Enron's business practices being questioned at home and abroad: a U.S. Justice Department investigation is focusing on whether Enron's overseas division bribed foreign officials to win contracts for pipeline, power and water projects

0 Comments | Insight on the News, Sept 16, 2002 | by Christian Bourge

A U.S. government investigation into the actions of executives at Enron's still-functioning overseas division, along with related charges of impropriety regarding Enron's activities in other countries, may hold important implications for U.S. policies on foreign investment, according to think-tank analysts in Washington.

An investigation into the company's overseas investment practices could "reveal something about how the international economy works, and what the level of corruption is in big government contracts," Ed Gresser, director of the trade and global markets project at the liberal-centrist Progressive Policy Institute (PPI), tells United Press International (UPI). The institute is affiliated with the Democratic Leadership Council, a political-action group with ties to former president Bill Clinton. "Is it more prevalent in some industries than in others, and if so what can you do about it?" Gresser asks. "I think it can be pretty valuable in the long run."

Criminal allegations of corporate impropriety at Enron, and the resulting media attention, have focused almost exclusively on the company's domestic operations. But a Justice Department investigation into the company has been expanded to include charges that executives in Enron's Global Services division have in the past bribed foreign officials in attempts to win foreign pipeline, power and water-privatization projects.

Investigators also are said to be examining whether Enron acquired some assets at below-market rates, and was awarded contracts without competitive bidding, as the result of bribes to government officials.

The federal probe seeks to determine whether the company violated the Foreign Corrupt Practices Act in the course of developing some of its foreign investment projects. Some of Enron's holdings include power plants in Poland and India, and a gas pipeline being run through the Bolivian jungle.

Analysts following the case say that although Enron declared bankruptcy, many of its foreign operations remain largely intact because of the long-term backing of institutions--such as the Inter-American Development Bank; the Export-Import Bank (Ex-Im); the Overseas Private Investment Corp. (OPIC); and the World Bank--that are funded by U.S. taxpayers.

According to a report published by the left-of-center Institute for Policy Studies (IPS), during the last decade Enron Global Services received more than $4 billion in loans and guarantees from these institutions, which seek to support U.S. corporate investment overseas to encourage economic development.

According to IPS fellow Daphne Wysham, 21 agencies representing foreign governments and multilateral development banks supported by the U.S. government have helped leverage Enron's global reach with $7.2 billion in public financing for 38 projects in 29 countries. "Enron Global is very much alive and well, and still in line for several government-backed loans," says Wysham, a critic of U.S. corporate economic-development practices overseas.

Wysham's report, Enron's Pawns: How Public Institutions Bankrolled Enron's Globalization Game, says Enron's overseas activities resulted not only in shady deals with foreign officials to ensure contracts, but also in energy-rate hikes, blackouts, social unrest and riots that sometimes were brutally repressed by the company's host governments.

"Enron was a nonentity until basically it began to get loans from international financial institutions and export credit agencies," Wysham says. "And one of the ways that it has profited and continues to profit internationally is not only from international institutions, but from the deregulatory agenda of free-trade agencies and financial institutions such as the World Trade Organization."

Wysham also alleges that U.S. government officials threatened the Mozambique government to go along with an Enron power project in that country. UPI was unable to substantiate this charge through other sources.

Wysham also says that federal officials "bullied" the Indian government into accepting Enron's terms for a power project that now has been shut down after being plagued with problems that both Amnesty International and Human Rights Watch have said partly were the result of Enron's business practices.

According to Wysham and Kimberly Ann Elliot, a research fellow at the Institute for International Economics, World Bank officials had indicated that the Indian project should not have been completed because the contract terms were unfavorable to the local and state governments. Nevertheless, the project gained approval by OPIC. The project ceased operation after its sole customer decided that the cost of the energy from the plant was too high.

Ian Vasquez, director of the Project on Global Economic Liberty at the libertarian Cato Institute, is not surprised that these types of abuses might occur, although he stresses that it is not yet known whether the charges against Enron Global Services are true.

Vasquez says that there are always risks when the government gets involved in international investment and that when the U.S. government supports one company over another it sends the wrong message to other nations about free trade. "When there is an explicit government policy supporting one industry over another, there always is the risk that favoritism will occur," he says. "And perhaps we will never now whether that was the case with Enron."