Justice Dept. ignore Enron bribes of Guatemalan officials

Citizen Works' Corporate Reform Weekly, August 4, 2003
Date: 8/4/2003 12:23:30 PM Mountain Daylight Time
From: [email protected]

Senate report says Enron bribed Guatemalan officials with government loans and the DoJ ignored it

Just when you thought you had heard the last crooked story about Enron, there's another one. The latest one is detailed in a Senate Finance Committee report released last week.

According to the report, Enron used $17 million of World Bank and U.S. government money to pay a group of Guatemalan businessmen close to former president Jorge Serrano so that the company could win approval for a Latin American power plant.

The 506-page report explains how Enron won $1.4 billion in financing and insurance from the Department of Transportation, the World Bank, and the Overseas Private Investment Corporation (a government-backed agency that insures risky overseas projects) and then used some of those payments for the alleged bribery.

It also explains how Enron disguised the bribery payments, made between 1992 and 1995, as fuel costs that reduced the company's tax liability.

Just as disturbing, however, is why the Justice Department declined to pursue a criminal referral on the case from the Internal Revenue Service in 1999. The IRS had been tipped off by a whistle-blower that the $17 million really wasn't a tax liability - it was a bribe.

For more see, "Justice Rejected IRS Call for Enron Probe" by James V.
Grimaldi of the Washington Post: http://www.washingtonpost.com/wp-
dyn/articles/A59605-2003Jul28.html

Also see the Senate Finance Committee at
http://www.senate.gov/~finance/
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Justice Rejected IRS Call for Enron Probe
By James V. Grimaldi
Washington Post Staff Writer
Tuesday, July 29, 2003; Page E01

The Justice Department in 1999 declined to pursue a criminal referral from the Internal Revenue Service of possible bribes paid by Enron Corp. officials to Guatemalans close to former president Jorge Serrano to win a lucrative electric-power contract, according to a congressional investigation to be made public today.

The account of Enron's dealings in Guatemala are in a new report by the Senate Finance Committee, which spent more than a year investigating the matter. The findings were sent to the Justice Department's Enron task force in the spring.

The payments identified by the Senate report were made to a Panamanian corporation and "were disguised as add-on fuel charges to
conceal them from U.S. and Guatemalan tax authorities," the congressional report states. Enron claimed the charges as tax deductions, which eventually brought IRS scrutiny. Unrelated Enron accounting irregularities led to the company's demise in December 2001 in what was then the largest bankruptcy in U.S. history.

Internal Enron memos and an audit report by Arthur Andersen LLP "confirms that senior Enron officials were aware of the payments and their questionable legality," the report concludes.

It is unclear why the U.S. attorney's office in Houston declined to investigate the case. A Justice Department spokesman declined to comment yesterday. Enron spokesman John Ambler also declined to
comment. A spokesman for the Securities and Exchange Commission,
which also received the IRS referral, had no comment.

"This report turns over another rock and raises more questions about the way Enron executives operated," said Senate Finance Committee Chairman Charles E. Grassley (R-Iowa).

The IRS case was the result of a tip from an Enron whistle-blower in 1995 who provided four memos that discussed hundreds of thousands of dollars in payments -- and promises of millions more -- to a group closely linked to Serrano, the report states. In all, the IRS identified more than $17 million in questionable payments that auditors thought were possible bribes.

Enron had entered into an agreement in 1992 to sell power that the company generated on two barges off Guatemala's coast to Empressa Electrica, the state-owned power utility. The project, Enron's first foray into Latin America, was partially underwritten by the Overseas Private Investment Corp., a U.S. agency.

In its agreement with Guatemala, Enron promised to give 6 percent of the gross profits to a group called Sun King Trading Co. Payments of more than $450,000 were made in 1993 to a bank in Miami, where they caught the attention of the IRS. Serrano was forced from office in 1993 amid civil rioting, in part to protest a 47 percent increase in electricity rates and allegations of corruption.Among the documents included in the report is a December 1993 memo by Enron's attorney in Guatemala, Jorge Asensio, stating that "the Sun King payments don't represent any REAL service." Sun King introduced Enron officials to Serrano, the memo said, "and talked him into signing the contract. It is the typical 'finder fee' arrangement, with the only difference that the fee was -- for that service -- completely out of hand."

Armed with the 1993 memo and three internal documents, an Enron whistle-blower who is not identified in the Senate report walked into the IRS office in Houston in 1995. The matter was not pursued for three years until an IRS examiner found an irregularity in an Enron tax return. The IRS examiner, Gerald A. Richards, then determined that Enron had wrongly claimed tax deductions on the Sun King payments, the Senate report states.

On May 21, 1999, the IRS district director in Houston, Paul Cordova, sent a letter to then-attorney general Janet Reno alerting her to information indicating that Enron may have violated the Foreign Corrupt Practices Act, which forbids U.S. companies operating overseas from paying bribes.