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Did Enron Successfully Buy Influence With The Money It Spent?


Friday, Jan. 18, 2002

This is Part One of a two-part series by Mr. Dean on Enron. Part Two will appear on this site on February 1. - Ed.

Enron spent big money in Washington. According to available records, Enron lavished near $5.8 million in political contributions on various candidates (Congresspersons, Senators, the President and Vice President) over the last decade, with almost seventy-five percent of it going to Republicans. Indeed, according to one report, Enron and its officials spent $2 million on George W. Bush's political career alone, starting with his first (unsuccessful) run for Congress.

What, I have been wondering, did spreading all that money around Washington accomplish? Notwithstanding protestations to the contrary, American businessmen don't make large political contributions because they love their country. Rather they are investments, on which they want a return. But what did Enron get for its money? As discussed below, I have concluded it received quite a lot.

The mere fact that Enron's contributions did not buy off investigations into the largest bankruptcy in history means little - it would have been hard not to investigate given the dramatic allegations now being made. And prior to the eleventh hour, Enron's contributions seem to have purchased quite a bit of influence, as they were no doubt meant to do.

Highly Questionable Accounting May Disguise Quid Pro Quos

To begin with it, it is worth noting that any quid pro quo relating to Enron may be especially hard to track; indeed, Enron may have contributed much more than the $5.8 million of which we are currently aware. We may never know, for Enron's reporting and record-keeping are not very good, as everyone is learning.

Apparently typical is Enron's auditing firm, Arthur Andersen, which not only destroyed records, but also apparently failed to make itself privy to all of Enron's 2,832 subsidiaries' operations - the losses of which seems to have been kept off the balance sheet, while their assets and income were included. That's a neat bookkeeping trick; they didn't teach that one in my five years of studying accounting.

Much of this subsidiary activity was not only off the balance sheets, but also offshore. About a third of these partnerships are registered in the Cayman Islands or other secrecy havens, which may make it impossible to unravel the worst corporate collapse in American history. Any quid pro quos, too, may be hard to root out.

Buying Washington Influence: The Typical Goal of Big Contributors

Having been involved in fund raising, I have few illusions about what is involved - particularly with the heavy hitters. There are many contributors - indeed, by far the greatest number - who give what they can afford to the candidate in whom they believe, hoping he or she will win. But these are typically the small contributors. Big money comes from wealthy persons and organizations who want something - in most cases, something that will add more to their wealth.

First, the big hitters want access. They usually have business dealings with the federal government and they want to be able to plead their case directly to decisionmakers, should they need to do so.

Others want special favors, everything from an ambassadorship to favorable legislation or regulation of their business. Heavy contributors are usually well schooled in how to make their contribution and stay within the law. When they are not, the smart politician returns their money, and advises them on how to make the contribution legal, and the contribution, in the end, gets made just the same.

Enron, like many businesses who want something from Washington officials, spread its money broadly. According to The Center for Responsive Politics, which tracks political contributions, Enron gave $530,493 to seventy-one senators since 1989, and $603,488 to 187 House members. Mostly Republicans were recipients, although important Democrats who could affect Enron's business were not overlooked.

Enron's Investment In Politicians: A Better Return than Commentators Think

On January 15, Time magazine ran a story entitled "For Enron, Washington May Have Been a Bad Investment." The story concludes that Kenneth Lay & Company did not get much for their money, other than "[a] seat at the table for Dick Cheney's energy-policy formulations - OK, six seats - and the grace of the Enron-friendly energy policy that resulted. Possibly veto power over the head of the Federal Energy Regulatory Commission - former chief Curtis Hebert Jr. says Bush replaced him not long after Hebert declined Lay's demand for a friendlier stance toward energy deregulation. And a very big black book. And that's about it."

Granted, Enron's political largesse obviously did not buy survival insurance. Today, Enron stands as the nation's largest bankruptcy ever. Nor has it bought off investigations into the reasons for its failure.

At present, there is a Justice Department task force investigation into Enron - although Attorney General Ashcroft had to recuse himself, for he received an Enron contribution during his unsuccessful Senate race, and the entire U.S. Attorney's Office in Houston also had to step aside because of conflicts.

The Securities and Exchange Commission is also investigating. Furthermore, at least six (one report has it at ten) Congressional committees are investigating. In addition, forty-seven class action lawsuits have been filed - so far. And last but not least, the California legislature is investigating Enron's role in its electricity crisis.

And granted, Secretary of the Treasury Paul O'Neill, Secretary of Commerce Don Evans, and Federal Reserve Chairman Alan Greenspan apparently did nothing to help Enron from failing. Accordingly, Time 's correspondent feels that Enron's investment in Washington was not very helpful. But Time's analysis focuses only on the final days of Enron, and the apparent lack of action by high officials to save what was already a desperately troubled company. It ignores the larger picture of how Enron's contributions may have help slow detection of its troubles, and helped the company fly under the radar for as long as was possible given what now appear to be some egregious accounting and business practices.

Enron insiders did quite nicely on their investment in Washington officials, thank you. Washington officials gave them the ability to trade futures contracts generating billions of dollars in revenues, unregulated. No prying eyes looking over their shoulders.

Indeed, Enron's investment in Washington radically changed the regulatory laws that permitted them to grow from an insignificant gas pipeline company into the seventh largest company in the United States, with a meteoric growth in revenues of 1,750 percent in a single decade.

Moreover, when Enron hit the wall, the Bush Administration remained mute, even knowing Enron was disintegrating. Certainly the former governor of Texas had some idea of what this would mean to his beloved state. For one thing, twenty thousand employees of Enron would be out of work, with their 401(k) plan worthless. Surely a man with a Harvard MBA could envision the devastation this business failure (of a company he had once promoted) would have on countless thousands of Enron stock and bond holders, not to mention major lending institutions who had provided Enron working capital.

In all these ways - through favorable regulatory changes, lack of government oversight, and administration silence until the very end - Enron's investment in Washington paid handsome returns for a few insiders, who personally made millions (but obviously wanted billions) from Enron. Sometimes buying influence can simply mean buying silence - not buying specific actions or intervention.

Federal Investigations of Enron, Andersen, and the Administration

The Congressional inquiry will be wide ranging, an effort to find out why one of the country's largest companies could all but disappear overnight. Based on reports in The Washington Post, and statements by members of Congress, it appears at this time that the Congress plans to investigate five basic questions relating to the Bush Administration's connections with Enron. The questions can be summarized as follows:

(1) What did the administration do, or not do, in the weeks immediately before Enron entered bankruptcy; and why?

(2) What influence did Enron have on the administration's energy policy, since Enron officials met not less than six times with Vice President Cheney as he was developing that policy, and at least seventeen provisions (according to one study) of that stated policy benefited Enron?

(3) What role did Enron have in developing last fall's economic stimulus legislation, which contained a tax break sought by Enron?

(4) Was Enron involved in promoting the appointment of officials favorable to its activities by the Bush White House? (This inquiry is not limited to the ousting of the chairman of the Federal Energy Regulatory Commission, who was hostile to Enron's free-wheeling style.)

(5) Did the administration arrange for Enron to receive benefits from the Overseas Private Investment Corporation and the Export-Import Bank of the United States?

Paralleling the Congressional inquires will be the Justice Department task force investigation looking for criminal misbehavior, both at Enron and relating to Enron during the past five years (the typical cut off date for the statute of limitations on most federal crimes).

These investigations will involve not only Enron officers, employees and directors, but also any state or federal officials alleged to have violated federal laws, as well agents and contractors of Enron, like Arthur Andersen.

A Wide Range of Possible Charges, and Quid Pro Quo Allegations

Violations, if any, may well relate to securities and bankruptcy laws, mail and wire fraud, campaign law violations, Hobbs Act (extortion) violations, obstruction of justice, and the conspiracy statutes. At present, it is only possible to speculate at potential violations, which is a worthless exercise. But it should surprise no one if it is soon reported that the criminal defense bar in Washington has had a sudden influx of business from the Enron fallout.

No area will be sifted through more closely than Enron's political contributions. Indeed, the Congressional inquires appear to be looking for "quid" - as in "quid pro quo." Even if the quid cannot be found, or is less than clear, but the campaign contribution reeks with influence-buying, prosecutors have been very successful using the federal law prohibiting gratuities.

My discussion of this topic will continue in my next column, to appear in two weeks on this site, for answers to some of these questions are only beginning to be puzzled out.

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

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