The biggest scandal of the beginning of the 21st century was the Enron case. The financial wreck of the US energy giant, too, was not without the participation of offshore companies. The corporation itself was born in 1985 through the merger of two gas companies in Nebraska and Texas. It was Enron that became the first owner of a network of gas pipelines that stretched across the country.
In the 90 years the company began to engage in trade, not only gas, but also electricity. The corporation entered the securities market, which allowed it to have space for financial maneuvers. Enron soon became the largest trader in the electricity market, in 2001 the company took the 7th place in the Fortune 500 rating. At that time, its staff consisted of 21,000 employees in 40 states. At that time, the country’s electricity market was freed from excessive state control, Enron was able to manipulate electricity prices throughout the US.
Naturally, not without a close connection with major politicians – it was Enron that became the main sponsor of George Bush Jr. in his election company. The company mainly sponsored Republicans, although Democrats also received their piece of cake. Many employees of the presidential administration eventually became closely connected with the energy giant, being its shareholders, advisers or former employees. As a result, Enron receives unprecedented benefits in the supply of electricity, influences the choice of persons who control this market.
This activity, by the way, was quite legitimate, but in the accounting department of the giant everything was not going smoothly. So, the company management to conceal the true state of affairs were created thousands of legal entities, mainly offshore. So, at Georgetown, PO Box 1350, that in the Cayman Islands, 692 Enron subsidiaries were registered. It is interesting that all offshore companies were created legally, they submitted appropriate reports to public services, moreover, all this abundance of small partners was approved by the company’s board of directors, its auditors and lawyers.
The principle of the whole scheme was simple: through the subsidiaries, transactions were made with electricity, allowing to inflate the value of the whole company, but at the same time offshore debts were shifted which Enron did not intend to show. As a result, the company’s performance grew, management received multi-million dollar premiums, the value of shares and their packages grew. At the same time, the management managed to profit from the offshore themselves, so, Enron’s chief financier Andrew Fastow, who is the ideologist of the whole scheme, was able to get $ 30 million from one of the offshore companies.
For tax specialists, in contrast to shareholders, the company showed all its losses, being unprofitable and receiving tax refunds worth $ 380 million. On “Enron” worked the best lawyers and accountants, so you should expect that almost any operation of the company could be recognized as legitimate or challenged in court with good chances of success.
However, debts did not cease to grow, accumulating as a snowball. In 2001, the top management of the company began to secretly drop its stakes, although they told their employees about bright prospects. By October, it became impossible to conceal debts, the company reported a loss of 640 million and a decrease in capital by 1.2 billion. In it, the chief accountant of the company was accused, immediately dismissed for offshore fraud.
Enron’s shares began to plummet. In November, the company reduced the reported profit for 5 years by 586 million, and the debt grew by another 2.5 billion. Now the company could no longer be shunned, shares depreciated from $ 80 per share to one, in December 2001 Enron filed for bankruptcy, which became the largest in the history of the country. Immediately were dismissed about 4 thousand employees in the US and one thousand in Europe, and the company “Dineji”, previously wishing to buy a collapsing competitor, abandoned their plans.
In the course of the proceedings it became clear that the pension savings of 15,000 employees of the company were burned in the amount of one billion, as the Enron pension fund invested in its own shares, which were now depreciated. It turned out that the auditors Arthur Andersen attached their hand to the concealment of unseemly facts.
One of the world leaders in this industry not only participated in the development of the scheme, but also, anticipating the collapse, destroyed a huge number of valuable information pertaining to the company. Lenders have put forward a number of requirements not only to the bankrupt, but also to the bankers of Enron. Among the respondents were leading American banks, which are accused of helping the giant mislead investors.
The scandal spread to Europe. In England, Enron acted as a sponsor of the victorious Labor Party, which is now accused of building an energy policy of the state to please the company. What happened with the giant caused a chain reaction in the US economy, as hundreds of other companies used this practice, which have now revised their financial results.
In July 2002, another giant of the American economy collapsed – the company WorldCom (WorldCom). The largest Internet operator in the world declared bankruptcy, leaving assets at 107 billion dollars. The reason is the discovery a month before the error in the amount of 3.8 billion dollars. And the auditors of the company was the well-known firm “Arthur Andersen” all this time.
These events pushed society to reflect on the connection between big business and government, as well as a conflict of interests while providing consulting and audit services. The state adopted a number of bills that strengthened the control of the state over the economy, more strict control by shareholders and officials, and the prison term for fraudulent managers was also increased. Even these foreign companies are subject to these rules, but more than 1,300 issuers are listed on the New York Stock Exchange.
For example, if the United States decides that a Russian company listed in the United States does not meet certain financial requirements, then its director can get a considerable time in prison. This provoked discontent even among US allies who regard such a policy of fighting scammers as economic imperialism. However, only time will show how effective these measures will be.