Fired Manager Claims GTE Bribed Clients
The former head of GTE Corp.’s Central American operation alleges that he was fired after 10 years with the company because he refused to engage in a range of illegal practices designed to drain capital from Central American countries.
Paul DiMatteo of Escondido, former GTE Corp. general manager for Central America, also claims in documents filed in San Diego federal court that GTE paid bribes to a Costa Rican official to keep a competitor out of the country.
High-ranking GTE officials were so intent on reducing the company’s exposure to the volatile economies of Central America, DiMatteo charged, that they advocated just about any means, legal or otherwise, to move their profits out of the region.
The allegations are contained in documents filed in U.S. District Court in San Diego, where DiMatteo has filed a lawsuit contending he was fired unfairly. DiMatteo, 57, moved to San Diego County after he left GTE in March, 1985, and is co-owner of a small manufacturing business.
Set for Trial Sept. 13
The suit is set for trial Sept. 13 before U.S. District Judge Earl Gilliam, who last month denied a request by GTE’s lawyers that the case be dismissed.
General Telephone & Electronics, based in Stamford, Conn., is the nation’s third largest telephone operating company and also manufactures electric lighting products.
Company officials declined to discuss the matter last week but issued a brief written statement denying the charges.
“In Mr. DiMatteo’s case, GTE did not encourage him to engage in any illegal activities nor was he terminated for such refusal,” the statement said. “Mr. DiMatteo was terminated for failure to perform satisfactorily as a general manager. Mr. DiMatteo’s suit is totally without merit, and we’re confident that GTE will be completely exonerated in this matter.”
Neither DiMatteo nor his lawyers would discuss the case, but court files and lengthy depositions given over the past two years contain detailed accounts of DiMatteo’s allegations of irregularities during his tenure as general manager of the communications company’s electric products subsidiaries in Central America from November, 1981, to August, 1984.
The bribery scheme described by DiMatteo involved Odalier Villalobos, Costa Rica’s vice minister and later minister of the economy from 1983 through 1986. GTE paid Villalobos about 10,000 colones a month--the equivalent of $400 to $500--beginning in late 1983 to prevent Philips Industries from selling products in Costa Rica, DiMatteo said in a deposition.
GTE and the Netherlands-based Philips were competitors in the sale of lighting products in Central America. GTE had its Central American headquarters and manufacturing plants in Costa Rica, while Philips operated out of El Salvador.
During the time GTE made payments to Villalobos through a consulting firm he owned, the Costa Rican government kept Philips products from entering the country, according to the lawsuit. The payments to the consulting firm, called Consultoria E. Inversiones Ltda., stopped when Villalobos left office, the lawsuit says.
Approved by His Boss
The payments were approved by Frederick Howard, DiMatteo’s superior in Danvers, Mass., headquarters of GTE’s precision materials and Sylvania lighting groups, the lawsuit says. Howard pressured DiMatteo to “use any means possible, including illegal means, to take action favorable to GTE and which would harm GTE’s competitors in Central America,” according to the allegations.
Villalobos first suggested that GTE pay him for his help during a discussion with GTE employee Jorge Gomez in 1983, DiMatteo said in a deposition. Gomez, GTE’s purchaser and materiel controller in Costa Rica, passed the suggestion along to DiMatteo, he said.
Villalobos also asked that GTE throw a party for him with female personnel from Sylvania, DiMatteo said.
“The reasons were obvious,” DiMatteo said. “He visited our plant. Most of our personnel was female personnel. He didn’t have to draw me a picture to understand what he wanted.”
DiMatteo said he immediately rejected the request that he provide female employees for a party. “I said, ‘No matter what, no matter what I don’t want any female personnel of GTE involved in that.’ ”
However, DiMatteo said he decided to inform Howard back in Massachusetts that Villalobos had requested money for his assistance.
“I wanted him (Howard) to know that we were doing all that we could with Odalier Villalobos and since Fred Howard was the one pressuring us to continue with him, I wanted him to know that that was the request,” DiMatteo said. “I want(ed) him to tell us ‘yes’ or ‘no’ if we are to do it.”
DiMatteo said he told Howard of the bribe request during a meeting in 1983. Howard responded, “Go ahead,” then added, “See, I want you to do anything you can do to stop Philips in Costa Rica,” according to the deposition.
Howard was aware after December, 1983, that the bribes were being paid monthly to Villalobos, DiMatteo said.
GTE paid the fees to Villalobos’ firm “without getting anything out of them for consulting services, which they never delivered to us,” he said. GTE was already using the services of Arthur Andersen & Co. and Price Waterhouse, DiMatteo said.
He described Villalobos’ firm as “a very insignificant consulting company which wouldn’t consult anything for GTE.”
Howard did not return a phone call placed to his office in Williamsport, Pa., where he is now vice president and general manager for GTE’s electrical components and materials division.
Attempts to locate Villalobos in Costa Rica were not successful.
DiMatteo said GTE eventually was host to a party for Villalobos at an expensive restaurant in San Jose, Costa Rica, but that no female employees of GTE attended. He said, however, that a GTE supplier brought some women to the party and one of the women left the restaurant with Villalobos.
Accused of Bribery
DiMatteo’s lawyers, of the San Diego law firm Harrigan, Ruff, Ryder & Sbardellati, have indicated in court documents that they intend to bring up at trial similar allegations made against GTE in the past. They point to 1977 charges by the Securities and Exchange Commission that GTE paid as much as $14 million in bribes and kickbacks in 28 countries, including Iran, the Philippines and the United States.
At the time GTE neither admitted nor denied the allegations, but nevertheless consented to a permanent injunction, agreeing to refrain from any future violations of securities laws.
In a case that foreshadowed the current Pentagon procurement scandal, GTE and two of its executives were indicted in 1985 on charges related to the theft of secret government documents. The case involved GTE Government Systems, the company’s military contracting unit. GTE pleaded guilty to possession of classified material regarding electronic warfare programs and paid a $590,000 fine. Charges against the two executives were dropped.
In the San Diego lawsuit, DiMatteo said that a number of GTE employees in Central America, as well as several executives in Danvers, Mass., were aware of the bribery scheme. In his deposition, DiMatteo conceded that he did little to interfere with the payments to the Costa Rican official, except to set a 10,000-colones monthly limit and insist that a way be found to make the payments appear legal on the company’s books, a requirement that was satisfied by the use of the consulting company.
DiMatteo said he did, however, object to constant suggestions from GTE officials, including Howard, that if legal ways could not be found to exchange local currencies for U.S. dollars, then illegal means should be tried.
The problem was especially nettlesome in Honduras, Guatemala, El Salvador and Nicaragua, because the economies of the countries were weak, DiMatteo said. In order to encourage foreign companies to reinvest profits in the local economies, the countries enacted tough regulations which made it difficult to convert local currencies to dollars.
The economies of Costa Rica and Panama, the other countries in GTE’s Central American group, were in better shape at the time and it was relatively easy to convert their currencies to dollars, DiMatteo said.
Many foreign corporations, including GTE, were fearful of leaving large amounts of money in the currency of a weak nation which could order a devaluation, causing huge losses overnight, DiMatteo said. GTE also feared that real property in those countries could be nationalized because of political turmoil, he said.
The illegal practices advocated by his superiors, DiMatteo said, included exchanging local currencies for dollars on the black market, “smuggling the money with a suitcase” and designing complicated pricing schemes to create paper losses that would “trick” Central American governments, DiMatteo said in a deposition.
Pressure to Move Profits
DiMatteo said he repeatedly told Howard and other officials in Danvers that the only legal way to move their profits out of a Central American country was to get authorization from the country’s central bank.
“It was made clear to me that any other way would have been good,” DiMatteo said. Howard and other executives occasionally made trips to Costa Rica to prod him about the money-transfer problem, DiMatteo said. He related an incident that occurred at the end of one such trip as he drove Howard to the airport.
“I said that we were doing all possible things to do legally, and the rest of them were only illegal.”
Howard responded, “I don’t give a shit,” according to DiMatteo’s deposition.
“I don’t think the discussion continued because I was shook up by that answer,” DiMatteo said.
It was Howard who ultimately fired DiMatteo in March, 1985, after removing him from Central America several months earlier, DiMatteo said.
“My clash with Fred Howard has always been on how to pull out money out of Central America,” DiMatteo said. “And the only way I was considering pulling out money out of Central America was the legal way, using the central bank authorization.”
Documents filed in the case show that Arthur Andersen & Co., the accounting firm, prepared an internal audit for GTE in 1983 which said that GTE employees had exchanged Nicaraguan cordobas for U.S. dollars on the black market in Nicaragua. The audit warned against the practice.
“We really do not understand why these operations were done at the fringe of the law,” the audit report said, according to an English translation of the Spanish-language document.
The report said the transactions apparently occurred “with the full knowledge” of local and regional management.
“We suggest that these type of operations that endanger the civil rights of the person involved and even the expropriation of the company are not carried out,” the report said.
DiMatteo said in his deposition that when he took over in Central America, he banned the black market transactions. Despite his oft-stated opposition to illegal currency transactions, he said, GTE officials continued to encourage him to smuggle cordobas from Nicaragua to Costa Rica, where they could be more easily exchanged for dollars.
Discussed Pricing Tactic
DiMatteo said he had several discussions with Howard and others at GTE about a pricing tactic which he considered illegal, but which ultimately was put into effect in a modified form.
Under that scheme, DiMatteo said, GTE’s Costa Rican subsidiary sold lighting products to subsidiaries in the other Central American countries at prices that were inflated on invoices. The scheme made it appear as if most of the profit was being made in Costa Rica, and the company’s operations in the other countries were just breaking even.
The Guatemalan, Honduran, Salvadoran and Nicaraguan subsidiaries could transfer any money they took in to the Costa Rican subsidiary, where the money could be exchanged for dollars.
“If you don’t make a profit or if you make very little profit in that country, sooner or later, you are going to absorb all the cash you had,” DiMatteo said.
“This is tricking the government to pull out dollars,” he said, “ . . . I’m sure that in those countries they would be extremely upset to know if a procedure like this is done.”
DiMatteo denied GTE’s contention that he was fired for poor performance and defended his management in Central America.
“As far as manufacturing is concerned, I’ve brought the capacity of the plant from 5 million units of incandescent lamps a year to 12 million,” he said in his deposition. During his time in Central America, he added, he began manufacture of at least a dozen new products, remodeled all the division’s operations, and increased Sylvania’s market share in the region.
As result of his firing, DiMatteo claims in the lawsuit, he was forced to sell property in Florida at a $100,000 loss and continues to experience “anger, disappointment, depression, humiliation, mental anguish . . . insomnia, heart pains, nervousness and premature aging.”
