Enron and Anderson: How Much Embarrassment for Bush and Blair?

Enron, once the seventh largest US company, is now the biggest bankruptcy in US history. 4,500 employees and thousands of pensioners have lost all in this giant company's collapse amid a welter of financial scandal. Valued in the September stock market for $66 billions, it's equity is almost certain to prove worthless, the shock waves of its downfall threatening to resonate for some time yet.  George Anthony reports.


Hundreds of Enron executives have made off with huge handouts. Scores of politicians have benefited, from Lord Wakenham, on a directors fee of £80,000 plus, to George Bush who has received a total of $500,000 since running for Texas governor in 1994. With evasive Vice-President Dick Cheney having the highest profile under scrutiny for his links with this power and energy corporation.


Andersen the company who audited the books, overstated Enron's profits by as much as £2 billions in what has become known as "creative accounting", where losses are deliberately excluded from the books. They even taught classes in the art, where the use of the phrase "we have no reason to doubt the figures supplied us by the company", was commonplace.


To add to their difficulties, nine creditor companies have asked the bankruptcy court to appoint an independent investigator. In addition a lawsuit is being pursued on behalf of a 100 plaintiffs who seek to represent 21,000 savings plan participants; the lawyer saying "that Enron had a dirty little secret: both organisations knew Enron was in deep trouble a long time ago".


It's a well known fact that US companies operate a duplicitous approach in accounting methods, in the myth that companies must forgo all integrity in the name of "shareholder value". Most companies adopting flexibility rules relating to revenue recognition. Often goods and services are invoiced before the client has received them, or even ordered such items. Another scam is in the rules relating to transfer pricing where subsidiaries are often shown to be deliberately under performing in profitability to reduce tax payments.


Enron and Blockbuster set up a partnership that was no more than a pilot scheme to supply video on demand to a thousand homes. Enron sold its future earnings from the partnership to a bank in return for £115million in finance - then booked the money as profit. They made a routine of capturing future earnings as current profit. Between them, Enron and its investors valued the same earnings twice - once in the company's calculation of profits and once on the multiple the stock market applied to them. There being no guarantee those earnings would ever materialise. Which they didn't.

In a well documented history of fraud, Jeffrey Skilling, Enron`s former chief executive, summed up his human policy resources years ago telling managers that "you must cut jobs ruthlessly by 50 or 60%. Depopulate. Get rid of people. They gum up the works."


It is also the only corporation with the doubtful distinction of an Amnesty International report, after it had hired thugs to beat up Indian peasants who protested against a power plant polluting their village.


Such is the American business ethic that Andersen who was paid $25 million in 2000 to audit Enron`s books, are protesting their innocence and/or invoking the 5th amendment, against a background of paper shredding in the Houston, Texas bureau of the company. And that's after a federal Securities and Exchange Commission issued a subpoena on October 31st, making shredding after that date a felony. (The documents concern Jedi II, one of the special-purpose companies Enron used to hide debt from shareholders).

The company has world wide connections. Karl Milner, a former aide to Gordon Brown, who left him to work in the lucrative lobbying business for Enron, bragged in 1998 that "We have many friends in government. They like to run things past us some days in advance, to get our views."


For instance, he persuaded the Blair Government that gas was a much better proposition than coal. Margaret Beckett, as Trade and Industry Secretary was shifted because of her opposition and replaced by Mandleson and then Stephen Byers. The company being well appreciated by Millbank, after they donated £27,000, provided £15,000 for the reception, and sponsored the 1998 Labour Party conference.


Andersen has also advised the Government since 1997. On National Air Traffic Services, Railtrack, London Underground public-private partnership, Jubilee Line extension, Quinetiq the privatisation of the governments defence research laboratories, British Nuclear Fuels Ltd, Belfast port public-private partnership, school private finance initiatives, education action zones and management of local education authorities, hospital private finance initiatives and audited the Millennium Dome. Such a mania for privatisation could yet be at least embarrassing for Blair.


The scandal of Enron threatens to dwarf the BCCI bank fraud in its consequences. Andersen with 85,000 employees in 84 countries, will become liable for the value wiped from Enron`s stock market value to the tune of tens of billions of dollars. Because the World Trade Organisation (WTO) engages in identical practices, the international fall-out could be interesting with UK business also affected.


At the time of writing no one has been accused of fraud, but the US Justice Department has started a criminal investigation that could lead to charges. Seven congressional committees are studying the collapse in addition, plus a Security and Exchange Commission (already Bush is trying to put in two of his own nominees, taking advantage of "recess appointments" where Congress approval can be bypassed when they are not in session) and other departmental investigations. The most prominent congressional panel, the Senate governmental affairs committee will grill Enron and Andersen officials. Suicide already claiming one former vice-company president, plus Wakenham`s resignation from the Press Complaints Commission, in anticipation of the prospect.


As with Nixon and Watergate, it wasn't the burglary by a handful of amateurs, but the cover-up that led to his downfall. So it is beginning to look the same for Enron. It won't be the fiddles, but the shredding that will do for them and see a few behind bars.


As I foresaw when seeing the item in the Wall Street Journal of December 6th, two months ago, this is now compulsive viewing for the American punter. Early in the week beginning January 13th, only 18% were watching, now it's on every news bulletin in the country.

The risks for the Bush administration are high because of the sheer scale of the investigation. Their popularity amongst US voters, gained from the events of September 11th and the ensuing bombing of Afghanistan could melt away under the scrutiny of the Democratic Party led search for villains. No company can withstand the current level of examination without yielding up embarrassing information, and the previous history of such investigations suggests they acquire a momentum of their own that can lead to unpredictable results. Here's hoping.

George Anthony edits the Islip Unity Group Political Newsletter, a British publication committed to Communist and Left unity. This article first appeared in the Newsletter. For more information and subscription details write to George at midhurst14@cs.com