Ethics Newsline®

On November 7, exit polls in the U.S. midterm elections showed that corruption and ethics were the most important issues determining voters’ choices.

The same day, news services reported Kremlin estimates that corrupt Russian officials were extorting $240 billion in bribes each year — nearly the size of the nation’s entire annual revenues.

Not all journalistic coincidences are noteworthy. This one is. Why? Because some influential Democratic senators and representatives, as they take over leadership roles in both chambers, are putting high priority on congressional ethics reform. Whether the reforms are effective depends on how hard hitting they are. That, in turn, depends on how important corruption is to lawmakers — which depends in part on how they read the lessons that Russia holds for the United States.

Of all the countries that the anticorruption watchdog Transparency International (TI) lists on its annual rankings, Russia may be the most relevant to the United States. Its sheer size, its European roots, its history of communist enmity toward the West, and especially its sudden relish for democratic ideals and free-market capitalism make it a fascinating petri dish for Americans to study. The experiment will show whether Western-inspired reforms can create political liberty, social progress, and economic prosperity in a country so unaccustomed to them.

So far the results are dismaying. Over the last four years, Russia’s place on TI’s list of 163 countries — running from least corrupt (Finland, ranked number 1) to most corrupt (Haita and Myanmar) — has slid from number 71 to number 121.

In one sense, that’s not surprising. Russia’s legacy of corruption is legendary, stretching back to the period of the czars. During the Soviet era, corruption became common practice for those who wanted to rise above the grim, gray destiny of the commonplace.

But even history can’t account for the sudden spiraling of graft since president Vladimir Putin came to office in 2000. He had promised to eliminate corruption. Yet a study last year by a Russian think tank, Indem, estimated that the value of the average bribe paid to corrupt Russian bureaucrats in 2005 was 13 times larger than in 2001.

Earlier this month, first deputy prosecutor general Alexander Buksman tallied up the Kremlin’s estimates of the cost of bribery to the Russian economy — $240 billion — and for the first time made that figure public. He also told the Kremlin’s daily newspaper, Rossiiskaya Gazeta, that Mr. Putin had put him in charge of a new anticorruption task force after the September 13 mob-style killing in Moscow of Andrei Kozlov, a top corruption fighter at Russia’s Central Bank.

Fortunately, the United States is not even close to Russia’s levels of bureaucratic turpitude. But neither is its immunity from corruption carved in stone. Going to school on the Russian experience, it can extract some key lessons.

First, democracy and capitalism do not in themselves guarantee progress and success. They can be overshadowed by a culture of corruption. Never mind that America’s political and economic history is so different from Russia’s; it can slide deeper into corruption any time it lets down its guard.

Second, political corruption is no mere second-order challenge, but a severe, immediate, first-intensity threat. It already has proved capable of removing Republicans from office. It also kills people — not only Moscow’s Mr. Kozlov, but perhaps also Miami businessman Konstantinos Boulis. The former owner of SunCruz Casinos, he was killed in a gangland-style shooting in Florida that may have some relationship to Jack Abramoff, the former high-profile Republican lobbyist who last week began serving a nearly six-year term for fraud in connection with his purchase of SunCruz in 2000.

Third, corruption has huge but hidden impacts on citizens at large, who may themselves never have seen any hint of graft in their local bureaucracies. But when corruption starts to drain federal coffers, how far do their taxes rise and their services deteriorate? How much of the post-Katrina chaos was due to unwitting incompetence, and how much to deliberate fraud? How much has the Iraqi war been extended, and how many lives have been lost, due to corruption among those supplying war materials and rebuilding the nation’s infrastructure? Even if it never comes close to $240 billion a year, corruption in the United States still impedes shared prosperity.

The threat of corruption needs a firm congressional hand. If reforms are to be meaningful, they will address three key issues: campaign financing; the misuse of “earmarks,” those personal projects that legislators can anonymously tack onto spending bills; and the creation of an independent congressional ethics monitoring agency. Such reforms — around how people get elected to office, what they do when they get there, and whether anyone holds them to account — could have made significant differences in Russia, and can do so in America.

Russia’s example is a sobering bookend, reminding us where unchecked tendencies toward corruption lead. The United States isn’t Russia, but it’s on the same shelf as that bookend. Its ability to remain uncorrupted isn’t guaranteed and can’t be taken for granted. It will be so only because it wants to be — and insists that its elected leaders make it so.

©2006 Institute for Global Ethics

“This is very disturbing. There is no national security issue here. There is no public safety issue. If they can make this the standard, then confidential-source reporting as you know it is done, over.”

– Mark Corallo, former director of public affairs for the U.S. Justice Department, discussing the government’s prosecution of reporters in the Barry Bonds/BALCO doping scandal. The journalists, Lance Williams and Mark Fainaru-Wada of the San Francisco Chronicle, have refused to tell the Justice Department who leaked grand jury transcripts to them. If convicted, they “face longer terms in prison than the combined sentences of all the defendants convicted in the steroid scandal they helped expose,” reports the Los Angeles Times.

WASHINGTON
A bruising struggle for House leadership seats in the upcoming Congress brought the ethics issue back to bite, or at least nibble at, the Democrats, as presumptive speaker of the House Nancy Pelosi became involved in the struggle for the majority leader’s post.

Pelosi, who had orchestrated the “culture of corruption” campaign theme against the Republicans, unsuccessfully backed a longtime ally, John Murtha (D-Penn.), against a longtime rival, Steny Hoyer (D-Md.).

As the New York Times and Washington Post report, Murtha’s ethics problems dogged him and clouded Pelosi’s ethics message.

Murtha then made matters worse when he disparaged, before a group of influential Democratic lawmakers, the ethics reform package that Pelosi touted as her first order of business, according to the Hill, a publication covering Congress.

The remark was particularly surprising, the New York Times reports, given recent scrutiny of Murtha’s deal-making on the House Appropriations Committee, as well as his involvement with the 1980 Abscam bribery case, in which he was never charged but was shown on surveillance tape turning down an apparent bribe by saying he was not interested “at this time.”

The party decisively voted Hoyer into the job last week, but only after the struggle prompted some newspaper editorial pages to declare that Pelosi had created a lose-lose situation by backing what the Times called a “badly tarnished ally.”

And even though Hoyer doesn’t carry the same amount of ethical baggage as Murtha, he is cited by the watchdog group Taxpayers for Common Sense as among the top 10 percent of “earmarkers” in Congress, the Los Angeles Times reports.

Earmarks are large appropriations, often secretly attached to spending bills, that direct funds to home districts, usually in the form of projects or contracts for major firms. The Times story claims that Hoyer sent $61.7 million to his Maryland district during the current session of Congress.

Time magazine notes that there may be more ethical minefields to be traversed during the power struggle for committee leadership seats, which change when majority control of Congress shifts.

Among the most potentially explosive contests is the top job at the Intelligence Committee. Pelosi does not want to give the job to rival California congresswoman Jane Harman, according to the Time analysis, but faces a dilemma if she doesn’t: The second Democrat in line is Florida’s Alcee Hastings, who was impeached from his federal judgeship in 1989 over allegations that he conspired to take a bribe, although he was later acquitted of the charges in court.

CUMBERLAND, Md.
Disgraced lobbyist Jack Abramoff, who admitted giving gifts and donations to gain power and access and who was a central figure in politicking and finger-pointing leading up to the midterm elections, reported to prison last week.

Abramoff checked into a prison in western Maryland to begin his nearly six-year sentence for fraud in the purchase of gambling boats, the Reuters news agency reported.

The GOP-connected lobbyist, who became the centerpiece of the Democrat’s “culture of corruption” campaign theme, is expected to continue cooperating with the government in a series of probes, the Associated Press reports. The case already has resulted in the conviction of former Bush administration official David Safavian and guilty pleas from former congressman Bob Ney (R-Ohio) and several congressional aides.

In related news, Safavian, who was sentenced to an 18-month prison term for lying about his dealings with Abramoff, will be allowed to remain free on bond pending his appeal, NBC News reports. A federal judge granted Safavian’s motion last week, ruling that there was a reasonable possibility that the verdict could be overturned. .

Among the issues being considered in the appeal is the admissibility of emails that were presented to document how Abramoff gave gifts and trips to Safavian, who at the time was a federal procurement officer, in return for inside information on government property that Abramoff wanted to buy, reports the Federal Times, a publication for government managers.

SAN JOSE, Calif.
The U.S. Securities and Exchange Commission (SEC) upped the ante in its probe of boardroom spying at Hewlett-Packard, filing papers that launch a formal investigation of the scandal.

The Associated Press reports that the company disclosed the formal SEC filing late last week. Formerly, the SEC’s actions had been limited to an informal inquiry.

The SEC now joins three other agencies — the U.S. Attorney for the Northern District of California, a U.S. congressional panel, and California’s attorney general — in separate probes of the computer hardware firm.

In related HP news:

• Ken Thompson, Wachovia Corp.’s CEO, has been named to the HP board, filling one of the vacancies created when the leak incidents prompted the departure of three directors, Reuters reports. The shakeup came after it was revealed that former board chair Patricia Dunn had authorized an investigation into leaks to the press by board members — a probe that spiraled into an affair in which private detectives pretended to be board members or journalists in order to dupe the phone company into providing private calling records later used to trace communications between some board members and reporters.
• HP’s stock dropped sharply last week even after the company posted healthy profits for the quarter. BusinessWeek reports that investors shied away from the firm’s shares because of the revelation of the SEC probe.
• Dunn, the firm’s former chairwoman who was forced out over the spying scandal, pleaded not guilty to four felony counts late last week. According to a report in the Boston Globe, she was released on her own recognizance. Several days earlier, Kevin Hunsaker, the former chief ethics officer at HP, pleaded not guilty to felony charges involving his alleged role in the firm’s spying probe, according to the trade journal Computer Business Review.

HOUSTON
Two former Enron executives received reduced sentences last week after helping prosecutors convict the biggest players in the company’s massive ethics scandal.

The Baltimore Sun and MarketWatch report that Michael Kopper, a former top aide to Enron CFO Andrew Fastow, was sentenced to 37 months behind bars. Mark Koenig, the former head of investor relations who admitted presenting false reports to investors, received 18 months.

They had pleaded guilty to various fraud and conspiracy counts.

Both were also fined $50,000, money that will be contributed to a fund to aid the victims of Enron’s implosion.

According to the Jurist, a legal-news website from the University of Pittsburgh, the sentences of both men were reduced at the request of prosecutors in recognition of their testimony against Fastow and former CEO Ken Lay.

U.S. district judge Ewing Werlein confirmed that he sentenced both men at the low range of federal guidelines because of their cooperation with the government, the Houston Chronicle reports. Werlein also noted that Koenig had not enriched himself and became involved in the crime because he was “doing what was expected of him by his superiors.”

Earlier in the week, Richard Causey, Enron’s former chief accountant, received a five-and-a-half-year sentence for his role in the fraud. The judge in Causey’s case also trimmed the sentence from the maximum of seven years because of the defendant’s cooperation in developing the cases against Lay and Fastow, UPI reports.

LOS ANGELES
Faced with increasing criticism and a rebellion by its own TV stations, Rupert Murdoch’s News Corp. last week canceled its planned launch of a new book by O. J. Simpson in which he presents a hypothetical account of the murder of his ex-wife and her friend, Ron Goldman.

The book, titled If I Did It, presents a speculative account of how the murders of Nicole Brown Simpson and Ronald Goldman might have been carried out by O. J. Simpson, who was acquitted of the crime but found liable for it in a civil wrongful death suit.

ReganBooks, a subsidiary of HarperCollins, had sought bookstore orders while being very vague on the content of the work, saying it was a book that would attract national attention, while withholding the name of the author, title, and subject, the Los Angeles Times reports.

In a bid to pique public interest and build sales before the book’s November 30 release, Fox Television had planned to air a two-part special on Simpson and the murders. Both Fox TV and publishing firm HarperCollins are owned by Murdoch’s News Corp.

Murdoch finally canceled the planned publishing stunt on Monday, pulling the plug after a dozen Fox affiliate stations had announced they would not air the program, reports the Associated Press.

Two of Fox TV’s celebrities, Bill O’Reilly and Geraldo Rivera, publicly criticized their network’s decision to carry and promote the cross-media event. Rivera, appearing on ABC’s “Good Morning America,” said he thinks the project “is just about as low as you can go.”

On Monday, Murdoch said he had come to agree. “I and senior management agree with the American public that this was an ill-considered project,” said Murdoch, News Corp. chairman. “We are sorry for any pain that this has caused the families of Ron Goldman and Nicole Brown Simpson.”

U.S. and Canadian booksellers also had been wrestling with the Simpson book, with some saying they would not stock the title, but would order it for customers who requested it.

“Free speech is one of our base values, but I have to say that this book deals with some other values of mine which are in conflict with that,” Russ Lawrence, head of the American Booksellers Association, told the Washington Post.

LONDON
Extremely premature babies, those born at 22 weeks or earlier, should not be revived with extraordinary treatments, according to a new report from a British medical ethics council.

According to the Yorkshire Post, the Nuffield Council on Bioethics, a prominent ethics panel, maintains that it is “extremely rare for babies born before 22 weeks to survive” and that treatments used to keep them alive can cause unreasonable stress and pain.

About 1 percent of such babies survive, the CBC reports, and often suffer from severe disabilities.

“Natural instincts are to try to save all babies, even if the baby’s chances of survival are low,” professor Margaret Brazier, who chaired the committee that produced the guidelines, told the CBC.

The council is made up of professors of philosophy, ethics, nursing, and medicine, according to the London Telegraph. Its recommendations are expected to serve as starting points for other bodies to weigh in on the issue, including the British College of Obstetricians and Gynaecologists, which has called for an open debate about euthanasia for very sick and premature babies.

But the United Kingdom’s major medical body, the British Medical Association, did not endorse the panel’s report, saying that time limits are not the deciding factor and that each case should be addressed on an individual basis, the Scotsman reports.

The Scottish Council on Human Bioethics also disagreed, with a spokesman telling the Scotsman that physicians and parents should be able to make decisions without “feeling strait-jacketed by broad-brush guidelines.”

SÃO PAULO
The death of a super-thin model has re-ignited ethical debate over whether fashion companies should promote clothing worn by “size zero” women.

Ana Carolina Reston, 21, died last week in São Paulo, Brazil, from complications related to an eating disorder, according to the Associated Press.

She weighed 88 pounds and was five feet, eight inches tall.

Reuters and Scientific American report that Reston’s death intensified the debate over the use of underweight fashion models, and follows by only a few months the death of a Uruguayan model who collapsed from heart failure during a fashion show.

Reston, who reportedly was eating only tomatoes and apples in the days prior to her death, was one of many impoverished Brazilians inspired by the success of other models from the region, according to the report.

Her modeling agency said it had sent Reston to a specialist in eating disorders, but she had not kept her appointments.

Some major shows, such as an annual international show held in Madrid, have banned too-thin models from the catwalk, according to the BBC Radio 1 news service.

The Times of London notes that friends and relatives of the model are referring to her death as a wake-up call to the fashion industry to stop featuring dangerously thin models, a practice critics say encourages eating disorders among youngsters who want to emulate them.

Reston’s mother, Miriam, is appearing on television and radio in Brazil warning other parents to “take care of your children.”

“No money is worth the life of your child, not even the most famous [fashion] brand is worth this,” she said, according to the Times.

LOS ANGELES
In reaction to what some say is a common practice, prosecutors in California last week accused a major hospital chain of ridding itself of a homeless patient by dumping her in the impoverished and dangerous area of Los Angeles known as Skid Row.

The Associated Press reports that Los Angeles city attorney Rocky Delgadillo said a hospital affiliated with the giant Kaiser Permanente chain put a 63-year-old demented homeless woman, still dressed in a hospital gown, into a taxi that dumped her in the neighborhood.

It is expected to be the first of several similar prosecutions planned against area hospitals, Reuters reports.

“We intend to ensure that private hospitals operating in Los Angeles County are in the business of delivering patients from their darkest hours, not into them,” Delgadillo told a news conference announcing civil and criminal charges against Kaiser Permanente, according to Reuters.

But hospital officials countered that Delgadillo was playing politics with the homeless, arguing that the city does not provide adequate services for such patients and is looking to shift the blame.

The Los Angeles Daily News reports that a top official with the Hospital Association of Southern California, Jim Lott, claimed the charges were “pernicious and politically motivated,” saying that hospitals had attempted to work with the city attorney to develop a policy for releasing homeless patients but were “summarily dismissed.”

The charges capped a yearlong dispute during which the city has accused hospitals and some outside law enforcement agencies of routinely dumping patients and criminals in the Skid Row district, which has the highest concentration of homeless people in the United States.

LONDON
About 10,000 teenagers in the United Kingdom are being given micro loans of ú10, roughly equivalent to $20, to set themselves up as “ethical entrepreneurs.”

The BBC reports that the loans are tied into a week of events celebrating socially responsible enterprise. Called “Make Your Mark with a Tenner,” the program is designed to help students create a business that has a social purpose.

Students have a month to create a new business before they have to replay the loan. While there is no way to enforce repayment, schools with a low rate of return will be ineligible for the project in the future, according to the U.K. Guardian.

The program was kicked off last week at a London school and featured successful entrepreneurs detailing the histories of their small-scale startups. According to the Guardian, they prompted students to be creative but follow certain rules, including the requirement that the businesses do no harm.

Ed Miliband, the minister for charities and nonprofit bodies, said social entrepreneurs set a powerful example “for the private sector in ethics, and the public sector in innovation,” the Guardian reports.

Prominent businesspeople are bankrolling the project with help from government grants.

From the University of Washington Business School:

“While fines imposed by regulators and courts on companies that falsify records may seem substantial, a new study finds the largest monetary penalties suffered by these companies are the result of a damaged reputation when news of their misconduct was reported.

“The study, led by Jonathan Karpoff, a professor of finance at the University of Washington Business School, reveals than on average, companies that have cooked their books lose 41 percent of their market value after news spreads about their misdeeds.

” ‘Cooking the books can be extremely costly,’ he said. ‘Firms lose real value when they are caught inflating their earnings, but the legal penalties turn out to be only a small part of the total losses experienced by these firms. The largest losses accrue because firms that cheat lose customers and face higher financing costs.’

“Karpoff and co-authors D. Scott Lee and Gerald Martin of Texas A&M University examined the penalties imposed on 585 companies that were disciplined by the Securities and Exchange Commission and the Department of Justice for financial misrepresentation from 1978 though 2002, and which were tracked through November 2005. They presented their findings, ‘The Cost to Firms of Cooking the Books’ recently at a conference held at the University of Chicago’s Center for Research in Security Prices.

“The researchers found that while the penalties imposed on firms through the legal system are relatively small, averaging $23.5 million per firm, the penalties imposed by the market in terms of damage to a firm’s reputation are colossal.

“According to Karpoff, damage done to a firm’s reputation as a result of intentionally falsifying financial statements, commonly referred to as ‘cooking the books,’ is more than 7.5 times the amount of all penalties imposed on it through legal and regulatory systems….

” ‘Financial misrepresentation is an especially costly activity because financial transparency is a particularly valuable asset,’ he [Karpoff] said. ‘A company’s sales and contracting costs are very sensitive to financial misrepresentation because it undermines the company’s credibility with customers, suppliers and investors.’…”

“It is not goodness to be better than the worst.”

– Seneca (Roman statesman and philosopher, circa 4 B.C.E. - 65 C.E.)