Enron Verdict and American Double Standard


Jeff Skilling, the Enron CEO, was sentenced to a jail-term of 24 years 4 months on October 23, 2006. It means, if this judgment is not reversed by a higher court, he will come out of prison only in 2031 at the age of more than 76. He was found guilty on 19 counts that included securities fraud, conspiracy, making false statements to auditors, and insider trading. The estate of Kenneth Lay, the founder of the company who died some time ago, has been sued for $12.7 million. With this, the curtain has fallen on Enron, which, for six years, was continuously named by the Fortune as “America’s Most Innovative Company”.

In recent times, a number of top corporate brasses have been sent to jail. For example, the WorldCom Inc. founder Bernard J. Ebbers is behind the bars for a quarter century while John J. Rigas, the founder of Adelphia Communications Corp. has been handed over a 15-year jail-term. As the Washington Post (October 25) says, “But Enron remains the period’s signature scandal. The company’s December 2001 breakdown ushered in a wave of corporate collapses that roiled investor confidence and prompted the government to enlist a special band of prosecutors and FBI agents to mount the most complex business fraud investigation in history. Their pursuit of top Enron officials helped change the way corporate wrongdoing is prosecuted….”

While the stringent punishments to the wrongdoers in the corporate sector are certainly welcome, one is not sure that they will continue and go a long way to reduce them substantially, not to speak of completely eliminating them for the simple reason that they arise from greed and power to dominate, which cannot be banished so long as capitalist system exists. The existing political process in America runs on the funds from the corporate entities for whom they are investments that in future will great benefits to them. One may look at the corporations that have been awarded contracts in Iraq and peep into their old connections with the powers that be in Washington to realize that it is nothing but “you scratch my back and I scratch yours.”

Nobody knows what is going to happen to the employees of Enron, who have lost their jobs and $2 billion in pension money. Shareholders have lost more than $60 billion. The same is the story in the case of other companies whose top brass has been handed over long jail terms.

These verdicts underline the double standards adopted by America. One standard is for the corporate crimes in the country and the other for the crimes committed by the American corporations elsewhere in the world. To illustrate this, one may present a few illustrative examples. To begin with, “Even after he admitted that he had been drinking prior to boarding the ship, Joseph Hazelwood, the captain of the ship responsible for the 1989 Exxon Valdez oil spill—a spill which did environmental damage valued in the billions—was given only a slap on the wrist, with a fine of $51,000 and 1,000 hours picking up garbage along Anchorage –area highways” (Joseph E. Stiglitz, Making Globalization Work, 2006, p.193).

This can be well illustrated with reference to the Bhopal tragedy. Bhopal is an important city in central India, where the accidental release of 40 tonnes of methyl isocyanate on December 3, 1984 from the plant of the Union Carbide India Limited, a subsidiary of the American multinational Union Carbide Inc. killed more than 20,000 people and incapacitated around 100,000 people for life. The latter were doomed to suffer from respiratory illness, eye disease, neurological and neuromuscular damage and immune system impairment for all time to come. It is said that the total number of people affected was much larger than what was officially given.

Legal proceedings were initiated against the Union Carbide Inc. and its executives, including its CEO, Warren Anderson, an American national based in the USA. The US government refused to co-operate with India. Anderson comfortably retired in 1986 with all his monetary dues. Formal charges were brought against Anderson, his colleagues and the Union Carbide in 1991 in an Indian court after almost seven years of the tragedy. When they failed to appear before the court to face charges, they were declared fugitives from justice or proclaimed offenders by the Chief Judicial Magistrate of Bhopal on February 1, 1992. Anderson was named as the chief accused for his responsibility in this culpable to homicide case. The court asked the Government of India to secure his extradition from America. It needs to be mentioned that India had an extradition treaty with the USA. After sitting tight on the extradition request by the Government of India, the US State Department turned it down finally in September 2004. It underlines how casually the US government treats the heinous crimes committed by its multinationals in developing countries. The American public opinion which is worked up at the casualty in Iraq did not stir when hundreds of thousands of innocent and mostly poor came to suffer from the negligence of the Indian subsidiary of the Union Carbide. This underlines the double standard.

A suit was filed for $3 billion compensation, but an out-of-court settlement was reached in 1989 and Union Carbide agreed to pay $470 million. Why and how the compensation claim was so drastically reduced is not above board. The suspicion increases when one notes that, soon after the out-of-the-court settlement was announced, the share price of the Union Carbide (India) Limited rose by 7 per cent or $2 per share. The Union Carbide Inc. sold its Indian subsidiary to the Dow Chemicals for $10.3 billion in 2001. In 1994, it had already sold its Bhopal plant to an Indian battery manufacturer. It needs to be noted that the Dow Chemicals took over all the assets but none of the liabilities of the Union Carbide.

The average compensation of $500 per victim was, on no account, commensurate with the damage suffered by him. Had the rate of compensation to Bhopal been the same as that awarded by the American courts to asbestosis victims in which the Union Carbide was a prime defendant, the total amount would have been much larger. It would have been greater than $10 billion, the worth of the Company for which it was insured in 1984.

It is said that there was a very influential lobby in the corridors of power in New Delhi that tried to inculcate a fear that any harsh treatment of the Union Carbide would repel foreign direct investors which were to play a key role in India’s future economic development in the era of globalization informed by the Washington consensus. It seems this lobby could have its way because there was no effective opposition from political parties. Some civil society organizations did continue to agitate but without much influence.

As the news goes, Henry M. Paulson Jr., the present Secretary of Treasury in the Bush administration, who was earlier with the Goldman Sachs Group as a top official, has got the Committee on Capital Markets Registration formed under Hal S. Scott, a Harvard professor of law, to examine whether the existing securities regulations and the laws really protect American shareholders without harming “competitiveness” of US business. Maintaining and strengthening competitiveness is in the national interest of America, which is identical there with the corporate interest. The Committee is packed with representatives of the American corporate sector. If this Committee has its way, it is certain that prosecution of erring corporations will become almost impossible. There will be no more trials as in the case of Enron or WorldCom. It is needless to say, people at large will be the losers, be they workers, consumers or ordinary shareholders.

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