Even as the Costs Become Apparent, Big Business Pushes to Legalize Bribery

Last night, Jefferson County, AL delayed their decision for a month whether to declare bankruptcy or accept a settlement with their creditors and the state. At issue is $3.2 billion in debt, much of it for a sewer upgrade, that got dragged into the financial crash. The current deal would have creditors forgo a third of the debt in exchange for rate increases and the creation of an independent authotiry to run the sewer. County commissioners balked, though, arguing the deal relied on too many contingencies from the state–none of which are guaranteed–and took away any control at the county level. In short, it’s a mess, one that is costing the people of Jefferson County in increased rates and diminished services as the county struggled to find funding mechanisms to pay for the debt.

Yesterday, Reuters did a report summarizing all the bribery that went into the original sewer deal–and noting that JP Morgan hasn’t paid any reputational damage or loss of business for it, largely because it has blamed the deal on corrupt local officials.

JPMorgan Chase & Co. (JPM)’s Charles LeCroy said the key to landing bond deals in Jefferson County, Alabama, was finding out whom to pay off. In one example, that meant a $2.6 million payment to Bill Blount, a local banker and longtime friend of County Commissioner Larry Langford.

“It’s a lot of money, but in the end it’s worth it on a billion-dollar deal,” LeCroy told a colleague in 2003, according to a complaint filed by the Securities and Exchange Commission.


Just 21 months ago, JPMorgan agreed to a $722 million SEC settlement to end a case over secret payments to friends of Jefferson County commissioners. The financings arranged by JPMorgan, a package of floating-rate debt and derivatives, exposed taxpayers to the 2008 credit crisis and dealt a blow that may lead the county to approve the biggest U.S. municipal bankruptcy as soon as today.


Larry Langford, the former commissioner in charge of finance, was found guilty on U.S. criminal charges of accepting bribes from Blount, who pleaded guilty in the case.

LeCroy and MacFaddin, the former head of municipal derivatives for the bank, are fighting SEC civil claims that they failed to disclose payments to Blount and others.


In Jefferson County, 21 people, including four county commissioners, were convicted or pleaded guilty to charges related to the sewer construction or financing.

Former County commissioner Langford, 63, a longtime friend of Blount’s who was responsible for finance, was convicted of taking $242,000 in bribes in exchange for steering business to Blount. Langford lost an appeal of his convictions, according to a notice posted Aug. 5 by the federal appeals court in Atlanta.

According to the SEC, LeCroy also paid fees to two other local firms to win the support of another former commissioner.

LeCroy joked about the tactics with a fellow JPMorgan banker in 2003. “We have to pick the partners who are going to get free money from us this time,” he said, according to the SEC complaint.

As the Reuters piece notes, JP Morgan remains the third largest underwriter of municipal debt, even after this deal and a separate price-fixing settlement with the SEC. This company, that has bribed and cheater local and state governments, remains a key partner with those (and federal) governments.

And big business is pushing for greater impunity for such behavior. Also yesterday, Dan Froomkin had a long piece describing the Chamber of Commerce’s efforts to roll back key parts of the Foreign Corrupt Practices Act, which the US has used to pursue such upstanding corporations as KBR for their bribery overseas. Of particular note, the Chamber is trying to get exceptions to FCPA limiting a corporation’s liability for the past criminal behavior of companies they acquire and for the criminal behavior of a subsidy.

“The proposals by the Chamber are quite dramatic,” said Harvard Law School professor David Kennedy, who specializes in international law. “Although presented as modest legislative clarifications, the Chamber’s proposals would seriously undermine the enforcement efforts and scale back criminal liability under the FCPA.”

“I have a hard time figuring out how they justify a push on this law that essentially amounts to, ‘We want to make it easier to bribe,'” said Per Olstad, the executive director of Chamberwatch, a labor-backed group. “It’s shocking that an organization purporting to represent a mainstream business view would take that position.”

The Chamber’s arguments and proposals were summed up in a 28-page paper released in October by its legal arm, entitled “Restoring Balance.”

Some observers have pointed out that the proposed amendments to the FCPA also target basic concepts key to establishing other forms of corporate liability, including environmental liability, tax liability, product liability and liability for racketeering, discrimination and so on.

“I think what they’re really trying to do is push reform that will make it harder for anyone to hold business accountable, period,” Olstad said.

“It could be that the FCPA just seems an easy first target,” said Kennedy.

Indeed, the Restoring Balance report reads as much like a complaint that FCPA requires companies to keep detailed enough records to become aware of (or, more likely, to be unable to deny awareness of) the bribery they are engaged in as anything else.

At the time of enactment, the FCPA was a significant departure from settled expectations in the American business and legal communities. Before the FCPA, no government had made it a crime to bribe officials of a foreign country. Many governments even allowed companies to count bribes paid to foreign officials as ordinary business expenses that the company could ultimately deduct for tax purposes. For approximately two decades, the FCPA stood alone, not only in criminalizing foreign bribery, but in requiring companies to maintain books and records and accounting controls that would help prevent and detect its occurrence.

Three years after the crash, Jefferson County, AL is still paying for the bribe-induced financial disaster JP Morgan pitched. And at the same time, the Chamber’s trying to make it easier to engage in such bribery.

11 replies
  1. bmaz says:

    Nice job, this sordid deal needs to be highlighted; it is emblematic of so much, in so many places. Jefferson County and Greece, two disparate peas in the same MOTU pod.

  2. readerOfTeaLeaves says:

    I never really dreamed that I would come to believe this nation could seriously be headed for social chaos.

    The Jefferson County corruption needs some justice.
    But so do the banksters.

    If there were justice, I think things could be worked out.
    Without justice, I fear chaos.

  3. Jackie says:

    hmmm… were ‘they’ also ‘helping(bribing)’ in Detroit regarding the waste management(?) bribery thing?

  4. KWinIA says:

    How do you hold the residents of Jefferson County responsible for paying off a bond that was signed off on by officials bribed to do so? Wouldn’t the fact that they were bribed indicate that the officials were not actually serving the residents, but were instead selling the taxing authority of the county to the banks? Apart from the fine, has anyone from JP Morgan been charged? Will the be able to deduct the fine from their taxes?

  5. KWinIA says:

    The $722 million in the SEC settlement would have gone a long way toward paying off the sewer bond. What happens to it?

  6. Fractal says:

    The details in the NYT story by Mary Williams Walsh (click my name) are very revealing. The borrower which was defrauded by its own elected & appointed officials (the County) is facing $3.2B in claims on the sewer bonds and (presumably) other debt. The County is already in receivership & is fighting with its receiver, who is trying to or did seize control of the portion of JPM’s $722M settlement that JPM was forced to pay to the County (restitution); the restitution was only a little more than 10% ($75M). The County is on the brink of filing Chapter 9 bankruptcy (special procedures for municipal jurisdictions — cities, towns, counties, water & sewer authorities).

    Bankruptcy is just a court-supervised bargaining over the size of the haircut (loss) particular lenders (creditors) will take on their bonds. But because it is public, the bankruptcy filing would reveal exactly which oligarchs and multi-billion-dollar global conglomerates own the bonds of Jefferson County, Alabama. Among those would be the lenders who bought the corrupt, fraudulent sewer bonds which were issued only because JPM induced their issuance through millions of dollars of bribes. Those bondholders do not want their identities known. Those bondholders are willing to pay money (take losses) in order to keep their identities secret.

    According to the Times, the current offers & counteroffers by the County and the bondholders would force the bondholders to take a haircut of 36% (pay $2.07B on $3.2B in debt). Hundreds of millions of dollars are slated for a reserve to ensure interest payments are made timely and the deal would pay $23M to some underwriter(s) for issuing the new debt to pay off the old corrupted debt.

    The purpose of those negotiations was to “pre-package” the Chapter 9 bankruptcy filing (think auto bailouts) so as to expedite resolution and allow the lending oligarchs to get back to business as usual. The GOVERNOR’S CHIEF OF STAFF ARRANGED THE TERMS OF THE DEAL ALONG WITH THE COURT-APPOINTED RECEIVER. The deal would have required the county to drop all litigation against the criminal oligarch banks & criminal local officials & local bankers!

    But at the last minute the state governor leaned on the county to stop its filing, even though his own chief of staff was behind the deal. The Times thinks the governor was offering to ask the legislature to pass new laws to backstop the county in some fashion, and that the governor would pledge some kind of credit support from the state to the county to lower the interest rate. But why the sudden effort to kill the bankruptcy filing?

    At least one county commissioner smelled a rat:

    “George Bowman, a commissioner, said during the meeting that he did not see how the board could agree to the proposal when so much depended on factors beyond the county’s control. No one knows yet whether the legislature will, in fact, create the proposed authority, for instance, or what the interest rate on the new debt would be. He also cited continuing investigations by the Justice Department and Internal Revenue Service, and was unwilling to drop legal claims until the findings were known.

    ‘We have absolutely no control over anything they do,’ he said.”

  7. Fractal says:


    The Times piece said $75 million of the proceeds from the $722M penalties, fines, restitution, etc. required by the SEC settlement was paid to Jefferson County, but the court-appointed received tried to seize it. No explanation was provided by NYT for the uses of the other 90% of that settlement fund.

    I should add to my previous comment that NYT did not actually say that the “sewer bonds … were issued only because JPM induced their issuance through millions of dollars of bribes.” We don’t have detailed information about how desperately or how much the county needed to borrow for the sewer system or how many other underwriters there were on that particular bond issue. So JPM may have paid the bribes merely to ensure that it got part of the business; if JPM had not bribed anyone, it is quite possible the bonds would have been issued anyway, just not through JPM. Also, so far we do not know what the total underwriters’ premium was for the sewer bonds or what share of that premium JPM snagged through its bribery. Presumably JPM’s share of the premium (“points” for the underwriters) was larger than the $2.6M it paid in bribes.

  8. Fractal says:

    The Bloomberg link (click my name) gives substantially more details about the underwriting for Jefferson County.

    In or about 2003, JPM and other oligarch banks foisted interest rate swaps onto the county, allegedly to hedge the variable interest rate they set on the bonds they issued for the county. “The county paid JPMorgan, Bear Stearns Cos, Bank of America Corp. and Lehman Brothers Holdings Inc. $120 million in fees for swap trades. Those fees were as much as six times the prevailing rate ….” Of course, JPM then bought Bear Stearns after it nearly failed in March 2008, so JPM became a bigger portion of the counter-party risk.

    Bloomberg also reported that the bribes totalled eight million, not two million.
    “In 2008, the bank said it got out of the business of selling interest-rate swaps to state and local governments. In November 2009, it settled with the SEC over allegations that [then-JPM bond seller Charles] LeCroy and former JPMorgan colleague Douglas MacFaddin funneled $8 million of secret payments to bankers, including Blount, who had ties to Jefferson County politicians.”

    Also, according to Bloomberg, corruption in financing & construction of the sewer system blew up the county power structure: 21 people were convicted or pleaded guilty, including four county commissioners.

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