#10 Jack Blum: Lockheed part 2
#9 Jack Blum: Lockheed part 1
#11 Jack Blum: French affairs
The Corruption Diaries is a journey through the eyes of anti-corruption veterans. Unique perspectives on combating one of the most compelling ethical challenges of our time.
Jack Blum is one of the United States’ leading white-collar crime lawyers. He’s specialised in investigating money laundering, financial crime and international tax abuse. We follow Jack Blum’s career from a small town in the United States to Senate staff attorney, the United Nations, and the frontline of the battle against tax abuse and corruption.
Music is by Blue Dot Sessions under a Creative Commons CC BY-NC licence.

Jack Blum: Prince Bernhardt was the consort. The Netherlands was paid by Lockheed to help them sell their airplanes. And it turned out that he used the money to support a second family in Paris. He referred to the woman that was being kept in Paris as his poupette. And he had illegitimate children there, which of course was a bit of an embarrassment to the Queen. Anyway, it, it led two years later to the abdication.

Naomi Fowler: This is Jack Blum: The Corruption Diaries from the Tax Justice Network. I’m Naomi Fowler.

Jack Blum: When I came back to Washington after having spent a lot of time going around Germany, the first thing I did was say, okay, let’s find the Japanese documents, and lo and behold, there were a whole pile of documents in Japanese. I had the Library of Congress translate those documents, and what emerged was that Lockheed had used Deakin Company, a foreign exchange house, to convert dollars to yen and had, through an agent named Yoshio Kodama, paid millions of yen to Prime Minister Tanaka to get Japan to buy for Nippon Airways the L1011 passenger plane. 

On top of the fact that there was the documentation of the bribe money going, believe it or not, there were receipts for the bribe payments. And that then led to, okay, let’s look at the rest of this. And we found that Lockheed had paid bribes all over the world. It turned out Lockheed had a code book, so they were, they were going to try to keep secret who was getting money where, and their code name for the Prime Minister of Italy was Cobbler, the Cobbler. 

Then we got to Lockheed in Bolivia, and there was a day when there was testimony, and of course, these hearings were just overrun by the press, television crews, reporters, you could barely fit them in the room. We were about to start hearings one day and a reporter who was helping manage the press corps said, there were two tables there for reporters, he said, Allies here, Axis there. Everybody’s laughing. Of course, it was less funny than one would have thought.

However, the one that struck me as very significant was the Lockheed officer is being questioned by Senator Frank Church and the Q&A goes something like this: You paid a bribe to the government of Bolivia to get them to buy this transport plane, a C124 or whatever it was. And I’m mystified because there was no competition whatsoever. No other aircraft manufacturer made a plane even remotely like it. Why would you have to pay a bribe? And the Lockheed guy thought for a minute and he said, Senator, you don’t understand. The competition for that plane was the rest of the Bolivian budget. And Church said, you mean that they might have spent the money on something else, like education or health or something like that? Yes, Senator, precisely.

We then started digging further into other companies that were in this documentation. And, there was Exxon, well, its predecessor, Standard Oil of New Jersey, I don’t remember whether the name had changed by then. But, they had paid 70 million dollars of bribes in Italy. And the reaction of the Exxon controller was that the amount was so trivial the senior management didn’t notice, right, that their receipts in Italy over that period had been so large that the 70 million was an accounting error. Yeah, the numbers for a lot of these companies were very, very large.

The most astonishing story was the story of the competition for the sale of airplanes to the United Arab Emirates. There was a competition for a passenger aircraft and there was a real problem because airplanes rely on taking in cool air, running it through a turbine and making the air expand as it heats up which enables the thrust to power the plane so it’ll take off. The temperatures in the Gulf during the summer are extraordinarily high, and it means that planes need very long runways, and they need extremely powerful engines to be able to take off during these heat spells. Lockheed was selling its L1011, but the problem with that plane was that the engines weren’t quite powerful enough to get it off the ground and make it work. So they came up with a super luxury configuration in which they had far fewer seats, the idea being that in this super luxury configuration, the weight would be low enough to get it off the ground. McDonnell Douglas had a plane in the mix and Boeing had a plane in the mix. I think it was a DC10 and a 747, I’ve, I’ve forgotten which plane where. The punchline was that all three of the manufacturers had hired the same agent, unbeknownst to each other, a guy in the UK named Matty Todger. Matty Todger was at the time reputed to be the richest man in the UK and he was taking money from all three companies saying he had the inside track and he’d get them the contract, so that no matter who got the contract, Todger got the money. It was just a marvellous example of the density of the people who were dealing with all of this.

It certainly taught me an awful lot about how the world of international business worked. It taught me a lot about the complexities of dealing with the issue. The question of, okay, what kind of criminal law might apply to this? How do you criminalize this behavior and actually what might in fact be a prosecution? And I was terribly troubled that a criminal law, if enacted, wouldn’t work particularly well because the government wouldn’t bring the cases and it would just be a mess. And it turned out that for a long period of time there were no cases brought under the Act. And one of the first cases came – this was after the Foreign Corrupt Practices Act went through the Banking Committee – the first prosecution came because some oil guy went into the American Embassy, I think it was in Oman and said, I’ve been cheated. I paid a bribe and I didn’t get the concession. And the ambassador said, I don’t think you want to tell me that. And the oil guy said, you work for me, you’re an American civil servant, you will help me get my money’s worth here. And finally the ambassador said, you keep doing this, I’m going to have to tell Washington what you’re about. And I think this guy was the first guy actually prosecuted under the Foreign Corrupt Practices Act, which tells you something about the vigor with which the government wanted to pursue this stuff.

We found that Lockheed had paid bribes all over the world. One of the issues that lurked behind it, which never could be answered, was for example, how much of the bribe money that was paid politically in Italy was paid in Italy to stop the Italian communists from getting control? How much of this was part of the US’s overall effort in the post-war period to prevent Europe from going communist? What, what we were left with was a question that couldn’t be answered and no one was willing to come forward and say yes or no, was whether some of this money had been at the behest of, or was actually, U.S. government money.

There were a couple of very funny incidents along the road as we looked into this problem. One of the funniest was the story of Ashland Oil, which, it turned out had accidentally purchased a chemical company in Europe which was a CIA front. And to the astonishment of us as we began to look at it was, of course, the CIA came to Ashland and told them, hey, fellas, you know, you got a problem here. You thought you were buying this chemical company and it was a subsidiary, but in fact it’s our front. And what we’re going to do is give you money to make up for the fact that you bought our, our front and, you know, just chill. Well, what Ashland did was take the money, which was perfectly laundered by the CIA, and use it to pay cash contributions to members of Congress. And there was this hearing where it was in a closed session. We had the President of Ashland and his counsel, and his counsel was trying to tell Senator Symington, who was chairing that closed session that he didn’t have the right to ask who the money went to. And Symington said to counsel, sit down, you have no right to say anything. Which is true that in there’s no right to counsel, it’s strictly, you can be in the room to advise, but you can’t talk unless you’re asked to. And finally, and this idiot was arguing with Symington and the Chairman of Ashland is pulling on his suit coat to get him to sit down and shut up. He couldn’t do it. Ultimately, we got the list of people who’d been given money by this Ashland operation. That was an extremely funny scene where the lawyer sort of got carried away and lost control.

The fallout of the Lockheed scandal was what the hell do we do about it? It really exposed for the first time the dimension of everything that had gone on and it was also very clear that this corporate behavior had had a tremendous impact on American foreign policy. So, the upshot then was what do we do about it, and at this point it became clear that the Foreign Relations Committee wasn’t going to be handling legislation because the play shifted to the Banking Committee. And at that point, I was pretty exhausted from the investigation and the work involved and, I decided it was time for me to leave the Foreign Relations Committee and go out on my own.

Naomi Fowler: The Corruption Diaries is a production of The Tax Justice Network, made by Naomi Fowler and Jo Barratt. Interviews with Jack Blum were recorded over several days at Jack’s home in Maryland by Zoe Sullivan.