No Comment — July 24, 2007, 7:32 am

Corporate Corruption and the Bush Justice Department

Today Attorney General Gonzales appears to testify under oath once more before Congress. Let’s see if his memory has cleared up any. But in the meantime, the questions he urgently needs to answer–under oath–are multiplying. And here are a few from the last press cycle.

The Bush Administration’s Justice Department has been marked by politically managed prosecutions of white collar crime through its Public Integrity Section, as we know from the Siegelman and Thompson cases, among others. But what about other types of white collar crime? In the lead-up to the 2004 election, corporate corruption was figuring as a potentially enormously embarrassing issue. Enron Corporation and Enron service providers (notably Arthur Andersen) figured as the largest single group of campaign donors to Bush’s political operations, and Enron senior management had unparalleled access to both Bush and Vice President Cheney. When a whistleblower recently exposed the list of energy executives who met with—and essentially wrote—the national energy policy which had been delegated to Cheney, sure enough, Enron was right at the top.

By early 2003, Bush’s senior political advisor, Karl Rove, was reportedly deeply concerned that the corporate corruption issue would hurt Bush in the upcoming re-election campaign. He then settled on a strategy favoring some token prosecutions. Indeed, he decided that the prosecutions would figure as a campaign element.
Rove’s key sensitivity was in Texas, of course. But he picked a case in Alabama. The target was HealthSouth and its CEO Richard Scrushy. A prosecution was ordered up and directed through U.S. Attorney Alice Martin, and timing was viewed as critical. In fact, timing was to be attuned carefully to the campaign.

Here’s just one example. A former Justice Department attorney insists that we pay attention to the fact that Scrushy was indicted by a Birmingham grand jury on October 31, 2003, pushed through just in advance of a November 2, 2003 campaign fundraiser that the Bush-Cheney campaign organized at the Birmingham Sheraton, at which Bush talked about his commitment to action against corporate corruption. You might think this is pure coincidence. And if you do, you’re extremely gullible. Action and political rhetoric have been seamlessly merged. And the magician who managed this entire process? Karl Rove, of course.

But the grotesquely politicized management of the prosecution of HealthSouth and Scrushy is but one example of a phenomenon that covered the nation. Another, no less shocking one appeared yesterday in the McClatchy Newspapers and it comes out of Virginia.

McClatchy reported Monday that while Justice has chased Democrats with zeal, its appetite for taking on corporate fraud is was suddenly and dramatically deflated . The prime example? DOJ has just dropped indictments for a Berkshire Hathaway subsidiary, General Reinsurance, and a related company, Reciprocal of America, despite what prosecutors and investigators on the case insist was strong evidence of criminal wrongdoing. Both companies were involved in the reinsurance business, whereby companies take on other insurance companies’ additional risk to profit from increased premiums. But they failed to retain the surpluses required by law which would ensure each company’s ability to pay claims.

This shortcut was hidden, prosecutors and investigators said, by fraudulent accounting, and the end result of the crime was felt deeply by General Reinsurance and Reciprocal clients:

In the Reciprocal of America case, the fallout [of the fraud] was clear. More than 80,000 lawyers, doctors and hospitals in 30 states lost their malpractice coverage. As they couldn’t expect new insurers to cover them for past cases, some who were sued have claimed losses of hundreds of millions of dollars.
Readers won’t be surprised that the career prosecutor pursuing the case was relieved of his duties at an advanced stage of the investigation, and his replacement subsequently terminated pursuit of “Gen Re.” And speculation abounds as to the reason why the prosecution did not move forward – some believe that killing the case was an easy legal call, while others wonder if undue sympathies towards corporate America were to blame.

Has anyone examined corporate and related campaign contributions to the GOP?

The great tragedy of the ongoing political prosecution and U.S. Attorneys scandals at the DOJ is that now observers are forced to question incidents – like the decision to not indict Gen Re and Reciprocal – that were hitherto regarded as mainstream, internal decisions for true DOJ professionals to make. Politics has been allowed to trump everything. Professional prosecutors appear in the frontlines, but increasingly they do not call the shots–but they are pressured to lie about who is calling the shots and how.

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