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In Australia “ the ¬rst country after the United States to actively
pursue a program of prison privatization “ details about contracts

The Corporate Veil

were often hidden from public view. (The state of Western Australia™s
decision to publish its contract with the Corrections Corporation of
Australia on the internet was an exception “ a “world ¬rst,” accord-
ing to its of¬cials.10 ) In the state of Queensland, of¬cials promised
the Corrections Corporation of Australia that they would not dis-
close prison contract documents without its consent; while CCA and
government of¬cials publicly promoted the success of the privati-
zation effort, requests for contract information needed to evaluate
the project were rebuffed. (“As the contract is still in existence,” one
researcher was told, “it can be assumed that Borallon [one of the
state™s privately run prisons] is meeting the standards required.”11 )
In the state of Victoria, which in the late 1990s held a larger propor-
tion of its convict population in privately run prisons than any other
jurisdiction in the world,12 of¬cials steadfastly refused to release con-
tract details until forced to do so by the courts.13 One result was that
prisoners and their advocates did not know what requirements had
been imposed on prison managers, and could not say whether those
conditions were being met.14 The stakes were not inconsequential: As
editorialists noted, eleven prisoners died within Victoria™s private pris-
ons while the government fought against disclosure of its contracts.15
Other governments have wrestled over the release of contract doc-
uments for major privatization projects. Efforts to assess a new pri-
vately operated toll highway in the Canadian province of Ontario were
complicated by the government™s refusal to disclose the tolling con-
tract.16 In another case “ a complex project in which the consulting
¬rm Accenture was hired to overhaul Ontario™s social services
system “ disclosure of the contract was successfully blocked on the
grounds that the relationship was so innovative in its design that
the contract details constituted a valuable form of intellectual prop-
erty.17 In Scotland, the advent of a new Freedom of Information Act
was marked by controversy over the government™s refusal to release
a contract with a private security ¬rm that had mistakenly released
several prisoners in its custody.18 In South Africa, the Johannesburg
Water Authority resisted the release of documents relating to a con-
tract under which a consortium led by the French ¬rm Suez under-
took to manage the municipal water system.19
The struggle over contract documents already in the hands of gov-
ernment of¬cials is relatively simple when compared to the contest
over documents held by contractors alone. When documents are held

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by government of¬cials and a disclosure law is in place, the right of
appeal to a court or ombudsman is recognized, and claims of com-
mercial con¬dentiality can be scrutinized and perhaps rejected. When
documents are held only by contractors, the law is less helpful. Only a
small number of disclosure laws establish a right to obtain documents
created by a contractor while doing work for a government agency,
if the documents remain only in the contractor™s hands.20 (Govern-
ments could also draft contracts to con¬rm public right of access to
contractor ¬les, but usually do not.) More often, there is no right to
contractor records at all. Added to this is a strong resistance to the
idea of transparency on the part of contractors themselves. “As long
as water is coming out of the tap,” one water company executive told
an international conference in 2000, “the public has no right to any
information as to how it got there.”21
This creates the potential for inconsistencies in accountability,
illustrated brutally by the scandal over abuse of prisoners in Iraq.
Contractors were deeply implicated in the controversy over prisoner
abuses. In May 2004 the Houston Chronicle “ relying on documents
obtained through the Freedom of Information Act “ reported that
the U.S. Army had investigated almost thirty cases of alleged abuse
by contractors over the preceding year.22 A series of government
reports also acknowledged the role played by contractors, sometimes
in graphic detail. “The ¬rst documented incident of abuse with dogs
occurred on 24 November 2003,” the Fay-Jones report said:

MA1 Kimbro went to the top ¬‚oor of Tier 1B, rather than the
MI Hold area of Tier 1A. As he and his dog approached a cell
door, he heard yelling and screaming and his dog became agitated.
Inside the cell were CIVILIAN-11 (CACI contract interrogator), a
second unidenti¬ed male in civilian clothes who appeared to be
an interrogator and CIVILIAN-16 (female contract interpreter),
all of whom were yelling at a detainee squatting in the back right
corner. MA1 Kimbro™s dog was barking a lot with all the yelling
and commotion. The dog lunged and MA1 Kimbro struggled to
regain control of it. At that point, one of the men said words to
the effect “You see that dog there, if you don™t tell me what I want
to know, I™m gonna get that dog on you!”23

The Taguba report concluded that four individuals were “directly
or indirectly responsible” for abuses at Abu Ghraib: Two were govern-
ment employees, and two were contractor employees.24 There was a

The Corporate Veil

neat symmetry in this ¬nding of fault, but no comparable symmetry
in terms of accountability. In the months following the Abu Ghraib
revelations, public interest groups pressed federal agencies to pro-
vide documents that detailed the role that government employees had
played in the abuses. The American Civil Liberties Union played a key
role in pushing for disclosure, aided by a court decision that chastised
the Defense Department for forgetting that FOIA “was intended to
provide a means of accountability, to allow Americans to know what
their government is doing.”25 At the same time, CACI denied that its
employees had participated in abuses at Abu Ghraib, and claimed
that its training had met all military requirements.26 FOIA could do
nothing to check the veracity of CACI™s claims “ to determine what
training or direction it had provided to its employees, or how thor-
oughly it had investigated abuse allegations. CACI was not subject to
the law.
Coincidentally, Abu Ghraib had been selected for use as the main
American prison in Iraq by another contractor, the Management
and Training Corporation, a private prison operator based in Utah.
Shortly before, the Corporation had been sharply criticized for seri-
ous faults in a New Mexico prison that led to the death of an inmate.27
The inmate™s family later complained about their inability to obtain
records about the prison™s operations at the time of the suicide.
(“When asked what the company™s policy is regarding the release of
information regarding an inmate™s death,” the Albuquerque Journal
reported, a company spokesman “said he was not exactly sure.”28 )
The eventual settlement of the family™s suit contained a con¬dential-
ity clause that restricted discussion of the case.29 New Mexico, with
a larger proportion of its prisoners in private facilities than any other
state, illustrated the inconsistency of treatment within the restruc-
tured public service: In 2003, roughly half of its inmates were held in
public prisons that were subject to the state™s disclosure law, while the
remainder were held in private prisons that were not.30 Some private
prisons in the state even questioned their obligation to disclose the
identity of inmates in their facilities.31
The con¬‚ict in Iraq heightened awareness of questions about the
accountability of U.S. military contractors more generally. The exclu-
sion of contractors from the Freedom of Information Act made a close
study of their work dif¬cult, said Peter Singer, author of Corporate
Warriors, in 2003.32 Nevertheless, Singer argues, three dif¬culties in

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military contracting are evident: minimal oversight of contractors by
government personnel; contracts that are not drafted to provide infor-
mation needed for of¬cial oversight; and disincentives to enforcement
of contract terms that arise because of bureaucratic dependence on
the contractor.33
In fact, the problem of inadequate oversight pervades every part
of the federal bureaucracy. The “presumption of regularity,” as Daniel
Guttman calls it “ the presumption that of¬cials exercise continuing
control over their contractors “ cannot be sustained in practice.34
A 2000 report found that the Defense Department had cut its con-
tract oversight staff by half over the preceding decade; by 2004, the
department™s oversight capacity had deteriorated so far that it was
reduced to hiring contractors to monitor other contractors.35 (Indeed,
a 2005 investigation by the Government Accountability Of¬ce found
that Defence Department of¬cials had “effectively abdicated” their
responsibility to oversee CACI™s interrogation contract at Abu
Ghraib.36 ) Whistleblowing employees within contractor ¬rms have
revealed many abuses by those ¬rms in Iraq,37 but the risk of pun-
ishment means that whistleblowers cannot be relied upon to do the
monitoring work that ought to be shouldered by bureaucratic over-
seers. Whistleblowers who revealed that employees of Dyncorp, a U.S.
military contractor in Bosnia, had been involved in sex crimes and
illegal arms trading were subsequently ¬red by the ¬rm: In one case
a court found Dyncorp™s subsequent explanation for the dismissals
“completely unbelievable.”38
The reshaping of the public sector is also producing situations
where there is no pretense of contract monitoring at all, because there
is no contractual connection between the private actor and the gov-
ernment of the jurisdiction in which it operates. In 1995, neighbors of
a prison operated by Corrections Corporation of America in Mason,
TN, were alarmed by a riot by 100 inmates that caused $2 million in
damage and required response by state law enforcement of¬cers. A
state legislator complained about CCA™s slowness in providing infor-
mation about the riot, but the state had no contractual relationship
with the prison: The riot had broken out among prisoners held by
CCA for the state of North Carolina.39 In Ohio three years later, state
legislators also complained that they were “stonewalled” by CCA fol-
lowing a mass escape from its new prison in Youngstown. The leg-
islators™ ability to exercise oversight was again compromised by the

The Corporate Veil

lack of a contractual connection: The escapees had been transported
to Youngstown by the District of Columbia.40
A comparable dif¬culty arises when governments retreat entirely
from service production, either directly or through contractors, and
instead encourage citizens to consume services from independent
private actors. One example is the growing popularity of educational
reforms that allow parents to send their children to private schools
that may be approved by government authorities but are not subject to
state law.41 It is conceivable that a school system could include three
types of schools, each doing similar work but with a distinct legal
status: publicly operated schools subject to disclosure rules; contract-
run schools whose obligations are ambiguous; and private schools not
subject to disclosure rules at all. Comparable reforms in health and
welfare services could produce the same result.
The privatization of utilities over the past two decades has
also posed a challenge to transparency. The practice of selling off
government-run utilities has been a worldwide phenomenon, popular
in both the developed and developing worlds, and often encouraged “
over strong local protests “ by international institutions such as the
World Bank and the International Monetary Fund. Where govern-
ments had already adopted disclosure laws, newly restructured util-
ities did their best to escape them. In the United Kingdom, an array
of newly privatized utilities “ in electricity, water, rail, and telecom-
munications “ persuaded the Blair government to abandon its early
proposal that they should be covered by the new Freedom of Infor-
mation Act, arguing that they would otherwise be at a competitive
disadvantage to other ¬rms entering the power market.42 In Canada,
components of Ontario™s newly restructured electric system “ includ-
ing the operator of its extensive nuclear facilities “ also lobbied suc-
cessfully to be removed from the province™s disclosure law, arguing
that the requirements would undermine their competitive position.43
(The disclosure law had embroiled the provincial utility in contro-
versy several times: In 1990, an internal document considered how
brownouts might be an effective method for “selling need” for addi-
tional generating capacity.44 ) South Africa™s major utilities, Eskom
and Telkom, sought to escape from the country™s disclosure law as
well. In Australia, legal analysts could not agree on the proper treat-
ment of the nation™s telecommunications company, Telstra, a candi-
date for privatization: Some saw the risk of competitive disadvantage,

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while others worried about the lack of other mechanisms for ensuring
transparency in the deregulated industry.45
The Australian analysts had spotted the central issue. By sell-
ing their utilities, many countries appear to be following the exam-
ple of the United States, where private ownership of utilities is the
norm. However, the comparison is imperfect: Many foreign policy-
makers have not, at the same time, adopted the American approach to
regulation of private utilities “ which, as some observers have pointed
out, involves a high level of transparency. “In the U.S.,” say Greg
Palast, Jerrold Oppenheim, and Theo McGregor, “the right to infor-
mation from a monopoly utility is virtually without bounds.”46 A
range of stakeholders “ competitors, unions, major consumers “
aggressively exercise this power to obtain information in an effort to
check utilities™ pro¬t seeking. The American approach to regulation,
Palast and his colleagues argue, creates a forum in which the limited
oversight capacity of the regulator is complemented by the much
more extensive capacity of these other groups. By contrast, overseas
regulators negotiated secretly with utilities and allowed them to avoid
public disclosure of information on the grounds of commercial con-
¬dentiality. The twin pathologies of bureaucracy “ paternalism and a
preference for quiet accommodation “ tainted efforts at regulation.
Many notorious cases of regulatory failure have been blamed on
the failure to adopt regulatory processes that allow adequate trans-
parency. British consumers of water, gas, and electric services have
paid a premium because of regulators™ inability to adequately scruti-
nize utilities™ ¬nancial plans and monitor their actual behavior. Failed
efforts to privatize Brazilian and Indian electric systems and Bolivian
water systems “ three cases routinely invoked by opponents of priva-
tization “ are more precisely described as failed efforts at regulation
of privatized entities, rooted in the unwillingness of regulators to dis-
close the calculations underlying the arrangements made with private
(Attempts to introduce market mechanisms as an alterna-
tive method of disciplining utilities also proved unsuccessful. In
California, the Enron Corporation devised a broad range of schemes
designed to hide its internal efforts to manipulate the deregulated
electricity market. Enron™s games were given distinct nicknames “
Death Star, Fat Boy, Perpetual Loop, Black Widow, Red Congo “ but
shared the common goal of secretly abusing market rules.48 When



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