McCains: Is this Bass for You?

John McCain and his wife Cindy must be thinking a lot about beer these days. Earlier this week, while speaking to the National Federation of Independent Business, the presumptive Republican nominee had a slip of the tongue and said “I will veto every beer” (when he meant to say “bill”). This came amid intense rumors, which turned out to be true, that Belgian-Brazilian brewing giant InBev intended to make a takeover bid for iconic American beer company Anheuser-Busch (A-B). InBev sells scores of beer brands such as Bass, Beck’s and Stella Artois.

For McCain this is not just an abstract issue of globalization. His wife Cindy McCain controls Hensley & Co., one of the largest A-B distributorships in the United States, and together with her children holds some $1 million in A-B stock.

The mayor of St. Louis, where A-B is based, is opposing a foreign takeover of the beer giant, and concern about the deal has been expressed by Missouri’s two U.S. Senators—one a Democrat and the other a Republican. There are even signs of a grassroots and netroots movement to keep A-B out of foreign hands.

At this point, it’s difficult for me to get too worked up about the prospect of a takeover. InBev is claiming it won’t downsize A-B, and the Teamsters union, which represents more than 8,000 of the company’s workers, would hopefully be in a position to enforce that commitment. Moreover, the beer industry has been embroiled in an international consolidation wave for years. The second most prominent U.S. brand, Miller, was swallowed by South Africa Breweries back in 2002. The merged company, SABMiller, is in the process of combining its U.S. operations with those of Molson Coors, itself the merger of another famous U.S. brand with a Canadian brewer. A-B has struggled precisely because it has not played the merger game.

Observers are wondering where John McCain will position himself on the issue—or whether he will sidestep it entirely. His wife, who insists her finances are completely separate from his, could benefit from the deal by selling her shares at a handsome premium. On the other hand, distributorships such as hers may not want to give up the comfortable relationship they have with A-B.

No matter what, the deal will focus new attention on Cindy McCain’s business dealings. At least some of this will presumably mention the controversial history of her late father, who left her the business. According to a 2000 article by John Dougherty and Amy Silverman in SF Weekly, James Hensley received a wholesale liquor license in the mid-1950s, despite the fact that he and his brother Eugene were convicted of violating federal liquor laws in 1948. Like many other beer distributorships, Hensley & Co. was a frequent contributor to political candidates, including John McCain.

So how does the Christian Right feel about the prospect of having a beer dealer—and daughter of a reputed bootlegger—as First Lady and of having a President whose political career was launched by the proceeds of that business?

Peeking at a Company’s Pay Rates

Company-specific compensation data is one of those rare areas in which more is known about people at the top of the social pyramid than those at the bottom. Publicly traded corporations are required to file proxy statements each year that disclose down to the last dollar what top executives are paid in salary, bonuses, long-term compensation, stock options and perks. We know what the big boss earns but generally not what the company pays its middle managers or hourly workers.

Glassdoor, a new website launched this week in beta form, starts to fill that information gap. The site was created by Rich Barton, the former Microsoft executive who founded Zillow, a popular website containing data on real estate values. Whereas Zillow is based at least in part on government data, Glassdoor relies on voluntary submissions by users who anonymously reveal their own salaries, along with information on vacation time, medical coverage and retirement benefits. Users are asked to specify their length of experience and geographic location, so that salary variations can be evaluated. Those who do not wish to name their employer can specify the size of the company and the industry sector.

As the site is just getting off the ground, Glassdoor’s data are far from comprehensive. But there are already, for instance, 60 salary reports covering computer networking giant Cisco Systems. The site also provides anonymous company evaluations by current and former employees, including one in which a former product manager at Cisco complained: “They will try to work you to death.”

While we wait for Glassdoor to grow into a richer source, it should be noted that there are some limited sources for company-specific wage and salary data on those who are not top executives. For example:

* A few states that disclose the economic development subsidies they give to companies ask those firms to report on the wages of the jobs they create. The best example is Illinois, which has a database of reports filed by companies with job creation statistics, including average salaries.

* Some jurisdictions that have enacted living wage laws require employers to file periodic reports that may become part of the public record either automatically or as the result of freedom-of-information requests.

* The U.S. Department of Labor has an online archive of collective bargaining agreements—which typically include wage rates and other conditions of employment—arranged by employer. (The Bureau of Labor Statistics has data by industry but not by specific company.)

* Companies in some regulated industries have to report payroll expenses. For example, airlines must disclose this and other operating and financial data on Form 41, which is submitted to the Bureau of Transportation Statistics. The BTS system is cumbersome to navigate, but the Airline Data Project at MIT has used it to compile handy summary tables of wage and salary rates by job category for each of the major carriers going back to 1995.

* And finally, you can always check want ads and job postings to look for salary figures offered by those companies that don’t hide behind the statement that the pay rate “depends on experience.”

Tax-Avoidance Gimmicks, Secret Bank Accounts at Risk

Jesse Drucker, the Wall Street Journal reporter who broke the story about Wal-Mart’s use of captive real-estate investment trusts to avoid an estimated $2.3 billion in state corporate income taxes, had another piece in the Journal Monday illustrating how the rich and powerful don’t seem to feel an obligation to pay their fair share of taxes.

The subject of the new article is Philip Anschutz, the professional sports tycoon whose net worth was pegged at $7.6 billion in the last Forbes 400 list. Anschutz is dueling with the Internal Revenue Service in U.S. Tax Court over $143.6 million the feds say he owes in capital-gains taxes in connection with the transfer of shares in Union Pacific (obtained by selling the company several railroads he had accumulated) and in Anadarko Petroleum (which purchased Union Pacific Resources, an oil properties subsidiary of the railroad).

Anschutz claims capital gains taxes do not apply because the deals were technically not completed stock sales. Instead, they are what the tax-avoidance lawyers call “variable prepaid forward contracts.” They involve an agreement to sell a block of shares to an investment bank at a future date. In the interim, the individual lends the same number of shares to the bank and receives an up-front payment. On paper, ownership of the shares has not changed, so it is claimed that no capital gains are due until the actual sale some time in the distant future.

It turns out, Drucker writes, that these arrangements are quite common and are being used by executives at companies such as Starbucks, Costco and Tyson Foods. The only encouraging part of the story is that the IRS is cracking down on these deals and in some cases may be seeking substantial penalties.

Wealthy U.S. tax avoiders are also nervous these days about possible revelations by Swiss bank UBS about accounts that the IRS believes are being used to hide as much as $20 billion in assets and to dodge some $300 million in taxes. The New York Times reported on Friday that UBS is being pressured by federal investigators to divulge information that until now has been strictly guarded by Swiss bank secrecy laws. Some account details have already come to light in cases such as the prosecution of property developer Igor Olenicoff, a UBS client.

UBS, which for so long helped rich Americans cheat Uncle Sam, may now be forced to implicate its own clients. It is refreshing to see the affluent, wondering when the IRS may lower the boom, experience some of the insecurity usually felt only by the likes of undocumented workers anticipating an immigration raid.

Obama and McCain Agree on Transparency

Although he’s been busy with some other matters, Sen. Barack Obama found time this week to introduce legislation that would expand the amount of information made available to the public on federal procurement contracts. The measure was introduced with Sen. Tom Coburn (R-Okla.), who had joined Obama in a previous bipartisan initiative that resulted in the 2006 passage of legislation creating the USA Spending database. The original co-sponsors of the new bill (S.3077) are Senators John McCain (R-Ariz.) and Tom Carper (D-Del.).

S.3077 calls for an expansion of the data provided via USA Spending, the creation of which also needs to be credited to OMB Watch, which built its own contract database, FedSpending, on which the federal resource ended up being based.

As summarized by Obama’s office, the bill would add to USA Spending:

– A copy of each Federal contract in both PDF and searchable text format.

– Details about competitive bidding, the range of technically acceptable bids or proposals, and the profit incentives offered for each contract.

– The complete amount of money awarded, including any options to expand or extend under a contract.

– An indication if the Federal award is the result of an earmark.

– Information about government lease agreements and assignments in the same manner that information is reported for contracts, grants, and other assistance.

– An assessment of the quality of work performed on Federal awards.

– Information about Federal audit disputes and resolutions, terminations of Federal awards, suspensions and debarments, and administrative agreements involving Federal award recipients.

– Information about any civil, criminal, or administrative actions taken against Federal award recipients, including for violations related to the workplace, environmental protection, fraud, securities, and consumer protections.

– Information about Federal tax compliance by Federal award recipients.

– Information about parent company ownership that will be made accessible, along with other data on USASpending.GOV, through application programming interfaces.

– Links to publicly available Government reports.

Legislation covering the bullet point about disclosure of the legal track record of contractors—along the lines of the Project On Government Oversight’s Federal Contractor Misconduct Database—has already passed the House.

It is not clear whether the new Obama-Coburn bill would do anything to address a problem highlighted by Secrecy News—the fact that intelligence agencies such as the Defense Intelligence Agency and the National Geospatial-Intelligence Agency have been refusing to submit data on even their unclassified contracts to USA Spending. As noted in the last issue of the Digest, the intelligence agencies are outsourcing more and more of their work, so disclosure of those contracts becomes all the more important.

Over the Counter Intelligence

Tim Shorrock, a veteran investigative journalist and a longtime subscriber to the Dirt Diggers Digest, has just come out with a book called Spies for Hire: The Secret World of Intelligence Outsourcing. Shorrock describes how an activity that used to be handled by spooks on the federal payroll has been steadily transformed into a $50 billion Intelligence-Industrial Complex.

Thanks to the contracting scandals surrounding Halliburton and its former subsidiary Kellogg, Brown & Root, the public learned of the extent to which the Pentagon has turned over routine functions to private military companies. The outrageous behavior of Blackwater has highlighted the use of mercenaries to protect U.S. diplomats and other VIPs in Iraq.

Shorrock shines a light on another group of corporations that are carrying out a more sensitive function that most people have no idea is being handed over to the private sector. Careful readers of the revelations concerning abuses at the U.S.-run Abu Ghraib prison in Iraq would have learned that interrogators alleged to have abused detainees included civilians employed by a company called CACI. But that is only the tip of a lucrative iceberg, Shorrock shows.

For example, he writes, more than half the people working at the super-secret National Counterterrorism Center in Virginia are employees of companies such as Science Applications International Corporation (SAIC), BAE Systems and Lockheed Martin. The Center’s terrorist database is maintained by The Analysis Corporation, which subcontracted collection activities to CACI.

Since 9/11, Shorrock says, the Central Intelligence Agency has been spending 50-60 percent of its budget (or about $2.5 billion a year) on contractors—both individuals and companies. At the CIA and its sister spook agencies: “Tasks that are now outsourced include running spy networks out of embassies, intelligence analysis, signals intelligence (SIGINT) collection, covert operations, and the interrogation of enemy prisoners.”

Shorrock devotes an entire chapter to Booz Allen Hamilton, known to most people as a management consultant for large corporations but which pioneered the intelligence outsourcing industry (though it recently agreed to sell its federal business to the Carlyle Group). When Mike McConnell, a former Booz Allen executive, was named by President Bush as Director of National Intelligence, it was the first time, Shorrock notes, that a contractor was put in charge of the country’s entire spy apparatus.

Spies for Hire has much more to offer that cannot be adequately summarized here. I recommend that you read it in full. But let me let also note that profiles of some of the intelligence contractors discussed by Shorrock—such as CACI and ManTech International—can be found on the Crocodyl wiki to which I contribute. Also note that the updated edition of Jeremy Scahill’s valuable book Blackwater, recently issued in paperback, has a discussion (p.453 forward) on the mercenary company’s move into another form of privatized intelligence—a product called Total Intelligence Solutions that is designed to bring “CIA-style” services to Fortune 500 companies.

Where the Revolving Door Spins Fastest

The movement of federal officials through the revolving door into lucrative private-sector positions is a well-known story, but a new report by the Government Accountability Office provides some quantification of the phenomenon and names companies that are most frequently involved.

GAO focused its research on the Defense Department, which seems hell-bent on outsourcing as many of its functions as possible, thereby intensifying the desire of contractors to hire ex-officials with the right contacts. The agency found that in 2006, 52 major contractors were employing a total of 86,181 individuals who had left military or civilian positions with DOD since 2001.

Special attention was paid to those individuals whose former positions made them subject to the limited restrictions on post-government activity that exist in federal law. GAO found that, as of 2006, the 52 companies employed “2,435 former DOD senior and acquisition officials who had previously served as generals, admirals, senior executives, program managers, contracting officers, or in other acquisition positions” to which the rules apply.

Not surprisingly, GAO found that the companies employing the largest number of former DOD senior and acquisition officials are the top military contractors, especially the following seven:

  • – Science Applications Intl. Corp. (263 former key officials employed)
  • – Northrop Grumman (260)
  • – Booz Allen Hamilton (243)
  • – L-3 Communications (241)
  • – Lockheed Martin (221)
  • – General Dynamics (207)
  • – Raytheon (146)

(Booz Allen has announced it is selling its federal business.)

Together, these seven employed 1,581 former key DOD officials, or 65 percent of the total found by GAO. The report notes that the numbers reported to GAO by the contractors themselves substantially understated  the former DOD officials on their payrolls. GAO got more accurate figures by checking confidential Internal Revenue Service data.

GAO also helpfully notes that the seven top employers of former officials received DOD contract awards worth some $61 billion in fiscal year 2005. With that amount of money at stake, it is no wonder that the companies like to invest in the revolving door.

For an overview of revolving-door issues, see the 2005 report of the Revolving Door Working Group (in which yours truly wrote the section on the reverse revolving door—the movement of lobbyists and corporate executives from the private sector to public positions). Also see the revolving-door section of the Open Secrets database.

Slapping the Corporate Wrist

Deferred prosecution. Corporate monitors. These are the less-than-intimidating terms used to describe the manner in which the U.S. Department of Justice goes after corporate crime these days. Not exactly in keeping with attitude of “throwing the book at them” applied to blue-collar criminals or the “Gitmo” treatment given to those charged as terrorists.

The Bush Administration has let many corporate offenders off the hook through the use of deferred prosecution agreements, which are arrangements under which the Justice Department postpones the filing of criminal charges against companies that agree to pay fines and submit to third-party monitoring. If the monitor determines that the company has cleaned up its act, the charges effectively disappear. The corporation avoids a major stain on its record, and the Justice Department avoids the trouble of putting on a trial.

This dubious practice had been going on largely under the radar. Russell Mokhiber, editor of the Corporate Crime Reporter, carried on a one-man effort to publicize it. Reports earlier this year that former Attorney General John Ashcroft’s consulting firm had been given a $52 million contract to serve as a corporate monitor for a medical supply company briefly put deferred prosecution (and possible impropriety in the selection of monitors) in the spotlight. Then the New York Times “discovered” the practice in a front-page story on April 9.

Thanks to the efforts of the House Judiciary Committee and its Chairman John Conyers, more is becoming known about the Justice Department’s light-handed treatment of corporate malefactors. Last week, Conyers and several of his colleagues announced that Justice had turned over the texts of 85 deferred prosecution and non-prosecution agreements, which were promptly posted on the Committee’s website along with a letter from Justice that includes the names of 40 monitors, most of whom turn out to be former federal prosecutors and other government officials .

Among the companies involved in the Justice Department’s list of unprosecution agreements (which Conyers said was missing at least a dozen cases) are: America Online, Bank of New York, Blue Cross and Blue Shield of Rhode Island, Boeing, BP America, Bristol-Myers Squibb, Chevron, HealthSouth, lngersoll Rand, KPMG, Lucent, Merrill Lynch, Monsanto, Prudential Securities and Textron.

The Justice Department is apparently sensitive to charges that it is not aggressive in fighting corporate crime. In a March 7 memo to U.S. Attorneys, Acting Deputy Attorney General Craig S. Morford warned that “the criminal conviction of a corporation may have harmful collateral consequences for employees, pensioners, shareholders, creditors, consumers, and the general public.” What a relief! Now, every time I read that a corporation caught committing a crime is being let off with a slap on the wrist, I can take comfort in the knowledge that the leniency is actually for my benefit.

Fallen Crusaders Against Corporate Abuse

For more than 30 years, big business has whined about class-action lawsuits filed on behalf of consumers, workers and shareholders. The Republican Party made plaintiffs’ lawyers one of its favorite bogeymen and “tort reform” a centerpiece of its policy agenda. John McCain carries on this dubious tradition, suggesting for example that putting limits on medical malpractice suits is a key element of healthcare reform.

Whether or not there ever was a real plethora of frivolous lawsuits, one fact is now undeniable: the plaintiffs’ bar is in disarray. Part of the reason is that conservatives succeeded in getting numerous state legislatures to impose restrictions on class-action lawsuits and individual damage cases. Yet perhaps more dramatic has been the spectacular demise in recent months of the country’s leading trial lawyers through personal legal entanglements.

The conventional wisdom is that these super lawyers were victims of their own greed, while conspiracy theorists might wonder how these giant killers were brought down in such short order. In any event, there have certainly been sighs or relief—if not spasms of schadenfreude—in boardrooms across America.

The most recent crusader to fall was Melvyn Weiss, who built a career filing lawsuits charging that companies had defrauded investors. In March, Weiss agreed to plead guilty to federal criminal charges, acknowledging his role in making millions of dollars in secret side payments to plaintiffs in class actions filed by his firm Milberg Weiss. He consented to $10 million in fines and forfeiture, and last week prosecutors proposed that he spend up to 33 months in prison.

Weiss’s former partner, the even more flamboyant William S. Lerach, entered a guilty plea last fall on similar federal charges. In February he was sentenced to two years in prison and ordered to forfeit $7.75 million. That was a small fraction of the several hundred million dollars in fees Lerach and his partners earned from scores of cases involving many billion dollars in settlements and awards from the likes of Enron and WorldCom as well as many less venal corporations.

In March, another larger-than-life trial lawyer, Richard “Dickie” Scruggs, filed a guilty plea in the face of allegations that he and others bribed a judge in Mississippi who was hearing a case involving a dispute over $26 million in legal fees from a mass settlement of insurance claims brought by victims of Hurricane Katrina. Scruggs is best known for his role in winning a $200 billion settlement from the tobacco industry in the 1990s.

There was never any doubt that Weiss, Lerach and Scruggs were motivated by personal enrichment at least as much as their quest for justice. Yet in the absence of adequate government regulation of business, their lawsuits served as a countervailing force against the power of big business. Now that they have been neutralized, what corporate abuses will go unchallenged?

Unions Developing A Global Reach of Their Own

Newspapers in both Britain and the United States have reported in recent days that two major labor organizations are preparing to announce the creation of the first trans-Atlantic union. The merger will bring together the United Steelworkers, the leading U.S. union in manufacturing and heavy industry, and Unite, the mega British union formed by the joining of Amicus and the Transport & General Workers Union last year.

The step does not come as a surprise, since the unions created a strategic alliance in 2005 and announced their intention to wed about a year ago. But the formal marriage of the organizations will, nonetheless, represent a milestone in labor history. For decades, large corporations have been operating across national borders and in recent years have increasingly formed international mergers and joint ventures. Unions have expanded their international solidarity efforts but have largely remained tied to single countries. The Steelworkers-Unite initiative will be a major step toward the globalization of labor organizing. In its report, Britain’s Telegraph said the combined entity could be named the United Global Workers’ Union, which sounds like something out of science fiction.

The current scope of the 850,000-member Steelworkers is illustrated by the fact that a global search of 10-K filings with the SEC reveals that more than 100 publicly traded companies report having North American workers represented by the union. These include industrial giants such as Dow Chemical, Alcoa, International Paper and Goodyear Tire & Rubber that all do a substantial amount of overseas business. Dow Chemical, for example, derives 66 percent of its revenue from outside the United States. Unite is also a highly diversified union that represents workers at the UK operations of global companies such as Airbus, BP, British Airways, Michelin, Shell and Unilever. Steelworkers President Leo Gerard told the Wall Street Journal that among the organizing targets of the combined union could be India’s Tata Steel Ltd., part of the Tata Group conglomerate.

It will be interesting to see how labor relations change once one union, at least, can start to match giant employers in its global reach.

Firm Headed by Major Republican Contributors Accused of Supplying Substandard Plane Parts

The Project On Government Oversight (POGO) and CBS News just revealed that Pentagon investigators have accused a California company of supplying substandard components for military and civilian aircraft for nearly a decade, charging that the firm committed fraud and bribery and exhibited “brazen disregard for the safety of soldiers and civilians as well as for the sanctity of laws, rules and regulations.” The company is privately held Airtech International Inc., which also goes by the name of Airtech Advanced Materials Group.

POGO and CBS obtained a September 2006 memo in which the allegations were made by a special agent of the U.S. Army’s Criminal Investigation Unit, who argued that Airtech should be debarred from doing business with the federal government. The investigator charged that Airtech, which makes light-weight composite materials, “knowingly supplied nonconforming products to DOD [Department of Defense] prime contractors.”

Airtech has not been debarred or formally charged in the matter. A company spokesperson told CBS “we are aware of no current ongoing investigation,” but CBS reports that a document dated earlier this month indicates that an “active investigation” is still being conducted by the Army. CBS also says the House Transportation Committee is looking into the matter.

One fact not mentioned by either POGO or CBS is that the two top executives of Airtech—CEO William Dahlgren and his son Jeffrey Dahlgren, who serves as President—have together made a total of $308,700 in federal campaign contributions since the early 1990s—all of it to the Republican Party or Republican candidates, according to the Open Secrets database. Among those candidates: John McCain, who received $1,000 from William Dahlgren in February 2007, and George W. Bush, who got $2,000 from William Dahlgren in May 2000. Most of the Dahlgren money—more than $250,000—went to the Republican National Committee.

Apart from seeking contracts, the Dahlgrens may also have been investing in politics to gain influence in regulatory matters. According to the inspections database of the Occupational Safety & Health Administration, Airtech was cited for a serious violation in September 2006. OSHA proposed a fine of $5,060 (which is on the high side for the agency) but later settled with the company for $2,700.

Another model corporate citizen supporting the Republicans.