News Archive: May - August 2006
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- New Apple Board Director Raises Concerns Over Board Independence. On August 29, 2006, Apple announced the appointment of Google CEO Eric Schmidt to its Board of Directors, resulting in four of its eight directors having formal relationships with Google. The annoucement has provoked concerns about board independence and potential conflict of interest between two technology companies so similar in focus.
- Peru to Reform Defense Ministry. On August 31, 2006 Peru's Defense Minister, Allan Wagner, announced that the government will issue a special commission in charge of proposals for reforming the country's defense ministry in the next 30 working days, reported The People's Daily. According to Wagner, the ministry is suffering from serious corruption problems related to staff hiring and the purchase of goods and services. Wagner announced his intention to open the ministry's archives so that Peru's Interior Ministry can intervene. He also stated that he had requested a special audit of the ministry from Peru's comptroller general.
- Survey on UK Executive Compensation Shows Greater Link to Performance. A survey of UK top executives' compensation by New Bridge Street Consultants finds an increasing trend towards linking high proportion of final pay to corporate performance. Use of stock options appears to be declining relative to past years, but the bar is rising on how performance is judged in final remuneration. According to the survey, the median total remuneration of the FTSE 100 highest paid is around 2.4 million pounds (2.1m last year). The median base salary is around 785,000 pounds (730,000 last year).
- Probe Widens Into Possible Abuse of Shanghai's Retirement System. Following the detainment of several high level municipal officials, more than 100 Chinese government investigators have arrived in Shanghai to probe possible bribery and misappropriation of funds in the Chinese commercial capital's $1.2 billion pension system, in a widening financial scandal that Chinese media is describing as Shanghai's biggest in years, reported The Wall Street Journal (8/29/2006). According to the article, the Chinese government, which has struggled to control the official corruption that has accompanied the country's rapid economic growth, would particularly suffer from a social security scandal given the need to rapidly expand the system ahead of a coming surge in the number of retired people.
- 1,500 Brazilian Candidates Banned From General Election. Election authorities have banned about 1,500 candidates charged with fraud from running in Brazil's general election next month, reported Reuters (8/29/2006). According to the article, the suspensions are part of a renewed effort to clean up Brazil's corruption-plagued political system following scandals over vote-buying and campaign financing that rocked the government for several months last year and brought calls for President Luiz Inacio Lula da Silva's impeachment.
- Study Shows Suspicious Levels of Trading in Weeks Before Major U.S. Mergers. A study for The New York Times by Measuredmarkets Inc. of the biggest U.S. mergers ($1billion or more) over the last year raises issues of insider trading. The study raises suspicions regarding trading in the shares of 41 percent of the companies, reported The New York Times on August 27, 2006. Those who bought these shares shortly before public announcements made quick gains of as much as 40 percent.
Court Orders Scrushy to Repay $47.8 Million in Bonuses. Fired HealthSouth Corp. Chief Executive Richard Scrushy was ordered by the Alabama Supreme Court to repay $47.8 million in bonuses he received during a massive financial fraud at the rehabilitation and medical-services chain, reported The Wall Street Journal (8/26/2006). The justices rejected Mr. Scrushy's arguments that his contract mandated the payments even though HealthSouth lost millions while it was reporting profits. Mr. Scrushy was acquitted of all charges in the fraud at HealthSouth, but he faces a possible federal prison sentence after being convicted in a separate state bribery scheme involving his tenure at HealthSouth
- Quattrone Wins Court Battle. Allocating shares in new companies to friends and key customers just before they go on the market and are certain to soar in value (and destroying the records) may be unethical, but it is not necessarily illegal in the United States. The Wall Street Journal (8/23/2006) reported that Frank Quattrone, the single most influential investment banker for the leading dot.com and technology companies in the United States, won an agreement to drop obstruction of justice charges related to these activities. The agreement means that Quatrrone will avoid a third criminal trial on obstruction charges after the first ended in a hung jury and a second led to a conviction that was reversed on appeal earlier this year. He even will be able to return to Wall Street.
- 100 Phillips Employees Investigated for Corruption. German prosecutors are investigating some 100 current and former employees of Philips, the Dutch electronics group, and retail chains including Media-Saturn-Holding (MSH) for alleged corruption, reported the Financial Times on August 24, 2006. The Philips staff are alleged to have bribed employees at big retails outlets in Germany to gain contracts between 2000 and 2002. Philips and MSH confirmed that an investigation is underway.
- ADB Launches Second Governance and Anti-Corruption Plan. The Asian Development Bank has launched its "Second Government and Anticorruption Action Plan," which aims to improve the effectiveness of ADB’s development assistance and to contribute to poverty reduction throughout the region (8/21/2006). mUnder the new plan borrowers will be required to make public all contract awards, and to publish on ADB’s website all contracts over $1 million. Facilities to report allegations of fraud and corruption will also be improved.
- China Blames Corruption for Rising Pollution. China's environmental chief, Zhou Shengxian, has blamed corruption, fraudulent project approval procedures, and slow construction of pollution control facilities for the fact that pollution discharges increased in 17 provinces over the first six months of 2006, despite the government's pledge to cut emissions 2 percent by the end of the year, reported Xinhua on August 21, 2006. According to Mr. Shengxian, "Fraud in project approval was prominent, with many projects passing their environmental assessment without fulfilling the necessary criteria," he said.
- Most Chinese See Bribery As Business Norm. A recent survey conducted by the state-owned Chinese Cadres Tribune and Nankei University finds that most Chinese see bribes and kickbacks as an essential aspect of doing business in the country, reported the China Daily on August 21, 2006. Approximately 94 percent of respondents to the survey thought bribery was widespread in business and 77 percent said they would engage it in themselves. China is known for its long-established “guanxi,” or connections, centered culture many of which are developed through bribes.
- Wal-Mart Cites Union Milestone in China. Wal-Mart, which has held a historically anti-union stance, has established trade unions in a third of its 60 stores in China since late May, reported The Wall Street Journal (8/21/2006). Unlike collective bargaining and other actions prevalent in Western unions, Chinese unions work on advancing good employer-employee relations.
- Burundi Anti-Corruption Activist Imprisoned. Burundi has arrested and imprisoned Gabriel Rufyiri, the head of the Organization for the Fight Against Corruption and Embezzlement (Olucome) accusing him of giving false reports that the central African nation's authorities were involved in fraud reported Reuters (8/17/2006). Earlier this year Olucome publicly denounced the sale of 1,500 tons of beans and 1,800 barrels of palm oil to Burundi's national police, saying it was full of irregularities and fictitious sellers.
- Apple Finds No Forced Labor at China Ipod Factory. Apple Computer announced that it had found no evidence of forced-labor conditions at a Chinese factory that makes iPod digital music players, reported The New York Times (8/18/2006). But it said that a company investigation found several violations of Apple’s code of conduct and that the supplier, Foxconn, was changing its practices as a result. Apple sent an audit team to a Foxconn factory this summer after The Daily Mail of London reported forced labor and other sweatshop working conditions in Longhua, a suburb of the southern city of Shenzhen, where iPods are manufactured.
India Challenges Bankers’ “Conflict of Interest.” India’s central bank, claiming potential conflicts of interest, has challenged Naina Lal Kidwai, the new head of HSBC bank in India, to resign her seat on the Nestlé board of directors. The Financial Times reported on August 17, 2006 that Ms. Kidwai has agreed to leave the Swiss giant enterprise, which has substantial business in India. The Reserve Bank of India (RBI) made its approval of her HSBC appointment conditional on leaving Nestlé. This is the first time the central bank has made such a ruling. The Times of India on August 17 reported that Indian bankers are angry about the decision. The case will have a global impact – top bankers worldwide sit on corporate boards, many of which are their banking clients. The RBI clearly questioned whether bankers might owe greater loyalty to their banks, than to the shareholders of the companies on whose boards they sit.
- Former Bangladesh Dictator Cleared on Corruption Charges. A court in the Bangladesh capital, Dhaka, cleared the country's former military dictator Hussain Muhammad Ershad, the country's ruler from1982 to 1990, on corruption charges, reported AFP (8/17/2006). The case, lodged by the now defunct Anti-Corruption Bureau in 1992, alleged that Ershad while president illegally withdrew around 4,000 dollars he had deposited with authorities as income tax.
Enron Update: U.S. Lawyers Ask Judge to Throw Out Lay Conviction. Lawyers for Kenneth L. Lay, who died of a heart attack last month, asked a federal judge to throw out his conviction for orchestrating the fraud that destroyed Enron, the energy trading company he founded, reported The New York Times (8/17/2006). The request to erase Mr. Lay’s conviction comes under federal law that says a defendant’s criminal indictment and conviction can be thrown out if the person dies before exhausting appeals.
- UPDATE: Another Accident at BP Oilfield. BP reported that it had suffered another accident at its troubled Alaskan oilfield, when a pressure surge jolted an above-ground pipeline off its steel mount and on to the delicate tundra. (FT, 8/17/2006). These incidents have prompted some skepticism about BP's public efforts to be seen as an environmental leader.
- BP Whistleblowers Raised Concerns for Years Over Alaskan Oilfield. On August 8, 2006 the Financial Times (FT) reported that despite BP's claims that the recent discovery of "unexpectedly severe corrosion" has forced it to close its Alaskan Prudhoe Bay oilfield, the largest in North America, and that it had regularly monitored corrosion at the field, whistleblowers have been raising concerns over the safety of the site for at least seven years. The FT reported that it had obtained emails dating back to 1999 documenting attempts by workers to blow the whistle on how budget cuts were leaving the staff with insufficient manpower, poor maintenance and widespread corrosion threatening employees and the environment. It was not until the biggest-ever oil spill at the field from a corroded pipeline in March, however, that regulators demanded BR determine the true condition of the field, leading to the announcement of its shutdown. Please see Whistleblowing and Hotlines for 18 Best Practices for Whistleblowing Policy.
- Beyond Fair Trade: Coffee Certifications and Sustainable Agriculture. On August 16, 2006 the Financial Times published an article describing how crop certification can not only give farmers in developing countries a better price but also, in the case of Peru, slow deforestation. The article describes how U.S. based Rainforest Alliance certifications differ from others, such as Fairtrade, by setting more rigorous environmental standards but without guaranteeing a price to farmers, allowing them to sell coffee at a small premium above market price. While this system makes income less dependable for farmers, it often leads to more business as roasters and retailers are able to sell the coffee for only a few cents more than traditional coffee. The article describes how major companies are incorporating certified coffee into their business and outlines the difference between major certifications such as Fairtrade, Rainforest Alliance, and Utz-Kapeh.
- Kenya Sets Up Inter-Agency Forum to Fight Graft. In an attempt to streamline anti-corruption efforts, security chiefs from 11 Kenyan government agencies have agreed to establish an inter-agency forum that will allow the agencies to share information on corruption and economic crimes, including classified intelligence reports, reported AllAfrica.com on August 15, 2006.
- U.S. FBI Calls Ex-Comverse Chief A Fugitive. The U.S. Federal Bureau of Investigation declared Jacob Alexander, former chief executive of the communications software company Comverse, a fugitive and said agents were seeking his arrest, reported The New York Times, August 16, 2006. Alexander was charged last week, along with two other former Comverse executives, with conspiracy to commit securities fraud in connection with their suspected involvement in a stock options scheme that, prosecutors said, used a “secret slush fund” to dole out options to favored employees.
- China Reforms Electronic Finance System. In an effort to reform its troubled, graft-prone public finance system, China will implement a more efficient electronic information system over the next three years aimed at increasing transparency and making it more difficult for officials to abuse their power, reported Xinhua on August 14, 2006. The Government Finance Management Information System will cover 4 trillion yuan (500 billion US dollars) in fiscal expenditure, 1 trillion yuan in non-tax fiscal and treasury bond revenues, and 6 trillion yuan in assets of government departments and institutions, reported Chinese Finance Minister, Jin Renqing.
- Charges Filed Over Corruption in Czech National Security Office. The Czech Republic's state attorney has filed charges against former National Security Office (NBU) section head Vladimir Sisa on suspicion of corruption in favor of a criminal conspiracy, and against two former university teachers, who are suspected of bribing Sisa, reported the Prague Daily Monitor on August 14, 2006. The charges are linked to a case in which bankruptcy judge Jiri Berka is accused of working with others to manipulate bankruptcy cases for personal gain. The former teachers are suspected of bribing Sisa in exchange for influencing officers from the police anti-corruptinon unit who were investigating the Berka-manipulated bankruptcies.
Former Iraq Officials Named in Graft Inquiry. The former electricity minister of Iraq and several other current and former senior government officials have been charged with corruption or ordered to appear before judges, reported The New York Times on August 13, 2006. The cases are the newest developments in an investigation that begun in 2004 by the Commission for Public Integrity, which was set up at the time by the U.S. occupation and is now run by the Iraqi government, which is now looking into hundreds of corruption cases.
- Bush Announces New U.S. Initiative to Tackle Global Corruption. On August 10, 2006, citing the corrosive effect corruption has on democracy and development in poor countries, U.S. President George Bush announced a new "National Strategy To Internationalize Efforts Against Kleptocracy" aimed at fighting grand corruption. The strategy includes policies to repatriate and deny physical and financial safe haven to kleptocrats, as well as to strengthen other countries and institutions' abilities to do so. Bush's announcement follows the recent agreement by the G8 powers to coordinate legal and financial policies to fight corruption.
- Entire Government of Equatorial Guinea Resigns Amidst Corruption Charges. The entire government of Equatorial Guinea, Africa's third largest oil producer considered by Transparency International to be one of the most corrupt countries in the world, resigned amidst charges of corruption and incompetence against the prime minister by President Theodore Obiang, reported DPA on August 11, 2006.
- U.S. SEC, Bowing to Pressure, Extends SOX Deadline for Small Companies. The U.S. Securities and Exchange Commission proposed that the deadline for small companies compliance with new auditing rules under the 2001 Sarbanes-Oxley Act (SOX), which require companies to report whether financial controls promote accurate reports and prevent fraud, be delayed by six months reported, The New York Times on August 10, 2006. The proposal follows complaints that SOX puts too big a financial burden on small companies.
- Fannie Mae Says All Accounting Errors Uncovered. The U.S. government sponsored mortgage company, Fannie Mae announceed that it believes a massive review of its accounting has uncovered all of errors, clearing the way for the company to complete the restatement of its 2004 earnings by the end of this year. In 2004 federal regulators accused Fannie Mae of serious accounting problems and earnings manipulation to meet Wall Street targets, and the Securities and Exchange Commission ordered the company to restate earnings back to 2001. The Justice Department has been pursuing a criminal investigation, which the company confirmed "remains open." For two reports on the scandal and Fannie Mae's corporate culture see Ethical Leadership.
- Gates Foundation To Give $500m to Global Fund to Fight AIDS, Tuberculosis, and Malaria. On August 9, 2006 the Bill and Melinda Gates Foundation announced that it will give $500 million to the Global Fund to Fight AIDS, Tuberculosis and Malaria over the next five years.The donation is the largest from a nongovernment source since the Global Fund was established in 2002.
- Vietnam to Establish Anti-Corruption Committee With More Teeth. On August 9, 2006 Xinhua reported that Vietnam’s top legislator, Nguyen Phu Trong, will establish a central anti- corruption steering committee, which will be lead by the Prime Minister and will have the rights to suspend deputy ministers and equivalent posts without first having to ask for recommendations by authorized agencies. According to the article, government statistics show that there were 9,960 cases of corruptin in Vietnam between 1993 and 2004.
- New Study Shows More than One in Three Americans Have Left Job for Ethical Reasons. Whether a company acts ethically is a significant factor in the average American’s willingness to work for an employer, according to independent research released on August 3, 2006 by LRN, a governance, ethics and compliance management services company. The study found that more than one in three employed Americans have left a job because they disagreed with a company’s business ethics. Eighty two percent of those surveyed said they would prefer to be paid less but work for a company with ethical business practices than receive higher pay at a company with questionable ethics.
- Former Kenyan VP Escapes Charges Over Goldenberg Scam. Former Kenyan vice president, George Saitoti, escaped prosecution over the country's biggest corruption scandal, when a court ruled he could not be charged in the $1 billion "Goldenberg affair", in which state funds were looted through bogus diamond and gold exports, reported Reuters on August, 1 2006. The Goldenberg inquiry, commissioned by current President Mwai Kibaki, said that as finance minister under former President Daniel arap Moi, Saitoti approved millions of dollars in payments to the mastermind behind the scam, businessman Kamlesh Pattni. Six men, including a former central bank governor, have been charged over the Goldenberg case.
- Report Shows Chinese Officials Misused $2.8 Billion in 6 Months. China's top anti-corruption authority revealed that government officials had misappropriated U.S. $2.8 billion in public funds in the first half of the year, with an additional $1.2 misused by state departments, reported The Times on July 31, 2006. Officials gave no details of the types of violations, but said that some of those involved had embezzled public funds. Although large, the figures appear to show a steep decline in financial abuses. China's National Audit Office figures for the first 11 months of 2005 revealed $35 billion of illegal spending by government officials.
- Oil Profits and Charity - How to Measure? ExxonMobil announced on July 27, 2006, net income of over $10 billion in the last quarter, which (on a 260 annual working day count and 8 hours per day) amounts to around $5 million in earnings for each working hour. At the same time as this announcement, the world’s biggest oil company announced a $1 million commitment to help build a national memorial to Martin Luther King, Jr. – a gift equating to about 12 minutes of corporate income!
- Ex-Chief of McLeod Pays $4.4 million To Settle "Spinning" Charges. The former Chief Executive of McleodUSA agreed to pay $4.4 million to settle an investigation into insiders who gained windfalls in initial stock offerings, an act known as "spinning" reported The New York Times on July 31, 2006. According to the article, Mr. McLeod was accused of directing more than $77 million of McLeodUSA’s investment banking business to the brokerage/investment banking firm, Salomon Smith Barney. In exchange, the company secretly gave McLeod shares of 34 stocks before its initial public offering, which resulted in a windfall of $4.8 million on the first day of public trading of the stock.
- Africa: New Anti-Corruption Policies in Nigeria and Ghana. Ghana Passes Whistleblower Law. On July 28, 2006 Angola Press reported that Ghana's Parliament passed a law outlining the way individuals may report illegal conduct, providing them protection from retaliation and creating a fund devoted to their compensation. Nigeria Creates Agency to Monitor Anti-Corruption Bodies. Nigerian President Olusegun Obasanjo announced his creation of an anti-corruption technical unit that will review the operations of the various anti-corruption agencies in the country reported Vanguard on July 28, 2006.
- Court Upholds Former WorldCom CEO's Conviction. The fraud conviction and 25-year prison sentence of former WorldCom Chief Executive Bernard J. Ebbers were upheld by a U.S. appeals court increasing the likelihood that he will spend the rest of his life in jail, reported The Wall Street Journal on July 29, 2006. According to the article, Mr. Ebbers was convicted last year of nine counts of conspiracy, securities fraud and making false filings with the U.S. Securities and Exchange Commission for his role in the $11 billion accounting fraud that plunged the telecommunications company into bankruptcy protection in 2002.
- Options Backdating May Involve Hundreds of Companies. An analysis of the stock options backdating scandal in Silicon Valley in The Financial Times on July 28, 2006, suggests that several hundred companies may be implicated in schemes that saw the manipulation of stock option backdating to secure maximum bonuses for executives at new technology companies. The US Securities and Exchange Commission is investigating. The article noted that, “Many of the companies where alleged improper backdating took place were enthusiastic cheerleaders of the Valley’s attempts to lobby against more rigorous options accounting. The hypocrisy of this stance is now being exposed.”
China Further Tightens Internet Regulations. China has issued a complex set of new rules, which, according to The Wall Street Journal on July 28, 2006, appear to be an attempt to exert more control over booming foreign investment in China's internet, investment which some analysts say has unnerved the country's regulators. The measures require that providers of "value added telecom services," a category that includes search engines such as Google, which recently came under fire for complying with Chinese censorship policies, own the domain name and trademarks they use in China. This intellectual property is often controlled by foreign affiliates or investors. For an earlier report on Chinese internet censorship and U.S. tech companies, see Business and Politics.
- U.S. SEC Releases New Rules on Stock-Options Timing (SEC). For the first time since the scandal over companies timing of stock option grants expanded this year, for which the U.S. Securities and Exchange Commission (SEC) is investigating over 80 companies, the SEC laid out requirements directing companies how to disclose their grants of stock options. According to the Wall Street Journal on July 27, 2006 the new rules won't bar corporate boards from giving executives options at propitious times, but would instead shine a spotlight on such practices through increased disclosure and are part of a sweeping overhaul to executive-pay disclosure by the SEC.
- New Corruption Allegations Hit UK Immigration Department. On July 27, 2006 the Guardian reported that a UK immigration officer is being investigated over claims that he arranged fake applications for hundreds of people seeking asylum in the UK in return for up to £2,000 a case, the latest instance in a series of scandals that have plagued Britain’s Immigration and Nationality Directorate (IND) in recent times. According to the Guardian, figures released to the British parliament earlier this month showed that 127 IND staff were fired between January 2005 and May 2006, with fifteen facin g corruption charges serious enough to warrant a police investigation.
UK Considers Harsher Sentencing for White Collar Crimes. On July 25, 2006 the Financial Times reported that the UK is considering increasing the length of prison sentences for fraud as well as giving courts greater powers to offer leniency in exchange for guilty please, under reforms proposed by a government commissioned study on reducing financial crime. The proposals, which would combine civil, criminal and regulatory proceedings into single courts, would bring Britain closer to the often controversial and harsher U.S. style approach to dealing with white collar crime. While the reforms are aimed at reducing the number of expensive, lengthy and often fruitless trials, critics have questioned their fairness.
- Thailand's Three Election Commissioners, Allies of Thaksin, Convicted. Thailand's three election commissioners, seen as close allies of embattled Prime Minister Thaksin Shinawatra, were convicted of allowing unqualified candidates to run in parliamentary elections in April and sentenced to four years in prison, reported the AP on July 25, 2006. The country's top courts later nullified the vote, saying the elections were unconstitutional.
- Thai Parties Indicted Over Alleged Election Fraud, Face Disbandment. Thailand's Attorney General's Office formally indicted the ruling Thai Rak Thai party as well as the opposition Democrat Party for alleged electoral violations, announcing it would ask the Constitutional Court to dissolve the parties, reported the Associated Press on June 28, 2006. The April 2 elections were held following after a series of corruption charges against Prime Minister Thaksin Shinawatra triggered massive protests against his leadership. See past News.
U.S. SEC Charges Brocade Executives in Options Backdating Probe. U.S. federal authorities issued civil and criminal securities-fraud charges against the former CEO of Brocade Communications Systems, Inc., Gregory Reyes, and two other executives in a stock-options backdating scheme, indicating that they will take a hard line in the broadening scandal over backdating, for which the SEC is investigating over 80 companies, reported The Wall Street Journal on July 21, 2006. According to the article, prosecutors allege that Mr. Reyes changed the dates of option grants to new employees without proper accounting in order to boost the stock's value, thus concealing millions of dollars of compensation expenses from shareholders. Brocade is the first company to face charges relating to backdating..
- World Bank and Chad Sign Oil Pipeline Agreement. World Bank President Paul Wolfowitz signed an agreement with the government of Chad that has ended a dispute over the management of oil revenues from the Chad-Cameroon pipeline, which for a time led to the World Bank temporarily suspending loans, reported Reuters on July 21, 2006. In a memorandum of understanding, Chad committed to allocate 70 percent of all budgetary resources in 2007 to poverty reduction. The dispute arose after Chad, which was ranked the world’s most corrupt country by Transparency International last year, announced its plans to defy an agreement with the Bank that it place oil revenues from the pipeline in an account earmarked for humanitarian purposes.
- U.S. SEC May Scrap "Couric" Rule on Pay Disclosure. On July 20, 2006 The Wall Street Journal reported that the U.S. Securities and Exchange Commission is expected to scrap or significantly alter part of a proposed rule, dubbed the "Katie Couric clause" after the high-profile, highly paid network-TV anchor, that would have forced companies to disclose the pay of as many as three "nonexecutive" employees whose total pay exceeded that of the top five officers. According to the article, the provision prompted an intensive lobbying effort from businesses, especially executives in the entertainment industry and Wall Street, who feared that competitive information about their star performers would be available for all to see -- alongside the pay of the top officers, which already is disclosed. The rule would have marked the first time confidential bonuses and perquisites would have been disclosed.
- High-Profile Report Finds Corruption in Liberia's Transitional Government. A report from a commission of auditors appointed by the 16-nation Economic Community of West African States (ECOWAS) to investigate the financial management of the National Transitional Government of Liberia (NTGL), has concluded that former NTGL Chairman Gyude Bryant and many of his officials were involved in the siphoning of hundreds of thousands of dollars from state coffers and the misuse of other national resources, reported AllAfrica.com on July 20, 2006. In its report the commission details a series of economic crimes and fraudulent transactions committed by officials of the NTGL. The NTGL was created in 2003 following the flight of the now arrested former president, Charles Taylor. In 2005 Ellen-Sirleaf Johnson was elected president on a strong anti-corruption platform.
- Medtronic to Pay $40 Million to Settle Bribery Allegations. Medtronic, one of the nation’s largest medical device manufacturers, has agreed to pay the U.S. federal government $40 million to settle accusations that its spinal-implant division had paid kickbacks to doctors as a way of inducing them to use its products, reported The New York Times on July, 19, 2006. The Justice Department accused Medtronic of paying kickbacks through what officials described as “sham consulting agreements, sham royalty agreements and lavish trips to desirable locations” offered to doctors from 1998 to 2003. Medtronic was the subject of two lawsuits filed in Federal District Court in Memphis by whistle-blowers on the actions of its spinal-implant division, Medtronic Sofamor Danek. The company and its division deny any wrongdoing.
- Daimler Chrysler Faces German Bribery Probe. On July 19, 2006 the Associated Press reported that German prosecutors are investigating former employees of DaimlerChrysler AG and other people for suspected bribes totaling about US $125,000 paid in connection to the carmaker's sales in Poland and Ghana. DaimlerChrysler AG said in March that an internal investigation of bribery claims found evidence of 'improper payments' in Africa, Asia and Eastern Europe and that several employees had been dismissed or suspended. The U.S. SEC and the Department of Justice are investigating the company over whether it violated U.S. anti-bribery laws.
- Kuwait Passes Major Anti-Corruption Bill. According to the Arab Times, Kuwait’s Parliament, in a majority vote, passed a key election reform bill that slashes the number of polling constituencies in line with a opposition demand aimed at curbing corruption (July 17, 2006). Opposition candidates have alleged that the previous election system promoted corruption and vote-buying because the number of voters in some constituencies was too small. The bill, the passage of which is seen as a sign of increasing bi-partisan cooperation, was the core of a bitter political crisis between the previous government and opposition MPs that led to the May dissolution of Parliament and early elections.
- UPDATE: Tony Blair Admits Link Between Party Donations and Political Seats. The British Prime Minister acknowledged a direct link between donating large sums of money to the Labour Party and being nominated for a seat in the House of Lords, reported the Telegraph on July 17, 2006. However, according to the article, he denied that the party did anything wrong in awarding, "working peerages," which he said were reserved for party supporters.
- Blair's Chief Fundraiser Arrested in "Cash For Honours" Scandal. Lord Michael Levy, the chief fundraiser for British Prime Minister, Tony Blair’s, Labour Party has been arrested by British police in connection with a “cash for honours” inquiry that has rocked Blair’s government and undermined his legitimacy reported the Guardian on July 13, 2006. The Labour party came under fire after it reported that it had received loans worth 14 million pounds from 12 businessmen, some of whom were nominated for seats in the House of Lords, which is considered a “state honour.” A 1925 law made it illegal to sell seats in the House of Lords. Lord Levy denies any wrong-doing.
U.S., European Defense Firms Plan Voluntary Ethics Code. Following a spate of Pentagon weapons acquisition scandals in recent years, major U.S. and European defense contractors for the first time are developing voluntary ethical standards that would transcend borders applying to contracts on both sides of the Atlantic. According to The Wall Street Journal on July 17, 2006, several major firms as well as some watchdog groups have met to discuss the intiative. According to the article, as contractors seek support for weapons programs in the face of concerns over ethics practices, setting voluntary guidelines may enable them to preempt increased government regulations.
- Bribery Cases Investigated Along U.S. Mexico Border. On July 15, 2006 The Washington Post reported that US Federal law officials are investigaing at least 6 cases of border patrol officials accepting bribes from or smuggling illegal immigrants across the U.S.-Mexican border. According to the article, the cases point to what many fear is an increase in corruption among patrol agents along the border. The massive build-up in border officials in recent years has led some to worry that hiring standards have been lowered. Moreover, many believe that the increase in fees smugglers are charging illegal immigrants has intensified their efforts to bribe border agents.
- Merck Wins Vioxx Victory. US drug-maker Merck won three of the four charges against it in a New Jersey case in which the jury ruled that its painkiller Vioxx was not the cause of a 68-year-old woman’s heart attack, that the company had warned the woman’s doctor about the drug’s risk and that it did not defraud consumers (The New York Times, July 14, 2006). Merck has been accused of failing to warn consumers about the alleged heart risks of Vioxx and now faces more than 10,000 lawsuits in relation to the drug. The company has won two of six earlier trials with a split verdict in the third. It faces US $48 million in damages.
- Mittal Faces Dutch Corruption Probe. Anti-corruption police in the Netherlands are investigating the circumstances surrounding the awarding of a Liberian iron ore contract to Mittal Steel, the world's largest steel maker. According to The Australian the company, which won the rights to exploit an estimated 1 billion tons of Liberian iron ore in return for a promised $US900 million investment, is undergoing a similar probe in Liberia. Liberian president Ellen Johnson Sirleaf, while maintaining that no conclusions have been made, has expressed reservations about the fairness of the contract, particularly in relation to the structure of the equity arrangement. According to the article, complaints from a trade union have alleged that two former legislators were bribed in return for supporting Mittal. Mittal denies any wrongdoing.
Air France Chairman and Chief Executive Questioned in Money Laundering Probe. Jean-Cyril Spinetta, Chairman and Chief Executive of the French-Dutch airline, Air France-KLM, is to be questioned by a French magistrate in an investigation into suspected money laundering and labor-code violations in the company’s dealings with the collapsed Pretory SA, a company that supplied private security guards to travel undercover on commercial flights in the wake of the Sept. 11, 2001, terrorist attacks, reported The Wall Street Journal on July 13, 2006. Four Pretory SA officials, including its former Chief Executive, are now under formal investigation.
Toyota Faces Criminal Charges For Allegedly Postponing Safety Recall. Toyota Motor is undergoing a criminal investigation in Japan over accusations that officials postponed for eight years a safety recall for the best-selling Hilux Surf SUV model, which acquired a steering defect, reported Mainichi Daily News on July 12, 2006. In 2005 and 2004 the company recalled over 1.5m of the cars in Japan and other countries. Toyota, which said that it first learned of the problems in 1996, waited until after a second investigation to issue a recall in 2004. The company, which denies any wrongdoing, defended its 1996 decision by saying the steering problems transpired only in "unusual and extreme" conditions and did not merit a recall at the time.
- New Anti-Corruption Bodies in Eastern Europe:
Poland to Establish New Anti-Corruption Bureau. The Polish government will establish a new Anti-Corruption Bureau of approximately 500 employees which will monitor the performance of the administration and other services dealing with corruption, focusing on possible corrupt practices between the the private sector and politics (Radio Polonia, July 7, 2006)
Turkey Creates Anti-Corruption Super Comittee. In an effort to speed up its anti-corruption activities,
the Turkish government is establishing an anti-corruption super-committee, which will oversee the public bodies and institutions involved in monitoring corruption. The committee is intended to overtake the anti-corruption coordination mission now in place among Turkey's anti-corruption institutions (Zaman, July 8, 2006).
- BOJ to Set New Internal Rules on Officials' Trading. On July 7, 2006 Bloomberg reported that the Bank of Japan (BOJ) will set new internal rules on senior officials' financial trading and assets by the end of July, responding to a public outcry over Governor Toshihiko Fukui's admission that he invested 10 million yen ($87,000) in a fund founded by Yoshiaki Murakami, who was later indicted for insider trading. The proposed reforms include prohibiting senior officials from trading stocks, most kinds of bonds and real estate for investment.
- UPDATE, July 7, 2006: Hollinger Announces Intention to Sue Black for Fraud for $700M (Calgary Sun)
- UPDATE, June 27, 2006: Judge Declines to Revoke Black's Bail but said she may require him to put up more collateral. Prosecutors have reported that Black provided them with false and misleading statements about the extent of his assets (Bloomberg).
- Black Faces Jail as Judge Asked to Reconsider Bail. US federal prosecutors requested that the judge currently overseeing the 2007 fraud trial of Conrad Black, the former Hollinger International Inc. chairman accused of helping steal $51.8 million from the company, reconsider Black's bail, reported the Financial Times on June 20, 2006.
- Kenneth Lay, Convicted Former Enron Chairman, Dies. Enron's founder and chairman, Kenneth L. Lay, died of a heart attack at his vacation home in Colorado, reported The New York Times on June 5, 2006. In May, Mr. Lay was found guilty on six counts of fraud and conspiracy and four counts of bank fraud. The former chief executive, Jeffrey K. Skilling, was convicted of 18 counts of fraud and conspiracy and one count of insider trading.
- 53 Bulgarian State Officials Sacked for Corruption. 53 Bulgarian state employees and 22 servicemen of the Interior Ministry have been sacked over corrupt practices in the first six months of the year, reported Sofia News Agency on June 5, 2006. This was announced by Interior Minister Rumen Petkov when presenting the results from the work of the Council of Ministers Inspectorate and the Commission for Corruption Fight and Prevention. Bulgaria, which has faced criticism for corruption, awaits possible entry into the European Union.
- Morgan Stanley Fined $10m By SEC for Lack of Insider Trading Safeguards. Morgan Stanley, the third-largest U.S. securities firm, was fined $10 million by the Securities and Exchange Commission (SEC) for failing to protect against insider trading by adequately checking employee accounts for at least eight years, reported Bloomberg on June 27, 2006. According to the article, earlier this year the firm agreed to pay $15 million to resolve an SEC inquiry into its failure to preserve e-mails, the largest fine ever paid for that type of infraction.
- AT&T To Pay $2.9m to Settle Fraud Suit. On June 28, 2006 Reuters reported that AT&T Communications-East Inc.has agreed to pay $2.9 million to settle charges brought by a whistle-blower that it defrauded the U.S. government over certain fees the company charged between 1998 and 2001.
- Merck Faces New Vioxx Blow. The New England Journal of Medicine published a correction to a critical study of Merck & Co.'s painkiller Vioxx, contradicting the company's position, based on statistics, that the drug doesn't increase risk of heart attacks and strokes to people who took it for less than 18 months reported The Wall Street Journal on June 27, 2006. Merck, which faces over 11,500 Vioxx-related lawsuits, admitted it misidentified the statistical methodology that it used in its study but it contests the argument of journal editors and other scientists that the new analysis alters the study's initial conclusion.
- Buffet to Donate Most of Wealth to Charity. Warren E. Buffett, chairman and chief executive of Berkshire Hathaway and considered the world's second richest person, is to start in July giving away 85 percent of his stock in his company, approximately worth U.S. $37 billion, to five foundations, with most of it to go to the Bill and Melinda Gates Foundation, reported the New York Times on June 26, 2006. According to the article, Mr. Buffet owns 474,998 A shares in the company, a stake close to 31 percent that is worth nearly $44 billion.
- Thai Prime Minister Faces New Fraud Charges. On June 23, 2006, Thai News reported that Thailand’s Election Commission’s ruled that Thai Prime Minister Thaksin Shinawatra's party violated two campaigning laws prior to the now invalidated April 2 snap elections. The elections were held following after a series of corruption charges against Mr. Shinawatra triggered massive protests against his leadership. A panel of prosecutors is set to decide whether to bring a case against Thaksin’s party to Constitutional Court, which has the power to disband the party if it is found guilty.
- Scientific Atlantic To Pay U.S. $20m in SEC Case. Scientific-Atlanta Inc. will pay $20 million to settle allegations that it helped cable operator Adelphia Communications Corp. exaggerate its earnings by about $43 million. According to The Wall Street Journal on June 23, 2006, the case is part of a mounting U.S. Securities and Exchange Commission (SEC) effort to hold more third parties responsible for corporate misconduct.
- Cambodia Faces New Corruption Charges from World Bank. On June 22, 2006, The World Bank announced that it has found new evidence of corruption in Cambodia, naming four suspect new development projects and asking for reimbursement from the government for the projects. The latest charges follow the Bank's announcement earlier this month that it was withdrawing funding for three major projects, provoking calls for proof from Prime Minister Hun Sen. See past News for more
Former Turkish PM Avoids Corruption Verdict. The former Turkish Prime Minister, Mesut Yilmaz, announced his return to politics after Turkey’s Supreme Court suspended his corruption case, effectively dropping the charges against him, reported the BBC on June 23, 2006. Mr. Yilmaz is accused of rigging the Turkish state tenure during the privatization of Turkbank, charges which brought down his government in 1998, but which the judge in the case said could not be verified.
Despite Jury Deadlock, Judge Refuses Mistrial for Scrushy. On June 23, 2006, The Wall Street Journal reported that jurors in the political-corruption trial of insurance company HealthSouth Corp. founder and former CEO Richard M. Scrushy and three other defendants were ordered by the judge to continue deliberating even though they announced they were unable to reach a verdict. According to The Wall Street Journal, Mr. Scrushy is charged with seven counts including bribery, conspiracy and mail fraud and coordinating two secret $250,000 payments to a lottery campaign maintained by former Alabama Gov. Don Siegelman. In return for the payments, Mr. Scrushy allegedly received a position on a regulatory panel that watches over HealthSouth and other health-care companies.
- Update: Chinese 2008 Olympic Corruption Probe Widens with Arrest and Questioning of Liu Xiaoguang, President of Beijing Capital Group Ltd, a Major Construction Firm (China Daily, June 22, 2006).
China Fires Olympic Construction Chief for Corruption. Xinhua reported on June 11, 2006 that Liu Zhihua, Beijing's vice mayor responsible for directing construction projects for the 2008 Olympics, was removed from his position for corruption. Zhihua is likely to confront prosecution and be denied his membership in the ruling Communist Party.
- CEO-Worker Pay Imbalance Grows. In 2005, the average CEO in the United States CEO was paid $10,982,000 a year, or 262 times that of an average worker ($41,861), the second-highest level of this ratio in the 40 years for which there are data, reported the Economic Policy Institute (EPI) on June 21, 2006. According to EPI, in 2005, the average CEO earned more in one workday (there are 260 in a year) than an average worker earned in 52 weeks. See Executive Compensation for more.
- Court of Appeals Takes Up Ronald Perelman – Morgan Stanley Case. American billionaire Ronald Perelman won a $1.58 billion verdict for wrongful and unethical advice from investment bank Morgan Stanley when he bought the now bankrupt Sunbeam Corporation in 1998. The Wall Street Journal on June 22, 2006 reported that a Florida court is about to hear Morgan Stanley’s appeal of one of the largest penalties of its kind. The lower court originally agreed with Perelman’s claim that Morgan Stanley failed to provide him with vital information regarding Sunbeam’s finances.
- LoneStar Cleared in Probe of KEB Deal. South Korean regulators cleared Lone Star Funds of allegations of wrongdoing in its purchase of Korea Exchange Bank, accusations which have been threatening the company's current business deals in the country, reported The Wall Street Journal on June 20, 2006.
Update: Chen Addresses Corruption Allegations, Defends Himself Against Resignation Calls in Two-Hour Public TV Broadcast (The China Post June 21, 2006)
Taiwan Lawmakers Agree on Possible Presidential Recall Hearing. Taiwanese lawmakers agreed to hold hearings on a possible recall of President Chen Shui-bian, whose family members have been plagued by corruption and insider trading allegations that have sparked calls for him to resign, reported the Associated Press on June 13, 2006. The agreement follows Mr. Shui-bian’s ceding of his policy-making and cabinet appointment powers to his premier
Update: After Refusing to Resign over Insider Trading Scandal, Bank of Japan Governor Aims to Atone by Imposing a 30% Pay Cut on Himself. (Reuters, June 19, 2006).
Japan's Central Bank Chief Refuses to Resign Over Personal Investment Scandal. On June 16, 2006 Mainichi Daily News reported that the Governor of the Bank of Japan, Toshihiko Fukui, apologized for his personal investment of 10 million yen (US $87,000) in a fund whose head, Yoshiaki Murakami, recently admitted to insider trading but rebuffed resignation calls from political opponents. An editorial in the Financial Times, said the situation “revealed the urgent need for the Bank of Japan to modernize and clarify the rules covering potential conflicts of interest among its senior officials.”
UPDATE: WB Provides Cambodia with Corruption Evidence, Explanation for Funding Suspensions (AP, June 19, 2006).
Cambodian PM Asks World Bank for Evidence of Corruption. In his first public response to the World Bank’s (WB) allegations, Cambodian Prime Minister Hun Sen asked the bank for proof of alleged corruption in Cambodia's government that led the bank to suspend three infrastructure, water and sanitation projects (worth US $68.4m) in the country last month. While expressing anger over the alleged lack of evidence for the suspension, Mr. Sen at the same time urged the bank to probe its own employees for corruption, claiming the bank had also to bear its responsibility for any corruption (People's Daily Online - June 15, 2006).
- EADS Chief Faces Insider Trading Probe. Noel Forgeard, co-chief executive of European aerospace giant, EADS, is facing insider-trading probes by both French and German prosecutors reported Reuters on June 16, 2006. Regulators will investigate his decision to sell EADS shares for a 2.5 million euro profit in March before a sale of stock by core industrial shareholders and the announcement of delays in its development of EADS's flagship A380 plane. The announcement of delays resulted in a significant decline in the company's stock two days ago.
- Vietnam Lawmakers Face Graft Quiz. On June 15, 2006 Thanh Nien News reported that Vietnamese lawmakers will question cabinet members from Wednesday to Saturday this week on corruption and budget losses. The inquiry comes following a widespread graft scandal involving top officials of Vietnam’s transport ministry and the legislature’s subsequent creation of a separate anti-corruption committee in early May.
Study Finds Massive Fraud in FEMA U.S. Hurricane Aid Payouts. As much as $1.4 billion in government disaster aid to victims of Hurricanes Katrina and Rita — nearly a quarter of the total — from the Federal Emergency Management Agency (FEMA) went to bogus or undeserving victims, a new Congressional investigation concludes, reported The New York Times on June 14, 2006. The improper or fraudulent payments went to con artists or other undeserving recipients, according to the analysis by the Government Accountability Office, which is set to announce its findings at a Congressional hearing
Hyundai Chief Admits Fraud. Hyundai Chairman Chung Mong-koo apologized for his involvement in the creation of a slush fund for political favors following his May fraud indictment, reported the The Korea Times on June 15, 2006
- FT and IFC Announce Sustainable Banking Award Winners. On June 13, 2006 The Financial Times and the International Finance Corporation announced HSBC, UK as the Sustainable Bank of the Year for its Sustainable Banking Awards. The awards are given to banks that have shown leadership and innovation in integrating social, environmental and corporate governance objectives into their operations. Other winners include Banco ABN Amro Real, Brazil for Emerging Markets Sustainable Bank of the Year; WestLB, Germany for Sustainable Bankers of the Year; Citigroup/Banamex and Financiero Compartamos, Mexico for Sustainable Deal of the Year; and Credit Suisse, Switzerland for Sustainable Energy Finance Deal of the Year.
- SEC Steps Up Effort To Curb Options Dating In Rule on Executive Pay. In the wake of the widening scandal into the timing of stock options, the Securities and Exchange Commission (SEC) Chairman Christopher Cox announced that the SEC is ratcheting up plans to address the issue in its proposed rule to revamp disclosure of executive pay, reported The Wall Street Journal on June 14, 2006. In conjunction with the rule, Mr. Cox said the SEC would issue guidance "saying when it is appropriate or not appropriate for a company to grant options while in possession of material nonpublic information when it comes to 'spring loading,'" a practice that involves granting options ahead of good news.
- Senior Liberia Officials Sacked Following Corruption Probe. On June 12, 2006 Reuters reported that, in the first high-profile sackings since Liberian President Ellen Johnson-Sirleaf came to power in 2005 vowing to crack down on corruption and following an anti-corruption task force investigation, three senior government officials and five other mid-level employees have been fired for what Sirleaf called “acts of impropriety” and now face legal proceedings. The firings come at the same time that steps are being taken to create a national anti-corruption agency to focus on the investigation and prosecution of all forms of corruption. (The Analyst, June 9, 2006).
Indonesian Court Orders Suharto Case. An Indonesian judge, in a pretrial hearing to review suits filed by three activist groups, ordered a corruption case against former dictator Haji Mohammad Suharto be reopened after ruling its May 10, 2006 dismissal by the attorney general, who dropped the case in light of Mr. Suharto’s failing health, was illegal, reported the Jakarta Post on June 12, 2006. See Archived News for earlier coverage.
- Update: Goldenberg Trial Begins (All Africa, June 9, 2006)
Charges in Kenyan Corruption Scandals. On March 16, 2006 The Independent, SA reported that Kenya's attorney-general charged five men, including the former governor of the central bank, with fraud. The suspects were allegedly involved in the "Goldenberg" affair, the country's biggest graft scandal, which involved the payment of large cash subsidies for non-existent gold and diamond exports by a firm called Goldenberg International, 14 years ago. The charges, which came the same week as two top health officials were fired under suspicion of graft (See the East African Standard) signals a growing willingness by Kenyan prosecutors to tackle the country's much publicized corruption crisis.
BP Faces Grand Jury Probe Over March Alaska Oil Spill. Bloomberg reported on June 8, 2006, that BP Plc, the world's second-largest publicly traded oil company, said a U.S. federal grand jury is investigating a March oil spill in Alaska. The leak of about 6,400 barrels of crude oil from a pipeline in Prudhoe Bay, Alaska, was discovered on March 2, almost a year after BP suffered an explosion at a refinery in Texas City, Texas, that killed 15 workers and led to the biggest-ever fine by U.S. refinery safety regulators.
Japan Arrests Corporate Raider on Securities Charges. On June 6, 2006 The New York Times reported that the self-proclaimed corporate raider, Yoshiaki Murakami, who struck fear into Japan's insider-run boardrooms by demanding American-style shareholder rights was arrested on Monday on suspicion of insider trading. Mr Murakami is accused of trading 9.95 billion yen (US $90 million) worth of shares in Nippon Broadcasting (NBS) with insider knowledge that Livedoor, an internet services company, would begin a takeover bid for NBS.
Bulgaria Presents Anti-Corruption Plan to EC. On June 5, 2006 Sofia Echo reported that Bulgaria will present on June 6 an anti-corruption action plan to the European Commission (EC), an initiative of the Bulgarian government to speed up anti-corruption reforms as a result of the criticism of a May 16 EC report on the country's readiness to join the European Union. The plan will include a unit to fight high-level corruption, measures for the income inspection and sanctioning of politicians and magistrates and plans to increase transparency in political party financing.
Former Paraguayan President Convicted of Corruption. Former Paraguayan President Luis Gonzalez Macchi, who left office in 2003, has been sentenced to six years in prison on corruption charges, reported Voice of America on June 6, 2006. A Paraguayan court found Gonzalez Macchi guilty of embezzling $16 million from two collapsed banks.
Bawag To Pay $675m in Refco Case. Bawag, the Austrian bank, has agreed to pay at least US $675m and co-operate with prosecutors under a settlement announced yesterday with US officials investigating the collapse of Refco, the brokerage, reported the Financial Times on June 6, 2006. Bawag's role in the Refco fiasco surfaced after the brokerage said in October 2005 that its former chief executive had allegedly concealed from Refco investors a $430m debt by an entity that he managed, an admission that triggered the company's collapse.
Taiwan's President Cedes Power Amid Scandals. The president of Taiwan, Chen Shui-bian, vowed to cede his policy-making and cabinet appointment powers to his premier, Su Tseng-chan, in the midst of public outrage over insider-trading and corruption allegations against Mr. Shui-bian and people close to him, reported the China Daily on June 2, 2006.
US Regulators Drop Civil Case Against Quattrone. On June 2, 2006 The Wall Street Journal reported that the National Association of Securities Dealers (NASD) has dropped civil charges of improper conduct and stock-research bias against the former investment-banking star, Frank Quattrone, granting him his third legal win in three months in cases that arose from the Internet-stock bubble of 1999-2000. Mr. Quattrone still faces a possible criminal retrial of obstruction-of-justice charges.
Former Enron Law Firm to Pay $30m to Settle Charges. Enron's former law firm, Vinson & Elkins, has agreed to pay the company $30 million to settle claims of contributing to its collapse in 2001 by signing off on questionable deals, reported The New York Times on June 2, 2006. The firm, which once earned up to $40 million a year from Enron, admitted no liability in the settlement.
SEC Fines U.S. Broker-Dealers $13m Over Abuses. On May 31, 2006, Reuters reported that the U.S. Securities and Exchange Commission (SEC), after a two-year investigation, has fined 15 broker-dealers, including some of the largest Wall Street firms, a combined $13m to settle charges of improper placement and manipulation of orders in the auction rate market and engaging in practices that favored some clients over others.
U.S. Supreme Court Rules Against Whistleblowers In Government. UPI reported on May 30, 2006, that the U.S.’s highest court ruled 5 votes to 4 that whistleblowers in the public sector are not protected from retaliation against them by their supervisors if they make statements about working conditions. Such statements, the judges ruled in a view that reflects that of the Bush Administration, are not covered by the First Amendment (to the U.S. constitution) rights of freedom of expression. The court majority stated, "Without a significant degree of control over its employees' words and actions, a government employer would have little chance to provide public services efficiently."
Former Daewoo Chief in Korea Sentenced to 10 Years and Major Fine. After Daewoo’s bankruptcy and a six year flight from justice, the former corporate chairman, Kim Woochoong, received heavier- than-expected penalties from a Korean court on May 30, 2006, according to The Korean Times. The sentence is 10 years in prison plus $22.5 billion in forfeiture. The newspaper said the 70 year old Mr. Kim is “bedridden and penniless.” It said Mr. Kim is not repentant and has said accounting manipulation was “the norm” at the time, and the collapse of Daewoo Group was due to the currency crisis, caused by governmental policy failure.
- Thousands In Kyrgystan Protest Government Corruption. Several thousand protesters demanded an end to organized crime and corruption in the Kyrgyzstan government, as well as a reduction in the powers of President Kurmanbek Bakiyev, reported The New York Times on May 27, 2006 . The protest, the second in a month, and consisting of approximately 15,000, according to media sources, comes amid rising dissatisfaction with Mr. Bakiyev, who took over last spring after a popular uprising overthrew his predecessor. Before assuming office, Mr. Bakiyev said he would reform the Constitution to limit the powers of the president, but has not done so.
- Enron Chiefs Found Guilty of Fraud and Conspiracy. Kenneth L. Lay, former Chairman of the collapsed U.S. energy giant, Enron, and Jeffrey K. Skilling, former Enron CEO were found guilty of fraud and conspiracy in a case that began the string of corporate scandals in the U.S. in recent years, reported The New York Times, May 25, 2006. Mr. Skilling was convicted of 18 counts of fraud and conspiracy and one count of insider trading, and acquitted on nine counts of insider trading. Mr. Lay was found guilty on six counts of fraud and conspiracy and four counts of bank fraud.
- IDB Fund Approves $600,000 Grant for CSO Programs Based on PTF Model. On May 25, 2006 the Partnership for Transparency Fund (PTF) announced that The Inter-American Development Bank’s Multilateral Investment Fund has approved a $600,000 grant for a program to support targeted projects of civil society organizations. The grants will fund programs that increase transparency in public and private sector economic activities in Argentina, Bolivia, Brazil, Chile, Paraguay and Uruguay, and that are based on the PTF’s now well established model for helping Civil Society Organizations to fight corruption. See Best Practice by NGOs.
- Former Skandia Chief Receives Jail Sentence for Improperly Granting Pay Raises. Lars-Eric Petersson, former chief executive of Sweden's biggest insurance group, Skandia, was sentenced to two years in prison for approving large bonuses for group executives without board consent, reported The Local (Sweden) on May 25, 2006. Other media sources said that Stockholm’s district court found that Mr. Peterson had "grossly abused his position" in granting the raises. He left his position as CEO in April 2003 after a string of corporate scandals, the biggest in modern Swedish history.
- Cambodian Minister Removed for Corruption Allegations. On May 24, 2006 the Bangkok Post reported that Cambodia's parliament Tuesday voted to remove the Minister for Labor and Vocational Training, Nhep Bun Chin, from his post over allegations money was being extorted in exchange for Cambodians to be allowed to work overseas, specifically in Saudia Arabia.
- Estrada Denies Stashing Illegal Funds. On May 24, 2006 the Associated Press reported that former Philippine President Joseph Estrada denied on the stand in his corruption trial that he stashed millions of dollars of illegal funds in a secret bank account, but admitted having signed the account documents. Estrada, who was forced out of office during massive street protests in 2001, is accused of amassing about $77 million from illegal gambling payoffs, tax kickbacks and commissions.
Wyeth Gets Final Approval For Diet Drug Settlement. On May 24, 2006 the U.S. drug maker Wyeth reported that it has received final judicial approval for a revised legal settlement related to its withdrawn "fen-phen" diet drugs. The company said the agreement creates a new supplemental fund, into which Wyeth will ultimately deposit $1.275 billion. The drugs were pulled from the market in 1997 after being linked to heart valve damage in some of the 6 million Americans who had taken the drugs, Redux and Pondimin, which were part of the fen-phen cocktail.
UPDATE: President of GIA Resigns (May 24, 2006)
Diamond Group Widens Probe Of Bribe Charges. On March 8, 2006 the The Wall Street Journal reported that the Gemological Institute of America (GIA) has confirmed that in recent weeks it has banned an additional group of diamond dealers from having their stones graded. Last fall the GIA fired four employees it accused of accepting bribes from diamond dealers as part of an inquiry into inflating the grades of stones. The GIA also severed ties with "a small community of dealers" that it suspected of bribing GIA staffers with cash, theater tickets and other gifts. According to the article, sources familiar with the investigation say that the new bans include at least three more prominent dealers who sell to larger retailers or private clients.
Report Finds Commerzbank Knew of Companies' Links To Russian Telecom Chief. On May 24, 2006 The Wall Street Journal reported that a newly disclosed document from a Swiss arbitration panel raises questions about whether officials at Commerzbank AG, Germany’s second largest bank and the subject of a months-long probe by German prosecutors into money-laundering and political corruption allegations, knew as long as a decade ago about possibly improper ties between companies whose ownership it was concealing and Russia's current telecommunications minister. The report finds that Russia’s Telcom Minister, Leonid Reiman, had "direct and deliberate intent to abuse his official powers for personal gain" by helping a mutual fund he allegedly owns, IPOC International Growth Fund Ltd., buy up a large swath of Russia's telecom sector. Mr. Reiman denies owning IPOC.
Royal Ahold Executives Convicted of Fraud. On May 23, 2006 the Associated Press reported that the former CEO and CFO of the Dutch retailer Royal Ahold NV, at the center in 2003 of one of Europe's biggest financial scandals, were convicted of fraud but let off with two separate 225,000 Euro fines and no prison time, as judges found they bore little criminal guilt. The verdict comes more than three years after Ahold went to the brink of bankruptcy in February 2003 after having overstated its 1999-2002 earnings by more than 1 billion Euros.
US Fannie May to Pay $400 M Fine, Report Blames Board and Executives for Fraud. On May 23, 2006 the US Federal National Mortgage Association, known as Fannie Mae, reported that it had reached a settlement with US federal regulators under which it will pay a fine of about $400 million for allegedly manipulating accounting rules in ways that helped increase bonuses for executives. It also announced it will comply with recommendations from a report by the Office of Federal Housing Enterprise Oversight, which The Wall Street Journal said blamed Fannie's board and executives, who regulators warned may face legal action, for fostering a culture that allowed managers to act illegally. See Managing Workplace Ethics for more on Fannie Mae.
US Gives Zambia $22.7 M to Fight Corruption. On May 23, 2006 allAfrica.com reported that the United States will give US $22.7 million to Zambia as part of a two year program to help the southern African nation fight corruption and enhance its government. The money is part of a U.S. initiative, the Millennium Challenge Corporation, intended to help improve democracy and good governance in developing nations
UK Chancellor Calls for Greater Extractive Industry Transparency. The British Government will “very soon” publish proposals for expanding the Extractive Industries Transparency Initiative (EITI), said UK Chancellor of the Exchequer Gordon Brown on May 22, 2006. Speaking in Nigeria he noted that EITI aims to greatly expand transparency and accountability in all dealings between host governments and oil, gas and mining companies. He noted that expanding EITI should involve more than the current 20 countries and its principles should be expanded to all businesses operating in developing countries as critical approach to curbing corruption.
US FBI Accuses Democratic Congressmen of Corruption. On May 21, 2006 The New York Times reported that the US Federal Bureau of Investigation (FBI) accused Representative William J. Jefferson, a Democrat from Louisiana, of accepting hundreds of thousands of dollars in bribes to help a small technology company win contracts and stashing $90,000 from the scheme in his home freezer in Washington. Mr. Jefferson, who has denied wrongdoing, is the first Democratic Congressmen to be so spotlighted for corruption, after a recent string of corruption cases involving Republican lawmakers.
US SEC Refuses to Grant Smaller Companies Sarbanes-Oxley Exemption. On May 18, 2006 the Associated Press reported that the US Securities and Exchange Commission said that it has decided not to exempt smaller public companies from a key requirement of the 2002 Sarbanes-Oxley anti-fraud law, which obligates companies to file reports on their internal financial controls and fix any problems, resisting pressure from business interests that have been complaining about compliance costs.
UPDATE: Firm and Two of its Partners Indicted for Fraud (May 19, 2006).
Prominent Law Firm Prepares for Indictment on Alleged Illegal Payments. On May 17, 2006 The New York Times reported that hopes for a settlement between the securities class-action law firm, Milberg Weiss Bershad and Schulman, which has been the subject of a six year federal investigation into whether the firm made illegal payments to clients, and federal prosecutors are fading fast as both sides remain far apart on several crucial points surrounding any deferred prosecution agreement.
- UPDATE: Federal Prosecutors Begin Criminal Probe of United Health's Options Pratices (May 18, 2006); and then Open Investigations into Four More Companies (May 19, 2006).
SEC Investigates United Health's Stock Option Grants Practices. On May 12, 2006 the Wall Street Journal reported that United Health announced that the US Securities and Exchange Commission (SEC) is investigating alleged manipulation of stock option awards. This has resulted, for example, in the company’s chairman, William Maguire, currently holding unrealized gains on his stock worth over $1.7 billion. While option awards are generally meant to be a performance incentive for executives, in this case it is suspected that the price on the options was backdated to ensure substantial personal gain for company executives irrespective of corporate performance. Other companies are also reported to be facing similar investigations. United Health has already stated that some accounting problems with stock option awards will mean restating its results for the last three years and booking an income reduction of as much as $286 million.
US Lawmaker Linked to Oil-for-Food Scandal. On May 18, 2006 the Financial Times reported that the U.S. Senate is investigating former New Jersey Senator Robert Torricelli in connection with allegations he urged Iraq to give a U.S. company lucrative contracts as part of the United Nations' oil-for-food program. Torricelli - forced to pull out of the 2002 Senate race after it was discovered that he had accepted expensive gifts from campaign contributor David Cheng, who was found guilty of conspiring to violate federal campaign laws in 2002 - is the first U.S. lawmaker to be linked to the controversial UN program, whose shortcomings have been an important element of the Bush administration’s critique of the UN.
- New Merck Data Suggests Risks From Vioxx Begin Earlier in Use. On May 18, 2006 the Wall Street Journal reported that new Merck & Co. data suggest the cardiovascular risk associated with its painkiller Vioxx, which the company removed from the market in 2004, begins within four months after people begin taking it -- rather than after 18 months as the company has maintained. The new data comes from a one year follow-up of patients in an original Merck study which found an increased risk of heart attacks that turned up in patients after they took Vioxx for 18 months. Merck, which faces more than 11,500 Vioxx-related lawsuites, denies that the new data disproves its earlier conclusions.
- UPDATE May 31, 2006: The Wall Street Journal reported that Merck acknowledged that it misidentified a statistical method used in the study that led it to pull Vioxx from the market, “an admission that may weaken its defense in the 11,500 lawsuits it faces from patients who used the painkiller…The Whitehouse Station, N.J., drug maker said it discovered last week that the study, published in the New England Journal of Medicine, incorrectly stated that it analyzed certain data using a statistical variable known as the logarithm of time.”
- Two in US in Congress Face Ethics Investigations. On May 18, 2006 The New York Times reported that, after 16 months of partisan deadlock, the US House of Representatives’ Ethics committee agreed to open investigations of two lawmakers — Louisiana Democrat William J. Jefferson and Ohio Republican Bob Ney — who are the focus of criminal investigations by the Justice Department into whether they accepted illegal gifts from military contractors or lobbyists. The committee also plans to examine whether other lawmakers took part in a bribery scheme led by a former House member, Randy Cunningham, who resigned from Congress this year after pleading guilty to accepting illegal gifts from military contractors.
Calpers Bans Investment in Nine Companies Tied to Sudan. On May 17, 2006 The California Public Employees' Retirement System (CalPERS) reported that its Board of Administration voted to ban investments in nine companies that do business in Sudan, until the Sudanese government halts the genocide. The decision was part of a nine-point position statement on Sudan adopted by the CalPERS Board, which also urges the federal government to publish a definitive list of companies with Sudan ties, asks already identified companies to work with such international human rights groups as the United Nations Global Compact to fully declare their business operations in Sudan, and encourages engagement with companies to effect change. The nine companies include: Bharat Heavy Electrical Ltd., China Petroleum and Chemical Corp., Nam Fatt Co., Oil & Natural Gas Co., PECD Bhd., PetroChina Co., Sudan Telecom Co., Tatneft OAO,and Videocon Industries Ltd.
Scottish Anti-Fraud Initiative Uncovers Scams in Public Sector. On May 17 the BBC reported that the Scottish National Fraud Initiative, which was set up a year ago for the pupose of saving money by rooting out illegal claims and accounting errors in government bodies, has in its first year uncovered £15m worth of scams and errors in the public sector. According to the BBC, the findings included things like housing and pension overpayments and have resulted in 53 prosecutions or reported cases and 32 firings, resignations or disciplinary actions.
Corruption Probe Stalls LoneStar Bid. On May 16, 2006 the Financial Times reported that corruption investigations of Lone Star now appear to be stalling its efforts to conclude a major asset sale in South Korea.
- Hyundai Chief to Face Slush Fund Charges. On May 16, 2006 Reuters reported that South Korean prosecutors have indicted the chairman of Hyundai Motor in a cash-for-political-favors scandal, following his earlier reported arrest.
- Boeing Fine of $ 615 million. The Boeing Co. has agreed to pay the largest corporate fine in U.S. history related to alleged corrupt practices in contracting with the U.S. Department of Defense. The company stated on May 15, 2006 in a one-paragraph press release that it has reached “a tentative settlement of investigations” and agreed to pay $565 million to resolve potential civil claims and a monetary penalty of $50 million. It said “Boeing will accept responsibility for the conduct of its employees and make additional commitments regarding ongoing compliance.” The Government has decided not to file criminal charges. The fines relate to alleged bribes of Pentagon officials by the company to secure multi-billion dollar contracts.
- OECD Says Companies Must Reveal Record on Bribery. On May 16, 2006 the Financial Times reported that the Organisation for Economic Co-Operation and Development (OECD) announced a new set of guidelines in which companies seeking export credit guarantees from rich country governments must in the future declare whether any of their staff have been charged with or convicted of bribing foreign officials. Export credit agencies must now also check blacklists of companies accused of corruption compiled by the World Bank and other international financial institutions. Companies found guilty of corruption or on the lists could be denied export credits, often key enablers for dam projects or defense contracts. (See Anti-Corruption Conventions).
- New England Journal of Medicine Fails to Warn Public of Vioxx Risks. On May 15, 2006 the Wall Street Journal (WSJ) reported that the New England Journal of Medicine (NEJM), allegedly missed several opportunities to correct an article it published in 2000 that touted the benefits of the Merck companys painkiller Vioxx, while downplaying its heart risks. The WSJ stated that the NEJM had ignored information that it received in 2001 pointing out that much of the data from the original Vioxx trial was not published in the NEJM article and it also failed to note both a 2001 article in the Journal of the American Medical Association that highlighted Vioxx risks and a 2001 Federal Drug Administration warning on the drug. The WSJ said that only last year, after Merck recalled the drug and an estimated 20 million Americans had taken it, did the NEJM publish an update on its original article.
- Malaysia PM Names Corruption As Key Impediment to Muslim Nations' Development. On May 14, 2006 The Star, Malaysia reported that Malaysia made a strong statement againest corruption at the fifth Developing Eight (D8) Summit in Bali, Indonesia, saying that Muslim nations will not be able to achieve their full economic potential if they do not address the problem. Malaysian Prime Minister Abdullah Badawi said corruption must be eradicated in the management of a country's economy as it only benefits a few at the expense of many, disrupts the entire governmental process, undermines morality and erodes ethical behaviour. He announced that Malaysia will host a major conference on this subject for Muslim nations at the end of August 2006 in Kuala Lumpur.
- US Congressman Probed in Cunningham Corruption Scandal. On May 12, 2006 the AP reported that the U.S. Attorney's Office in Los Angeles has opened an investigation into dealings between U.S. Congressman Jerry Lewis, a Republican from California who chairs the powerful Appropriations Committee of the US House of Representatives, and lobbyist Bill Lowery, who was involved in a recent corruption scandal that forced the resignation from Congress of another California Republican, Randy Cunningham. According to the article, Copley News Service has reported that Lewis has approved hundreds of millions of dollars in federal projects for Lowery's clients. Lewis denies any wrongdoing.
- Merck Announces New Vioxx Defense. On May 12, 2006 the Financial Times reported that the drug company Merck announced that its follow-up review on the study that forced it to withdraw the painkiller Vioxx for placing patients at a higher risk of heart attack and stroke, did not show a statistically significant increase in risk after patients stopped taking the drug. Merck, which faces hundreds of lawsuits over Vioxx, is expected to use this new evidence as a defense in those cases in which patients suffered from heart attacks long after quitting Vioxx.
- Suharto Charges To Be Dropped. On May 11, 2006 The Australian reported that corruption charges against the ousted Indonesian dictator Haji Mohammad Suharto will be abandoned in light of his failing health, a decision that could erode confidence in Indonesian President Susilo Bambang Yudhoyono's pledge to fight graft. The charges were brought against Mr Suharto after a pro-democracy force drove him to resign in 1998. Prosecutors assert that he collected approximately $US30 billion during his 32-year rule, embezzling $US600 million from state funds. It is unclear whether Mr. Suharto will receive a full pardon or whether the charges could be reinstated at a later time.
- Mexicans Paid $1.8 Billion in Bribes Last Year, Says Study. On May 9, 2006 Transparency International - Mexico reported that the Mexican public paid an estimated $1.8 billion in petty corruption to traffic police, city hall clerks, garbage collectors and other officials last year, constituting 10 percent of their dealings with public officials. When Vicente Fox became Mexico's president in 2000, he ended a 71 year rule by the Institutional Revolutionary Party, which opponents maintain was highly corrupt and nepotistic.
- Ex-Gemstar CEO Ordered to Pay Record $22.3m in Fraud Case. On May 9, 2006 the Wall Street Journal reported that, in one of the largest civil penalties the US Securities and Exchange Commission has ever obtained against an individual in an accounting-fraud case, a federal judge has ordered Henry C. Yuen, former chief executive officer of Gemstar-TV Guide International Inc., to pay $22.3 million for his role in a fraud that led the company to overstate revenue by more than $225 million between 2000 and 2002.
- Vietnamese Legislature Forms Anti-Corruption Committee. On May 8, 2006 the Vietnam News Agency reported that Vietnam's National Assembly Standing Committee agreed to divide its Legal Committee into two parts, the Legal Committee and the Judiciary Committee. According to the article, the latter will be tasked with overseeing the discovery and management of corruption cases in order to enhance the enforcent of the Law on Preventing and Fighting Corruption. These reforms come in the midst of a widespread graft scandal involving top officials of Vietnam’s transport ministry.
- Oxfam Says 22 Will Face Discipline in Tsunami Fraud. On May 5, 2006 the International Herald Tribune reported that Oxfam said that it had completed an investigation into corruption at its office in the tsunami-ravaged Indonesian province of Aceh and will resume operations there, which have been suspended since March. Oxfam reported that $20,000 was missing, most of which has now been recovered. According to the article, Oxfam said that 22 staff members face disciplinary action stemming from the fraud, which it blamed on weak management practices.
- ADB Grants for Anti-Corruption. The Partnership for Transparency Fund (PTF) announced on May 4, 2006 that it has reached an agreement with the Asian Development Bank under which the ADB will make a technical assistance grant of US$150,000 to strengthen the role of civil society in the fight against corruption in India, Mongolia, Pakistan and the Philippines. PTF also said it is in discussions with other multilateral and bilateral agencies for grants to support specific anti-corruption projects undertaken by NGOs in other regions of the world. See the press release on Best Practices by NGOs.
- US House Passes Lobbying Ethics Bill. On May 4, 2006 the Washington Post reported that the US House of Representatives narrowly approved ethics legislation that would require spending bills to list earmarks and their sponsors and lobbyists to file quarterly instead of semiannual reports, to include in those reports donations they give to federal candidates and political action committees, and to disclose gifts to lawmakers and their aides. The House measure must be reconciled with a version of the bill that passed the Senate in March.
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