WASHINGTON, Aug. 15 (UPI) -- 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, told United Press International. 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?" he asked. "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 are also 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 due to the long-term backing of institutions -- such as the Inter-American Development Bank; the Export-Import Bank, or Ex-Im; the Overseas Private Investment Corporation, known as 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, over the last decade Enron Global Services received more than $4 billion in loans and guarantees from these institutions, which seek to support overseas U.S. corporate investment as a means 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," said Wysham, a critic of American corporate economic development practices overseas.
In her report "Enron's Pawns: How Public Institutions Bankrolled Enron's
Globalization Game," she says that Enron's overseas activities have resulted not only in shady deals with foreign officials to ensure contracts, but also in energy rate hikes, blackouts, social unrest, and riots that have sometimes been brutally repressed by the company's host governments.
"Enron was a non-entity until basically it began to get loans from international financial institutions and export credit agencies, " she said. "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 like the World Trade Organization."
Wysham also alleged that U.S. government officials threatened the Mozambique government on behalf of Enron, if it did not go along with an Enron power project in that country. UPI was unable to substantiate this charge through other sources.
She also says federal officials "bullied" the Indian government to accept Enron's terms for a power project in their country that is now shut down after being plagued with problems that both Amnesty International and Human Rights Watch have said were partly the result of Enron's business practices.
According to Wysham and Elliot, World Bank officials had indicted 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 Vásquez, director of the Project on Global Economic Liberty at the libertarian Cato Institute, is not surprised that these types of such abuses might occur, although he stressed that it is not yet known whether the charges against Enron Global Services are true.
He says there are always risks when the government gets involved in international investment, and that when the U.S. government supports the 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," said Vásquez. "And perhaps we will never now whether that was the case with Enron."
But Kimberly Ann Elliott, a research fellow at the Institute for International Economics, says that is important to support overseas corporate investment through these U.S.-backed institutions. Nevertheless, she believes the charges against Enron hold significant implications for U.S. foreign investment policy.
"It raises big questions about how OPIC and the Ex-Im Bank operate when promoting businesses abroad," said Elliot, "which is a very important policy (issue)."
She says the allegations represent a "classic example" of the conflicting objectives within these organizations.
"The fundamental objective is supposed to be promoting investment and continuing development," she said. "Supporting U.S. investors is supposed to be the means to this end. I think what happened in the end is that the priorities got flipped."
Citing his own experience in India, PPI's Gresser said it is hard for him to believe that "the Indian government was entirely the innocent victim of a predatory company" apparently supported by practices of the American government.
"Domestically, they have a very inefficient -- often non-functioning -- energy system, and maybe Enron can come in and make it work or create whole new problems, but it (Enron) is not a serpent setting its ugly belly in Eden," he said. "It is a pretty messy place regardless of Enron being involved there."
Gresser believes that if the corruption charges are proved there are lessons to be gained.
"Even a focus on one company can often tell you something about more general issues and how you can get at corruption more effectively than the world has up to now," he said.
IEE's Elliot added that whether the charges against Enron are true or not, the fact that there seem to be grounds for the charges demonstrates that questions need to be asked.
"OPIC is up for reauthorization by Congress next year, and there is some hope that they will look at these claims with that in mind," said Elliot.
She also believes that steps should be taken to ensure competition among companies in the overseas arena, and to make the contract award process through these agencies more transparent.
Elliot noted, however, that a significant barrier may prevent the federal investigation from yielding such results: Cases of foreign bribery are exceptionally difficult to prove. There have been only 40 successful prosecutions under the Foreign Corrupt Practices Act since it was enacted in 1977, she says.
For Wysham, the Enron problem represents larger issues related to globalization.
"I think that (the domestic) Enron (scandal) is the face of corporate-driven globalization come home to roost," she said. "We are learning it here in the United States, but people have been feeling it around the world for some time."
She believes that mechanisms must be developed to protect the environment and human rights, and to ensure transparency in the allocation of projects tied to the activities of the World Bank and other international and U.S. government-backed development agencies.
In contrast, Peter Morici, a professor of business at the University of Maryland who has ties to the Economic Strategy Institute, said that although Enron's potentially illegal activities should not be ignored, some of the allegations -- especially those from IPS -- should not be taken at face value.
"I think we have to recognize that these (IPS and other think tanks critical of Enron's activities) are institutions that are not particularly friendly to international investors, and this is an opportunity for them to go after an institution that they would like to see disassembled in any case," said Morici.
He believes that although there is ideological disagreement about the effects of international corporate development, many American companies are doing a great deal of good with the help of government-backed lending.
"Building power plants in places like India and Brazil has a positive developmental effect on the private lives of poor people," he said. "To disassemble these institutions would be a great mistake, especially investment institutions."
As to the substance of the charges against Enron, Morici believes that companies that build power plants in developing nations are vulnerable to shady dealings because of the way in which business is conducted in such countries. Practices such as outright bribery, which are not tolerated in the developed world, are often endemic in these cultures, and are the key to getting projects underway, he says.
He noted that federal authorities often grant a degree of latitude to corporations operating in developing nations regarding these practices, given the significant political and economic risks they often face.
The slack allowed, however, is based at least in part on a company's domestic behavior, he says.
"The Justice Department does (typically) provide some latitude in this regard," said Morici. "I am not surprised that they (Enron) have been engaged in activities that could be subject to scrutiny. But they (the Justice Department) are turning to these laws to pursue them in a way that shows Enron has not been a good corporate citizen domestically."
