Chiquita's Banana Republic

In this era of technological leaps and increasing globalization, Chiquita (NYSE: CQB  ) has helped keep the notion of "banana republics" alive.

On Monday, Chiquita admitted in federal court that between 1997 and 2004, it paid off Colombian terrorist groups in order to protect the operations of its former Colombian subsidiary, Banadex, sold for $43.5 million in June 2004. As part of a plea deal, the company must pay a $25 million fine, subject to sentencing June 1.

Prosecutors contend that Chiquita paid $1.7 million during this period to the United Self-Defense Forces of Colombia, known as AUC, and designated by the U.S. as a terrorist group in September 2001. Other paramilitary groups the company paid allegedly include the National Liberation Army and the Revolutionary Armed Forces of Colombia. Chiquita claims it needed to make the payments to ensure its employees' safety. Between 2001 and 2004, Banadex was the company's most profitable unit.

Yesterday, Moody's (NYSE: MCO  ) reaffirmed the company's credit ratings, pronouncing the firm's outlook stable despite the plea deal. That's not surprising, since Chiquita recorded a reserve for the full amount of the fine in 2006 in anticipation of an agreement.

While the fine will not affect the company's ability to do business, one hopes that it will change the way Chiquita operates. To its credit, in 2003 the company voluntarily informed the U.S. Department of Justice of its payments. However, the plea deal does not identify the senior executives who approved the payments, nor whether they remain employed with the company. In fact, Colombia announced that it may seek those executives' extradition.

Chiquita published a statement from its CEO on its website regarding the agreement. The text stresses the company's concern for its employees, while expressing no regret for the payments. In other segments of its website, the company publishes its corporate responsibility reports, which appear silent on this matter.

Chiquita could have come across as a more concerned corporate citizen by peeling off any past ugliness in a more consistent and open way, and by revealing whether the executives responsible for the payments remain employed. Concern for one's employees is prudent, but it's no excuse for reaping profits while paying off terrorist groups. In those situations, forgoing corporate profits may be a necessary cost of doing business.

Related Foolishness:

Chiquita is suffering from a meager two-star rating from the Motley Fool CAPS community. To see what everyone has to say, join the service for free today.

Fool contributor S.J. Caplan completed the World Bank Institute's course on corporate social responsibility and does not own shares of any company mentioned above. Moody's is aMotley Fool Stock Advisor pick. The Fool has a disclosure policy.


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