MANAGEMENT: The Kickback Scourge

The Pan American World Airways purchasing agent knew a good deal when he saw it. Offered some generous cash incentives for steering a few Pan Am orders to a Miami-based electronics supplier, he grabbed. Then his bosses became suspicious, arranged a legal wire tap and recorded him in the act of negotiating kickbacks. That is when the second good deal came along for the agent—a union-contract clause stipulating that an employee fired for cause must be notified within 30 days of committing the offense. Pan Am did not want to confront the employee until it had prepared an airtight case, and that took longer than 30 days. Thanks to the technicality, the kickback-collecting employee is still a Pan Am purchasing agent.

Pan Am is certainly not alone in its woes with the spreading scourge of kickbacks. After a year-long federal grand jury investigation, 19 U.S. and foreign airlines (including Pan Am) last week offered to plead no contest to charges that they had given illegal kickbacks to travel agents. Last week as well, financially straitened W.T. Grant Co. filed civil fraud charges in New York federal court against three of its executives —including John A. Christensen, a $72,000-a-year vice president—alleging that they had accepted bribes from an Atlanta-based real estate developer to lease inferior sites for shopping centers at inflated rates. According to the complaint, the kickbacks exceeded $100,000, and ranged from trips to Acapulco to a $33,000 stable built on Christensen’s farm in Connecticut. The company is asking $5 million in damages from the three men, the real estate concern and Christensen’s wife.

Some banks, too, have to cope with kickback artists on their own payrolls. At a federal hearing last week on a bankruptcy petition he has filed, Joel Kline, a Maryland land speculator, testified that he had paid $25,000 to a loan officer at New York City’s Bankers Trust Corp. in exchange for securing lines of credit. The following day the bank revealed that last November it had asked an officer, Stephen Benjamin, to resign for dealings with Kline. The land speculator, who bribed a number of Maryland state officials while Spiro Agnew was Governor, reportedly gave testimony that led to Agnew’s resignation as Vice President.

Weed Killers. Several chemical firms have given cash and gifts to Illinois and Wisconsin state officials who bought the firms’ weed killers and deicers. So far, 70 highway superintendents, sheriffs, sewer-plant supervisors —and even the mayors of the towns of Piper City and Rankin, Ill.—have admitted collecting bribes in return for approving official purchases at prices from two to five times competitive levels.

The ultimate victim of kickbacks is the consumer, who has to pay higher prices for shoddier goods and services. Companies fire offenders who get caught but do not prosecute for fear of bad publicity. Many states have no commercial bribery statute. In those that do, kickbacks almost always carry a penalty of less than a year. What is clearly needed is tough laws and stiffer sentences.