Corruption

Enron criminal probe focuses on alleged corruption abroad

Federal prosecutors are investigating whether Enron Corp. for years bribed foreign government officials to win contracts for its far-flung operations abroad.

WASHINGTON — Federal prosecutors are investigating whether Enron Corp. for years bribed foreign government officials to win contracts for its far-flung operations abroad, underscoring the sweep of the U.S. government’s probe into Enron’s collapse.

The U.S. Justice Department’s Enron Task Force is examining the energy company’s overseas operations for possible criminal violations of the Foreign Corrupt Practices Act, according to government officials and lawyers close to the case. The previously undisclosed inquiry is examining Enron’s efforts to win foreign pipeline, power and water-privatization projects, some reaching as far back as the mid-1990s, they said. In some countries, projects were awarded to Enron without competitive bidding, or assets were acquired at below-market values, amid allegations by the World Bank and others of government favoritism.

Enron has denied ever paying bribes, and says that it has “a clear anticorruption policy prohibiting the payment, solicitation and receipt of bribes in any form.” The Houston company has also said that some of the bribery allegations have been falsely brought by commercial rivals or by local political opponents. “It’s not uncommon for any business to encounter these kinds of charges, especially in the developing world,” said John Ambler, a spokesman for Enron Global Services.

The Justice Department’s investigation represents another front in the government’s protracted battle against Enron, which collapsed into bankruptcy-court proceedings late last year. Although charges have been brought in more recent corporate scandals, including WorldCom Inc., assembling a case against Enron has proved more difficult because of the company’s complex accounting that allegedly hid debt and inflated reported income. Although the allegations of corrupt practices abroad aren’t new, their scrutiny, if substantiated, could add another weapon to prosecutors’ arsenal against Enron.

Under the Foreign Corrupt Practices Act, Enron could face stiff fines if convicted. But such charges would likely come some time after the first wave of indictments expected to be handed up on the more serious accounting and securities fraud charges arising from the company’s collapse. Still, the corruption inquiry could turn up the heat on a new cast of characters, including Rebecca Mark, a former senior executive who helped to build Enron’s international operations. She served as chief of Enron’s international group through 1998 and then headed its water subsidiary, Azurix, before leaving Enron in 2000 and selling her Enron stake valued at more than $80 million.

A spokeswoman said the former executive, now Ms. Mark-Jusbasche, strictly enforced the Foreign Corrupt Practices Act during her watch. “Many of these allegations have been beaten to death, and no charges have ever been upheld,” the spokeswoman said, adding that Ms. Mark-Jusbasche hasn’t been contacted by the Justice Department.

Enron’s U.S. business has been diminished with the sale of its trading operations and other assets, but many of its utilities and pipelines continue to operate. Its international operations, collectively known as Enron Global Services, include some of the company’s remaining valuable assets and were excluded from its Chapter 11 bankruptcy filing. The foreign units range from power plants in Poland and the Philippines to a gas pipeline that is being carved through the Bolivian jungle. Many of these overseas units are still operating, while others have run aground because of faltering local economies and other problems.

The foreign projects have been awarded more than $4 billion in loans or guarantees by U.S. taxpayer-backed institutions over the past decade, according to a report by the Institute for Policy Studies, a nonprofit group that often opposes corporate projects in the developing world. Among these lenders were the Overseas Private Investment Corp., Export-Import Bank and the U.S. Maritime Administration. Enron got $3 billion more from other public sources, including the World Bank, European Investment Bank and U.K. export-credit agencies, said Daphne Wysham, the report’s co-author.

One obstacle prosecutors face: Foreign bribery cases can be notoriously difficult to bring. Since the Foreign Corrupt Practices Act was enacted in 1977, just 40 prosecutions have been successful under it.

‘Tough to Win’

“It’s tough to win these cases, because they often turn on the cooperation of a foreign witness, access to documents held outside the U.S. or the cooperation of often-reluctant foreign government officials,” said Timothy Dickinson, a Washington lawyer and expert on the act. The largest fine to date was imposed on Lockheed Corp. in 1995 after the company pleaded guilty to conspiring to bribe an Egyptian politician and to falsifying its books; the defense contractor, now Lockheed Martin Corp., paid $24.8 million in criminal and civil fines.

Federal prosecutors are examining foreign contracts and projects awarded to Enron over several years, and it wasn’t clear whether any one or two countries has emerged as a focus of the probe. Claims of corruption in Enron power or water projects have arisen over the years in many countries, including Ghana, Colombia, Bolivia, Panama, Nigeria and the Dominican Republic.

In Ghana, the World Bank in 2000 suspended its support for a $100 million water project after it was awarded to Enron’s Azurix unit. “We were concerned the award was sole-source, without real competition,” a World Bank official said last week. “We advised the government we couldn’t finance it, because of the way the procurement was done.”

After the award, the bank’s Ghana director, Peter Harrold, sent a harshly worded letter to Ghana’s then-Vice President John Atta-Mills canceling the loan and alleging corruption. “We cannot have made it plainer to you that the key issue is transparency,” he wrote. “The arrangement you have reached with Azurix is one that has been arrived at on a completely nontransparent basis.”

Unexplained Payment

World Bank officials cited a draft schedule of payments showing an unexplained, $5 million up-front payment by Enron. An Enron spokeswoman at the time denied reports in the Ghana press the $5 million was for government officials; a new Ghanian government has since suspended the award, and is now seeking competitive bids.

The World Bank has raised objections to other Enron projects, including ones in Nigeria, India and Mozambique, saying terms were too favorable to Enron.

In the Dominican Republic, local politicians last year claimed Enron bought into a power-generating project with the local utility at a price far below market value, based on an assessment provided by a local office of Arthur Andersen, which was then Enron’s auditor.

The U.S. Maritime Administration helped to finance Enron’s investment in the Dominican Republic power project. That project now has “significant operational, profitability and debt-service problems,” Bruce Carlton, acting deputy director of the Maritime Administration, recently told the Senate Finance Committee, which was investigating government backing for Enron’s foreign operations.

Other Enron projects abroad have also come under congressional scrutiny. The $2.9 billion Dabhol power plant in India, which also received U.S. government assistance, was mothballed in June 2001 after its sole customer, the Maharashtra State Electricity Board, claimed the plant’s rates were too high and refused to pay. In Nigeria, Enron’s barge-mounted power stations are being examined by Senate investigators because their financing apparently enabled Enron to disguise loans. The Nigerian barges were backed by Merrill Lynch & Co., a deal that has drawn the investment bank into the Enron scandal.

Enron’s collapse last year brought the loss of thousands of U.S. jobs and wiped out billions of dollars of investment held by retirement funds and individuals. The company also stirred controversy abroad when its power projects in at least three developing countries resulted in rate increases that sparked popular opposition, according to a study last year by the University of Greenwich, in London. The study was funded by public-service labor unions.

Write to John R. Wilke at john.wilke@wsj.com

John R. Wilke, Wall Street Journal, August 5, 2002

Categories: Corruption, Odious Debts

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