Multinational Monitor

OCT/NOV 2002
VOL 23 No. 10


Chartering a New Course: Revoking Corporations’ Right to Exist
by Charlie Cray

Global Rules for Corporate Accountability: The Proposal to Establish a Corporate Accountability Convention
by Matt Phillips

Divide and Conquer: Restraining Vertical Integration and Cross-Industry Ownership
by Robert Weissman


Trust-Busting: The State of Antitrust
an interview with
Robert Pitofsky

New Rules for the New Localism: Favoring Communities, Deterring Corporate Chains
an interview with
Stacy Mitchell

Challenging Corporate Personhood: Corporations, the U.S. Constitution and Democracy
an interview with
Jan Edwards

Blowing the Whistle on Corporate Wrongdoing
an interview with
Tom Devine


Behind the Lines

Corporate Mandates

The Front
Titanic Struggle in Kenya - Household’s Predatory Plea

The Lawrence Summers Memorial Award

Names In the News


The Front

Titanic Struggle in Kenya

Nairobi -- Opposition is growing here to a $160 million deal allowing Tiomin Resources of Canada to mine titanium in Kenya. A leading opposition party says it will not honor the 1997 deal if it wins the presidential elections scheduled for December this year.

Tiomin inked the deal with Kenya after a two-year exploration period of deposits estimated to constitute 10 percent of the world's titanium resources.

The government suspended the project in 2000 after a public outcry over plans to relocate 3,500 peasant farmers. But in July this year, the government gave the company an environmental certificate, which sets the stage for the granting of a license to allow mining expected to begin in 2004.

The National Alliance Party of Kenya (NAK), a coalition of 13 political parties seeking to form the next government, announced in October that it would not respect the deal. The party accuses the government of being too eager to give the company a go-ahead without contentious issues on the project being sorted out.

"We are asking the affected families not to sell their land until they are given shares in the project," Mwai Kibaki, NAK's presidential candidate said.

Tiomin is offering each family $126 per acre per year and $25 annually. The affected families say this is too little, and that relocation plans are inadequate.

The farmers are demanding five times the level of compensation offered by Tiomin. "We will also not agree to be moved from this district," says James Wambua, the farmers' spokesperson. "They will have to relocate us to an area that is equally fertile so that we can continue with our farming activities."

Experts have expressed concern that relocation of the peasant farmers from the fertile area will impoverish them. They grow food crops such as maize, cassava, beans and rice. Families earn an estimated average of $177 a year from farming.

Tiomin says its deal with the farmers is not exploitative. It adds that farmers were given three months in which to cancel the contracts if they wished, but none did.

But nongovernmental organizations say the company's deal is a steal. "If it was in developed countries, Tiomin would have paid a third of the value of the mineral to the government," says Harun Ndubi, executive director of Kituo Cha Sheria, an organization that is advising the farmers on their rights in the deal.

Environmental experts have accused the company of underplaying the potential for environmental degradation posed by the project. Environmentalists criticize the company's environmental impact assessment report, conducted by a South African company, Coastal and Environmental Services, as poorly prepared and failing to address key issues.

"It affords only one paragraph to the question of the project's likely socio-economic and socio-cultural impacts," a critique of the report by the International Union of Conservation of Nature (IUCN) says, arguing these serious issues deserve much more attention.

Experts from the Faculty of Environmental Studies at Kenyatta University conducted an independent study in 2000. They concluded that there was danger of emission of radioactive uranium during mining. They also pointed out that the lives of the local people who depend on the natural resources of the land for survival would be severely hampered.

"Any activity which interferes with the systems that maintain these resources serves to irreversibly change their lives," the report said.

Tiomin says that charges of environmental degradation are exaggerated and defends the integrity of its EIA report.

"The mining process will be carried out in accordance with best world standards to ensure maximum benefits to the local people and the country," Paul Fortin, the company's vice president says.

The government says the project will create over 200 jobs and earn the country an average of $42 million annually in foreign exchange. And Tiomin officials say they have negotiated a fair deal with Kenya. The company says that while it expects to make a profit of $114 million, the Kenyan government will earn three times as much as the Canadian shareholders.

"We are extremely pleased to have received this permit. It is an indication of the widespread support of the project in Kenya. We are ready to move to the next level," says Fortin. With the project enjoying support at very senior levels of government, mining is likely to start on schedule. What remains unclear is how, or even whether, the contentious issues will be addressed.

-- David Karanja

Household's Predatory Plea

Household International, the parent company of Household Finance Corporation and Beneficial Finance Corporation -- two of the country's largest sub-prime mortgage lenders -- settled predatory lending charges in October, agreeing to pay a record penalty.

Household will pay $484 million in restitution to consumers nationwide -- the largest restitution fund in U.S. history established for consumers who were victims of predatory lending. New York Attorney General Eliot Spitzer and attorneys general and banking regulators from 20 states negotiated the settlement with Household.

Under the terms of the agreement, Household will be limited to charging 5 percent in fees for making a loan for home financing, lower than the average 7.25 percent it has charged consumers.

"This landmark settlement will usher in a new era in sub-prime mortgage lending in which all consumers are treated with honesty and fairness," Spitzer says. "For far too long, the sub-prime market has been a feeding ground for unscrupulous lenders looking to gouge the most vulnerable consumers."

The New York attorney general's office commenced an investigation into Household's practices in September 2001 after receiving numerous complaints from consumers who had been duped into refinancing existing, often unsecured, debt with Household.

Household failed to disclose material information to consumers or misrepresented the terms of loans.

For example, Household gave consumers loan proposals that omitted taxes and closing costs that the consumers would be required to pay.

Consumers did not realize until after the closing that these costs were not included in the monthly payment amounts presented to them in the loan proposals.

In other instances, consumers who applied for a single loan received two loans, were charged closing costs and fees on both loans, and unknowingly faced interest rates on the second loan that exceeded 21 percent.

Household is one of the largest sub-prime lenders in the country. Sub-prime lenders make loans to borrowers with weak or bad credit. Many have been accused of engaging in predatory practices whereby consumers -- even those with good credit -- are targeted to borrow money on disadvantageous terms, including high interest rates, steep bank fees and payments for undisclosed insurance products.

Under terms of the settlement, Household immediately will cease engaging in practices that the states alleged were unlawful.

Household will also be required to improve its disclosures to ensure that consumers better understand the terms of their loans and the nature of their transactions.

The agreement requires Household to:

  • Limit its fees for making a loan to 5 percent of the loan amount;
  • Limit the extent to which it can charge points or fees for refinancing a Household loan made within the previous year (a form of loan flipping);
  • Reform and improve disclosures to consumers, including providing accurate disclosure of discount fees on loans;
  • Stop making more than one mortgage loan to a consumer within a 90-day period of time;
  • Provide an independent loan closer, with no financial interest in the loan, to ensure that consumers understand the terms of the loan; and
  • Appoint an independent monitor to oversee the implementation and enforcement of these and other provisions for a period of five years.

The settlement covers Household's residential lending practices from January 1, 1999 to the present. Household is one of the largest consumer lending companies in the country. During the three-and-a-half year period covered by the agreement, Household made more than $30 billion worth of home loans to consumers nationwide.

-- Russell Mokhiber


The October/November 2002 Lawrence Summers Memorial Award* goes to drug manufacturer Schering-Plough.

Schering-Plough is the manufacturer of the allergy medication Claritin, a huge revenue earner for the company. It has fought desperately to extend the effective patent of the drug, and to prevent generic versions of it from becoming available.

Here is how the Wall Street Journal described one Schering-Plough tactic:

"Schering-Plough had hoped to extend its exclusive hold over Claritin to 2004 and beyond because of a related patent on a chemical cousin of Claritin, the Clarinex patent. Clarinex is created in the human body when people swallow Claritin, and Clarinex's patent expires in 2004. Schering-Plough argued that anyone swallowing a generic version of Claritin would create Clarinex in their body without the company's permission. By selling their Claritin knockoffs, generic manufacturers would induce patients into undertaking this infringement, Schering-Plough argued, and such inducement is illegal. This argument has been used by other drug makers -- and dismissed by other judges."

Source: Gardiner Harris, "Court Rules Against Schering on Claritin Patent Protection," The Wall Street Journal, August 9, 2002.

*In a 1991 internal memorandum, then-World Bank economist Lawrence Summers argued for the transfer of waste and dirty industries from industrialized to developing countries. "Just between you and me, shouldn't the World Bank be encouraging more migration of the dirty industries to the LDCs (lesser developed countries)?" wrote Summers, who went on to serve as Treasury Secretary during the Clinton administration. "I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that. ... I've always thought that underpopulated countries in Africa are vastly under polluted; their air quality is vastly inefficiently low [sic] compared to Los Angeles or Mexico City." Summers later said the memo was meant to be ironic.



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