The Journal of History     Fall 2003     TABLE OF CONTENTS

The Andersen Diversion

by Jim Rarey
July 8, 2002

Magicians are not the only ones who have mastered the art of prestidigitation (sleight of hand). Anyone who has watched the con man at a carnival work the shell game (a pea or marble under one of three shells) knows it is almost impossible to watch both hands at the same time. The trick is to get attention on the hand that is not manipulating the shells while the other hand does the dirty work.

The "prosecution" of Arthur Andersen was a shell game to divert our attention from Enron. While prosecutors and the congress concentrated on the one-count indictment for paper shredding, Enron faded into the background.

The worst case scenario for Arthur Andersen, upon conviction, was a maximum fine of $500,000 with no one going to jail. (You can't put a corporation in jail.) The fine would be inconsequential in the overall monetary exposure of the company. The only other consequence of a conviction would be that the SEC would bar the company from certifying financial statements for companies listed on the stock exchange. That was not a concern either because it was plain that Arthur Andersen was finished as a viable company. All the perpetrators have to do is get a job with another firm and they are back in business.

There is plenty of evidence to prosecute not only Andersen, but a number of its clients, involved investment banks, brokerage firms, stock analysts and rating services under the RICO statute as continuing criminal enterprises. That possibility has never been raised by the media, Justice Department or anyone in Congress and there is probably a good reason (from their interest) that they haven't.

To understand the huge ramifications of the Enron debacle, it is necessary to clarify what the company did and who facilitated it. The media would have us believe Enron created a number of "independent" partnerships (over 3,000) to hide debt. The debt aspect is a red herring.

In order to set up the partnerships, Enron had three hurdles to overcome. The first was SEC reporting and restrictions on companies involved in securities transactions. This was accomplished when an Enron lobbyist obtained a waiver from all the requirements of the 1940 Investment Company Act from the SEC headed by Clinton appointee Arthur Levitt (now a senior analyst at the Carlyle Group). The existence of the waiver was first reported by Insight Magazine and discussed in this writer's article, "Enronitis a Communicable Disease."

The second hurdle was an accounting rule that an unrelated person or company must own at least a laughable 3% of the "independent" partnership. It was the task of the investment bankers to round up those investors. Some of the banks put up the money themselves.

The accounting rules, usually described as Generally Accepted Accounting Principles (GAAP), are promulgated by the Financial Accounting Standards Board (FASB), a private organization.

In February of this year, the FASB finally got around to tightening up some of the rules on the partnerships officially known as "Special Purpose Entities." The FASB has been chaired by Edmund L. Jenkins for the last five years up to his resignation at the end of his five-year term in June of this year. Jenkins, prior to becoming chairman of the FASB had 38 years of experience with an accounting firm including as the Managing Partner for its Professional Standards Group. That firm was Arthur Andersen.

The third hurdle was an Enron policy that prohibited an Enron officer from participating in the independent partnerships (which also would have been prohibited by SEC rules had the waiver not been obtained). The Enron Board of Directors waived its own conflict of interest rules to allow Enron's Chief Financial Officer (CFO) manage the partnerships.

The partnerships then proceeded to flood the securities market with stock and bond offerings. Billions of dollars worth of securities were sold but where the proceeds (money) went is still a mystery.

One of the first things an honest auditor will do is perform a cash reconciliation. This is not just verifying bank reconciliations. It involves analyzing all operations generating cash and expenses draining cash to determine how much cash should be on hand. Obviously, this is not possible if the auditor doesn't see all the pieces of the company. It still is not clear if Arthur Andersen had access to the books of the partnerships. That may be academic now that Enron has sold its major (securities) trading operations to UBS in Switzerland along with the records. Incredibly, at last report, investigators and Congress have not even requested (much less subpoenaed) bank records.

Could those billions of dollars have been laundered to other entities or individuals? Who knows? But even those huge amounts may pale in comparison to another possibility.

Catherine Austin Fitts, in her stint as a sub-cabinet level officer in the Department of Housing and Urban Development (HUD), saw enough (before she was drummed out for saving money) to suspect that billions of dollars may be laundered out of HUD to unknown destinations. Fitts makes the point that over $3 trillion is missing from just the Department of Defense (DOD) and HUD over the last three years. Government auditors have thrown up their hands in disgust saying the books of those agencies are unauditable. Both agencies use the private auditing and consulting firm, Arthur Andersen.

Few have mentioned the possibility of such a huge embezzlement assuming there is no mechanism that could accomplish that without detection. That is not necessarily true. Although it would take the collusion of several highly placed individuals in government, banks and other financial institutions, there is one organization where that amount of money would be almost indistinguishable in the daily volume handled, particularly if spread over a period of time. That organization is SWIFT.

SWIFT is the acronym for a private organization set up by international bankers, owned by the bankers and operated for the benefit of bankers. The original name when it was first incorporated in Belgium in 1973 was the "Society for Worldwide Interbank Funds Transfers." At some point in time the name was changed to "Society for Worldwide Interbank Financial Telecommunication." Evidently the original name was too descriptive of its major function, wire transfers of money. On its website ( <> ) in its "History" of the organization, it falsely claims that the current name was its original name.

In 1976-77, as it began its international expansion, SWIFT contracted with Burroughs Corporation, then headquartered in Detroit, to furnish computer hardware and software for the network. Banking applications was one of Burroughs' strong product lines.

Without any advance indication, the Board of Directors abruptly fired the CEO and Chairman of the Board and replaced him with C. Michael Blumenthal. Blumenthal, a member of the Council on Foreign Relations and the Trilateral Commission had recently resigned as Jimmy Carter's Secretary of the Treasury. Blumenthal was also a leader in the Council of the Americas established by David Rockefeller in 1965.

The Council was and is the major non-governmental force pushing for the Free Trade Area of the Americas (FTAA) usually described as an expansion of NAFTA to encompass all of North and South America. Blumenthal regularly used Burroughs' corporate jet to attend the council meetings.

SWIFT now has a total of over 7,000 members and "sub-members." Eligible members must buy a share of SWIFT and be a bank, securities broker-dealer or a regulated investment management institution. Sub-members must be at least 50% owned by and under the management control of a member. Almost any company involved in financial transactions can use the SWIFT network for a fee if they are not a member or sub-member.

SWIFT claims to be a responsible organization as it is subject to oversight by a commission comprising representatives from the central banks of the G-10 countries, which are also members of SWIFT.

SWIFT tries to represent itself as just a telecommunications company servicing the financial community. The words money and wire transfer are no longer used. Money transfers are now called "messages. "

While SWIFT does not publish the dollar volume of traffic on its network, it boasts its daily "message" traffic reached 8,683,922 on June 28, 2002. If the average money transfer were only $1,000, that would translate into over $8 trillion moved on that day. However, the figure is probably much lower, perhaps $1 trillion since some of the "messages" may have really been only messages and not money transfers.

At any rate, that missing $3 trillion would fit nicely into one week of SWIFT transactions. That is not to say it happened, but it is a possibility.

Financial transactions can be traced for the most part unless they disappear into the arcane banking world of the Middle East. That was proved when tracking "terrorist" money merely by threatening banks with loss of the privilege of doing business in the U.S. If that same threat were to be used to follow the Enron money, we might learn something.

However, don't hold your breath. When the entire U.S. Attorney's office in Houston recused themselves because of potential conflicts of interest, the Justice Department appointed Leslie Caldwell to head a task force to investigate (and prosecute?) the Enron case.

Caldwell comes out of the U.S. Attorney office in San Francisco, as did current FBI Director Robert Mueller. Mueller had served a previous stint in the Department of Justice where he was instrumental in containing the BCCI investigation.

Caldwell was involved early on in the Arthur Andersen case. He had negotiated a deal with Andersen that would have dismissed the indictment if Andersen demonstrated it had learned its lesson from its previous "sins" on Sunbeam, Waste Management, and Enron and would mend its ways. The deal fell through when former Andersen partner David Duncan made a deal with prosecutors.

It is frustrating to the serious investigators of these corporate scandals to know the right questions, which are not being asked by the government including the Congress. It appears all we will see is partisan finger pointing and sham regulatory improvements.

Permission is granted to reproduce this article in its entirety.

The author is a free lance writer based in Romulus, Michigan. He is a former newspaper editor and investigative reporter, a retired customs administrator and accountant, and a student of history and the U.S. Constitution.

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Editor's note: My thanks to Jim Rarey for allowing publishers such as myself the privilege of making people aware of these truths. Since this article was written, a massive blackout occurred (September 2003) in which the US tried to blame the Canadian government. Canadians and I agree that the US loves to blame everyone but itself in an effort to eliminate any possibility that the US could be held accountable to the people for its deviancy.

People who are savvy to the inner workings of the US government understand the real reason why the blackout occurred. We heard that the US government wants Enron to take control of electricity instead of the way in which it is administered now, or nationalization. What's curious to me is that Iran's Prime Minister Mossedegh was deposed because he wanted to nationalize Iran's oil. Therefore, it seems to me that what the US government wants to do that the blackout tried to facilitate was privatize energy. On the "Demands for the Government" page, there will be a demand to never privatize energy.


The Journal of History - Fall 2003 Copyright © 2003 by News Source, Inc.