline rupture near Bellingham, Washington that killed three young people. The complaint alleges that the rupture was caused by gross negligence in the operation and maintenance of the pipeline. The rupture resulted in the discharge of over 230,000 gallons of gasoline in local waterways and caused the deaths of three young people as well as a severe property damage and environmental damage. Officials are seeking up to $18.6 million in fines against Shell.
Also this year, Shell was ordered to pay $135,000 to settle allegations brought by the Occupational Safety and Health Administration (OSHA) that it failed to implement standards that protect workers against hazardous chemicals in one of its processors in Geismar, Louisiana. OSHA opened its investigation after a February 12 accident at the facility killed a catalyst technician.
In June, a Shell-chartered Singapore bunker oil tanker spilled about 450 tons of oil into port waters just south of Singapore after a collision with another ship. The accident ruptured one of the Shell tanker’s cargo tanks, dumping marine fuel oil into the sea.
In August, a storage tank containing 30,000 barrels of residual fuel oil exploded at Houston Fuel Oil Terminal Co., a 50 percent-owned Shell joint venture specializing in handling and storage in Houston. The explosion and fire produced a dark, billowing cloud of soot and smoke that rose more than a mile into the air.
Don’t believe the hype. Put aside the cute little web sites and beany baby tigers.
There’s nothing new about new Shell, ExxonMobil and BP. They are bought into the fossil fuel economy.
We need to get out.
"A Triumph of Marketing Over Science"
Manufacture a consumer need. Invent a consumer product to satisfy the newly created need. Hawk the product.
That, in short, may be the epochal story of capitalism.
It’s one thing when the new consumer product is a pet rock, or blue soda.
It’s altogether another thing when the product is a pharmaceutical, where the stakes can be life and death.
More than ever, Big Pharma’s standard mode of operation is to invent a disease, and then provide a product. That’s the case with the pathologization of pre-menstrual discomfort (now labeled Pre-Menstrual Dysphoric Disorder in ads by Eli Lilly) and basic shyness (the Social Anxiety Disorder so frighteningly portrayed in ads by SmithKline Beecham).
But the pioneering and still most egregious example of this phenomenon, at least in the modern era, is the hormone replacement therapy (HRT) sold by Wyeth under the brand name Prempro.
Earlier this year, a National Institutes of Health study concluded that HRT -- a combination of estrogen and progestin -- posed major health risks to the millions of women in the United States, and around the world, that Wyeth and others had lured into taking HRT.
The NIH study, known as the Women’s Health Initiative, was a clinical trial to assess HRT for use by healthy women. Researchers ended the study ahead of schedule, when early results provided clear evidence of the hazards of HRT. The study results, published in the Journal of the American Medical Association, showed that long-term HRT increases the risks of breast cancer, heart attack, stroke and pulmonary embolism. Those risks outweigh the benefits of long-term use of the drug in reducing the risks of bone fracture and colon cancer.
The Women’s Health Initiative was the first large, randomized clinical trial to test the effects of HRT. Wyeth had long imputed a wide array of benefits to HRT, but the only scientific basis for these claims were observational studies, simply the reported effects from women taking the drug. A randomized clinical trial, by contrast, compares the effects of a drug in a patient group with the effects in a comparable group taking a placebo. Clinical trials are designed to avoid problems common to observational studies, such as a non-random group of patients -- in the case of HRT, probably healthier and better-educated women -- taking the product.
For decades, Wyeth (and Ayerst, the originator of HRT, a company acquired by Wyeth) had proclaimed the benefits of hormone therapy for menopausal and post-menopausal women.
In 1966, Dr. Robert Wilson published Feminine Forever, a book which became a bestseller. The book promoted estrogen as a wonder drug that could counter the changes of menopause and keep women young, attractive, sexually vital and happy. Wilson labeled menopausal women a no-longer truly female "intersex," who were "dull and unattractive." Estrogen, he said in the book, and through subsequent advocacy work with a foundation he established, could save these women, preserving their beauty and health. Years later, the Washington Post revealed Ayerst had funded Wilson’s work.
Wyeth effectively continued with the same promotional line for 35 years, employing spokespersons like Lauren Hutton to proclaim hormones as their beauty secret, and with ads and marketing schemes conveying notions that HRT would not only prevent heart disease and other ailments, but stop wrinkles and keep women looking and feeling young. The Women’s Health Initiative study showed that HRT actually contributed to heart disease.
Wyeth spokesperson Douglas Petkus, denies any knowledge of the company promoting HRT to address general and cosmetic problems with aging such as wrinkles, and to maintain beauty. "A pharmaceutical product can only be promoted for an approved use, and that is not an approved use," he says.
But critics say there is no doubt that Wyeth ran a spectacularly effective campaign to induce women to use HRT for these and other unproven purposes.
"Pharmaceutical companies have used statistical smoke and mirrors to tout unproven benefits, minimize risks and mislead physicians into being an unsuspecting marketing force for a regimen that harms healthy women," says Cynthia Pearson, executive director of the National Women’s Health Network.
"This is not a story of science moving sedately forward, carefully adding pieces to a puzzle before making recommendations to patients," she says. "This is a story of the corruption of the medical and scientific community. The belief that hormones are good preventive medicine has been a triumph of marketing over science." Not only did Wyeth use direct-to-consumer ads to convince women to take a drug that was harmful for them, she notes, but it maintained a full-bore campaign directed at doctors, through gifts, paid presentations at scientific conferences, and funded articles or ads presented as articles, among many other tactics.
Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime Reporter. Robert Weissman is editor of the Washington, D.C.-based Multinational Monitor. They are co-authors of Corporate Predators: The Hunt for MegaProfits and the Attack on Democracy (Monroe, Maine: Common Courage Press, 1999; http://www.corporatepredators.org).