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US govt suspends Enron, Andersen from new business

The US government on Friday suspended new business dealings with Enron Corp and its former accounting firm Andersen, citing evidence of misconduct by the fallen energy giant and the criminal indictment of the auditor.

The General Services Administration said Enron was suspended from new government business for a year while Andersen, charged on Thursday with obstructing the government's inquiry into Enron, was suspended for the duration of the indictment.

The suspension includes Enron units, several former senior executives of Enron, and a former Andersen partner.

"Those companies and individuals are not presently responsible as contractors to do business with the government," said Raymond McKenna, GSA general counsel.

An Enron spokesman protested the decision, saying it was based on "allegations and speculations." An Andersen spokesman did not return a call seeking comment.

The move does not affect existing contracts, which means that the government could still be doing business with the two firms up to five years from now, a GSA official said.

GSA officials pegged the value of existing deals at $35 million for Enron and between $60 million and $90 million for Andersen.

McKenna said the agency had reviewed all current contracts with the two companies and had found no evidence of dishonesty. The government should not have trouble finding other firms to provide accounting and energy services, he added.

Enron, a major contributor to President George W Bush's election campaign, made the largest bankruptcy filing in US history on December 2 amid a steady stream of revelations about questionable accounting methods and extensive off-the-books partnerships.

The GSA determined that Enron did not meet ethical standards required of government contractors, McKenna said.

An Enron spokesman said the government did not base its decision on facts, and said it would protest the inclusion of subsidiary Portland General Electric Co on the list because it had not filed for bankruptcy.

"It is unfortunate that the GSA is taking action based on allegations and speculations," said Enron spokesman Eric Thode.

But McKenna pointed to an internal Enron report that said company executives systematically tried to manipulate financial results and deceive shareholders, saying it was particularly influential in the GSA's decision.

ANOTHER DENT IN THE ARMOR

Chicago-based Andersen was Enron's auditor until January, when the two parted ways and Andersen admitted that employees in its Houston office had shredded Enron-related records last year that had been sought by federal regulators.

Andersen, whose very existence is challenged by client defections, has said the Justice Department's charges of obstruction of justice were a gross abuse of government power.

The embattled accounting firm released a statement late on Friday providing more details of its critique of the government's case.

"The reality is that the document destruction was initiated and in very substantial part carried out by the Enron engagement team in Houston," Andersen said. "The government mentions three other Arthur Andersen offices in an attempt to draw a picture of firm-wide misconduct."

The loss of government business would further dent company's revenues, which totaled $9.3 billion worldwide in its 2001 fiscal year.

Food and household goods maker Sara Lee Corp on Friday became the latest client to sever its relationship with Andersen, following in the footsteps of Delta Air Lines Inc, drug maker Merck & Co Inc and mortgage giant Freddie Mac.

Among the former employees listed under the GSA suspension was David Duncan, the fired Andersen partner who oversaw the Enron account and whom the auditor has blamed for leading the document destruction.

Former Enron executives barred from dealings with the government included former chief financial officer Andrew Fastow, former Chairman Kenneth Lay, and former president Jeffrey Skilling.

Other companies that hire these individuals will have to disclose the role they play if they bid for government contracts in the future, McKenna said.

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