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CNN/Time

Digital Desperado; The Loft; Collateral Damage

Aired February 20, 2000 - 9:00 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

ANNOUNCER: Tonight, "Digital Desperado." Credit card numbers, cash: for this man it was all just a keystroke away.

(BEGIN VIDEO CLIP)

JUSTIN PETERSEN, HACKER: I tend to march to my own beat as far as morality goes and what I think is right and wrong.

(END VIDEO CLIP)

ANNOUNCER: Before most of us had even heard of the Internet, or hacker attacks, he was an online bandit.

(BEGIN VIDEO CLIP)

PETERSEN: I tapped the network connection and watched all the passwords flying by, the people using the system, literally thousands of connections at one time.

(END VIDEO CLIP)

ANNOUNCER: "The Loft": they played jazz for the world, here they played for themselves.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Zoot was fantastic because he could fall asleep on the floor after being -- playing at tune, he would wake up six hours later and then be playing the same tune in the same tempo.

(END VIDEO CLIP)

ANNOUNCER: Moments frozen in time from a turning point in American music.

"Collateral Damage": a mom and pop operation pinned in the crossfire of an international trade war.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: This last year would have been the first year where we could have said we're making a good profit and all of our profit went to the government.

(END VIDEO CLIP)

ANNOUNCER: How a battle over bananas put the pinch on this couple's bath oil business.

CNN & TIME, with Jeff Greenfield and Bernard Shaw.

JEFF GREENFIELD, CO-HOST: Good evening, and welcome to CNN & TIME.

From the brash 15-year-old who logs on looking to make a name for himself to the grizzled veteran manipulating the Web to prove he still has what it takes, hackers are often seen as nothing more than mischievous rogues. Well, that romantic image is quickly fading. Just ask anyone at CNN.com, Yahoo!, eBay, or the other commercial Web sites recently hijacked by online bandits.

BERNARD SHAW, CO-HOST: When it comes to Internet invasions, Justin Petersen is an old hand, one of the first to seriously exploit the open, free-wheeling nature of the Web. Some months ago, Petersen, now a former hacker, gave us a rare inside look at the world of the computer criminal, a glimpse at the motivations and moral ambiguities of today's digital desperadoes.

Here's Art Harris.

(BEGIN VIDEOTAPE)

ART HARRIS, CNN CORRESPONDENT (voice-over): Just days out of jail, Justin Petersen is back driving a Porsche. He has a passion for Porsches and was part of a group that used to win them by rigging radio contests.

PETERSEN: I tend to march to my own beat as far as morality goes, and what I think is right and wrong.

I don't like to answer to anybody.

HARRIS: His other passion is chasing the Hollywood life up and down Sunset Strip.

PETERSEN: I've had friends that are celebrities. I've run nightclubs, dated beautiful women. It's been a lot of fun.

HARRIS: Petersen financed his fun at the touch of a computer keyboard as a high-tech thief.

PETERSEN: I just love technology. If you don't have that burning in you to know how things work, then I can't explain it to you. It's like a drug addiction for somebody who's not drug addicted.

HARRIS: Petersen stole credit card numbers, even broke into a financial institution, all by computer.

PETERSEN: Hacking supported my lifestyle.

HARRIS: A lifestyle interrupted by more than three years in prison, one of the longest sentences ever served by a hacker.

David Schindler was the federal prosecutor.

DAVID SCHINDLER, ASSISTANT U.S. ATTORNEY: Justin Petersen was one of the more complicated and unique hackers that I've ever come upon. In part, a very bright guy; clearly had skill sets that a lot of folks don't have -- and also wasn't your typical sort of nerdy kid, hanging out up in the attic.

HARRIS: Petersen says his passion to master the toys of technology began as a boy, growing up in Nebraska.

PETERSEN: Probably when I was 8 or 9 years old, I started playing with the telephone. At the age of, I believe it was either 11 or 12, I essentially tapped my first telephone.

I was at a friend's house, and I took a transistor radio speaker, and I took the two wires and connected across the telephone line. And my friend's mother was speaking on the phone, and of course, I could hear what they were saying.

And then by the time I was 13 or 14, I was, you know, climbing telephone poles in my neighborhood and attaching my telephone set to the lines to see which ones did what.

HARRIS: In 1980, at the age of 20, Petersen says he got his first computer and dialed in to go online.

PETERSEN: I was trolling around on the information superhighway back when it was a dirt road.

HARRIS: At the time, most people did not know the Internet even existed.

PETERSEN: I didn't leave the house for weeks.

(LAUGHTER)

And there were a few networks that we could get on and communicate with other people, like myself.

HARRIS: When he moved to Los Angeles, Petersen became a party boy by night, a hacker by day.

PETERSEN: I had access to a lot of databases for a while there. And we were selling -- I was selling the information to a private investigator.

I could go back to the DMV, get your address; go back on the telephone company computer, get your phone number; go to TRW, get your credit report.

So with just a name, you could get somebody wired.

HARRIS: By the late 1980s, Petersen joined a small gang of hackers that included Ron Austin. RON AUSTIN, HACKER: At the time I was impressed with him because a lot of people seemed to know him. He seemed to be very big in the Hollywood crowd.

HARRIS: Austin, Petersen and another infamous hacker -- Kevin Poulsen -- joined forces to crack the telephone system. Poulsen gave Petersen access to phone company manuals.

PETERSEN: I lived in the apartment overlooking this parking lot.

HARRIS: From the balcony of his old apartment, Petersen could see the rear entrance to this telephone company building, just one of the phone facilities Petersen says he and Poulsen broke into together.

PETERSEN: We were, you know, picking the locks and making Pac Bell ID cards. And we've been in literally dozens of central offices.

And we'd go in, in the middle of the night when there was nobody in there, and you know, study all the equipment, play with the terminals, try to understand how everything was laid out.

HARRIS: Once inside the phone system, they learned how to control telephone company computers through the phone company's own lines. That opened the door to a whole new world.

PETERSEN: All your life, as a hacker, you're on the outside trying to figure out what's on the inside. And now, you're on the inside looking at everything, and you can feel and touch it. It was -- it was very exciting.

HARRIS: Armed with the power to control phone company computers, they learned how to cheat on radio station call-in contests.

SCHINDLER: The radio station contest, frankly, was quite ingenious. Poulsen and Petersen and Austin figured out a way, frankly, to seize control of the telephone lines leading to not just any radio station, but frankly anybody.

PETERSEN: It's almost like the holy grail of hacking, particularly from the "phreak" hacking standpoint: to have control over phone lines like that, to be able to monitor phone lines. It's a tremendous power.

SCHINDLER: When radio stations had the 10th caller wins a Porsche, 10th caller wins $10,000 contest, they could seize control of the radio station telephone lines, allow nine calls to go through, at that point, filter out all other calls, and make themselves the 10th caller.

PETERSEN: The conspiracy won two Porsches and about $50,000 in cash and several trips to Hawaii.

HARRIS: Crimes like this, Schindler says, convinced authorities to beef up their efforts to fight a new breed: computer criminals.

SCHINDLER: We recognized years ago that if we didn't start gearing up, getting law enforcement agents -- FBI agents, Secret Service agents -- who could both talk the talk, understand how to investigate and move forward, we would have a problem.

HARRIS: By 1990, the authorities were closing in on Petersen. He stole a Porsche and fled to Texas. When police arrested him there, they found his computer. On it were credit card numbers he'd stolen right out of the credit card company's own database.

PETERSEN: I have a terrible memory, you know. So I had to have everything that I ever did on file, recorded on paper or on hard drive. So when I was arrested, they had everything, everything I'd ever done -- there was an open book.

HARRIS: Schindler and the FBI brought Petersen back to Los Angeles where he was offered a deal: become an informant, work for the FBI, and do less time in jail.

SCHINDLER: The information he had that was of most interest to us was the ability to help us find Ron Austin, who had gone underground.

AUSTIN: I just wanted to believe that the guy was my friend. I felt very betrayed by him.

HARRIS: Petersen also led them to the computer of Kevin Poulsen, his former partner in crime, who was then sentenced to more than four years in prison after admitting to computer fraud and zeroing in on FBI wiretaps.

SCHINDLER: No honor amongst thieves: Certainly the credo applies with hackers.

HARRIS: Out on bail and working for the FBI, Petersen continued his life in the fast lane. Soon he was up to his old tricks.

PETERSEN: After two years of working for the bureau, I was tired of it and I went back to hacking.

HARRIS: Which, Austin says, gave him a chance for revenge.

AUSTIN: I went through his trash and found all kinds of evidence of credit card fraud, receipts, coded sheets, and so I presented that to the government.

SCHINDLER: We got evidence that he was engaged in or might have been engaged in some additional credit card fraud. We brought him to the offices here with his lawyer and we confronted him.

HARRIS: Petersen made a run for it.

PETERSEN: I asked to step out for a -- to have a conference with my attorney, hopped in the elevator, went down to the lobby and then just very quickly left the building.

And as I was getting on a bus here real quickly to get away as quickly as I could, I looked out the back window and I saw the U.S. Marshals standing out in front of the building looking around for me.

HARRIS: Petersen went on the lam.

PETERSEN: I became a fugitive, and I said, well, you know, I just need a lot of money. I need to get out of the country.

HARRIS: In 1994, Petersen used everything he'd learned to try his boldest crime yet: an online heist.

Once again, Petersen says, he broke into a telephone company building and hooked up his computer to the phone lines of a commercial lending company.

PETERSEN: I tapped the network connection and watched all of the passwords flying by, the people using the system, literally thousands of connections at one time, logged all of those into my computer, went back and reviewed them all and got the codes that the bank uses to transfer money.

HARRIS (on camera): So what did you do?

PETERSEN: Issued a transfer for $150,000 to an account I had control over.

HARRIS (voice-over): To avoid detection, Petersen and an associate created a diversion.

SCHINDLER: He needed, in part, to make sure that there weren't operators on scene at Heller watching as this wire was going through.

PETERSEN: My associate decided to phone in a bomb threat on that. And we had planned to move a lot more money after that.

HARRIS (on camera): Like how much?

PETERSEN: Seven digits, or as they like to say in the '90s, two commas.

HARRIS (voice-over): The money transfer was stopped when the financial institutions involved became suspicious, but who was behind it remained a mystery until Petersen was arrested nearly a year after running from the court house.

PETERSEN: And they went, again, went through my computer and saw what I had been doing.

HARRIS: In 1995, Petersen was sentenced to more than three years in jail. The judge said Petersen had done more damage with a computer than many criminals accomplish with a crowbar.

Released in April, 1997, he violated the terms of his release and became a fugitive, hunted by federal marshals.

Soon Petersen was caught again, served more time and was finally released earlier this year.

(on camera): You're proud of what you did?

PETERSEN: No, I'm not proud of what I did. I'm proud of, you know, accomplishing something and pushing the limits of technology and pushing, you know, going beyond what I was allowed to do.

HARRIS (voice-over): This time around, Petersen says he's playing by the rules, earning money the legal way as an Internet consultant for X-rated Web sites.

PETERSEN: I'm trying to put something a little more classy together than your typical Internet smut. But I'm in the process of putting together a adult entertainment network, talking about adult video on demand.

HARRIS: Where customers will have to use credit cards.

(on camera): Why should people trust you?

PETERSEN: Well, I would think that if something hinky were to happen, that I would certainly be very questioned very quickly.

This is a mainstream operation. There's no room for that kind of nonsense.

(END VIDEOTAPE)

SHAW: Protecting the Internet from hackers is the source of much hang wringing among politicians and security experts right now, and for good reason. Cyberattacks are one of the fastest-growing crimes in the nation, and law enforcement officials say technological advances make it nearly impossible to keep track of the problem.

When we come back, tracing a digital trail: the hunt for some of the Web's most wanted.

(COMMERCIAL BREAK)

ANNOUNCER: Coming up, the passion and players of one of jazz's most intimate settings.

(BEGIN VIDEO CLIP)

BOB BROOKMEYER, MUSICIAN: It was full of camaraderie and beauty and swing and good feelings.

It was one place at one time that one long beautiful strain of activity occurred.

(END VIDEO CLIP)

ANNOUNCER: As CNN & TIME continues.

(COMMERCIAL BREAK)

GREENFIELD: A White House summit, urgent meetings on Capitol Hill, an exhaustive manhunt spanning cyberspace, crossing international borders: all of it in response to a series of crippling attacks on a host of popular e-commerce sites; all of it evidence of just how closely American prosperity is now linked to the Internet.

But tracking those who seek to harm the Web is often frustrating, to say the least. Internet vandals are nearly invisible and they are quite adept at covering their trail.

A look at the challenges of high-tech sleuthing now in tonight's "Dispatches."

(BEGIN VIDEOTAPE)

JANET RENO, U.S. ATTORNEY GENERAL: How we deal with cybercrime is one of the most critical issues that law enforcement has ever faced.

CHRIS TAYLOR, "TIME" CORRESPONDENT: What happened this week was that it was revealed that a couple of security experts had been hanging out in chat rooms that these hackers had frequented, and they had identified a couple of hackers who they thought who might have been involved -- either involved in the attack or knew something about the attack. And they passed on the logs of these conversations to the FBI. The conversations were -- were pretty damming and suggested that one of these suspects was involved or indeed was the sole perpetrator.

The main focus of the investigation is now on Coolio and MafiaBoy. Coolio is believed to be a 17-year-old hacker. We don't know his location. MafiaBoy we think is a little younger. He certainly acts a little more immature. We think he's about 15, and we know that he's based in Canada. There is a heightened sense of awareness among hackers this week.

But anyone who has got anything to hide at this stage is trying to avoid the FBI, and anyone who wants to help out is talking to the FBI. Basically, everyone is helping out. I mean, even -- there's a hacker in Germany called Mixter (ph) who is the author of one of these programs that you download from the Web and use in a denial of service attack, he's agreed to speak to the FBI. Every one, you know, every one who is any one in the hacker community appears to be helping out.

And the fastest way they're going to trace these guys is going to chat rooms, talking to the hacker community, trying to get a lead on who said this, trying to find out if anyone has bragged about it, because the one thing that you find about hackers is that they -- in the past, historically, they like to brag about these attacks. They do it because they're looking for attention, and they don't get attention unless they brag about it to their peer group.

It's a unique case, because nobody has ever done anything of this size before to perpetrate this kind of attack, to do it repeatedly over three or four days, when you know the FBI is on your trial, and to do it in such an extended and such a powerful way. I mean, the tools that they're using are not particularly elegant, one security expert said it a bit like, you know, hitting the sites over the head with a sledgehammer, but it worked and it worked to a degree that nobody has ever seen before. (END VIDEOTAPE)

ANNOUNCER: For more reporting of this kind, read "Time" magazine this week.

Next...

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: This was the floor that was considered the Jazz Loft, this was the heart of the music.

(END VIDEO CLIP)

ANNOUNCER: A unique place in American music, where musicians played only for fun.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: The playing was natural, the atmosphere was natural. There was no such thing as important people.

(END VIDEO CLIP)

ANNOUNCER: When CNN & TIME continues.

(COMMERCIAL BREAK)

GREENFIELD: Welcome back to CNN & TIME.

What Gertrude Stein's Paris salon was to writers "The Loft" in New York City was to jazz musicians. In fact, for a brief moment, The Loft may have been the center of the jazz universe, a bastion of experimentation and improvisation, a little place where legends jammed and where solos lasted until dawn.

He's more from David Lewis.

(BEGIN VIDEOTAPE)

BROOKMEYER: There are certain places in the world that only happen once and for a certain period of time. And David's loft was like that. It was full of camaraderie and beauty and swing and good feelings and experimentation.

It was one place at one time that one long beautiful strain of activity occurred.

DAVID LEWIS, CNN CORRESPONDENT (voice-over): Composer and valve trombone player Bob Brookmeyer, a battle-scarred veteran of the jazz life, is making a return trip to the Village Vanguard and to a band he was once part of.

But just a few blocks away from this New York landmark, at a time when bop was pop, Brookmeyer embarked on a musical journey that forged his sound. BROOKMEYER: This was a place that we spent years, many happy years and many aspiring years.

LEWIS: This building in the heart of Manhattan's flower district is now home to Bernie's Discount Center. But from 1954 to 1964, it was an artist's illegal loft that became the after-hours home for a who's who of jazz legends: Thelonious Monk, Zoot Sims, Roland Kirk, and many more, captured forever by former "Life" magazine photographer W. Eugene Smith.

MIKE CORRAL (ph), OWNER, BERNIE'S DISCOUNT CENTER: This was Gene Smith's floor. He had his dark room. It was over there.

LEWIS: Mike Corral is the owner of Bernie's Discount Center. He remembers Gene Smith, who remained in the building until 1971.

CORRAL: When we first got to know him, he said: "You never disturb me when I'm in the dark room. I don't care what's going on, I don't care if there's a fire in the building, you do not disturb me when that dark room light is on.

LEWIS: This was the floor that was considered the jazz loft. This was the heart of the music, and they'd have jam sessions up here that would last all night long.

BROOKMEYER: None of us thought we were doing anything deep or profound. We were having fun.

LEWIS: David Young, the painter who opened his loft to the jazz world, often recorded the late night jam sessions.

DAVID YOUNG, PAINTER: I got a cheap piano for $50. I had it tuned.

You could do anything you want. You could play music, and all hours. It was nonstop. There was always something going in the booth, because we never -- we never locked the front door outside.

BROOKMEYER: It was not just a jam session place. It was a place where the house of David, where David lived. And not that he was be all/end all, but he was the generator, and he was the very subtle and very silent sometimes guide to our experiences.

LEWIS: Young sublet one of the floors to pianist and arranger Hall Overton.

YOUNG: Hall Overton was very modern, very advanced. He was connected to Thelonious Monk.

LEWIS: Overton brought in a few more pianos. Once the word got out, The Loft became an instant magnet for jazz players in search of a place to jam.

YOUNG: If you could play it or dig it, you could become part of the family. It didn't matter what race you were, what age you were, you know, cultural background or nothing. There were no restrictions. UNIDENTIFIED MALE: On the next two, ladies and gentlemen, we're going to feature on the valve trombone Bobby Brookmeyer playing "Get on That Train (ph)."

BROOKMEYER: Some of the guys didn't have regular jobs or official, you know, good-paying jobs. And so it was important that we had a place to get together and relate because that's the only place it would happen.

BILL CROW, BASS PLAYER: We were all children of the -- the Charlie Parker era.

LEWIS: Bill Crow was one of the regular bass players at the loft.

CROW: I think we all felt that we were in a different part of the world than -- than what we considered the square public, you know.

LEWIS (on camera): Was David Young's loft important for your musical growth?

CROW: Oh, sure. Sure. I -- he gave me a chance to play with some great players and -- and learn from them, and -- I remember one of the early days when -- before I even had my own bass, I was going to jam sessions and playing on other people's. I'd wait for the bass player to get tired so that I could jump in and play on his bass, and I started to get a blister one night, and I said, "Oh, I'd better cool it. I'm getting a blister," and the tenor player says, "No, you're a bass player. You're supposed to bleed."

BROOKMEYER: Things happened naturally. That was the good part about it. The playing was natural, the atmosphere was natural, and there were no such thing as important people.

YOUNG: One night, July night, a hot July night, Monk is practicing the piano, playing pretty much by himself, and outside on the fire escape were two cats in heat going about their -- nature's way, with all the yowls, et cetera, and Monk started playing harmonics with the cats' yowls. It was good-time music, and it was pop music done better. There would be -- something would take over, an ecstasy, and -- and it's something that can't be planned or created or performed nicely at Lincoln Center. It just happens.

Well, in the middle of all our goings-on and our wacky times, into the building moves Eugene Smith.

BROOKMEYER: When Gene Smith was there, we didn't know who he was. He was just this depressed man who would sneak around taking pictures.

YOUNG: He was no enemy to alcohol, and he always dressed in black, and he had this kind of pencil mustache, a beret, a cigarette holder. I know he liked music. So, one night, I invited him up to one of the sessions, and he came up, and -- with a whole bunch of cameras and asked if he could photograph, and I said, "Sure."

SAM STEPHENSON, EUGENE SMITH RESEARCHER: He called the loft a unique piece of Americana.

LEWIS (voice-over): Sam Stephenson, who researches the life of Smith, first wrote about the loft for "Double Take" magazine.

STEPHENSON: What Smith really liked about jazz -- and really much of his photography in general is about -- is relationships and groups and -- with juxtapositions of the musicians playing off each other and then Young's paintings in the background.

LEWIS: Smith, who died in 1978, captured over 20,000 shots of the jazz scene where cultural icons like Salvador Dali or Norman Mailer would come to watch musicians engage in endless solos.

BROOKMEYER: We would stay there until the energy ran out, and some people would leave, and some people -- their energy had not run out -- they might stay until the next evening, you know, and silent David -- he'd go to sleep, whatever, you know. So were literally at home. Not many people would do that.

YOUNG: Hall Overton had two pianos, and the pianos were directly under where my bed was, and he'd be there with Monk working out arrangements, and so I'd go -- go to sleep at night hearing one of the most original piano players of our age inadvertently serenading me, you know.

CROW: The rhythm sections really built up some strength and endurance, and during all that playing, you're constantly try to find ways to get a better sound, to get better in tune, to spin your line out so that it fits what the piano player is doing, what the guitar player is doing.

YOUNG: Probably the greatest mover and shaker in the whole thing was Zoot because Zoot would play with almost anybody.

BROOKMEYER: Zoot was a famous drinker, and Zoot was fantastic because he could -- he could fall asleep on the floor after being -- playing a tune. He'd wake up six hours later and then be playing the same tune in the same tempo. He just -- he -- you couldn't stop him from playing. He'd be -- have his nose on the floor and still be playing.

CROW: Getting high was very popular in those days, and a lot of young musicians tried everything that they -- that came long, whether it was legal or not. I feel fortunate that I survived that because I experimented around with some things that turned out to be too hot to handle. I felt I had been poisoned. I was afraid I was going to die. Then, for a while, I was afraid I wasn't going to die.

STEPHENSON: This is Dave McKenna playing a Steinway grand piano. You look in the background. You see a couple of light bulbs hanging from strings. You see clothes hanging from rods. It's -- it's just a mess back there.

YOUNG: He was so drunk, his head was on middle C, and he started playing like this. Everything from "Brahms Lullaby" to "Billy Boy" to the "Sheik of" -- all those kind of things. There was some kind of ghost or -- you know, some kind of vibes there, you know, and it's still there, I think. You know, that -- that neighborhood hasn't really changed all that much. Little flower markets still there.

LEWIS (on camera): Do you miss that loft?

CROW: Sure. I would -- I would love to have a place like that where I knew that people of that caliber were going to be -- be there playing. I'd -- I'd be on my way there now.

YOUNG: You could not have today that kind -- you could never repeat that kind of a scene. I miss that very hip and intelligent innocence of that period, which -- it may come again, but it's going to be a long while.

(END VIDEOTAPE)

GREENFIELD: The many photographs by W. Eugene Smith we just showed you are but a small fraction of what he captured at the loft. Most of Smith's original work, some 20,000 photographs, is now stored at the Center for Creative Photography in Tucson, Arizona. In addition to his photos, Smith's archives also include up to 500 hours of jazz recordings from the loft, virtually none of which have ever been heard by the public.

If you'd like to hear more music inspired by the loft or link to the Center for Creative Photography, just visit our Web site, at cnn.com/cnntime.

We'll be back in a moment.

ANNOUNCER: Coming up on CNN & TIME, how an international battle over fruit could spoil this man's dream of keeping his bath oil business afloat...

(BEGIN VIDEO CLIP)

RICK REINER (ph), SMALL BUSINESSMAN: There is no -- absolutely no connection between our product and bananas, and this is the whole issue that aggravates me more than anything else.

(END VIDEO CLIP)

ANNOUNCER: ... as CNN & TIME continues.

(COMMERCIAL BREAK)

ANNOUNCER: Next, he sells bath oil for a living, but a trade war over bananas landed his livelihood on a Washington hit list...

(BEGIN VIDEO CLIP)

RICK REINER: And I didn't lobby to get off the list because I didn't know about it. I didn't know there was a tariff issue.

(END VIDEO CLIP)

ANNOUNCER: ... when CNN & TIME continues.

(COMMERCIAL BREAK)

SHAW: If you're in business, what you don't know can hurt you, especially if you're in the dark about events in Washington. Case in point: A 10-month investigation by "Time" editors at large Donald Barlett and James Steele which explores the origins of an international trade war and some small-time entrepreneurs who unwittingly fell into the crossfire.

Here again is David Lewis.

(BEGIN VIDEOTAPE)

DAVID LEWIS, CNN CORRESPONDENT (voice-over): For years, Rick and Astrid (ph) Reiner dreamed of owning their own business. First, they started a small company that manufactured bed linens. After seven years, they closed their doors.

RICK REINER, SMALL BUSINESSMAN: We carried on a liquidation sale and got rid of a lot of our stock, and -- it wasn't a tremendously successful business.

LEWIS: Then, in 1994, the Reiners hit on what they thought was a formula for success: selling luxury bath products imported from Germany.

ASTRID REINER, SMALL BUSINESSWOMAN: We thought this was a great product to introduce to the American public, and we were pretty hopeful that it would take off, the business.

RICK REINER: So we have the rosemary here, we have camomille (ph), some lavender foam bath.

LEWIS: The Reiners rented a warehouse in South Carolina and began importing all natural bubble baths.

RICK REINER: We had to put a second mortgage on our house in order to get this going. Any business needs capital. We started with nothing. We had no accounts whatsoever. Basically, I went on the road and cold called or knocked on doors.

LEWIS: Astrid and Rick Reiner didn't know that five years later, their bath products business would become collateral damage in a trade war, their company threatened because of an international dispute over bananas.

RICK REINER: There is no -- absolutely no connection between our product and bananas, and this is the whole issue that aggravates me more than anything else.

LEWIS: The banana wars began back in 1993 when the European Union announced that it would restrict bananas imported from Latin America.

JAMES STEELE, "TIME": The European countries for the most part have always given favorable treatment to many of their former colonies around the globe, especially some of those in the Caribbean. One of the reasons for that was that, if they didn't, many of those colonies would be economically devastated.

LEWIS: So the European Union imposed quotas on bananas from Latin America where Chiquita Brands International has both of its plantations.

STEELE: You see Chiquita almost right away appealing to the United States Trade Representative's office to try to do something about the situation, to initiate an investigation, to put some pressure on the Europeans to change that policy.

LEWIS: Chiquita sought help from the U.S. Trade Representative's office, which assists U.S. companies that have complaints about unfair international trade practices.

In 1994, Chiquita and the Hawaiian Banana Industry Association filed a formal petition with the trade office. In the petition, Chiquita said the European Union quota violated trade agreements and, as a result, Chiquita suffered financial losses and job cuts inside the U.S. Chiquita wanted the U.S. government to force the European Union to drop its banana quotas.

Like many corporations and their executives, including CNN parent company Time Warner, Chiquita executives and its chairman Carl Lindner have been campaign contributors to political candidates and parties.

DONALD BARLETT, "TIME": There's certainly nothing illegal about campaign contributions. It's not necessarily that I get -- give money and get something in return, but what I most assuredly get is access.

LEWIS: Chiquita got support from congressmen and senators who contacted the office U.S. Trade Representative's office. Mickey Kantor was the U.S. Trade Representative at the time.

BARLETT: Mickey Kantor insists that he didn't even know that Mr. Lindner was giving money. He insists that the decisions made within the office were based solely on the recommendations of the staff without any regard to Mr. Lindner's lobbying whatsoever.

LEWIS: Steven Warshaw, president of Chiquita Brands International, declined to be interviewed by CNN & TIME but, in a written response, said he didn't see any validity in the assertion that political contributions by Mr. Lindner and others would have influenced the U.S. government's conduct in this case whatsoever. At the time, critics argued it was inappropriate for the U.S. Trade Representative's office to take up the case for a product not produced in the United States.

STEELE: In an internal memo to Kantor from various staff members, it said, quote, "If initiated, this investigation would break new ground," but further down in that same paragraph, the staff member said, "We have been persuaded by Chiquita that the practices here do have a significant effect on U.S. commerce through the U.S. operations of Chiquita." LEWIS: The Trade Representative's office investigated the case and filed a formal complaint with the World Trade Organization. The U.S. Trade Representative's office insists the Chiquita petition was handled like all other cases the office took on. That included a case involving Time Warner's magazine division.

In the banana dispute, the World Trade Organization did side with Chiquita and the United States and found that Europe had violated the rules of free trade. The WTO ordered Europe to open up its banana market. After the European Union refused to lift its quotas, the U.S., in accordance with trade policy, imposed retaliatory tariffs on European goods.

Last March, four and a half years after Chiquita's petition was filed, the U.S. proposed 100-percent tariffs on everything from dollars to wine to ballpoint pens.

STEELE: Those organizations that had lobbies and lobbyists in Washington that were of fairly good size -- all their people saw this list and immediately trooped into a hearing, which was held by the Trade Representative's office, to protest the inclusion of their products on that proposed list.

BARLETT: And, basically, everyone who raised objections and said, "This will hurt us. This isn't -- this isn't good for our business" -- their -- their products were removed from the original list.

STEELE: So, from the huge list, it's pared down to a very small list, and most of the people that we talked to who ended up on that final list were not aware of the hearing.

LEWIS: In South Carolina, Rick and Astrid Reiner were totally unaware of what had happened in Washington. Months after the tariff list was finalized, Reiner was on a plane headed to a trade show when he picked up a magazine and suddenly discovered that his bestselling products, German bath gels, could soon almost double in price with a 100-percent tariff.

RICK REINER: I didn't lobby to get off the list because I didn't know about it. I didn't know there was a tariff issue.

LEWIS: By this time, the Reiners had expanded their business to more than 1,000 customers.

RICK REINER: Like any business, we put all of our life into it basically. That's the main focus of our life. We work on weekends, Saturday, Sundays, work early in the morning until late at night.

LEWIS: Despite the fact that he missed the deadline to comment on the proposed tariff, Reiner began writing to his congressmen and the U.S. Trade Representative to try and get his bath gels off the tariff list.

RICK REINER: And these are some of the letters I've written, and -- it's all over the place, you know. I wrote to Strom Thurmond and a bunch of them.

LEWIS: He even testified before Congress, yet his imported bath gels still are under a 100-percent tariff.

RICK REINER: It's killed our profit. We really don't have a profit this year. We're -- we have a loss.

STEELE: The irony of this is -- is that these tariffs which were supposed to penalize the Europeans, supposed to put pressure on them to come to the bargaining table -- instead, it is squeezing, hurting a whole series of small businesspeople all over the country.

LEWIS: After nearly a year, the U.S. tariff on European goods has not forced the European Union to drop its bananas quotas. Since 1993, Chiquita has lost about half of its European banana market. In a written statement, Chiquita's president, Steven Warshaw, says the "company has lost thousands of American jobs. Our stock price declined precipitously, and our industry has been substantially damaged."

Because the European Union refuses to lift its banana quotas, the U.S. has kept its tariffs in place, and the banana wars have left unintended victims. In South Carolina, the Reiners say their business has been seriously hurt.

ASTRID REINER: We survived the first hardest five years. This last year would have been the first year where we could have said we're making a good profit, and all our profit went to the government.

RICK REINER: We keep pushing. We keep fighting for it, you know. It's a small business, but it's our business.

(END VIDEOTAPE)

SHAW: In Washington, two bills before Congress would ease the impact of the U.S. tariff on small business owners like Rick and Astrid Reiner, but congressional sources say the bills may be a long way from becoming law.

And that's this edition of CNN & TIME. I'm Bernard Shaw.

Jeff, I'll see you next week.

GREENFIELD: Thank you, Bernie.

Coming up next, an encore presentation of "Cry Freetown," a controversial look at the decade-long civil war in Sierra Leone. Tens of thousands of lives lost in an African conflict much of the world has completely ignored.

I'm Jeff Greenfield. For everyone at CNN & TIME, good night.

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