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Wednesday, 21 August, 2002, 12:43 GMT 13:43 UK
Enron: Crime, punishment and reform
Enron logo together with prison and handcuffs
Enron's collapse - and its auditors' apparent failure to question the company's unorthodox business practices - has prompted a wave of investigations.

BBC News Online flags up the penalties and reforms which could emerge from these inquiries.

The implications of the energy giant's collapse seem to grow daily.

And thousands of aggrieved employees, investors and creditors are waiting to find out what punishment will be meted out to those who covered up Enron's true financial position so successfully for so long.

Billy Tauzin, chairman of the House Energy and Commerce Committee
Billy Tauzin is chairing a key Congressional hearing
Responsibility for penalising the culprits rests with two bodies - the Securities and Exchange Commission (SEC) and the Department of Justice (DoJ).

Charged with "protecting investors and maintaining the integrity of the markets", the SEC could issue fines or order the establishment of a fund to reimburse shareholders.

Then the DoJ - which has criminal authority - could prosecute individuals suspected of fraud or insider trading.

But the wider battle to right Enron's wrongs will focus on pushing through regulatory reforms designed to prevent a recurrence of corporate scandals on this scale.

If successfully introduced, these reforms could significantly change the US corporate and political landscape.

Reforming ambition

The issues earmarked for attention by reformers include:

  • The role of business funds in political campaigning.
  • The extent of energy companies' influence on national energy policy.
  • The need to reform pension laws to stop over-exposure to one stock, and prevent a company from investing its pension funds in its own stock.
  • The need for higher standards of transparency and disclosure in the audit profession.
  • Potential conflicts of interest between consultancy and auditing work.
  • The need for tighter regulation on financial derivatives trading.
But while the broad issues involved are obvious, a lack of clear information on the activities that led to Enron's collapse means that identifying specific loopholes in the current system will be difficult.

Hidden info

There are numberous obstacles in the path of investigators trying to shed light on the affair.

Firstly, many key documents have already been shredded by both Enron and its auditor, the accountancy firm Andersen.

Secondly, Congressional investigators do not have the power to force anyone to testify.

Kenneth Lay, former chief executive and chairman of Enron
Kenneth Lay has refused to testify before Congress
Because a criminal investigation is under way at the same time, witnesses have the right to remain silent in order to avoid incriminating themselves.

This right has already been exercised by Enron's former chief financial officer Andrew Fastow, and David Duncan, the man at accounting firm Andersen in charge of auditing Enron's books.

Former chief executive and chairman Kenneth Lay has also refused to appear on the grounds that he would not be guaranteed a fair hearing.

And the US administration, while pledging to get to the bottom of the crisis, has also proved to be uncooperative in certain areas.

Vice President Dick Cheney
Dick Cheney has refused to hand over secret info
Vice President Dick Cheney has refused to release information on discussions between Enron and his special energy taskforce to the General Accounting Office (GAO) - the investigative arm of Congress.

The GAO is demanding details of the talks in order to gauge the influence Enron exercised on US energy policy.

The refusal to release these documents has led congressional investigators to take the unprecedented step of suing the White House.

Long and drawn-out

With the Enron collapse sending ripples into a wide range of markets and industries - pensions, campaign finance, stock markets, and energy have all been affected - there are now almost a dozen bodies trying to work out what actually happened.

The following bodies and agencies are involved:

  • The Senate Commerce Committee will look at consumer fraud.
  • The House Energy and Commerce Committee will examine accounting practices and the regulation of energy and gas markets.
  • The House Financial Services will assess the impact of Enron's collapse on investors and markets, and will also investigate the firm's accounting practices and the possibility of securities fraud.
  • The Senate Energy and Natural Resource Committee is looking at the impact on energy markets and government oversight of energy trades.
  • The House Education and Workforce Committee will look at employee retirement plans.
  • The Senate Governmental Affairs Committee will seek to determine how well federal regulators monitored the firm and its use of offshore entities.
  • The Senate Health, Education, Labor and Pensions committee will look at pension issues, especially the 401 (k) plan.
  • The Senate Banking Committee will scrutinise accounting and investor protection issues.
  • The Senate Finance Committee will probe whether Enron used tax shelters to mask its financial condition.
  • The House Government Reform Committee will investigate Enron's political influence.
But the silence of key witnesses, Enron's financial contributions to the politicians now investigating the company, and the investigators' own eagerness to duck any blame for failing to spot the problems earlier are likely to slow the reform process.

Taking a stance

Some political observers say the Enron affair may also inspire a change of direction by President George W. Bush.

Mr Bush has been seen as an enthusiastic supporter of corporate America since coming to power.

One of his key strategies for stimulating the beleaguered economy, for example, is to offer tax-breaks to businesses.

George W Bush
Mr Bush's pro-business stance is under fire

His energy policies in particular have been seen as favouring oil firms' interests over those of the environmental lobby.

Mr Bush has been quick to play down his links - both personal and political - with Enron.

Recent speeches have been peppered with references to his determination to crackdown on corporate fraud and restore the trust of investors.

And he has pushed through a sweeping corporate reform bill, which aims to increase supervision and punish wayward companies.

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Broad impact

See also:

04 Feb 02 | Business
31 Jan 02 | Business
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