Corporate Accountability & the Johannesburg Earth Summit
   

· Earth Summit 101

· Corporate Failure Since Rio

· Six Reasons for Accountability

· Accountability vs Responsibility

· Rules for Big Business

· FoEI's Position Paper

· Type 2 Outcomes - Voluntary Partnerships

· The Bush Administration and the Earth Summit

Corporate Impacts Issue Briefs: Water, Biodiversity

Polluted Profits
· Bush's First Year in Office
· Environmental Rollbacks
· Accounting Tricks
· Corporate Veil of Secrecy
· Paying Polluters

Case Studies of
Corporate Irresponsibility
· AES
· Doe Run
· Enron
· ExxonMobil
· Monsanto
· Newmont
· Nike
· Unocal
· Suez-Lyonnaise
· Vivendi


Enron
Has the Foreign Corrupt Practices Act (FCPA) worked?

Enacted in 1977, the Foreign Corrupt Practices Act (FCPA) was designed to combat the widespread practice of U.S. corporations bribing foreign officials; the FCPA makes such bribes a crime. By all accounts, the FCPA has been a success. In the 1970s, over 400 American corporations admitted making corrupt payments to foreign officials to secure business contracts. Since the FCPA was passed, this practice has come to a standstill, and American corporations are widely regarded as the most ethical players in international commerce.

This experience has several lessons for a corporate accountability framework.

First, enforcing a law involving American corporations overseas is not impossible.

Second, criminal prosecutions are not necessary to change behavior-in fact, in the first 18 years of the FCPA, there were only 16 prosecutions for bribery. The primary means of enforcement has been through the FCPA's accounting provisions, which require companies to keep better records of expenses and payments.

Finally, the United States can provide leadership internationally by raising its own standards. Since passing the FCPA, the U.S. has promoted a strong anti-bribery treaty, which will ensure that European and other companies behave as honestly as their American counterparts.

Enron, the FCPA, and Corporate Accountability

In the wake of the Enron accounting scandals, the U.S. government is taking a closer look at Enron's international operations. Federal investigators are trying to determine if Enron violated the FCPA in securing several of its overseas projects, including the Dabhol power plant in India. Under the FCPA, Enron was required to keep records of all of its payments, making the investigation much easier.

This alleged corruption, however, is only one element of Enron's questionable behavior at Dabhol. Human Rights Watch and Amnesty International have documented Enron's complicity with human rights violations committed by police forces that the company had hired to protect the Dabhol power plant.

Unlike payments to government officials, there is currently no requirement that Enron keep records of, or disclose, the nature of its relationship with local security forces, or human rights complaints against them. A corporate accountability framework - like the proposed International Right to Know legislation here in the US - would close this loophole, ensuring that companies like Enron cannot keep their misdeeds from surfacing.

Environmental Pollution
Lobbying
Human Rights Abuses
Bribery Allegations
Lack of Transparency

Enron started life as a gas company in the 1980s and quickly diversified to become one of the world's largest companies, transforming itself into a multi-sector service corporation. Between 1999 and 2000, its total revenues increased by 151 per cent from $40 bn to $108 bn. But in November 2001, the company filed for bankruptcy, after admitting that profit margins between 1997 and 2001 had been inflated.

Enron's main business was electricity generation, but since 1998 it also had big interests in the water sector through its subsidiary, Azurix, which owns two UK water companies: EWE and Wessex Water.

Environmental Pollution

1. Over the past decade, Enron has been listed for numerous spills of hazardous materials on the Environmental Protection Agency's Emergency Response Notification System Database (EPA, ERNS, respectively). Substances involved in these spills include: natural gas, crude oil, asbestos, arsenic, polychlorinated biphenyls, isobutane, sodium hydroxide, ethane and various other chemical substances.(1)

2. In 1998 Enron subsidiary, Wessex Water, was ranked by the UK Environment Agency as the fourth worst polluter with five prosecutions resulting in total fines of £36,000 ($56,000). Environment Agency director of operations, Archie Robertson said, "The companies included in our Hall of Shame have let down the public, the environment and their own industry."(2)

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Lobbying

1. Enron's lobbying expenditures for 1998 were $1,600,000 (3). The company's chairman Kenneth Lay has close connections with U.S. President George Bush and Enron made substantial donations to his presidential campaign. Lay personally gave $318,050 to Bush's electoral campaign in 2000, and Enron gave another $300,000 to Bush's inauguration party (4). Until the collapse of the energy giant, Kenneth Lay was one of Bush's top energy advisors, playing a key role on his Energy Advisory Panel and working with the new Energy Policy Development Council (5).

2. Enron is a member of several corporate lobbying groups, including the European Social Forum (ESF) and USCSI (the U.S. Coalition of Service Industries). The ESF describes itself as "committed to promoting actively the interests of European services and the liberalization of services markets throughout the world in connection with the GATS 2000 negotiations" (6). USCSI is a major service industry lobby group, which claims a significant role in setting a liberalization and deregulation agenda for negotiations on the WTO General Agreement on Trade in Services (GATS). Inclusion of water in the GATS agreement will give multinational companies greater access to water resources or, in other words, will allow and encourage extensive water privatization (7). Enron was a major sponsor of the World Services Congress in Atlanta where the agenda for GATS 2000 was consolidated (8).

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Human Rights Abuses

Human rights groups, including Amnesty International and Human Rights Watch, have criticized Enron for its activities at its Dahbdol power plant in India. This power plant has been surrounded by controversy since 1992. In 1995, the new government set up an inquiry, which concluded that the deal for the plant should be cancelled. Problems associated with the plant have been documented as including: (9)

- beatings and denial of water to villagers;
- allegations of corruption of politicians;
- documentation of persecution of opponents to the plant;
- suppression of peaceful protests against the plant;
- surrounding wells and rivers of local villages drained as the plant uses so much water;
- pollution;
- the contract was awarded in secret (i.e. without competitive bidding); and
- estimates that Enron will recoup more than six times its initial investment from consumers.

According to Amnesty International and local human rights groups, Enron security guards and local police have used violence, harassed women and children, and arrested activists without due legal grounds. Enron has paid for extra local police to be posted in surrounding areas to protect the plant. It did not speak out against the human rights violations and has been implicated in the suppression of protests (10).

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Bribery Allegations

In March 2000, the World Bank cancelled a $100m water project loan in Ghana because of corruption concerns and Britain's Department for International Development cancelled a $30m rural water project. Enron subsidiary and water arm Azurix which was reportedly awarded the contact on a non-transparent basis denied press allegations that the company paid a $5m bribe to senior officials to secure the contract (11).

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Lack of Transparency

In 1999 the Wessex water watchdog, Ofwat Wessex Customer Service Committee, criticized Wessex Water for its lack of transparency over the way the company had handled publication of its results for 1998-99.(12)

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Notes:

(1) Polaris Institute, Enron Corp (ENE), 1999 http://www.polarisinstitute.org/
(2) http://www.edie.net/news/Archive/915.html
(3) ImpactResearch, Enron: facts and Figures, 2000 (at http://www.corpwatch.org )
(4) Tony Clarke, Enron: Washington's Number One Behind-the-Scenes GATS Negotiator, October 2001
(5) Tony Clarke, Enron: Washington's Number One Behind-the-Scenes GATS Negotiator, October 2001
(6) European Services Forum membership list on http://www.esf.be/
(7) Stealing our Water. Implications of GATS on global water resources, Friends of the Earth November 2001.
(8) Tony Clarke, Enron: Washington's Number One Behind-the-Scenes GATS Negotiator, October 2001
(9) Polaris Institute, Enron Corp (ENE), 1999 http://www.polarisinstitute.org/; Amnesty International, The "Enron project" in Maharashtra - protests suppressed in the name of development, July 1997; Corporate Watch (US), Enron, http://www.corpwatch.org/trac/feature/india/profiles/enron/index.html
(10) Polaris Institute, Enron Corp (ENE), 1999 http://www.polarisinstitute.org/
(11) Public Services International, World Bank cancels water loan to Ghana, March 2000
(12) Ofwat Customer Service Committees, Water watchdog hits out at Wessex Water's lack of transparency, 15 July 1999


Written by Hannah Griffiths
(with additional research by Sally Dean)
Friends of Earth - England, Wales and Northern Ireland
26-28 Underwood Street, London. N1 7JQ
December 2001
 
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