To many readers the dramatic rise and fall of Enron presents a telling lesson on the dark side of globalisation and the liberalisation of financial services, which we have been considering in recent weeks. The heady mixture of sleaze, lies, deceit, greed, financial mismanagement, fraud, obstruction of justice, and suicide, along with the welter of government officials, politicians, accountants, lawyers, judges, executives at bond rating agencies, securities and financial analysts who are now revealed to be beholden to Enron, ensure that the investigative processes already set in train will provide the subject for much drama in the years to come.

Formation

To follow these developments intelligently, one should start with a background profile of the firm. Enron was established in July 1985 in Houston, Texas. It came into existence as the result of a merger of two companies: Houston Natural Gas and Inter North of Omaha, Nebraska. Originally, the firm's chief interest lay in power plants and supplying natural gas through pipelines.

It is not widely known, but shortly after its formation the company was involved in, what was for that time, a major trading scandal. The head of its oil contracts trading subsidiary together with the Vice President and Treasurer of that company operated a scam, which eventually cost the company about US$140 million in trading losses over the period October 1985 to October 1987. The scam involved the two officials setting up their own phoney off shore companies to arrange sham oil trading contracts with their employer Enron, and keeping false financial records to hide these transactions. The two officials were caught and charged, and pleaded guilty to the charge of conspiracy to defraud Enron. The case was settled in 1990.

As if setting a precedent for what has recently happened, no explanation of this incident was offered by Enron to its shareholders, in any of its subsequent annual reports. Enron was, at that time, a small and relatively obscure company, so this incident more or less passed unnoticed in the media. For the record, Kenneth Lay, the present beleaguered head of Enron, was CEO in 1986.

Meteoric rise

By the end of the 1990s, Enron had become the seventh largest US transnational firm (TNCs) based on sales revenue. It had over the years dramatically diversified away from its original core businesses of pipelines and power plants, to become one of the world's largest traders in energy, commodities, and services. It soon marketed electricity and natural gas (with 3,000 miles of gas pipe lines), delivered energy, traded in physical commodities, and provided financial and risk management as well as other services on a worldwide basis. These activities in services came to dominate the company's business in recent times. Thus for example, it began marketing electricity in 1994, entered the European market in 1995, and went further afield, later.

In 1999 Enron ventured into an even newer area, the high speed bandwidth/broadband communications market and e commerce. In that year a plan was launched to buy and sell access to these services through Enron Online, a web based site for commodity trading. By 2001 the company had access to over 15,000 miles of fibre optic network. Its total revenues was of the order of $101 billion.

These developments are in keeping with much of what we have already looked at in this series, pertaining to the rise of the modern TNCs. Enron's shift from producing and delivering energy to brokering energy sales is the sort of diversification we would expect. As readers would recall, all this became possible because of the financial deregulation that started in the 1990s.

The sleaze culture

Enron had over the years developed its own distinctive "culture" as a firm. One element of this is that it presented its accounts deceptively. Thus it was forced to admit last November that it had overstated its profits by $586 million over the past 4 1/2 years! Again, despite the tremendous growth of company, its accounts show that it paid taxes only once in the past five years (1997)! Indeed, over the years it convinced the tax authorities to grant it tax refunds to the tune of $300 million. While "underpayment" of taxes by large companies is usual in the US, the extent of Enron's is unusual. (For the period 1995 1998, the top US companies averaged tax payments of 8.5 per cent of their income).

Another cultural feature is that Enron evolved into a massive and complex organisation, whose complexity was designed to obscure its real operations. It had 881 subsidiaries, and it is reported that 700 of these were in the Cayman Islands alone. The company also arranged a huge number of partnership deals, many involving firms with ownership by its own top executives. Most of these "partnership" deals were kept off balance sheet and held in undisclosed off shore accounts. This was particularly so for its broadband activity. These "partnership" deals obscured its debt and provided cover for trading losses.

A third element of its culture is that, starting with the trading scandal of 1985 87, the firm lacked adequate internal controls and checks and balances. This served its penchant for letting self serving executives get rich while the company bled. Kenneth Lay was CEO in 1986 and when questioned last year about the 1985 87 trading scandal, he was reported to have said the company had learned a lot from the 1980s incident and had "put in place probably the best risk management and control system, not just in our business, but in any industry". Events were to prove this to be a gross misrepresentation of the facts

Finally, many commentators have over the year referred to the infamous "arrogance" of the firm, when faced with concerns expressed by investors, employees, and regulators. This culture developed under the leadership of a Board of Directors who not only lacked independence, but were riven with conflicts of interest. To take one example, the compensation package of a part time Director was over $300,000 per year, which is about three times the average for top firms in the US. This inducement prevented them from exercising responsibility to their shareholders and the wider community.

By October 16, 2001, Enron was reporting a third quarter loss of $638 million and a reduction in shareholder equity of about $1.2 billion. A week later, on October 22, the Securities and Exchange Commission had opened a formal inquiry into its partnership deals. In just over a month later (November 8), the company's credit rating was reduced to junk status. And, on December 2, Enron filed for Chapter 11 bankruptcy protection.

Next week we continue our examination of this saga.

Oh what a tangled web we weave: Enron and Andersen
Oh what a tangled web we weave, when first we practise to deceive

Last week we traced the rise and fall of Enron as symptomatic of the ever-present dark side of globalisation and the liberalisation of financial services. A side where deception and deceit, scampishness and roguery, haunt the corridors of the marketplace.

Established in 1985 out of the merger of two very modest companies, one Houston-based and the other Omaha-based, Enron had by the 1990s become the seventh largest company in the US, in terms of sales value. In the process, it had diversified away from its original core activities of pipelines and power plants, to become a power-house trader of energy, commodities, financial and other services. As indicated last week, this development was made possible by the unbridled liberalisation of financial services that started in the mid-1980s. A process, which we have already traced in this series.

Scampishness and roguery

If Enron's diversification depended on the rapid deregulation of financial services, the sleaze culture of scampishness, roguery, lies, deceit, greed, fraud, financial mismanagement, and obstruction of justice that it came to excel in, which we also highlighted last week, thrived in a tangled web of crooked accountants, politicians, investors, financial analysts, lawyers and judges, who had become beholden to the company.

Evidence of this crooked web has surfaced sufficiently to warrant an unprecedented nine United States Congressional inquiries into Enron's affairs, as well as two others being conducted separately by the Departments of Justice and Labour. Concurrently, several states have mounted their own inquiries, as they have come to realise that millions of dollars of state funds have been lost with Enron's bankruptcy. Within this tangled web, none was more crooked than the giant Chicago-based "Big Five" accounting firm, Andersen, until recently known as Arthur Andersen.

Special purpose entities

At the time of its bankruptcy, Enron had spawned 3,500 affiliates or special purpose entities (SPEs). These were capitalised not through cash injections, but with Enron's shares. Outside investors were then encouraged to invest in these outfits. Many of these SPEs were managed "on-the-side" by Enron's own executives and their accounts kept off-balance sheet in Enron's accounts. The estimate I saw for the end of 1999 showed that $27 billion of the $60 billion assets Enron held were off-balance sheet. Recent revelations also show that in one instance, Enron's Treasurer was able to personally convert an investment of $2,500 in one of these SPEs into $2.5 million, in the space of two months!.

By and large shareholders and investors were not aware of these occurrences. Clearly however, covering Enron's tracks to this extent would not have been possible without the knowledge and/or the active participation and collusion of its auditing firm, Andersen.

Readers should be reminded of how vitally important are company accounts and therefore, honest and competent accountants to the operations of a market economy. These accounts are the basic form of communication, the fundamental language of discourse about a company's performance. If these are flawed, either through incompetence or dishonesty, then the famed efficiency of the marketplace is fatally undermined.

Hard numbers look soft

As we now know from Enron's recent admissions, Andersen conspired with it to portray a rosy picture of the company's health and strength, even as its finances were crumbling under the weight of effort required to sustain the deception. The hard numbers of financial distress were made to look soft.

Last November Enron admitted that it had overstated its profits over the last 41/2 years by the whopping amount of $600 million. In the wake of Enron's filing for Chapter 11 bankruptcy, and under intense public scrutiny, Andersen's Chief Executive Officer (CEO) admitted that there were errors in Enron's accounts. He blamed these on Enron having withheld information and documents from its auditors. A month later, on January 17, in a meaningless act, Enron announced that it had fired Andersen as its auditors.

As was mentioned last week within two years of Enron's formation an earlier trading scandal had erupted. This revealed its use of the device of special partnerships as a modality in support of its drive to diversify into energy trading and services. Over the years this device was to be "perfected". And throughout this entire process, Anderson audited Enron's books.

One of the problems that had developed over the years is that Andersen not only made lots of money from auditing Enron's books, but it also did so through providing consultancy services to Enron. This two-pronged relationship posed a severe conflict of interest, and there is little doubt in retrospect that it helped to undermine the independence of Enron as an auditing firm.

Andersen's venality: the getaway car

Nothing, however, reveals the venality of Andersen more than the action it took after the Securities and Exchange Commission (SEC) had begun its formal probe into Enron's partnership deals last October. On January 15, Andersen publicly admitted that it and been destroying/ shredding/deleting documents and information pertaining to Enron, "after" it had received a subpoena from the SEC.

This nefarious link between Enron and Andersen has been well captured in the words of the Chairman of the House Energy and Commerce sub-Committee. Referring to Enron, he stated: "Enron robbed the bank." And, referring to Andersen he stated: "Arthur Andersen provided the getaway car."

Next week we shall continue this discussion of accounting and Enron's misfortunes. As we shall argue, the accounting profession faces a real crisis of confidence. Ultimately, however, the questions that we need to resolve for ourselves are: can we treat Enron as an isolated, though tragic occurrence? Or, is it symptomatic of deeper systemic weaknesses now being expressed in the wake of what its former proponents now admit is true, the all-two-rapid liberalisation of financial services in the late 1980s, in which recent events like the Asian-crisis and the Argentina default are but manifestations? Do any of the Enron-related weaknesses revealed in these articles find reflection in Guyana and the wider Caribbean?

Accounting: The three card con The three card con game is always operated through pairs. The person who shuffles the cards and the other co conspirator who pretends to be just an ordinary player, like every one else who plays the game or looks at it. So too it has been with the con game run by Enron and Andersen.

Commercial racketeering
The public outcry, however, at the disclosures of commercial sleaze they practised has precipitated a worldwide crisis in the accountancy profession. In all the major stockmarkets there is now deep distrust and cynicism about the accuracy and reliability of audited accounts of public companies. In a matter of weeks big name firms and even banks are being discussed in the same breath as disreputable firms like Sunbeam, Waste Management, PNC Financial Services, and Lucent Technologies, whose books accounting firms helped cook and who have since been exposed.

This type of commercial racketeering threatens trust, which is the social foundation of a successful market economy. Indeed accounting accuracy, devoid of incompetence and fraud, is at the heart of the famed efficiency of private markets. Without this there can be no accurate measure of a firm's performance. And without such a measure, capitalism loses its claims to be the most commercially efficient social system the world has ever known.

The meaning of 'enronitis'
This commercial racketeering has introduced a new word into the lexicon of business: "enronitis." Most readers would have heard it or seen it in the print media, but what does it mean? There are at least four elements that combine to generate its uniqueness as a modern phenomenon of globalisation.

One is the situation where a firm grows because of its "strong record of acquisitions." Earlier in this series we noted that a driving force behind the rapid growth of modern capitalism is the increasing number of mergers and acquisitions (M + As), which occur as firms consolidate themselves into a smaller number of large dominant companies in most industries.

A second element is the "hard to follow accounting procedures" these firms follow. In this regard, Andersen and Enron excelled. They created a massive number of special partnerships, which kept the true performance of Enron off balance-sheets and hidden from its investors, employees, and the regulators.

A third element is that, as the consequence of all this, investors have become skeptical of published accounts. They now invariably add an "accounting risk premium" when making investment decisions, thereby raising the cost of capital.

Finally, the managers of these firms realise the predicament Enron has created and they have begun to adopt the strategy of seeking to "manage future expectations."

Managed expectations
What does this mean? Previously, firm managers exploited stock market greed and the unwillingness of investors to admit that "profits were too good to be true" during the 1990s, by feeding them with highly inflated and optimistic forecasts of their companies' performances. Since Enron, however, the practice now in vogue is to "low ball" forecasts, in other words, to offer deliberately pessimistic estimates of the firm's expected performance. In this case the bad news comes up front. With this approach there is no longer the fear of a drastic reaction by the market place to bad news, which as Enron has shown, could spell disaster for the firm.

An indicator of the extent of the disquiet in the accounting industry is the recent pronouncement Sir Howard Davies, Chairman of the Financial Services Authority of Britain, made to the just concluded World Economic Forum, held in New York. There he stated that: "This could be a defining moment for the accounting industry."

Given the information and analysis orientation of this series, readers might be interested at this stage in a brief summary of what are the major accounting concerns, which have surfaced in recent years and have been dramatised since Enron.

The new three card con
There are at least six major accounting concerns. First, there is the "conflict of interest" that now exists when the auditing firm offers consultancy advice to the company whose books it audits. To many this lay at the heart of Enron's ability to hide its true state of affairs from public scrutiny, and the lack of independence displayed by Andersen. Since the Enron scandal however, one of the Big Five accounting firms, Deloitte and Touche, has ended this practice.

Second, there is concern over the frequent resort to "re statement of company earnings" in recent years. Previously this had been linked to the emergence of other accounting scandals in firms like those mentioned above, before the Enron scandal surfaced.

Third, there is concern over the proliferation of "off balance-sheet special partnerships." As we saw last week Enron and Andersen had "perfected" this device in order to disguise the true state of Enron's affairs. Thus we now know that even as Enron was sinking, its special partnerships were promising attractive returns. One of them called LJM2 showed in its project document an internal rate of return of 69 per cent.

Fourth, there is concern over the growing practice of big "write offs against profits." During the recent spate of downsizing firms because of market difficulties, companies have claimed these expenses as one off and designed to boost subsequent earnings, when in fact they have been, for the most part, reactions to structural contractions in the industry's markets.

Fifth, there is also concern over the growing practice of "insulating profits" against the cost of issuing stock options to employees. As readers are aware, these stock options have become a popular form of payment/remuneration to employees in recent times. Firms have increasingly sought, however, to keep these transactions out of their profit and loss account.

Finally, there is concern over the recent practice of "overstating corporate pension funds" in order to avoid firms having to meet the liability of making up the difference in their pension shortfalls from current profits.

Next week we will wrap up the discussion on accounting.

Accounting: restoring confidence after the great con

Some readers have told me that in the last three articles devoted to the Enron scandal, I have been particularly harsh on the accounting profession. My response has been that the judgements are deserving and, for that matter, they are no less harsh than those pronounced by several members of the now eleven congressional committees investigating the Enron affair in the USA. I should also have added that, in the wake of the Enron scandal, similar harsh pronouncements have come out of Britain, about their accountancy profession.

In any event, according to news reports from the USA, Andersen, the accounting firm directly involved in the Enron scandal is on the verge of settling with Enron stockholders and employees to the tune of US$800 million to US$1 billion - the largest accounting settlement in history. The question arises: would Andersen pay out such large sums if it felt it was innocent, or even just marginally guilty? It is important that we do not lose sight of the fact that we have been confronted with, what is by far, the largest bankruptcy in history. The accounting skulduggery lying behind it has been so far, worse than what the most imaginative fiction writer would have felt that readers would have accepted as plausible enough to form the basis of a novel, before the Enron scandal surfaced.

The accounting TNCs

If we go back to our discussion of last January 27, 2002, concerning the WTO and trade in accountancy services, readers would recall the very different structure of the Big Five transnationals (TNCs), which dominate the sector, as compared to their counterparts in other industries. Typically, the accounting TNCs are made up of transnational networks or alliances between separate accounting units. It is not based on the classic parent company\overseas subsidiary relation found among TNCs in other industries.

We also noted in that article that there is wide variation in the profession. This is based on the type of service provided; the nature of the services provided; the professional designation of the operators in the profession; as well as their functional titles, educational titles, and academic qualifications.

The range of services provided by the Big Five accounting firms has widened considerably in recent years as they have resorted to more and more vertical and horizontal integration. This has led them to become involved in not only providing management consultancy, which we have been emphasising, but services in other areas such as taxation, investment, expert witnesses, information technology, insolvency and so on. The horizontal amalgamation, which has occurred has served to reduce competition among accounting firms. At the same time, the increasing vertical amalgamation has increased conflicts of interest, particularly between their roles as auditors and consultants. Financial services sophistication Readers should be aware that an important factor behind this trend is the increasing variety, complexity, and sophistication of financial products, presently being offered in the market place. Some of these products, like derivatives, have raised the level of risk for the investor. And, with increased risk has come the increased probability of default/loss. These new products have also reduced the level of transparency in transactions, which has encouraged the drift to more shady and borderline economic activities in which Enron excelled. Further, the development of these financial products has also encouraged parts of the financial sector to thrive outside the supervisory and regulatory system already in place for the more typical banking and securities business.

The net result of this process has been two-fold. First, the growth of financial assets now far exceeds the capital base of many major enterprises, which creates a pyramid of credit always susceptible to collapse. Second, it has spawned the off-balance sheet accounting, which as we have repeatedly stressed, Enron has perfected.

Thus, although the effects of Enron are still being felt, so far the main aftershocks have been felt in the financial sector and in particular stockmarkets. Despite its role as a major energy trader, the impact so far on energy prices, particularly oil, has been negligible.

Reforms for the accounting industry

The question we should ask is: what can we expect out of all this? My expectation is that the end product of this scandal would be major reforms in the accounting profession. Personally I would like to see four basic reforms introduced as soon as possible. First, there is the need for the legal enforcement of the separation of auditing from consultancy. As we saw last week, one of the Big Five firms, Deloitte and Touche, has already voluntarily moved in this direction.

Second, there is an urgent need for the drastic overhaul of the regulatory/oversight bodies in the profession. In this regard I believe that both self-regulation and external regulation are required. The accounting profession has lost so much credibility that it should not be empowered to provide exclusive internal oversight of its membership.

Third, I believe a case has been made for compulsory rotation of accounting firms. Public companies should not be allowed to build-up long-term cosy relations with their auditors. Term limits should be set, in order to prevent this from occurring. It is my information that Italy already has such a system in place. Fourth, I think that the penalties for misconduct should be extremely harsh. To be harsh, requires both stiff monetary penalties as well as resolute criminal action against wrongdoers. Or, as we say in Guyana, "jail-time." Anything less than this will fail to restore the badly needed public confidence in the profession and rectify the image of accountants as shady operators paid to practise deception.

In conclusion it should be noted that when this examination of Andersen and Enron started three weeks ago, it was introduced as the first element in the tangled web of greed and sleaze, which surfaced after the Enron scandal simply because Andersen is, by far, the most important co-conspirator in the Enron drama. Others however have played an important part.

Next week we shall turn to an examination of these other players.

Enron: Loss of the moral compass

The February 10 article in this series argued that if Enron's rapid diversification away from an oil/natural gas producer into a power house services provider was based on the opportunities offered by the unprecedented de regulation of financial services, then the sleaze culture, criminality, and obstruction of justice that it came to excel in, thrived in a tangled web of deception and dishonesty. This web included not only the crooked accounting, which we have already examined, but also the establishment of politicians, investors, financial analysts, lawyers, and judges, who had become financially beholden to the company.

Isolated or systemic phenomena

In the ongoing debates in the USA, this concern is being posed as to whether Enron is an isolated instance of a 'rogue corporation' that got its true deserts, or whether its demise is a sign of a more systemic fault in the US business environment. This series has tended to the latter view. And, that is why I have consistently argued that an appreciation of the web of relations that surrounds Enron is crucial for a full understanding of what is at stake.

Support for this point of view has been expressed at the highest level of the American business and regulatory establishment. No less a person than Arthur Levitt, the former Chairman of the Securities and Exchange Commission is reported to have said that "Enron grew out of a pervasive culture of 'gamesmanship' in a corporate world that has become so focused on stock prices and quarterly earnings, that it has lost its moral compass."

He then went on to stress that business organisations now focus on "what they can get away with, not what is right."

Such a lament is not singular. From this perspective there is hardly any surprise to learn that a recent Gallup poll found that three in four Americans believe that what has been revealed about Enron is typical of some or most other large transnationals in the USA.

The degenerate business climate revealed in the Enron scandal thus far has created great ferment within the US political establishment. Remarkably, we now have in addition to 'criminal' investigations by the Departments of Justice and Labour, as many as eleven congressional investigative committees meeting on this matter.

Cynicism is so deep that many have been quick to point out that the vast majority of the members of these congressional committees (along with both political parties, Republicans and Democrats) have received more than generous political donations from Enron. Estimates I have seen show that three quarters of the senators and one half of the House members received Enron money. The scale of these donations suggest that, whatever are their motives in the aftermath of the scandal (and one hopes they are engaged in genuine acts of redemption) it was the politicians who oiled the wheels of power, influence, and lax regulatory and supervisory oversight, in which Enron blossomed.

Like other big corporations Enron supplied both 'hard' and 'soft' money to the political establishment. 'Hard money' contributions go directly to candidates, which they use for several purposes. These are generally regulated and restrictions apply. 'Soft money' refers to unlimited, unregulated contributions, usually made by corporations, unions, and wealthy individuals for 'party building' activities. This is usually directed to promote or attack candidates, without seemingly expressly doing this. In the 2000 elections, about half a billion dollars were donated as soft money.

Most of Enron's funding went to the Republican Party and its candidates. President Bush was highly favoured by Enron during the last elections. Indeed for long he was known to be a close friend of Kenneth Lay, Enron's CEO.

President Bush however, was not singular in this regard within the Republican Party. Thus Senator Phil Gramm was a top recipient of Enron's largesse. In its Op Ed on January 17, the New York Times described him as "one of the ringleaders who engineered the stealth like approval of a Bill that exempted energy commodity trading from government regulation and public disclosure." It went on to describe this as "a gift tied with a bright ribbon for Enron."

The newspaper also reported that his wife sat on the Enron board. Before that she headed the Presidential Taskforce on Regulatory Relief in the Reagan administration. She also chaired the US Commodity Futures Trading Commission during the period 1989 1993. Indeed she joined the Enron Board five weeks after leaving the Commission. It has been estimated in the media that she has received between $1 to $2 million from Enron in salary, attendance fees, stock options, and dividends over the past 9 years.

Campaign finance reform

Before, during and since the last elections this practice has been attracting sharp criticism. Indeed the campaign finance reform movement has received considerable stimulus from the Enron affair. To the point that on Thursday February 14, the House of Representatives approved legislation aimed at stopping the flow of special interest money into US politics. This is considered by many to be the most significant advance in the effort now underway for a quarter century or more, to change the campaign finance laws.

The Bill the House approved is aimed at curbing unlimited ôsoft moneyö contributions and in restructuring electioneering ads by outside groups. The Bill now goes to the Senate, where it could be defeated. While the House votes were 240 to 189 in favour, with 41 Republicans joining all but 12 Democrats in support of the Bill, the President has adopted a 'hands off approach' to the legislation. This, it is believed is in recognition of two considerations. One is that the aftermath of the Enron scandal has led to a torrent of public outcry against corporations buying power and influence in Washington, in order to promote their commercial interests. The other consideration is that the House had twice before approved similar legislation.

Important as this piece of legislation is it is unlikely to curb the flow of soft money into the political establishment. My own support is for the radical 'clean money' movement already finding support in at least two states, Maine and Arizona, with the likelihood of several more in the aftermath of the Enron scandal. Clean money funds come from the 'no quid/no pro public till' and completely shun private interests' money.

Barring new dramatic developments next week I shall wrap up this detour into the Enron affair. In that article I shall have a brief look at the other elements of the tangled web and also draw the promised lessons from all this for Guyana and the wider Caribbean.

Enron: When the chickens come home to roost

So far we have looked separately at the deeply interwoven connections between the Enron scandal and both the accounting profession and the political establishment in the United States. The argument which has been advanced is that without the `nourishment' provided by these illicit and illegal linkages, the deceptively rapid growth of the Enron corporation would not have been possible.
This week we extend this examination of connections in other important areas.

Politicians abroad
As we have shown Enron's growth in the international market took off rapidly in recent years to the point where by 1999 it was involved in one-quarter of all electricity and natural gas deals in the world. This was an amazing outcome, given the very modest origins of this firm. As might be expected, the company had major operations in the developed economies as well as large developing countries like Brazil and India. Since its bankruptcy, the public is now aware that a pattern of dubious political connections similar to that in the USA had emerged in its international dealings.
Two examples of these can be cited. First, both the US and India media have reported that Enron was involved in one of the biggest corruption scandals in corruption- plagued India when it was discovered that Enron had paid large sums of money to several politicians involved in the privatisation of Indian electricity firms. Second, from the European Union, Enron had on its Board Lord Wakeham of the United Kingdom.
He is both an accountant and a former Minister of Energy in the UK. As Minister he oversaw the licensing of a British power plant to Enron. In the wake of Enron's bankruptcy and revelations in the UK, public outcry in Britain has led him to resign (February 2) from the prestigious post of Head of the Press Complaints Com-mission, a position which Lord Wakeham has held for the past five years.

Legal connections
Within the United States it has also been discovered that some of Enron's legal connections have been as notorious as the accounting ones with Anderson. Again two examples will suffice. One is the situation in Texas. There it has been since disclosed that the Chief Justice of the Texas State Supreme Court, along with seven of his fellow judges, had been receiving election campaign funds from that corporation. This practice had been taking place over the past eight years.
The other example is the case of the Houston law firm Vinson and Elkins. That firm conducted the inquiry ordered by Kenneth Lay after the "whistle-blower" Sharron Wilkins had contacted him and reported the shady off-balance sheet accounting practice of the corporation. After its legal investigation that firm reported: "no one has reason to believe that it was inappropriate from the technical standpoint".
Two interesting facts about that firm have since emerged. One is that during last year it had received from Enron, as much as half-a-billion dollars for legal work it had completed. Further, the firm has also turned out to be, like Andersen and Enron, a major contributor to campaign funds for Bush's political career over the years.

Financial reporting
In democracies, the media, or the fourth estate as it is known in political theory, are expected to play critical roles in the defence of democratic values. This is done mainly through their investigative and analytical reporting, which keeps the public informed. Nowhere is this function more important than in keeping track of corruption and brigandage in the market place. Amazingly, however, a recent count has shown that 17 of the 18 leading financial analysts in the United States were recommending a "strong buy" for Enron's stock, right up to the final disastrous moments of that company.

All the way to the top
All these ties, lies, and subterfuge go directly to the very top of the Bush administration. In the wake of Enron's bankruptcy it has been revealed that Vice-President Cheney and/or his staff had six meetings with Enron's top brass, when they were preparing the Bush Energy Policy. These meetings have attracted the attention of the General Accounting Office (GAO), which is a monitoring and investigative office of the US Congress. The concern is the exercise of improper influence. The GAO has demanded details of these meetings, which the White House has been stoutly resisting. In response the GAO has subpoenaed the White House and taken it to court. To the best of my knowledge, this is the first time in US history that the GAO (Congress) has taken the White House to the US courts.
To reinforce the view that all the connections revealed in these columns over the past few weeks go to the very top of the Bush Administration, is the further consideration that the tax breaks Enron would have received if Bush's post- September 11, Economic Stimulus Plan had passed Congress, would have been $254 million. This would have been the largest for any US corporation!
There is small wonder therefore that the newly appointed, post-bankruptcy CEO of Enron, (Stephen Cooker) has stated on US television that "one or more former executives of the firm could end up going to jail in the wake of the on-going government investigations into the scandal".

Salience
There are many salient lessons to be learnt from this on-going scandal, which are important for Guyana and the wider Caribbean. Perhaps the most important is the recognition of the fundamental importance of the environment - business, political, cultural, legal, and economic - in which commercial activity takes place. Failure to recognise this will always lead to surprise, shock, and horror, when the "chickens come home to roost".
Why do I make this claim? The answer is that ultimately the market is a place where greed and criminality constantly lurk and at the same time a place where competition can lead to maximum efficiency. The market cannot by itself resolve this dual character which it possesses. Oversight, regulation, purposeful policy, and a vision of the role of the market in promoting development, are therefore essential ingredients for making the market the handmaiden of progress and not the source of systemic inequality, marginalisation, and theft.
Next week we shall pursue these issues in the final article on the Enron affair.