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Why Congressman Waxman Is Correct To Seek An Investigation Of Enron's Apparent Influence-buying


Friday, Feb. 15, 2002

Enough is now known about Enron's failure and its relationship with Washington to place this scandal in a broader context. Enron is a financial scandal, not unlike the savings and loan scandals or the BCCI bank fraud scandal. The evidence indicates that Enron's failure, and the collapse of our seventh largest corporation into bankruptcy, are largely attributable to phony accounting gimmicks; insider greed, if not outright fraud; and colossal mismanagement.

However, while the reasons for Enron's financial failure have become evident, there is only scant information available about Enron's extraordinary rise, which appears to have been accomplished largely by the company's buying political influence. At present, there is no investigation focusing on the potential political scandal - but there ought to be, and likely eventually will be, such an investigation.

Enron's Failure Is Only Part Of The Story

Enron's failure has been, broadly speaking, attributed to its dubious and bootstrapping accounting arrangements. While apparently permissible under the governing accounting standards, these actions have proven to have been anything but good business practice. Enron's financial "success" was, in fact, an accounting illusion.

Hidden off the company's balance sheet were literally thousands of partnerships that were used to hedge (or provide protection for) Enron's liabilities. However, the company used its own people, and its own stock, to create what appeared to be hedges.

In fact, Enron's hedges were phony, and would only work so long as Enron's share price remained strong and the company met projected earnings. When Enron's stock price fell under $50, it triggered disastrous accounting problems.

No longer did the off-balance-sheet hedges have sufficient assets to protect Enron from its liabilities. No longer could the hidden debt remain hidden. And when this hidden debt was reported, Enron imploded, and was forced to file for bankruptcy.

At present, the Enron scandal is largely defined by the financial shenanigans that have surfaced. These misdeeds and misjudgments resulted in Enron's demise, with investors and employees losing everything, while the senior Enron executives responsible for the mess walked off with millions.

In terms of the unraveling of previous Washington scandals, Enron's collapse is now parallel to men from Nixon's reelection committee getting arrested in the Watergate offices of the Democratic National Committee with bugging equipment. Or the initial discovery of the secret sales of arms to Iran, in direct violation of the laws, to give the profits to Nicaraguan right-wing "contra" guerrillas for purchasing arms for use against the leftist Sandinista government.

These are the discoveries that commenced the Watergate and Iran-Contra scandals, which took time to unravel. Similarly, Enron's bankruptcy is only the initial public revelation of this scandal. Much more remains to be unraveled, problems that remain lurking just below the surface.

The Enron Political Scandal That Is Yet To Come

It is not Enron's failure, but rather its meteoric rise - a growth made possible by purchasing politicians and political influence - that is the potentially more serious scandal. This acquired political clout was, in effect, another off-balance-sheet item for Enron: the asset of friends in high places who facilitated Enron's rise.

Nevertheless, at least so far, the Capitol Hill investigations of Enron are exploring everything except its highly sophisticated influence buying. It is still unclear if and when the Congress will, in fact, investigate this even more troubling aspect of Enron's life and times.

California Congressman Henry Waxman, the ranking minority member of the House Committee on Government Reform, has sent a ten-page letter to Chairman Dan Burton regarding Enron. The letter points out that notwithstanding the fact that there are ten House and Senate investigations of Enron, none are focusing on "how Enron was able to obtain [its] extensive political influence."

Waxman states that Enron "managed to become one of the most influential voices in Washington and a significant presence for both parties. It was able to persuade the federal government to adopt policies that resulted in less oversight and contributed to Enron's demise."

Prominent among the litany of examples of potentially improper influence by Enron that are set forth by Congressman Waxman in his letter are the following:

The White House Energy Plan includes no less than 17 policies requested by Enron, including further deregulation the company sought.

Vice President Cheney's has opposed price caps despite California's soaring electric prices. Enron opposed the price caps too, and told the Vice President so.

The White House assisted Enron in its negotiations with the government of India regarding the sale of a $2.9 billion power plant. Indeed, Vice President Cheney personally intervened.

The Alternative Minimum Tax repeal was recommended. This was a tax change Enron lobbied for, because it would reap a huge benefit - receiving a $254 million windfall, after paying no taxes.

The President made appointments to the Federal Energy Regulatory Commission of persons specifically requested by Enron.

The Bush Administration reversed the Clinton Administration's crackdown on offshore tax havens. As a result, Enron was able to shield the transactions of more than 800 offshore subsidiaries, and did not pay taxes on their income.

In addition to citing these and other instances of apparent Enron influence on the Bush Administration, Congressman Waxman also attached to his letter copies of his earlier correspondence with Bush Administration officials. He had requested information about innumerable publicly reported connections between these officials and Enron. While he received polite responses, the Administration provided virtually no information in response to his inquiries.

Although Congressman Waxman has made a compelling case for investigation of Enron's political activities, it is doubtful that the Republican-controlled House of Representatives is going to undertake the investigation that has been requested. A Republican House does not want to cause problems for a Republican White House.

Nor is it likely such an investigation will be mounted in the Senate. Senate Democrats, I am told, don't want to appear partisan - a problem that does not trouble Republicans. Rather they want to see how this scandal unfolds on its own.

This does not mean these matters will not be investigated, only that it will take time.

No doubt there are unshredded documents in the Enron files that, should they become public, would provoke further outcry. If so, their disclosure will require Congress to do something. Corporate documents are not entitled to a Fifth Amendment privilege (the privilege individuals may claim against the production of documents that may incriminate them). It is also possible that one or more witnesses may emerge who is willing to talk about Enron's influence buying.

Right now, many people are concerned that there is a significant possibility that Enron will remain a financial scandal. Certainly, no one should count on the Department of Justice to flush out the political influence aspects of Enron's activities.

The Department Of Justice Generally Stays Clear Of Political Matters

Federal prosecutors, whether career men and women or political appointees, do not look for political scandals. When evidence of illegalities fall in their hands that cannot be ignored, they pursue it. But I would be willing to bet a hefty amount that the directives going out of Main Justice, and FBI Headquarters, are not calling for inquiry into Enron's political activities.

Resources are limited, and typically the Justice Department feels there are more important crimes to be pursued. While there have been a few exceptions, like ABSCAM or local political corruption-related task forces, by and large the Justice Department is not in the business of policing federal political activity.

Mercifully, the Independent Counsel law expired. It was designed to focus only on high-level government officials of the Executive Branch. Unlike the Department of Justice, an Independent Counsel, once appointed, was prone to look for any and all potential criminal violations by the targeted individual who had triggered the inquiry.

As any prosecutor will explain, given sufficient time and money, sooner or later he will find a violation of some law no matter who the target is. As one seasoned prosecutor once told me, eventually, everyone makes a mistake and the heat of an investigation makes that reality all the more likely.

The Independent Counsel law was abused by both Republicans and Democrats. It was used as a political weapon. And while a few small fish were caught in the net, no big fish was ever successfully prosecuted by an Independent Counsel.

It is not the mission of the Department of Justice to dig out potential political corruption by Enron. But should documents or witnesses produce such evidence, hopefully they will not be ignored. Career Justice Department men and women don't play the political game. Political appointees who sit atop the Department do.

Federal prosecutors are a tight-lipped bunch, so any political corruption investigations will be handled behind the closed doors of the prosecutor's office and grand jury room. Only if evidence sufficient for prosecutors be reasonably certain of a conviction emerges, will the public learn of it - and the public will likely learn when the indictment is handed down, and not before. Grand jury proceedings are not passed along to Congress for further investigation, and grand jury secrecy rules generally protect their contents from disclosure.

In short, no one should count on the Justice Department to aggressively look for political corruption that might reach back to the Bush Administration. Only if overwhelmed by evidence of such corruption, will DOJ initiate investigations that may result in indictments.

Enron Will Take Years To Resolve

Frankly, I have no doubt the Bush White House and Bush Administration are "covering up" relationships with Enron, which is why they failed to respond to Congressman Waxman's inquires. (I discussed the cover-up evidence and issue at greater length in a previous column). However, I have no information that any illegality is occurring and, of course, only illegal cover-ups are prohibited. Such cover-ups, the Administration should remember, lead to secondary scandals of their own that can sometimes even overwhelm the primary scandal from which they arise.

Should even one of the many concerns raised by Congressman Waxman prove correct, the Bush Administration is in trouble. Sooner or later the truth emerges; it always does.

At this time, it is too early to know how Enron will unfold. But I have little doubt that Enron is going to become a full-fledged political scandal. The odor of political influence being bought, sold, and traded is too strong for me - and apparently others -- not to strongly suspect that there is something putrid in the midst of Enron's political activities.

John Dean, a FindLaw columnist, is a former Counsel to the President of the United States.

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