Ethics Newsline®

Judging from the crowds swirling through Prague Castle last month, tourism is booming in the Czech Republic. Golden Lane, whose tiny sixteenth-century houses abutting the castle wall would have astonished Walt Disney, is so popular you pay extra now to get in. Down in Old Town Square, crowds were elbow to elbow among Easter week hawkers of pasties, porcelains, and painted eggs.

Prague no doubt owes some of this popularity to the Czech Republic’s entrance into the European Union in 2004. The move from second-world status into equal partnership with its Western European neighbors gives extra comfort to skittish travelers. So Czechs should be fans of the EU, eager to ratify its proposed constitution, right?

Until last week, it might have seemed so. Then, in a morality play on how one person’s ethical fumbling can change the world, the shoe dropped. Prime Minister Stanislav Gross — handsome, youthful, canny, and the nation’s most popular politician when he came to office last summer — offered his resignation amid a drumbeat of corruption charges. With him would go the nation’s most visible supporter of the EU constitution. Left in power would be his political opponent, President Vaclav Klaus. Alone among the 25 EU heads of state, Mr. Klaus is an implacable and determined foe of the constitution who, given the prime minister’s distraction in recent months, has argued almost unopposed in his own nation.

Leave aside, for the moment, the case for and against that 332-page document — arguments formidably joined last week as France’s pro-constitution President Jacque Chirac strode onto television to gin up the yeas for his country’s May 29 referendum on the EU constitution. Prague’s morality play has a different plot, showing the way that an issue of global importance may be determined by one man’s inattention to ethical details.

Those details began emerging on January 17, when a Czech newspaper said that the amount Mr. Gross paid, in cash, in 1999 for an upscale apartment was more than he had earned throughout his entire career. Questions then arose about his wife’s business dealings with a woman who owned a building that housed a brothel. The ensuing scandal — which the English-language Prague Post says is “almost universally regarded as ‘the murk’” — probably could have been contained by a rapid and convincing rejoinder from the prime minister. Unfortunately, he tried serial explanations as to the source of his cash, none of them convincing. While his foes admit that nothing illegal has been proved against him, the moral murkiness may have finally forced him from office.

Such murk is not new to Prague, as Czechs sadly admit. Castle guides regale tourists with historical tales of intrigue, bribes, and deaths by tossing top leaders from high windows or from the Charles Bridge. More recently, the Communist era only deepened the corruption, says Jiřina Novßkovß, chair of an international legal organization, the CEEL Institute, and head of a small opposition party. Over tea last month at the Palace Hotel, she recalled that living under Communism without giving or taking bribes was actually possible, but only if you were content with the most minimal standards. If you wanted to improve in any way — through travel, better housing, or a better-than-average education for your children — corruption was your only recourse.

With the election of playwright Vaclav Havel to the presidency following the student uprisings in 1989, one of the world’s most visible moral leaders came to power. Havel did what he could to diminish corruption, aided by public disgust with the Communists and a growing realization that enjoying Western standards meant engaging Western values. The change hasn’t been easy. Prague hoteliers still warn you to determine the price of taxi rides in advance, lest cabbies lead you on a merry chase. But the pall of corruption, so palpable in pre-1989 Russia and its satellites, does seem to be lifting.

That it didn’t lift Mr. Gross is unfortunate. He may be innocent of wrongdoing. But in that fact lies one of the great lessons of this morality play, which is that public life requires the avoidance not only of wrongdoing but of the appearance of wrongdoing. Suppose France votes for the constitution. Suppose the Czechs then raise the dissenting voice that sends the document back to the drawing boards for a few more years. Will the constitutional moment pass? Will more doubts begin to surface? Will the result be a European Union without a constitution, scuttling one of the world’s most ambitious experiments in transnational unity? Will historians trace that failure to a decision in 1999 by a young Czech who never dreamed that failing to avoid the appearance of wrongdoing could affect the course of history?

That may be a long-shot scenario, but that’s the point. The chain of character gets welded link by link, with each as important as the others. Moral murk corrodes that chain wherever it’s weakest — a lesson worth noting these days not only in Prague but in Washington, London, and the rest of the world’s capitals.

©2005 Institute for Global Ethics

“He never lost power, even though he stepped down from Boston. In any other corporation if you lost your rank and left, you’d lose your power and you’d be stripped of your title. (But) here he is in Rome, still as powerful as he was before.”

– Bernie McDaid, an alleged victim of sexual abuse by a Catholic church official, criticizing the Vatican’s decision to let former Boston Cardinal Bernard Law play a prominent role in presiding over a funeral mass for Pope John Paul II. Law, the former archbishop in Boston, was forced to resign in disgrace after it was discovered that he had transferred and provided job endorsements for priests accused of sexually abusing children. (“Cardinal Law, Ousted in U.S. Scandal, Is Given a Role in Rites,” New York Times, Apr.

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“It would be a natural selection. The choice was certainly not made for any reason except to honor St. Mary Major…. We look at the light rather than the darkness.”

– Washington Cardinal Theodore McCarrick, defending Law’s role as natural given his awarded position as head of Rome’s St. Mary Major Basilica, one of four basilicas under direct Vatican jurisdiction (“Vatican Gives Cardinal Law Role of Honor,” AP, Apr. 7)

NEW YORK
Federal prosecutors last week hit 15 current and former New York Stock Exchange (NYSE) traders with criminal charges for allegedly cheating clients to enrich themselves and their employers.

The traders — all of them specialists who handle designated stocks — are accused of engaging in fraudulent and improper trading practices that allowed them to pocket a few thousand dollars at a time.

“Over time, these small thefts accumulate into large profits that translate into higher compensation and bonuses for specialists who execute the trades,” U.S. Attorney David Kelley charged last week.

“These defendants broke the rules repeatedly, they cheated the markets, and they cheated the investors who relied upon them” of more than $32 million, Kelley said.

In addition to the criminal charges filed by the Justice Department, the 15 specialists and five of their colleagues face related civil charges filed last week by the U.S. Securities and Exchange Commission (SEC).

The traders “showed a disregard for their legal duty that was both profound and at times, profane,” said Mark Schonfeld, director of the SEC’s Northeast regional office.

The NYSE itself was charged also by both agencies for failing to properly supervise the trading floor. It immediately settled the civil charges by the SEC, agreeing to improve video and audio surveillance of trading and spend $20 million on audits.

The SEC said the NYSE “routinely ignored scores of likely violations” and then “routinely failed to take disciplinary action or imposed only the most minor of sanctions,” reported the Post.

“When they found it, they didn’t investigate it — and when they investigated it, they didn’t punish it,” Schonfeld charged.

The Justice Department’s decision to file criminal instead of civil charges against the traders may be designed to send a signal to brokerages and the exchange itself that the rules are changing, observers said.

“What prosecutors are recognizing is that across the financial field, the one weapon that seems to work, frightening as it is, is the criminal sanction,” Columbia University law professor John Coffee, Jr., told the Washington Post.

If convicted, the traders face maximum prison terms of 10 to 20 years and fines of $1 million to $5 million, noted the New York Times. Of the 14 arrested to date, all have pleaded not guilty.

The papers note that last week’s lawsuits stem from a two-year investigation by federal prosecutors, who settled related civil charges against the traders’ employers last year for $247 million.

Firms implicated in the scandal include the specialist units of Banc of America, Bear Wagner, Fleet, LaBranche & Co., Leeds & Kellogg, and Van der Moolen. Performance Specialist Group and SIG Specialists Inc. were not involved in last week’s suits, but were part of the 2004 settlement, noted the Post.

LONDON
British insurance giant Equitable Life last week filed suit against 15 of its former directors, accusing them and accounting firm Ernst & Young of negligence and breach of duty for failing to warn the firm of financial problems that nearly caused the company’s collapse in 2000.

Equitable is seeking $3.9 billion from Ernst & Young in the lawsuit that went to trial last week. In a new filing, the company also took aim at 15 former board members, demanding $3.2 billion in restitution.

The insurer has accused Ernst & Young of signing off on its books without warning about impending financial problems that left Equitable $1.6 billion in the red after a lawsuit by short-changed investors.

The former directors named in last week’s suit are accused of failing to monitor the balance sheets and get legal advice before the court case that nearly sunk the firm, reported the Associated Press.

All targeted parties have denied any wrongdoing, with Ernst & Young calling Equitable’s claim “misconceived and entirely without merit.”

Last week’s action follows an unfavorable determination by Britain’s House of Lords, which wrapped up a two-and-a-half-year inquiry with the conclusion that Equitable was the “author of its own misfortunes,” noted the AP.

LONDON
Data broker LexisNexis last week revealed that thieves may have stolen personal data on 310,000 people, upping the number of potential victims tenfold from an earlier estimate and sparking renewed calls for legislated reforms.

LexisNexis, which is owned by London-based Reed Elsevier, last month said that the personal data — Social Security numbers, driver’s license information, and other data — from roughly 32,000 people probably had been compromised.

Last week, the firm raised the figure to 310,000, saying an internal investigation into two years’ worth of transactions at U.S. subsidiary Seisint Inc. had found 59 separate breaches, reported the New York Times.

The announcement prompted calls from the U.S. Senate for a crackdown on the practices of the data brokering industry, which generates $5 billion in annual revenues by selling data to landlords, employers, the government, and other clients.

“When a company like LexisNexis so badly underestimates its own ID theft breaches, it is clear that things are totally out of hand,” Sen. Charles Schumer (D-NY) told the Times last week.

Schumer is cosponsoring legislation that would ban the sale of Social Security numbers and ratchet up the regulations governing data brokers like Seisint and ChoicePoint, which recently said the data of as many as 145,000 of its customers may have been poached.

TOKYO
A Japanese firm being bailed out by the government revealed last week that it had inflated profits by $1.37 billion over the past four years in what may be the country’s largest accounting fraud involving a non-financial firm.

Kanebo Ltd., a household goods giant, said an internal investigation launched last year had uncovered a lengthy run of bogus bookkeeping, reversing recorded profits to losses for four of the past five years.

The move caused the company’s stock price to plunge and sparked an investigation by the Tokyo Stock Exchange, whose rules require a firm to be de-listed after posting a negative net worth for more than three years, reported the Japan Times.

Kanebo’s overstatement means that the company actually had a negative net worth for fiscal years 1999 through 2003, chairman Akiyoshi Nakajima conceded last week, saying the company was considering suing its former management.

The government-owned Industrial Revitalization Corporation of Japan (ICRJ), which agreed to pump funds into Kanebo two years ago, last week said it would continue to bail out the company, reported Bloomberg.

“The revision is related to inappropriate management practiced by Kanebo in the past,” the IRCJ said, according to a report from the Reuters news agency. “Kanebo now has an appropriate management system in place.”

BEIJING
Freedom-of-expression issues took a front seat in China last week, where the government was accused of both sanctioning and suppressing violent demonstrations. Among the developments:

Japan lodged a formal protest against the Chinese government following a wave of violent demonstrations by Chinese people who broke windows at the Japanese embassy in Beijing and vandalized Japanese-owned businesses.

Crowds in several Chinese cities, including a throng of 10,000 in Beijing, apparently were angered by new Japanese junior-high textbooks that allegedly play down Japan’s wartime abuses, including its use of Chinese sex slaves and the massacre of 100,000 to 300,000 Chinese people at Nanking.

While the Chinese government said it did not endorse the demonstrations, observers noted that such violent and visible public displays would not be possible without government approval, tacit or otherwise, noted the BBC.

Also last week, the Chinese government barred reporters from visiting a village in the Zhejiang Province where an apparent riot targeted police and government officials who had turned a deaf ear to the townspeople’s complaints about pollution from nearby factories.

While a state-controlled newspaper blamed “agitators” for the disturbance, which left police cars smashed and government workers hospitalized, local accounts said the violence was the last resort of a populace frustrated by choking pollution from chemical plants in a nearby industrial park.

“The villagers will not give up if there is no concrete action to move the factories away,” a villager who said he witnessed part of the confrontation told the New York Times.

China’s efforts to suppress information on the Internet also made headlines last week with the release of a report analyzing the country’s increasingly sophisticated methods of curbing citizens’ access to online content.

The analysis by the Open Society Institute found that while some Chinese people are able to reach forbidden information, the authorities are staying ahead of the curve, reported the Associated Press.

“China has been more successful than any other country in the world to manage to filter the Internet despite the fast changes in technology,” John Palfrey, one of the study’s principal investigators, told the AP.

Under China’s content-blocking system, “You don’t know what you don’t know. It’s more effective than if you see it but know you can’t access it,” added Palfrey, who serves as executive director of Harvard Law School’s Berkman Center for Internet and Society.

BROOKLYN
A Brooklyn judge last week awarded nearly $22 million to a woman whose family was stripped of its assets by a Swiss bank during the Holocaust — the largest payout to date under a $1.25-billion settlement.

U.S. federal judge Edward Korman earmarked the $21.8 million award for Maria Altmann, whose compensation claim centered on a sugar factory co-owned by her family before the Nazis came to power.

Altmann’s relatives, worried about the coming political persecution of the Jews, established a trust at a Swiss bank to guard their shares in the factory during the war, reported the New York Times.

As Hitler and the Nazis came to power, the bank voided the family’s agreement and turned over the factory assets to a Nazi sympathizer. A bank memorandum from that era noted that cooperation with the Nazis might be strategic since the bank still had “important interests in Germany, and should avoid friction and unpleasantness whenever possible.”

Last week, Judge Korman castigated the unidentified bank for turning its back on Altmann’s predecessors in particular and the Jewish people in general, reported the Times.

“Having marketed themselves to the Jews of Europe as a safe haven for their property,” Korman wrote in his ruling, “Swiss banks repeatedly turned Jewish-owned property over to Nazis in order to curry favor with them.”

Altmann will receive her $21.8 million from a $1.25 billion settlement negotiated with Swiss banks in 1998. To date, more than 3,000 claimants — primarily Jewish families whose assets were misappropriated by financial institutions during the Nazi era — have been paid more than $250 million from the fund.

In other Holocaust-related news, an independent panel examining the role of Liechtenstein during World War II last week reported that the principality’s royal family purchased property seized by the Nazis from Jews and put Jewish slave laborers to work on the family’s Austrian estates, reported the BBC.

Also last week, an Israeli group formally honored the service of a German army officer, Major Karl Plagge. The Yad Vashem Holocaust Memorial added him to their honor roll for sheltering 1,200 Jews in an auto repair shop in Lithuania, helping roughly 250 of them escape extermination by the Nazis.

ROME
Saying urgent action was needed after a week of violence by soccer fans, Italian authorities last week quickly adopted a series of measures designed to punish soccer teams for their fans’ misbehavior.

The new rules were adopted after a series of particularly violent outbursts resulted in the cancellation of several matches, multiple arrests, criminal charges against more than 250 fans, and injury to 89 police officers.

At least five games witnessed violent acts, including the hurling of bottles and flares at players on the field, the chanting of racist and fascist slogans in the stands, the beating of an opposing fan with a baseball bat, and the torching of police vehicles by rioting fans.

“It’s an ugly and sad night for football,” Umberto Gandini, spokesman for the team AC Milan, said after his goalkeeper was hit in the shoulder with a flare fired by opposing fans, causing officials to cut short the match with Inter Milan.

Inter Milan was slapped with a fine of nearly $250,000 and will be forced to play at least four of its next six home matches in an empty stadium, depriving fans of their entertainment and the club of revenues, reported the Reuters news agency.

The spate of violence prompted the country’s Interior Ministry to adopt new measures that call for the immediate cancellation of games when objects are thrown from the stands, when offensive banners and signs are displayed by fans, and when there is any violence either inside or outside the stadium

Following last week’s mayhem, German police announced that they too will be cracking down on violence ahead of next year’s World Cup in Germany, reported the Associated Press.

Police plan to ban roughly 6,000 Germans classified and registered as prior troublemakers from the championship games, requiring them to report to police stations during the matches.

“The latest events have shown us again how dangerous it can get,” a German interior minister told the AP. “We are alarmed.”

BEAVERTON, Oregon
Nike Inc. last week published the names and locations of the more than 700 factories used to make the company’s popular athletic shoes and apparel, conceding that working conditions are far from perfect but saying disclosure of their factory locations may enable independent observers to monitor operations.

Saying transparency trumps trade secrets when it comes to eliminating sweatshop labor, Nike’s 108-page social responsibility report breaks with the industry’s tight-lipped tradition by revealing all of its manufacturing facilities.

The athletic giant’s move makes it the “first major apparel manufacturer to voluntarily disclose its entire supply chain,” according to a report from the Associated Press.

While Nike’s disclosure may appease some critics of the company, it may provide fodder for others with its extensive documentation of abusive working conditions at many factories, especially those in South Asia.

Nike’s audits in 2003 and 2004 found cases of physical and verbal “abusive treatment” in more than 25 percent of its South Asian plants. Between 25 percent and 50 percent of those facilities restrict workers’ access to toilets and drinking water and deny workers a weekly day off.

More than half of the plants required employees to work more than 60 hours a week, with 25 percent punishing workers who refused to do overtime and 25 percent paying wages below the legal minimum, reported the Guardian.

The company said part of the impetus for releasing the data was to push other companies to focus on sweatshop abuses, too. “We do not believe Nike has the power to single-handedly solve the issues at stake,” the company said in the report, according to the Guardian.

Human Rights First executive director Michael Posner called the report “an important step forward,” but noted that “the facts on the ground suggest there are still enormous problems with these supply chains and factories.”

Special to Newsline from Canadian correspondent Errol P. Mendes

WASHINGTON
The CBC has reported that the United States may have had two cases of bovine spongiform encephalopathy (BSE), commonly called mad cow disease, in 1997, but the U.S. Department of Agriculture (USDA) may not have performed adequate testing of the animals’ brains.

The CBC report asserts that the samples used for testing did not include the part of the animals’ brains that would have provided an accurate diagnosis.

Canadian beef producers have been suspicious of U.S. claims that there has been only one case of BSE in the United States — showing up in December 2003 in a cow that originated in Canada.

However, USDA representative Ron DeHaven is quoted as saying that there was no deliberate cover-up, claiming that the USDA had the choice to run the tests with the samples they had or not run them at all.

The CBC has shown USDA video of the two cows that seem to mimic the symptoms of mad cow disease.

Retired USDA scientist Dr. Karl Langheinrich told the CBC that without the proper tests, the USDA could not properly rule out mad cow disease from the two cases.

From the Kaiser Family Foundation:

“Americans believe prescription drugs are improving their lives, but most also say that the drug industry cares more about profits than people, according to the latest Kaiser Health Poll Report issued by the Kaiser Family Foundation.

“Nearly eight in 10 (78 percent) adults say that prescription drugs have had a positive impact on the lives of Americans, and nine in 10 (91 percent) say that drug companies make an important contribution to society by researching and developing new drugs, the new survey finds based on February polling. However, seven in 10 (70 percent) say drug companies put profits ahead of people, compared with about a quarter (24 percent) who say drug companies are most concerned with developing new drugs that save lives and improve quality of life.

“People also blame drug companies for rising health-care costs. Nearly six in 10 (59 percent) say prescription drugs increase overall medical costs because they are so expensive — compared with less than one in four (23 percent) who say drugs lower medical costs by reducing the need for expensive medical procedures and hospitalizations.

“These results are consistent with an earlier poll showing that people are now more likely to cite drug company profits as the major cause of rising health-care costs than any other cause — with 69 percent of people saying it is a ‘very important’ factor, including 24 percent saying it is ‘the most important factor.’

“More people cited drug company profits as the most important factor than cited greed and waste in the health-care system (20 percent), the number of malpractice lawsuits (20 percent), the aging of the population (7 percent), or the use of expensive, high-tech medical equipment and treatments (7 percent).

“‘Rightly or wrongly, drug companies are now the number one villain in the public’s eye when it comes to rising health-care costs,’ said Foundation President Drew E. Altman, Ph.D. ‘People want to rein in the cost of prescription drugs, and just about anything we poll on with that aim gets public support.’

“Overall, one half (50 percent) of all Americans say they have an unfavorable view of drug companies, while 44 percent say they have a favorable opinion. Drug companies are viewed more favorably than oil companies (36 percent favorable) and tobacco companies (17 percent), but less than doctors (82 percent favorable), hospitals (78 percent), and banks (75 percent).

“The survey’s other key findings include:

“Americans express confidence in the ability of the U.S. Food and Drug Administration (FDA) to ensure the safety of prescription drugs, with about three-quarters (77 percent) of adults saying they are ‘very’ (22 percent) or ’somewhat’ (55 percent) confident in the FDA’s ability to ensure drug safety. Just over two in 10 (22 percent) say they are ‘not too’ or ‘not at all’ confident in the FDA. When asked about the past few years, six in 10 (62 percent) say that their confidence in the FDA’s ability to ensure safety has ‘remained the same;’ while 27 percent say their confidence has decreased; and 8 percent say their confidence has increased.

“‘Recent controversy over the safety of a few popular drugs has yet to shift public perception of the FDA,’ said Mollyann Brodie, Ph.D., Foundation Vice President and Director of Public Opinion and Media Research. ‘Most people continue to express confidence in the FDA’s ability to ensure the safety of prescription drugs.’

“Almost two-thirds (65 percent) say there should be more government regulation limiting the price of prescription drugs, compared with 14 percent who say there is too much regulation. Nearly half (46 percent) of all adults continue to support more regulation of prices even if they heard that it might lead to less research and development of new drugs….

“About half say there should be more regulation of drug advertising (51 percent) and drug safety (50 percent). These shares have increased since 2000 when just over one-third said there should be more regulation of drug advertising (37 percent) and drug safety (36 percent)….”

“I have a lantern. You steal my lantern. What, then, Is your honor worth no more to you than the price of my lantern?”

– Epicetus (Greek stoic philosopher, ca 55 - ca 135)