The most interesting conflict of interest case of the (still young) year

The most prominent COI story in the past few days comes to us from Mexico where, as described in The Economist, that country’s president Enrique Peña Nieto “announced that he, his wife and his finance minister will become the first subjects of a conflict-of-interest investigation” that was “triggered by revelations that [they] bought houses on credit from affiliates of a building firm that has benefited from government contracts.” But for me the most intriguing story of the week (and indeed the year, at least so far) comes from the ethical wonderland that I call my home – New Jersey.

As reported initially by the Bergen Record:   “Federal prosecutors have [launched a probe] into a flight route initiated by United [Airlines] while [David] Samson was chairman of the [Port Authority, which] operates [Newark Liberty Airport]. The route provided non-stop service between Newark and Columbia Metropolitan Airport in South Carolina — about 50 miles from a home where Samson often spent weekends with his wife. United halted the non-stop route on April 1 of last year, just three days after Samson resigned under a cloud. Samson referred to the twice-a-week route — with a flight leaving Newark on Thursday evenings and another returning on Monday mornings — as ‘the chairman’s flight,’ one source said. Federal aviation records show that during the 19 months United offered the non-stop service, the 50-seat planes that flew the route were, on average, only about half full. United… was in regular negotiations with the Port Authority and the Christie administration during Samson’s tenure over issues that included expansion of the airline’s service to Atlantic City and the extension of the PATH train to Newark…” A story from NJ.Com added that the  flight’s booking rate of 50% was significantly lower than “the rate of 85 percent or higher common among carriers” and also that the Chair of the NJ assembly’s transportation committee said the benefit to United of running this unprofitable route “could be PATH. It could be how much they pay for landing planes. It could be for how flights are dispatched at the airport. It could be a multitude of things. And it could be none of them.”

Assuming for the sake of discussion that it is indeed at least one of those or other financial benefits, the case should be interesting to COI aficionados  for several reasons.

First, the main law enforcement challenges to investigating the matter will likely be (as it is many COI/corruption cases) proving wrongful intent.  Presumably, Samson knew enough not to document what was seemingly happening here (although his comments about the “chairman’s flight” may suggest otherwise),  but what about United?  Given how cost conscious airlines have been in recent years, one imagines that someone at the company would have needed to document why they were running half full planes.  Moreover, for various reasons this seems like the sort of arrangement that would have been known at a reasonably high level in the company (although finding documentation of that may be a taller order).

Second, it will also be interesting to see what role, if any, United’s compliance program played in these events. In light of how many people at the airline could well have had some suspicion about these flights, it would be pretty damning if none of them called the C&E helpline. On the other hand, if the issue was raised internally and buried, that would be even worse.

Third, it may be noteworthy that while the Company’s code of conduct does have a section called “When the government is the customer,” the bribery discussion there is limited to international transactions.   Perhaps like a lot of US companies, United’s compliance team failed to grasp the risks of homegrown corruption generally (and the Jersey variety in particular).  Other companies may wish to revisit their own codes to see if they could be subject to the same criticism.

Two final notes.  First, the facts of this case are just beginning to emerge and the speculations in my post should not be read to suggest that  Samson or United are necessarily guilty of corruption. Seriously.  Second, for an earlier story about a possible COI involving Samson (and his connections to the ethically challenged Christie administration) see this post  and the article linked to therein.

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