US Senate committee approves Kerry nomination

 

WASHINGTON: Senator John Kerry easily cleared the first hurdle of his confirmation as the next secretary of state Tuesday with a unanimous vote of approval by the Senate Foreign Relations Committee.

Kerry, President Barack Obama's pick to replace Hillary Clinton as the nation's top diplomat, must still be confirmed by a vote of the full Senate later in the day, but that was expected to be a shoo in.

His colleagues on the Senate Foreign Relations Committee, which Kerry chairs, gave him a unanimous vote of approval, with Republicans joining Democrats.

Kerry, who did not vote, said he was "humbled" and gratified.

"They've been wonderful, they've been really superb," he said of his colleagues on the committee, adding, "I'm very wistful about it, it's not easy" leaving.

- AFP/fa

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Report: A-Rod, Cruz, Gonzalez linked to PED probe

New York Yankees' $275 million man Alex Rodriguez, Washington Nationals All-Star Gio Gonzalez and Texas Rangers slugger Nelson Cruz are among the players connected to performance-enhancing drugs in a new investigative report by the Miami New Times.

A former employee of a South Florida clinic called Biogenesis gave the Miami New Times "an extraordinary batch of records" showing athletes received various substances from Anthony Bosch, the clinic's chief who is already under investigation by Major League Baseball and the Drug Enforcement Administration, as CBSSports.com reported. At least one boxer, one tennis player and a coach were also implicated.

The report outlines "damning evidence" against A-Rod as his name appears in Biogenesis records up until 2012. Rodriguez, who finally admitted to taking PEDs in 2009, claims he has been clean for a decade. An excerpt of the report on A-Rod reads:

There, at number seven on the list, is Alex Rodriguez. He paid $3,500, Bosch notes. Below that, he writes, "1.5/1.5 HGH (sports perf.) creams test., glut., MIC, supplement, sports perf. Diet." HGH, of course, is banned in baseball, as are testosterone creams...."

The mentions of Rodriguez begin in 2009 and continue all the way through last season. Take a page in another notebook, which is labeled "2012" and looks to have been written last spring. Under the heading "A-Rod/Cacique," Bosch writes, "He is paid through April 30th. He will owe May 1 $4,000... I need to see him between April 13-19, deliver troches, pink cream, and... May meds. Has three weeks of Sub-Q (as of April).

27 Photos

MLB players banned for positive drug tests

Other names linked to Biogenesis in the report include outfielder Melky Cabrera, pitcher Bartolo Colon and catcher Yasmani Grandal - all of whom were suspended last season under MLB's ban on performance-enhancing drugs.

Writes Tim Elfrink, the author of the Miami New Times report: "As baseball teams head to spring training under a tougher new policy, the Biogenesis records affirm that the war on doping has been as futile as the War on Drugs."

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Obama's Immigration Plan to Have More Direct Path

President Barack Obama is expected to lay out his principles for immigration reform in a speech in Las Vegas today that will include a potentially quicker path to citizenship than the bipartisan plan a group of senators unveiled earlier this week.

The president will offer some new details about the White House's immigration reform plan, which expands on a blueprint it released in 2011, a senior administration official told ABC News. But for now Obama will stop short of offering his own piece of legislation because of the progress made by the Senate "Gang of Eight."

See Also: Senate Wants Immigration Bill Passed in Months

The White House has sounded positive notes about the Senate group's plan thus far, but the specifics that Obama announces are expected to have some key differences that might cause concern for some Republican senators who have signed onto the senate deal.

Like the senators' plan, Obama's proposal calls for a pathway to citizenship for many of the 11 million undocumented immigrants living in the U.S. The senators' plan would grant "probationary legal status" immediately to eligible undocumented immigrants, but would not allow them to apply for permanent legal status, or a green card, until the border is deemed to be secure. Think of that as a trigger system.

On the other hand, Obama's framework would not contain a border security measure. Administration officials told media outlets that they believe a path to citizenship needs to be straightforward. They also believe a trigger system, like the one in the senate plan, could lead to a state of legal limbo for the undocumented immigrants who receive legal status, The Washington Post reported.

The border-security-first plan, however, is essential to Republican senators who signed onto the Senate "Gang of Eight" deal.

"I will not be supporting any law that does not ensure that the enforcement things happen," Sen. Marco Rubio (R-Fla.), a member of the group, told conservative blogger Ed Morrissey on his web radio show.

See Also: 3 Flashpoints in the Senate Immigration Blueprint

Obama's plan is likely to include language that would allow same-sex bi-national couples to have the same rights as heterosexual couples, BuzzFeed and The Washington Post reported. Under current law, gays and lesbians who are married to U.S. citizens under state laws cannot obtain a green card. Obama's plan would allow them a path to citizenship, but the issue is not mentioned in the Senate "Gang of Eight" proposal.

As noted by the Post, that language may anger Christian groups who have signaled they would support comprehensive immigration reform.

But the White House remains optimistic about the progress that has been made so far. An official described the senators' announcement as a "breakthrough" to ABC News because it wasn't clear whether Republicans would sign on to any path to citizenship.

Some observers couched the Senate group's decision to come out with his plan a day before Obama as an attempt to outfox the White House politically. But administration officials told media outlets they remain generally pleased with the plan and believe that the president's speech could build momentum for a final bill.

ABC's Reena Ninan contributed reporting.

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Why haven't we learned from fires?

STORY HIGHLIGHTS

• Pyrotechnics, overcrowding, poor exits have contributed to tragic fires in recent years


• You would think the world would have learned from past incidents, John Barylick says


• Concertgoers have to be their own fire marshals, he says

Editor's note: John Barylick, author of "Killer Show," a book on the 2003 Station nightclub fire in Rhode Island, is an attorney who represented victims in wrongful death and personal injury cases arising from the fire.

(CNN) -- Sunday morning we awoke to breaking news of another tragic nightclub fire, this time in Brazil. At last report the death toll exceeded 230.

This tragedy is not without precedent. Next month will mark the 10th anniversary of a similar nightclub fire in Rhode Island. At this sad time, it's appropriate to reflect on what we've learned from club fires -- and what we haven't.

Rhode Island's Station nightclub fire of 2003, in which 100 concertgoers lost their lives, began when fireworks set off by Great White, an 80s heavy metal band, ignited flammable packing foam on the club's walls.

Deadly blazes: Nightclub tragedies in recent history

John Barylick

Panicked patrons stampeded toward the club's main exit, and a fatal pileup ensued. Contributing to the tragedy were illegal use of pyrotechnics, overcrowding and a wall covering that would have failed even the most rudimentary flammability tests.

Video images of the Station fire were broadcast worldwide: A concert begins; the crowd's mood changes from merry, to curious, to concerned, to horrified -- in less than a minute. You'd think the world would have learned from it. You would be wrong.

The following year, the Republica Cromanon nightclub in Argentina went up in flames, killing 194 people. The club was made to hold about 1,000 people, but it was estimated that more than 3,000 fans were packed inside the night of the fire, which began when fans began lighting flares that caught the roof on fire.

Echoes of the past: Rhode Island victims 'can't help but watch'

Then, in January 2009, at least 64 New Year's revelers lost their lives in a nightclub in Bangkok, Thailand, after fire ignited its ceiling. Many were crushed in a rush to get out of the club. In December of that same year, a fire in a Russian nightclub, ignited by pyrotechnics, killed 156 people. Overcrowding, poor exits, and indoor fireworks all played roles in these tragedies; yet no one bothered to learn from mistakes of the past.

While responsibility for concert disasters unquestionably lies with venue operators, performers and promoters, ultimately, we, as patrons of clubs and concerts, can enhance our own safety by taking a few simple steps. The National Fire Protection Association urges concertgoers to:

• Be observant. Is the concert venue rundown or well-maintained? Does the staff look well-trained?

• As you proceed to your seat, observe how long the process takes. Could you reverse it in a hurry? Do you pass through pinch points? Is furniture in the way?

• Once seated, take note of the nearest exit. (In an emergency, most people try to exit by the door they entered, which is usually not the closest, and is always overcrowded.) Then, share the location of that nearest exit with your entire party. Agree that at the first sign of trouble, you will all proceed to it without delay.

• Once the show begins, remain vigilant. If you think there's a problem, LEAVE IMMEDIATELY. Do not stay to "get your money's worth" despite concerns about safety. Do not remain to locate that jacket or bag you placed somewhere. No concert is worth your life. Better to read about an incident the next day than be counted as one of its statistics.

Read more: How to protect yourself in a crowd

To be sure, all fire codes must be vigorously enforced, and club and concert hall operators must be held to the highest standards. A first step is banning indoor pyrotechnics in all but the largest, stadium-type venues.

But, ultimately, we are our own best "fire marshals" when it comes to avoiding, and escaping, dangerous situations. We can still enjoy shows. But it is up to us to look out for our own safety.

In coming days, Rhode Islanders will follow the unfolding news from Brazil with a sense of queasy deja vu -- the rising body counts, the victim identification process, the grieving families, and the assigning (and dodging) of blame. If only they had learned from our tragedy.

The opinions expressed in this commentary are solely those of John Barylick.

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Iran sends monkey into space

TEHRAN: Iran on Monday successfully sent a monkey into orbit, paving the way for a manned space flight, Defence Minister Ahmad Vahidi told state television.

Arabic-language channel Al-Alam and other Iranian news agencies said the monkey returned alive after travelling in a capsule to an altitude of 120 kilometres (75 miles) for a sub-orbital flight.

"This success is the first step towards man conquering the space and it paves the way for other moves," General Vahidi said, but added that the process of putting a human into space would be a lengthy one.

"Today's successful launch follows previous successes we had in launching (space) probes with other living creatures (on board)," he added.

"The monkey which was sent in this launch landed safely and alive and this is a big step for our experts and scientists."

Iranian state television showed still pictures of the capsule and of a monkey being fitted with a vest and then placed in a device similar to a child's car-seat.

A previous attempt in 2011 by the Islamic republic to put a monkey into space failed. No official explanation was ever given.

A defence ministry statement quoted by Iranian media said earlier Iran had "successfully launched a capsule, codenamed Pishgam (Pioneer), containing a monkey and recovered the shipment on the ground intact".

Iran announced in mid-January its intention to launch a monkey into orbit as part of "preparations for sending a man into space," which is scheduled for 2020.

Iran's space programme deeply unsettles Western nations, which fear it could be used to develop ballistic missiles capable of carrying nuclear warheads they suspect are being developed in secret.

The same technology used in space launch rockets can also be used in ballistic missiles.

The Security Council has imposed on Iran an almost total embargo on nuclear and space technologies since 2007.

Tehran has repeatedly denied that its nuclear and scientific programmes mask military ambitions.

Iran's previous satellite launches were met by condemnation from the West who accused Tehran of "provocation."

The Islamic republic has previously sent a rat, turtles and worms into space. It has also successfully launched three satellites -- Omid in February 2009, Rassad in June 2011 and Navid in February 2012.

In mid-May last year, Tehran announced plans to launch an experimental observation satellite Fajr (Dawn) within a week but it did not happen and Iran gave no explanation for the delay.

The Fajr satellite was presented by Iranian officials as "an observation and measurement" satellite weighing 50 kilos (110 pounds), built by Sa-Iran, a company affiliated to the defence ministry.

- AFP/ir

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3 arrested in deadly Brazil nightclub fire

Hundreds dead in Brazil nightclub fire

Hundreds dead in Brazil nightclub fire

Hundreds dead in Brazil nightclub fire

Hundreds dead in Brazil nightclub fire

Hundreds dead in Brazil nightclub fire

Hundreds dead in Brazil nightclub fire

Hundreds dead in Brazil nightclub fire

Hundreds dead in Brazil nightclub fire

Hundreds dead in Brazil nightclub fire

Hundreds dead in Brazil nightclub fire

Hundreds dead in Brazil nightclub fire

Hundreds dead in Brazil nightclub fire

Hundreds dead in Brazil nightclub fire

Hundreds dead in Brazil nightclub fire

Hundreds dead in Brazil nightclub fire

Hundreds dead in Brazil nightclub fire

Hundreds dead in Brazil nightclub fire

Hundreds dead in Brazil nightclub fire

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STORY HIGHLIGHTS

• NEW: Police arrest three people in connection with the fire, state media report


• The owners of the nightclub pledge to cooperate with the investigation


• At least 231 people died in the fire, authorities say


• Funerals are scheduled to begin Monday for those killed in the fire

Are you there? Share your story.

Santa Maria, Brazil (CNN) -- Guitarist Rodrigo Martins was preparing to launch into the sixth song of his band's set when he saw embers fall.

The acoustic foam insulation on the ceiling of the Kiss nightclub in the southern Brazilian city of Santa Maria was on fire, and it was beginning to spread.

The hot ash fell onto the stage and dance floor.

Photos: Hundreds dead in Brazil nightclub fire

In front of him, a sea of people who moments earlier were dancing and singing along to the country-pop sounds of his band Gurizada Fandangueira began to realize something was wrong.

Suddenly, concertgoers were stampeding toward the club's only exit, pushing and shoving each other trying to get out.

Then, according to investigators and witnesses, somebody fell in the narrow, dark hallway that led to the windowless exit.

And then another person fell.

And then another.

Searching for answers

It was the last weekend of Brazil's summer break for many of the students, and the Kiss nightclub was packed early Sunday with young people, many of whom attended one of a number of universities and colleges in Santa Maria.

At least 231 people died and hundreds more were injured in the fire, which authorities believe began about 2:30 a.m. Sunday when the band's pyrotechnic show ignited insulation material.

Many apparently died from smoke inhalation. Others were trampled in the rush for the exits.

Of the dead, 101 were students at the Federal University of Santa Maria.

Another 120 remained hospitalized Monday morning, 79 in critical condition, authorities said.

About 2,000 people were inside the club when the fire broke out -- double the maximum capacity of 1,000, said Guido de Melo, a state fire official.

The roof collapsed in several parts of the building, trapping many inside. Firefighters found piles of bodies in the club's bathroom.

It looked, said state lawmaker Valderci Oliveira, "like a war zone."

Read more: How to protect yourself in a crowd

For others, escaping was complicated by the fact that guards initially stopped people from leaving, said a reporter from CNN affiliate Band News, echoing comments from the state fire official.

"Some guards thought at first that it was a fight, a huge fight that happened inside the club and closed the doors so that the people could not leave without paying their bills from the club," the reporter, Glauber Fernandes, said.

But Rodrigo Moura, a nightclub security guard, said the fire moved fast.

"All of a sudden the fire just took off and was all around us. We tried to tell people to get out," he said.

Authorities have arrested three people in connection with the fire, state-run Agencia Brasil reported on Monday.

The owners of the nightclub, meanwhile, pledged to cooperate with the investigation into the fire, according to a statement released by the law firm of Kummel & Kummel.

"We are open to all authorities and inspections," said the statement, obtained by Globo TV.

The club's license had expired in August and had not been renewed, a local fire official told Globo TV.

The owners, however, said the nightclub was properly permitted and had been inspected by the fire marshal.

Deadly blazes: Nightclub tragedies in recent history

'Blocked by security'

The band, Gurizada Fandangueira, was a popular attraction at Kiss in part because of its pyrotechnic show, according to Billboard.com. It played at the nightclub about once a month, and was there Sunday to promote a new album.

Martins, the guitarist, told Radio Gaucha the band had been on stage for about 20 minutes, finishing the fifth song of its set, when it set off its "sputnik" pyrotechnics -- sparkler columns that shoot up in the air.

"We used it all the time. ... We never had this problem before," he told the radio station late Sunday.

Martins said he first noticed a small ember, and then he looked up at the ceiling and saw the flames.

A backstage hand attempted to put out the blaze with a fire extinguisher. "But it didn't work," he said.

Martins said as he and the other band members got off the stage, there were 20 to 30 people in front of him who were "being blocked by security."

People started pushing and shoving, and then they tripped over one another trying to get to the door.

Martins said the band's accordion player, 28-year-old Danilo Jacques, died in the fire. "I saw him, and then I lost him in the crowd."

Struggling to help

Esequiel Corte Real and his friends arrived late for the show and ended up with what they thought was one of the worst locations to watch -- by the exit.

The same happened with Norton Basson and his friends, who were at the club to celebrate his 29th birthday.

They are alive, they believe, because of where they were -- making them among the first to make it out alive.

After the fire started, the dark, narrow hallway that led to the nightclub's exit was choked with smoke and people trying to find their way out.

Outside, Corte Real and his friends could hear the screams of people trying to escape.

He told Globo TV that he and his friends ran back into the club to try to help.

They pulled out one body. Then two more.

"Somebody must be alive," he said.

Basson and his friends, meanwhile, grabbed rocks, sticks and an axe they found at a nearby building and began trying to knock a hole in the side of the club to help those trapped inside. Others soon joined them with shovels and more axes.

Firefighters used the hole Basson and his friends created to get inside the club.

There, they were greeted by the eerie sounds of cell phones ringing in the pockets and purses of the dead. Many of the calls were from parents desperate to reach their children.

The missing

Later Sunday, family members wept as they searched for information outside a local gymnasium where bodies were taken for identification.

Inside, Brazilian President Dilma Rousseff met with relatives as they waited on bleachers for word of their loved ones. She had been attending a regional summit in Chile, but cut short the trip and returned to Brazil early to deal with the aftermath of the tragedy.

"The Brazilian people are the ones who need me today," she said. "I want to tell the people of Santa Maria in this time of sadness that we are all together."

Ericmar Avila Dos Santos went from hospital to hospital Sunday, searching for his 23-year-old brother.

Hours earlier, he learned in a telephone call from a friend that his older brother was among those missing following the fire.

His family scanned lists, talked with police officials. They checked with friends, searched everywhere.

They finally found him -- among hundreds of bodies laid out on body bags at a makeshift morgue at a local gym.

Rhode Island victims 'can't help but watch'

"I was supposed to go with him. I didn't feel like going out. He ended up there without me," Avila Dos Santos said, openly sobbing over his brother's coffin outside the gym.

On Monday, the first of Brazil's three days of mourning, the three cemeteries in the city of 260,000 were packed with families readying to bury their dead.

Among them was Avila Dos Santos' family.

"We did everything together. We were even studying the same major," he said, remembering his brother. "Now that he's gone, I'm lost. I don't know what I'm going to do with my life."

Shasta Darlington reported from Santa Maria, Brazil. Chelsea J. Carter reported from Atlanta. CNN's Helena DeMoura contributed to this report.

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Grand Jury Wanted to Indict JonBenet's Parents

A grand jury believed there was enough evidence in 1999 to indict John and Patsy Ramsey on charges relating to the still-unsolved killing of their beauty queen daughter JonBenet Ramsey, ABC News sources say.

Six-year-old JonBenet was found dead in the basement of her family's upscale Boulder, Colo., home Christmas Day 1996. Suspicion fell on her parents, John and Patsy Ramsey, but they insisted an intruder was to blame and they were never prosecuted.

In an interview with ABC News' Barbara Walters after her death, both of the girl's parents denied that they had killed her. They were eventually cleared by prosecutors.

JonBenet Ramsey Case: New Grand Jury Report Watch Video

After meeting for more than a year, a grand jury found sufficient evidence to indict the couple on charges of child abuse resulting in death, as first reported Sunday by the Boulder Daily Camera newspaper and confirmed by two separate sources by ABC News.

"This grand jury, in effect, came up with a compromise finding, 'No, it's not murder,' but, 'Yes, we think they were responsible' for the death based on abuse," ABC News legal analyst Dan Abrams said.

PHOTOS: JonBenet Ramsey: Never-Before-Seen Photos

But District Attorney Alex Hunter refused to sign off on the grand jury's decision, saying there was too little proof.

"I and my prosecution task force believe we do not have sufficient evidence to warrant the filing of charges against anyone who has been investigated at this time," Hunter said then.

Hunter believed a conviction would be impossible. Abrams said that he agrees with the decision.

"I've seen the majority of the case files and I think Alex Hunter made the right call," he said. "I think there simply was not enough evidence to move forward."

Patsy Ramsey died in 2006 after a battle with ovarian cancer. John Ramsey remarried. His attorney told ABC News that Hunter is "a hero who wisely avoided a miscarriage of justice."

The case is still officially open but, as in 1996, investigators seem no closer to solving the crime this year, when JonBenet would have turned 23.

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Women in infantry: Tough challenge?

Hospital Corpsman Shannon Crowley packs for a mission as Lance Cpl.. Kristi Baker sits on her bed in 2010 in Afghanistan.

STORY HIGHLIGHTS

• Maren Leed: Ban on women in combat has hurt operations, women's promotion


• Leed: Integrating women into the physically demanding infantry presents challenges


• Women are already in combat; she says, the "front line" and "rear line" no longer exist


• Leed: Research into women in infantry might show that some limits might be appropriate

Editor's note: Maren Leed is senior adviser, Harold Brown Chair in defense policy studies at the Center for Strategic and International Studies. From 2011 to 2012, she served as senior adviser to the chief of staff of the U.S. Army. Follow the Center for Strategic and International Studies on Twitter.

(CNN) -- In the coming years, lifting the ban on women in combat, announced Thursday by Defense Secretary Leon Panetta, might prove particularly challenging in the most iconic of military occupations -- the infantry, among the most physically demanding and tradition-bound branches of the Marines and the Army.

Determining the best path forward to integrate women into this elite group will require hard-nosed honesty, careful management and compelling leadership.

For the 65 years that women have enjoyed a permanent place in the United States military, they have been subject to restrictions. One rationale is the notion embedded in our culture that women should be shielded from great physical risks. Another is a recognition of the physical superiority of the average male over the average female. A third is the fear that unit cohesion, critical to military performance, would suffer with the introduction of women.

Maren Leed

These three concerns apply to varying degrees in the infantry. But the last 11 years of war have clearly demonstrated that warfare is no longer waged in a linear fashion, and that the concept of "front line" no longer applies.

Opinion: A more equal military? Bring back draft

Historically, logistics operations were conducted "in the rear," where risks were comparatively low. This has changed: In 2006 in Iraq, for example, one in every five truck convoys was attacked. Although infantry clearly remains one of the most dangerous military occupations, the proliferation of homemade bombs and other low-cost, lethal weaponry and tactics have heightened the risk of almost every occupation. War is more uniformly dangerous.

That said, physical differences between the sexes remains a thorny issue. Determining gender-neutral physical standards for an integrated infantry will be one of the most difficult tasks ahead.

Infantry soldiers and Marines are the primary forces for operations on foot. They not only travel long distances, but also frequently carry loads in excess of 50 pounds. Both the short- and long-term health effects of such demands can be significant.

Single mom fought alongside combat troops in Afghanistan

The Defense Department has consistently pursued solutions to lighten the load, from exoskeletons to unmanned vehicles that would serve as "pack mules," to the elusive quest for higher power, lower weight batteries.

The success of these efforts will benefit both men and women. But until that happens, research into the effects these physical demands have on women is necessary before determining the degree to which they can, and should, be part of the full range of infantry.

Whether men serving in the infantry will accept women as peers is another open question.

Those who oppose women in the infantry argue that they would change group dynamics, disrupt bonding and ultimately harm unit cohesion. In the past, these fears have been brought up regarding the participation of minorities and homosexuals, too. But data show these negative predictions don't come true. Instead, successful integration has happened with strong leadership, and, critically, a process that is broadly perceived to be fair.

Opinion: Women in combat a dangerous experiment

Even if the arguments underpinning the ban on women in combat have weakened, is there sufficient justification for change? The Joint Chiefs apparently believe so, as they have unanimously recommended the ban be lifted.

Each of the services already has been taking steps along these lines. This is in part driven by the evolution of the battlefield. When today's senior leaders were serving time in Iraq and Afghanistan, they realized that the restrictions on women sometimes also restricted their missions.

They implemented work-arounds and sought exceptions to policy. But they came home with firsthand experience of the mismatch between modern warfare and the policies limiting women's role. Women are in combat, and senior military leaders believe that future success demands they must remain available to be so, in even greater numbers.

From the institutional viewpoint, there are also concerns that the traditional limitations fail to make the best use of women in the service. Combat experience weighs heavily in promotion decisions, and restrictions have precluded women from gaining experiences equal to those of male counterparts.

Women are also excluded from many of the occupations disproportionately represented in senior leadership, and that automatically limits the number of women who can advance to the highest levels. At the same time, the pool of Americans eligible for military service is shrinking, and competition for high-quality recruits is intensifying. So it's imperative that the military fully leverage the talent of the men and women it has and that it seeks to attract.

By the numbers: Women in the U.S. military

The arguments in favor of lifting the ban on women in combat outweigh those against it. Despite Defense Secretary Leon Panetta's announcement on Thursday, the military services maintain the prerogative to preclude women from serving in certain positions or occupations.

Infantry, or at least some specialties within that branch, could well be a case in which restrictions are warranted. But military leaders have time to evaluate this proposition, and to set the conditions to make any change stick. The path ahead may not be smooth, but it is necessary.

Follow us on Twitter @CNNOpinion.

Join us on Facebook/CNNOpinion.

The opinions expressed in this commentary are solely those of Maren Leed.

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Caterpillar's China woes warn foreign investors

SHANGHAI: Caterpillar's revelation it found fake accounts at a just-acquired Chinese firm which will cost it hundreds of millions of dollars is a cautionary tale for those looking to enter the hugely promising market.

The US equipment giant said this month it would take a $580 million charge after uncovering "accounting misconduct" at Siwei Mechanical and Electrical Manufacturing Co., which it bought last year for at least $650 million.

Caterpillar, one of the first US manufacturers to start exporting to China nearly four decades ago and which opened its first Beijing office in 1978, said it had removed several top Siwei managers for overstating profits.

Analysts said the stumble by a Chinese market veteran served as a reminder of the pitfalls of doing business in the world's most populous country.

"This is going to teach firms that they've really got to do due diligence, especially when they see a company as large as Caterpillar run into a situation like this," said Ben Cavender, of Shanghai-based consultancy China Market Research Group.

But there would still be strong demand to invest in it, he added.

Foreign investors have poured more than $1.0 trillion into China since it launched economic reforms in 1978, with $112 billion last year alone.

The country became the world's second most attractive location for foreign investment in 2008, behind only the United States, according to the Organisation for Economic Co-operation and Development.

Foreign companies that arrived early and persisted are now among the most successful, analysts say, but some met spectacular failure.

The travails of American Motors Corp. - later bought by Chrysler - to produce its iconic Jeep brand in China in the 1980s are documented in the book "Beijing Jeep" by the author James Mann.

US aircraft maker McDonnell Douglas announced in 1994 it would manufacture 20 MD-90 planes in China, but fell way short due to technical and regulatory issues. The project was quietly scrapped after Boeing took over the company.

Analysts see a link between Caterpillar's experience and a series of accounting scandals involving Chinese firms listed in the United States and other overseas markets which burned shareholders.

Investors in Toronto-listed Sino-Forest Corp. lost hundreds of millions of dollars when it collapsed following allegations it had misstated its revenue and exaggerated the size of its plantations in China.

"There's been a whole series of disclosures which relate to very poor due diligence of US-listed Chinese companies, and there's a parallel there," said Steve Vickers, founder of a Hong Kong-based risk consultancy.

Sharp increases in profits and a firm which has been through a reverse takeover - in which a private company seeking to go public merges with an already quoted one but controls most of the new entity - are warning signs, Vickers said.

Financial reporting requirements are not as stringent for reverse takeovers as they are for traditional initial public offerings and the technique became controversial after Chinese firms that used it to list in the US were found to have accounting problems.

"Reverse takeovers, sudden rises in profit of massive scale are glaringly obvious examples of what people should look for. To me, that would be a huge alarm bell," Vickers said.

Siwei become publicly traded by taking over Hong Kong-listed ERA in a reverse takeover. In turn, Caterpillar announced it was buying ERA in 2011, saying the deal would allow it to find more customers in China.

Caterpillar discovered the problems five months after completing the transaction, and said it believed its process for vetting mergers and acquisitions was "rigorous and robust", according to a statement.

It said it was still investigating and would consider options, including litigation, to recover its losses, adding it was unaware of any criminal investigations by the Chinese or US governments so far.

The Wall Street Journal reported that two foreign investors controlled just under half of ERA's shares before the Caterpillar deal: former head of the American Chamber of Commerce in China, Emory Williams, and James Thompson III, son of the founder of moving company Crown Worldwide Group.

A spokesman for Caterpillar, based in the US state of Illinois, declined to comment on Friday.

- AFP/de

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