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December 14th, 2011 COREY PEIN | Cover Story
 

NikeLeaks

Thanks to Julian Assange, we now know how Oregon’s top company fights corruption, counterfeiting and Croatian smugglers.

JUST SHOE IT: All but 4 percent of Nike’s manufacturing happens in three countries: Vietnam, China and Indonesia. But the company has sales operations around the world. This map locates the sources of 184 NikeLeaks cables over a decade. Read them all at wweek.com/nikeleaks.
Illustration by JooHee Yoon

 

Such corruption, of course, is not confined to Europe and Asia.

A 2009 cable from the U.S. Embassy in Mexico City relates the case of a notorious pirate, Leonardo Cruz Hernandez, who was arrested in March of that year by Mexican police after a three-year investigation.

“Following his arrest, Nike Mexico’s general manager received enormous pressure from Nike’s wholesalers to pardon Cruz, including from a brother of a senior PRI politician.”

(The PRI was Mexico’s ruling party for seven decades.)

After some initial hesitation, Nike moved forward with charges.

“However, on March 26, the judge of the 11th Federal Court of the Reclusorio Oriente [Prison], where Cruz was being held, dismissed the charges against him and allowed Cruz to go free. The judge’s clerk found fault with the paperwork in which [the Mexico attorney general] outlined the case against him, and the case was dismissed on a technicality.”


Nike not only tries to pursue counterfeiters in the countries where the fake goods are manufactured, it tracks smugglers’ shipments from the factories of Asia to the ports of Europe.

Nike’s private copyright-protection force is like a scale-model justice system focused on the interests of one client, employing private security, detectives, lawyers, local guides and lobbyists.

In a December 2008 cable, representatives of the U.S. Embassy describe a meeting with “Nike’s brand protection manager for Croatia” in Zagreb, that Eastern European country’s capital. The cable gives a sense of the sheer scope of the smugglers’ operations and how overseas laws make it hard to prosecute such cases—and how, when foreign authorities are unwilling or unable to act, Nike takes the job of enforcement into its own hands.

The cable says Croatia is not a major producer of knockoffs. Rather, “its geographic position makes it a desirable entry point” for smugglers targeting markets in the United Kingdom and Western Europe. 

Fortunately for Nike, it has one advantage in Europe that it can’t count on everywhere: the cooperation of authorities. 

“Nike has established relationships with police and customs officials throughout Croatia, who alert Nike when they intercept a suspicious shipment…. The Nike rep then goes, sometimes in the middle of the night, to inspect the merchandise and tell Croatian officials whether the goods are fake…”

After a seizure, Nike’s forensics unit takes over.

“[T]his identification is not always easy and sometimes requires him to send a sample for closer examination by Nike headquarters.… Once identified as fakes, the shoes are held in a warehouse while he arranges for their destruction…” 

A November 2008 bust by Croatian customs officials, at the Adriatic Sea port of Rijeka, nabbed “20 shipping containers filled with thousands of pairs of counterfeit Nike shoes destined for markets throughout Europe.”

Not all such operations, although successful from Nike’s perspective, are strictly legal, according to the cable. 

“Our contact admitted that his seizures are only quasi-legal since the designs being counterfeited are only rarely covered by Croatian patent law. This is because of the lengthy procedure to register individual designs with Croatian authorities (often taking over a year). He explained it is impossible for an international apparel manufacturer, issuing hundreds of new products over four seasons, to comply with the letter of Croatian law on registration of designs.”

In many ways, Croatian law enforcement is outmatched by organized crime, the Nike rep explained.

[T]he smugglers adapt quickly to avoid his interference. There have been recent cases of shipments of ‘blank’ shoes, with a courier bringing in suitcases full of the famous Nike ‘swoosh’ later on.…

“Croatia also struggles with a legal and law-enforcement capacity that is often lacking or outmatched. This is especially true along the Bosnian border, where understaffed Croatian units face smugglers with years of experience in trafficking of goods; experience in many cases honed during the Yugoslav wars, when smuggling was a matter of life or death.”


Apart from piracy, the cables show that Nike faces continued problems with its overseas business partners and workforce.

A December 2007 cable from Vietnam describes a worsening labor situation, with 700 strikes in the previous two years, most of them “technically illegal.”

One of the largest strikes that year involved some 14,000 workers at a Korean-owned factory in Southern Vietnam’s Dong Nai Province.

The factory, one of 40 of Nike’s Vietnamese subcontractors, made shoes for export. Most of the workers were young women, and nearly all joined the strike, the cable says.

Their demands included seniority pay, transportation allowances and lump-sum holiday bonuses amounting to $30 apiece. 

From Nike’s perspective, the workers already had a good deal. Their average pay—$62.50 a month—was higher than the local minimum wage and conditions “exceed[ed] local standards.”

“Despite these pluses, workers told factory managers that the nearly 10 percent annual inflation rate means that the price of commodities, food and other necessities have risen faster than the buying power of their wages….”

Nike’s rep blamed the unrest on workers’ misunderstanding of labor law.

“When asked about the strike by [Embassy economic officials] in Hanoi…Nike’s general manager said that the strike had started when two employees raised a grievance but then quickly escalated as others joined in to make the wage and other demands as noted above. She also characterized the labor action as a ‘wildcat’ strike because it was illegal, but explained there is still a communications problem with the workers in understanding labor law and procedures…”

Rather than negotiate terms or put demands on its subcontractors, Nike told U.S. officials the company “put itself in a neutral position,” encouraging both workers and factory owners to “calm down.” 

“Nike and other foreign investors in Vietnam remain concerned that wage pressure resulting from inflation means that labor unrest is likely to get worse toward Tet—the biggest holiday of the year and the time when Vietnamese need extra money for family gatherings.”


The cables contain a handful of child labor accusations, but it’s impossible to determine their veracity. A 2009 cable describes a former employee’s claim that child labor had been employed over a period of four years in a factory that made soccer balls for Nike in China’s Jiangsu Province (which Portland Mayor Sam Adams happened to visit earlier this year). 

The U.S. Embassy seemed satisfied with Nike’s internal investigation of the claims, and the company’s assertion that “its process for hand-sewn soccer balls in China is currently such that there is ‘no chance’ of child labor making its way into the supply chain.”


The most dramatic incident in the cables involving Nike’s foreign partners—described at the beginning of this story—took place in Indonesia, where one in four Nike shoes are currently made.

Nike moved into Indonesia, a Pacific archipelago home to 237 million people, in the late 1980s. At the time, the country was midway through the three-decade rule of Suharto, one of the more corrupt Western-backed dictators. By 1998, when Suharto resigned, Nike’s purchasing practices were coming under intense scrutiny from labor and human-rights groups.

In response, Nike pioneered the branch of public relations known as “corporate social responsibility.” Rather than attack its critics or dismiss the allegations, Nike admitted problems and pledged do better. 

Today, sweatshop complaints rarely make the news. 

But labor disputes continue. In June 2007, thousands of angry factory workers threatened to storm Nike’s offices in the Jakarta Stock Exchange complex. The protests, described in a series of State Department cables that summer, led Nike executives to briefly flee the country. U.S. and Indonesian government officials quickly stepped in as proxy negotiators for Nike and its estranged subcontractor.

The background: Nike had a longtime business partner in Indonesia, Central Cipta Murdaya, which is owned by a powerful family that had been close to Suharto. 

On June 6, 2007, Nike told CCM it would end their relationship at the end of the year because of CCM’s failure to meet quality standards.

According to the cable, “CCM responded by ceasing all Nike factory production and directing disgruntled employees to Nike’s downtown offices.…

“Business contacts tell us that the Murdaya family ‘plays hard ball’ and has been known to use their money and influence to harass foreign investors, even having them arrested in some cases.

“The ensuing protest alarmed Nike executives. Ultimately, the crowd dispersed peacefully and Nike executives were able to leave their offices. Nike executives, accompanied by the [U.S. Foreign Service] Investigators, were then taken to Soekarno-Hatta airport via police escort where they departed the country.”


Indonesian President Susilo Bambang Yudhoyono wanted Nike to return, and assigned a member of his government, Muhammad Lufti, to negotiate with the company and the U.S. government. Lufti approached U.S. Ambassador Cameron Hume, who said Nike officials feared arrest or a lawsuit if they returned.

Lufti promised that the government would provide security “for all [Nike] employees and gave his personal guarantee that Nike executives would not be detained by authorities even in the event of civil litigation,” promising “to escort them to the airport and put them on a plane myself before allowing that to happen.”

After four-hour negotiations at the Ritz-Carlton Jakarta (in rooms provided by the Indonesian government), and last-minute concessions by Nike, the parties reached an agreement with CCM that allowed Nike’s return to Indonesia.

“Lutfi thanked Ambassador Hume for facilitating Nike’s willingness to negotiate and for the Embassy’s presence at the July 24 negotiations. Lutfi expressed surprise at Nike’s generosity in the terms of the phaseout and harshly criticized Hartati Murdaya, owner of CCM, for her ‘nasty intentions.’” 

Earlier in the negotiations, Hume and Lufti “agreed on the need to handle disputes quietly and not in the press or the streets.” 

The plan worked pretty well, until WikiLeaks came along. 

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