Enron Criminal Probe Focuses On Alleged Corruption Abroad
By John R. Wilke

08/05/2002
The Wall Street Journal
A1
(Copyright (c) 2002, Dow Jones & Company, Inc.)

WASHINGTON -- Federal prosecutors are investigating whether Enron Corp. for
years bribed foreign government officials to win contracts for its far-flung
operations abroad, underscoring the sweep of the government's probe into
Enron's collapse.

The Justice Department's Enron Task Force is examining the energy company's
overseas operations for possible criminal violations of the Foreign Corrupt
Practices Act, according to government officials and lawyers close to the
case. The previously undisclosed inquiry is examining Enron's efforts to win
foreign pipeline, power and water-privatization projects, some reaching as
far back as the mid-1990s, they said. In some countries, projects were
awarded to Enron without competitive bidding, or assets were acquired at
below-market values, amid allegations by the World Bank and others of
government favoritism.

Enron has denied ever paying bribes, and says that it has "a clear
anticorruption policy prohibiting the payment, solicitation and receipt of
bribes in any form." The Houston company has also said that some of the
bribery allegations have been falsely brought by commercial rivals or by
local political opponents. "It's not uncommon for any business to encounter
these kinds of charges, especially in the developing world," said John
Ambler, a spokesman for Enron Global Services.

The Justice Department's investigation represents another front in the
government's protracted battle against Enron, which collapsed into
bankruptcy-court proceedings late last year. Although charges have been
brought in more recent corporate scandals, including WorldCom Inc.,
assembling a case against Enron has proved more difficult because of the
company's complex accounting that allegedly hid debt and inflated reported
income. Although the allegations of corrupt practices abroad aren't new,
their scrutiny, if substantiated, could add another weapon to prosecutors'
arsenal against Enron.

Under the Foreign Corrupt Practices Act, Enron could face stiff fines if
convicted. But such charges would likely come some time after the first wave
of indictments expected to be handed up on the more serious accounting and
securities fraud charges arising from the company's collapse. Still, the
corruption inquiry could turn up the heat on a new cast of characters,
including Rebecca Mark, a former senior executive who helped to build
Enron's international operations. She served as chief of Enron's
international group through 1998 and then headed its water subsidiary,
Azurix, before leaving Enron in 2000 and selling her Enron stake valued at
more than $80 million.

A spokeswoman said the former executive, now Ms. Mark-Jusbasche, strictly
enforced the Foreign Corrupt Practices Act during her watch. "Many of these
allegations have been beaten to death, and no charges have ever been
upheld," the spokeswoman said, adding that Ms. Mark-Jusbasche hasn't been
contacted by the Justice Department.

Enron's U.S. business has been diminished with the sale of its trading
operations and other assets, but many of its utilities and pipelines
continue to operate. Its international operations, collectively known as
Enron Global Services, include some of the company's remaining valuable
assets and were excluded from its Chapter 11 bankruptcy filing. The foreign
units range from power plants in Poland and the Philippines to a gas
pipeline that is being carved through the Bolivian jungle. Many of these
overseas units are still operating, while others have run aground because of
faltering local economies and other problems.

The foreign projects have been awarded more than $4 billion in loans or
guarantees by U.S. taxpayer-backed institutions over the past decade,
according to a report by the Institute for Policy Studies, a nonprofit group
that often opposes corporate projects in the developing world.

Among these lenders were the Overseas Private Investment Corp.,
Export-Import Bank and the U.S. Maritime Administration. Enron got $3
billion more from other public sources, including the World Bank, European
Investment Bank and U.K. export-credit agencies, said Daphne Wysham, the
report's co-author.

One obstacle prosecutors face: Foreign bribery cases can be notoriously
difficult to bring. Since the Foreign Corrupt Practices Act was enacted in
1977, just 40 prosecutions have been successful under it.

"It's tough to win these cases, because they often turn on the cooperation
of a foreign witness, access to documents held outside the U.S. or the
cooperation of often-reluctant foreign government officials," said Timothy
Dickinson, a Washington lawyer and expert on the act. The largest fine to
date was imposed on Lockheed Corp. in 1995 after the company pleaded guilty
to conspiring to bribe an Egyptian politician and to falsifying its books;
the defense contractor, now Lockheed Martin Corp., paid $24.8 million in
criminal and civil fines.

Federal prosecutors are examining foreign contracts and projects awarded to
Enron over several years, and it wasn't clear whether any one or two
countries has emerged as a focus of the probe. Claims of corruption in Enron
power or water projects have arisen over the years in many countries,
including Ghana, Colombia, Bolivia, Panama, Nigeria and the Dominican
Republic.

In Ghana, the World Bank in 2000 suspended its support for a $100 million
water project after it was awarded to Enron's Azurix unit. "We were
concerned the award was sole-source, without real competition," a World Bank
official said last week. "We advised the government we couldn't finance it,
because of the way the procurement was done."

After the award, the bank's Ghana director, Peter Harrold, sent a harshly
worded letter to Ghana's then-Vice President John Atta-Mills canceling the
loan and alleging corruption. "We cannot have made it plainer to you that
the key issue is transparency," he wrote. "The arrangement you have reached
with Azurix is one that has been arrived at on a completely nontransparent
basis."

World Bank officials cited a draft schedule of payments showing an
unexplained, $5 million up-front payment by Enron. An Enron spokeswoman at
the time denied reports in the Ghana press the $5 million was for government
officials; a new Ghanian government has since suspended the award, and is
now seeking competitive bids.

The World Bank has raised objections to other Enron projects, including ones
in Nigeria, India and Mozambique, saying terms were too favorable to Enron.

In the Dominican Republic, local politicians last year claimed Enron bought
into a power-generating project with the local utility at a price far below
market value, based on an assessment provided by a local affiliate of Arthur
Andersen, which was then Enron's auditor.

The U.S. Maritime Administration helped to finance Enron's investment in the
Dominican Republic power project. That project now has "significant
operational, profitability and debt-service problems," Bruce Carlton, acting
deputy director of the Maritime Administration, recently told the Senate
Finance Committee, which was investigating government backing for Enron's
foreign operations.

Other Enron projects abroad have also come under congressional scrutiny. The
$2.9 billion Dabhol power plant in India, which also received U.S.
government assistance, was mothballed in June 2001 after its sole customer,
the Maharashtra State Electricity Board, claimed the plant's rates were too
high and refused to pay. In Nigeria, Enron's barge-mounted power stations
are being examined by Senate investigators because their financing
apparently enabled Enron to disguise loans. The Nigerian barges were backed
by Merrill Lynch & Co., a deal that has drawn the investment bank into the
Enron scandal.

Enron's collapse last year brought the loss of thousands of U.S. jobs and
wiped out billions of dollars of investment held by retirement funds and
individuals. The company also stirred controversy abroad when its power
projects in at least three developing countries resulted in rate increases
that sparked popular opposition, according to a study last year by the
University of Greenwich, in London. The study was funded by public-service
labor unions.

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