CAPITALISM'S ACHILLES HEEL Dirty Money and How to

Playing the Game 27
If the local agent is any good, he throws his arm around your shoulders,
looks deeply and confidently into your eyes, and says, “I understand perfectly!”
An expatriate lawyer in the Middle East does a thriving business representing
arms manufacturers. He sets up billion-dollar weapons deals under
two contracts, one for the main equipment and a second for support services
such as training, maintenance, and software updates. The first contract with
the government of the purchasing country is priced properly. The second
contract is channeled through a joint-venture company in a Caribbean tax
haven, owned by the arms manufacturer and by designated friends of the
government officials in the buying country. While doing no work, these
nominee partners share in the venture’s deliberately bloated revenues, passing
the funds along to their principals, the officials who are the real but
silent partners.
IBM was not sufficiently careful in this kind of business and made
the mistake of doing suspect business through its own local subsidiary.
In an arrangement called Proyecto Centenario in Argentina, IBM entered
into contract with Banco Nación to install computers priced at
$250 million throughout the bank’s 525 branch offices. 2 The markup for
paying kickbacks was allegedly about 15 percent, some $37.5 million. A
local prosecuting judge, Aldolfo Bagnasco, getting wind of the deal, accused
IBM of paying bribes to get the contract, referred to in Buenos
Aires as “a little happiness.” IBM Argentina reportedly funneled these
payments through two local agents, Consad and its subsidiary CCR.
Payments of $37 million went to CCR, a firm with one employee and
one telephone. 3
In turn, CCR redistributed millions, which ended up in bank accounts
in New York, Switzerland, Luxembourg, and Uruguay. Upon request
from Judge Bagnasco, Swiss authorities revealed that beneficiaries of
such accounts included directors or ex-directors of Banco Nación. 4 At least
two recipients admitted they received millions and confirmed that the
payments were gifts from IBM. 5 The IBM–Banco Nación contract was
cancelled in 1997. Following action by the U.S. Securities and Exchange
Commission, IBM paid a $300,000 civil fine without admitting or denying
the bribery. Swiss banks turned over $4.5 million in frozen assets to
the Argentine government in 2002. The remaining $33 million has not
been fully recovered. The point is, don’t use your own local subsidiary or