J. Dean on Enron
SOME QUESTIONS ABOUT ENRON'S CAMPAIGN CONTRIBUTIONS:
Did Enron Successfully Buy Influence With The Money It Spent?
By JOHN W. DEAN
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Friday, Jan. 18, 2002
This is Part One of a two-part series by Mr. Dean on Enron.
Part Two will appear on this site on February 1. - Ed.
Enron spent big money in Washington. According to available records,
Enron lavished near $5.8 million in political contributions on
various candidates (Congresspersons, Senators, the President and Vice
President) over the last decade, with almost seventy-five percent of
it going to Republicans. Indeed, according to one report, Enron and
its officials spent $2 million on George W. Bush's political career
alone, starting with his first (unsuccessful) run for Congress.
What, I have been wondering, did spreading all that money around
Washington accomplish? Notwithstanding protestations to the contrary,
American businessmen don't make large political contributions because
they love their country. Rather they are investments, on which they
want a return. But what did Enron get for its money? As discussed
below, I have concluded it received quite a lot.
The mere fact that Enron's contributions did not buy off
investigations into the largest bankruptcy in history means little -
it would have been hard not to investigate given the dramatic
allegations now being made. And prior to the eleventh hour, Enron's
contributions seem to have purchased quite a bit of influence, as
they were no doubt meant to do.
Highly Questionable Accounting May Disguise Quid Pro Quos
To begin with it, it is worth noting that any quid pro quo relating
to Enron may be especially hard to track; indeed, Enron may have
contributed much more than the $5.8 million of which we are currently
aware. We may never know, for Enron's reporting and record-keeping
are not very good, as everyone is learning.
Apparently typical is Enron's auditing firm, Arthur Andersen, which
not only destroyed records, but also apparently failed to make itself
privy to all of Enron's 2,832 subsidiaries' operations - the losses
of which seems to have been kept off the balance sheet, while their
assets and income were included. That's a neat bookkeeping trick;
they didn't teach that one in my five years of studying accounting.
Much of this subsidiary activity was not only off the balance sheets,
but also offshore. About a third of these partnerships are registered
in the Cayman Islands or other secrecy havens, which may make it
impossible to unravel the worst corporate collapse in American
history. Any quid pro quos, too, may be hard to root out.
Buying Washington Influence: The Typical Goal of Big Contributors
Having been involved in fund raising, I have few illusions about what
is involved - particularly with the heavy hitters. There are many
contributors - indeed, by far the greatest number - who give what
they can afford to the candidate in whom they believe, hoping he or
she will win. But these are typically the small contributors. Big
money comes from wealthy persons and organizations who want
something - in most cases, something that will add more to their
wealth.
First, the big hitters want access. They usually have business
dealings with the federal government and they want to be able to
plead their case directly to decisionmakers, should they need to do
so.
Others want special favors, everything from an ambassadorship to
favorable legislation or regulation of their business. Heavy
contributors are usually well schooled in how to make their
contribution and stay within the law. When they are not, the smart
politician returns their money, and advises them on how to make the
contribution legal, and the contribution, in the end, gets made just
the same.
Enron, like many businesses who want something from Washington
officials, spread its money broadly. According to The Center for
Responsive Politics, which tracks political contributions, Enron gave
$530,493 to seventy-one senators since 1989, and $603,488 to 187
House members. Mostly Republicans were recipients, although important
Democrats who could affect Enron's business were not overlooked.
Enron's Investment In Politicians: A Better Return than Commentators
Think
On January 15, Time magazine ran a story entitled "For Enron,
Washington May Have Been a Bad Investment." The story concludes that
Kenneth Lay & Company did not get much for their money, other
than "[a] seat at the table for Dick Cheney's energy-policy
formulations - OK, six seats - and the grace of the Enron-friendly
energy policy that resulted. Possibly veto power over the head of the
Federal Energy Regulatory Commission - former chief Curtis Hebert Jr.
says Bush replaced him not long after Hebert declined Lay's demand
for a friendlier stance toward energy deregulation. And a very big
black book. And that's about it."
Granted, Enron's political largesse obviously did not buy survival
insurance. Today, Enron stands as the nation's largest bankruptcy
ever. Nor has it bought off investigations into the reasons for its
failure.
At present, there is a Justice Department task force investigation
into Enron - although Attorney General Ashcroft had to recuse
himself, for he received an Enron contribution during his
unsuccessful Senate race, and the entire U.S. Attorney's Office in
Houston also had to step aside because of conflicts.
The Securities and Exchange Commission is also investigating.
Furthermore, at least six (one report has it at ten) Congressional
committees are investigating. In addition, forty-seven class action
lawsuits have been filed - so far. And last but not least, the
California legislature is investigating Enron's role in its
electricity crisis.
And granted, Secretary of the Treasury Paul O'Neill, Secretary of
Commerce Don Evans, and Federal Reserve Chairman Alan Greenspan
apparently did nothing to help Enron from failing. Accordingly,
Time 's correspondent feels that Enron's investment in Washington was
not very helpful. But Time's analysis focuses only on the final days
of Enron, and the apparent lack of action by high officials to save
what was already a desperately troubled company. It ignores the
larger picture of how Enron's contributions may have help slow
detection of its troubles, and helped the company fly under the radar
for as long as was possible given what now appear to be some
egregious accounting and business practices.
Enron insiders did quite nicely on their investment in Washington
officials, thank you. Washington officials gave them the ability to
trade futures contracts generating billions of dollars in revenues,
unregulated. No prying eyes looking over their shoulders.
Indeed, Enron's investment in Washington radically changed the
regulatory laws that permitted them to grow from an insignificant gas
pipeline company into the seventh largest company in the United
States, with a meteoric growth in revenues of 1,750 percent in a
single decade.
Moreover, when Enron hit the wall, the Bush Administration remained
mute, even knowing Enron was disintegrating. Certainly the former
governor of Texas had some idea of what this would mean to his
beloved state. For one thing, twenty thousand employees of Enron
would be out of work, with their 401(k) plan worthless. Surely a man
with a Harvard MBA could envision the devastation this business
failure (of a company he had once promoted) would have on countless
thousands of Enron stock and bond holders, not to mention major
lending institutions who had provided Enron working capital.
In all these ways - through favorable regulatory changes, lack of
government oversight, and administration silence until the very end -
Enron's investment in Washington paid handsome returns for a few
insiders, who personally made millions (but obviously wanted
billions) from Enron. Sometimes buying influence can simply mean
buying silence - not buying specific actions or intervention.
Federal Investigations of Enron, Andersen, and the Administration
The Congressional inquiry will be wide ranging, an effort to find out
why one of the country's largest companies could all but disappear
overnight. Based on reports in The Washington Post, and statements by
members of Congress, it appears at this time that the Congress plans
to investigate five basic questions relating to the Bush
Administration's connections with Enron. The questions can be
summarized as follows:
(1) What did the administration do, or not do, in the weeks
immediately before Enron entered bankruptcy; and why?
(2) What influence did Enron have on the administration's energy
policy, since Enron officials met not less than six times with Vice
President Cheney as he was developing that policy, and at least
seventeen provisions (according to one study) of that stated policy
benefited Enron?
(3) What role did Enron have in developing last fall's economic
stimulus legislation, which contained a tax break sought by Enron?
(4) Was Enron involved in promoting the appointment of officials
favorable to its activities by the Bush White House? (This inquiry is
not limited to the ousting of the chairman of the Federal Energy
Regulatory Commission, who was hostile to Enron's free-wheeling
style.)
(5) Did the administration arrange for Enron to receive benefits from
the Overseas Private Investment Corporation and the Export-Import
Bank of the United States?
Paralleling the Congressional inquires will be the Justice Department
task force investigation looking for criminal misbehavior, both at
Enron and relating to Enron during the past five years (the typical
cut off date for the statute of limitations on most federal crimes).
These investigations will involve not only Enron officers, employees
and directors, but also any state or federal officials alleged to
have violated federal laws, as well agents and contractors of Enron,
like Arthur Andersen.
A Wide Range of Possible Charges, and Quid Pro Quo Allegations
Violations, if any, may well relate to securities and bankruptcy
laws, mail and wire fraud, campaign law violations, Hobbs Act
(extortion) violations, obstruction of justice, and the conspiracy
statutes. At present, it is only possible to speculate at potential
violations, which is a worthless exercise. But it should surprise no
one if it is soon reported that the criminal defense bar in
Washington has had a sudden influx of business from the Enron fallout.
No area will be sifted through more closely than Enron's political
contributions. Indeed, the Congressional inquires appear to be
looking for "quid" - as in "quid pro quo." Even if the quid cannot be
found, or is less than clear, but the campaign contribution reeks
with influence-buying, prosecutors have been very successful using
the federal law prohibiting gratuities.
My discussion of this topic will continue in my next column, to
appear in two weeks on this site, for answers to some of these
questions are only beginning to be puzzled out.
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John Dean, a FindLaw columnist, is a former Counsel to the President
of the United States.
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