The Hindu : CORPORATE CRIME AND PROSECUTION

Online edition of India's National Newspaper
Wednesday, Feb 25, 2004

Opinion

Opinion - Editorials

CORPORATE CRIME AND PROSECUTION

WITH THE U.S. Government filing criminal charges against Jeffrey K. Skilling, the former chief executive officer of Enron, the legal case has entered the highest echelons of the once-envied energy conglomerate. Mr. Skilling is the most senior executive to be hauled up before the courts; 20 of his one-time colleagues have already been charged and nine have pleaded guilty. If the prosecution proves its case, Mr. Skilling faces the prospect of life imprisonment. There is now only one official senior to him who is yet to be indicted: Kenneth J. Lay, president of the company when it imploded in late 2001, Mr. Skilling's mentor, and an active supporter as well as campaign financier of George W. Bush in the 2000 presidential elections.

The 35 charges of fraud, insider-trading and criminal conspiracy that have been filed against Mr. Skilling do not reveal anything new. They are based on the same illegal activity that other Enron executives have been accused of: manipulation of accounts to meet stock market expectations, maintenance of off-balance sheet debts to hide costs, and manufacture of artificial profits by juggling accounts between company divisions. These were the practices, hidden from an adoring stock market and uncritical media and financial analysts, that took Enron to dizzying heights and, when finally discovered, brought it down to bankruptcy. The case against Mr. Skilling has taken over two years to assemble, possibly because the evidence until now had some critical gaps. It must be more than a coincidence that the charges have been filed within weeks of Andrew Fastow, a former chief financial officer and number three in the hierarchy, pleading guilty in a judicial bargain that included the promise to cooperate with investigators. Mr. Skilling has strenuously denied that he was ever aware of the massive fraud or scam being committed under his watch. But these protestations have always worn thin. Indeed, the former CEO's abrupt resignation a few months before the true working of Enron became public knowledge was seen subsequently as a case of parachuting out of a company headed for a crash.

The special task force, appointed by Mr. Bush in 2002 to discover those guilty of corporate fraud at Enron, has insisted that none, however rich and powerful, will be spared. The investigations will continue and the charges have to be proven in court. Enron, however, was only the most high profile of corporate fraud cases that surfaced in the U.S. a couple of years ago. The irregularities in WorldCom, Tycos and Adelphia seemed to offer more direct evidence of criminal wrongdoing, but those cases have been pursued much more slowly. One criticism has been that the Bush administration has chosen to pursue the Enron case vigorously because it is anxious to demonstrate that it is not showing any undue favours to a company once headed by a friend of the President. The U.S. Government's commitment to corporate reform has also been questioned recently. It did facilitate, in 2002, the enactment of the Sarbanes-Oxley Act aimed at improving corporate accountability. However, Paul O'Neill, the former U.S. Treasury Secretary, is cited in The Price of Loyalty, a recently published book, as recollecting that a proposal in 2002 for tough norms on CEO accountability was shot down by the inner circle of the Bush administration on account of fears about the reactions of the "corporate crowd." The Enron investigation may show that corporate crime cannot hope to go unpunished in the U.S., but there is no evidence that sufficient deterrence has now been built into the system.

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