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Chiquita: Doomed If We Do, Doomed If We Don't

In: Business and Management

Submitted By elikyuyu
Words 1999
Pages 8
University of Caloocan City
Camarin Campus

A business case analysis entitled

“Chiquita: Doomed if we do, doomed if we don’t”

Shane Marie Diesta
Christian Balagtas
Eric Jay Etoc

II. Recommendation Statement
Our team recommends Chiquita International to withdraw their segment in Columbia should the threat of the AUC puts the life of the employees and the compliance with the government at stake.

III. Background Information
Chiquita Brands International, Inc. (“Chiquita”) ,along with its subsidiaries, is an international marketer and distributor of bananas and pineapples sold under the Chiquita and other brand names in 70 countries, and packaged salads sold under the Fresh Express and other brand names primarily in the United States. With over twenty six thousand employees across six continents, the banana company faced one of its red hot scandals, right in Columbia.
Chiquita admitted that it had been paying for years to the violent, right-wing terrorist organization United Self-Defense Forces of Colombia – an English translation of the Spanish name of the group, "Autodefensas Unidas de Colombia" (commonly known as and referred to hereinafter as the "AUC") in exchange of AUC not giving harm to Chiquita’s employees.
The AUC had been designated by the U.S. government as a Foreign Terrorist Organization ("FTO") on Sept. 10, 2001, and these designations made it a federal crime for Chiquita, as a U.S. corporation, to provide money to the AUC. In April 2003, Chiquita made a voluntary self-disclosure to the government of its payments to the AUC, giving rise to this investigation.
"Like any criminal enterprise, a terrorist organization needs a funding stream to support its operations. For several years, the AUC terrorist group found one in the payments they demanded from Chiquita Brands International. Thanks to Chiquita's cooperation and this prosecution, that funding stream is now dry and corporations are on notice that they cannot make protection payments to terrorists," said Assistant Attorney General Wainstein.
"Funding a terrorist organization can never be treated as a cost of doing business," stated U.S. Attorney Taylor. "American businesses must take note that payments to terrorists are of a whole different category. They are crimes. But like adjustments that American businesses made to the passage of the Foreign Corrupt Practices Act decades ago, American businesses, as good corporate citizens, will find ways to conform their conduct to the requirements of the law and still remain competitive."
"This case clearly demonstrates the commitment of the Commerce Department and its Bureau of Industry and Security to the Administration's fight against terrorist financing," said Commerce Deputy Assistant Secretary Wysong.
"The message to industry from this guilty plea today is that the U.S. Government will bring its full power to bear in the investigation of those who conduct business with designated terrorist organizations, even when those acts occur outside of the United States," said ICE Special Agent in Charge Reid.
Following the company's disclosure, the investigation leading to this prosecution developed evidence that for over six years – from sometime in 1997 through Feb. 4, 2004 – Chiquita paid money to the AUC in two regions of the Republic of Colombia where Chiquita had banana-producing operations: Urabá and Santa Marta. Chiquita made these payments through its wholly-owned Colombian subsidiary known as "Banadex." By 2003, Banadex was Chiquita's most profitable operation. Chiquita, through Banadex, paid the AUC nearly every month. In total, Chiquita made over 100 payments to the AUC amounting to over $1.7 million.
Chiquita began paying the AUC following a meeting in 1997 between the then-leader of the AUC, Carlos Castaño, and a senior executive of Banadex. Castaño implied that failure to make the payments could result in physical harm to Banadex personnel and property. No later than September 2000, Chiquita's senior executives knew that the corporation was paying the AUC and that the AUC was a violent, paramilitary organization led by Carlos Castaño. Chiquita's payments to the AUC were reviewed and approved by senior executives of the corporation, including high-ranking officers, directors and employees.
For several years Chiquita paid the AUC by check through various intermediaries. Chiquita recorded these payments in its corporate books and records as "security payments" or payments for "security" or "security services." Chiquita never received any actual security services in exchange for the payments.
Beginning in June 2002, Chiquita began paying the AUC in Santa Marta directly and in cash according to new procedures established by senior executives of Chiquita. The newly-implemented procedures concealed the fact that Chiquita was making direct cash payments to the AUC. A senior Chiquita officer had described these new procedures to Chiquita's Audit Committee on April 23, 2002.
The U.S. government designated the AUC as an FTO on Sept. 10, 2001, and that designation was well-publicized in the American public media. The AUC's designation was even more widely reported in the public media in Colombia, where Chiquita had its substantial banana-producing operations. Chiquita also had specific information about the AUC's designation as an FTO through an Internet-based, password-protected subscription service that Chiquita paid money to receive. Nevertheless, from Sept. 10, 2001 through Feb. 4, 2004, Chiquita made 50 payments to the AUC totaling over $825,000.
On Feb. 20, 2003, a Chiquita employee told a senior Chiquita officer that he had discovered that the AUC had been designated by the U.S. government as an FTO. Shortly thereafter, these Chiquita officials spoke with attorneys in the District of Columbia office of a national law firm ("outside counsel") about Chiquita's ongoing payments to the AUC. Beginning on Feb. 21, 2003, outside counsel emphatically advised Chiquita that the payments were illegal under United States law and that Chiquita should immediately stop paying the AUC directly or indirectly. Outside counsel advised Chiquita to stop making payments to the terrorist organization. Also, they cite that "You voluntarily put yourself in this position. Duress defense can wear out through repetition. Buz [business] decision to stay in harm's way. Chiquita should leave Colombia." and that "[T]he company should not continue to make the Santa Marta payments, given the AUC's designation as a foreign terrorist organization"
On April 3, 2003, a senior Chiquita officer and a member of Chiquita's Board of Directors first reported to the full Board that Chiquita was making payments to a designated FTO. A Board member objected to the payments and recommended that Chiquita consider taking immediate corrective action, including withdrawing from Colombia. The Board did not follow that recommendation, but instead agreed to disclose promptly to the Department of Justice the fact that Chiquita had been making payments to the AUC. Meanwhile, Banadex personnel were instructed to continue making the payments
On April 24, 2003, a senior Chiquita officer and a Chiquita Board member, along with outside counsel, disclosed to officials of the U.S. Department of Justice that Chiquita had been making payments to the AUC for years, and represented that the payments had been made under threat of violence. Department of Justice officials told the Chiquita representatives that the payments were illegal and could not continue. Department of Justice officials acknowledged that the issue of continued payments was complicated. On Sept. 8, 2003, outside counsel advised Chiquita in writing that: "[Department of Justice] officials have been unwilling to give assurances or guarantees of non-prosecution; in fact, officials have repeatedly stated that they view the circumstances presented as a technical violation and cannot endorse current or future payments."
Notwithstanding the persistent advice of its outside counsel, the Department of Justice's statement that the payments were illegal and could not continue, and Board involvement in the matter, Chiquita continued to pay the AUC throughout 2003 and early 2004. From April 24, 2003 (the date of Chiquita's initial disclosure to the Justice Department) through February 4, 2004, Chiquita made 20 payments to the AUC totaling over $300,000. Chiquita sold Banadex to a Colombian buyer in June 2004 at a loss of $9 Million.
Chiquita has already provided the government with voluminous corporate records and made numerous company witnesses available for questioning in connection with this matter. As part of the plea agreement, Chiquita has committed to cooperate fully with the ongoing investigation.

IV. Problem Statement
The dilemma of Chiquita brands international from choosing between the life of its employees and conformity of its conduct the requirements of law.

V. Assumptions 1. The analysts assumes that Chiquita Brands International values profit more than law. 2. The analysts assumes that the payments of Chiquita to the AUC prior to its designation as a Foreign Terrorist Organization were legal.

VI. Analysis
The researchers used What-If analysis which uses the hypothetical situations to anticipate possible outcomes and generate qualitative descriptions of problems in the form of questions and answers, as well as lists of recommendations for preventing problems.
The following hypothetical questions would be the basis for our analysis: 1. If AUC have not been designated as an FTO, what would be the best choice to Chiquita’s dilemma (continue paying AUC, stop paying AUC)? 2. If AUC have not been designated as an FTO, what would be the best choice to Chiquita’s dilemma (continue paying AUC, stop paying AUC)?
If AUC have not been designated as an FTO, the best decision for Chiquita is to pay the terrorists because with these payments, Chiquita would prevent harm from its employees, in addition to the fact that they are still conforming their conduct to the requirements of the law as the said payment is not illegal. If they pay AUC, the life of the employees and the law are not given up, and the business lingers.
If AUC have been designated as an FTO, the best decision for Chiquita is neither to pay the terrorists, nor stop payments to them. If they pay the AUC, the Chiquita’s conformity to the law will be forsaken. On the other hand, if they would stop payment, the lives of its employees would be at stake. The researchers believe that if the persistence of the business (in this case, the Banadex segment in Columbia) would require Chiquita to choose between the life of its employees and the conformity of their conduct to the requirements of the law, it would better to withdraw the business, just like the one of the board members have recommended.

VII. Detailed Recommendation
The analysts recommend Chiquita brand international, Inc. to withdraw its segment in Columbia from the time it came to its knowledge that the AUC was designated as an international terrorists since it is the best alternative that the companyy can do to protect the lives of its employees and at he same time to avoid the noncompliance with the prevailing law of the state.
Before the designation of the AUC as an international terrorists bu the United States of America, the analysts recommend the company to make the payment to AUC since this payment is not yet illegal at that time and will ensure the safety of its employees.
On September 10, 2001, the AUC was designated as an international terrorist. From this time, it will no longer be practicable for the company to make the payments since it will already constitutean illegal act. However, nonpayment to AUC shall cause them to kill employees of Chiquita to close its business in Columbia so that its employees would not be in danger and it will be able to escape the intimidation and violence AUC.

VIII. Appendices

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