C4IGrant
09-16-09, 09:00
ONLINE EXTRA September 10, 2009, 5:00PM EST
Glock Pistol Used by Police Raised Safety
Issues
In the late 1990s, U.S. employees expressed concerns to the Austrian gun maker
regarding the Glock 22
By Paul Barrett and Brian Grow
Glock markets its weapons as "safe action pistols." But internal company documents reviewed by
BusinessWeek—and reported here for the first time—reveal that in the late 1990s, company employees
in the U.S. expressed concern about the safe performance of the Glock 22, a model commonly used by
American police officers.
If these documents had surfaced in injury lawsuits filed over the years against Glock, they could have
created potentially serious liability trouble for the company, according to plaintiffs' lawyers. "Documents
of this sort were requested in pretrial discovery by us and by lawyers in other cases," says Daniel G.
Abel, an attorney who helped represent the city of New Orleans in an ultimately unsuccessful lawsuit
against the gun industry in the late 1990s. "These documents should have been disclosed in discovery.
There is no excuse—no legitimate excuse—for their not being disclosed."
Glock's general counsel, Carlos Guevara, said in a written response: "Glock pistols are remarkably safe
and reliable, historically and currently, and are of exceedingly high quality.…When involved in products
liability cases, we respond to discovery requests following the rules of the jurisdiction, evidentiary rules
and practices, and pursuant to the laws of the United States and orders of the courts."
Safety has long been a point of contention for Glock of Austria. Unlike most handguns, which have
external on-off safeties, Glock pistols are equipped with internal mechanisms that prevent firing. These
internal safeties are disengaged merely by depressing the trigger. The ability to fire immediately, without
worrying about an external safety, is one feature Glock has stressed as an advantage when selling its
guns, especially to police departments.
Skeptics see this feature in a different light. The Consumer Federation of America has cited the Glock's
design as one reason the gun has been the subject of dozens of lawsuits filed after unintentional
shootings, including a number by police officers. The company has won or confidentially settled most of
these cases without acknowledging any liability.
Paul F. Jannuzzo, Glock's former top executive in the U.S., says in an interview that, overall, the
company's pistols are as safe as comparable handguns—and more durable. "The one problem," he
says, "was [the Glock] would go off sometimes when it wasn't supposed to."
OCCASIONAL JAMMING
Another problem that surfaced in the 1990s and persisted for years thereafter was occasional jamming,
Jannuzzo says. In 1998 he and other Glock officials in the U.S. discovered guns that failed to fire
properly. "These malfunctions were very difficult to clear and could not be cleared with the normal 'tap,
rack' drill," stated a Feb. 12, 1998, memo from American employees to Glock founder and owner Gaston
Glock entitled "Performance of G 22s." "Law enforcement officers see this type of stoppage as a serious
failure and one which has life-threatening implications," the memo added. "If these were received by the
FBI or DEA [both Glock customers], they would immediately suspend the contract and demand a retest
or other action."
The memo described tests on eight sample guns that were fired more than 2,000 times in all. "In
particular, we are concerned with the difference in the poor test results in the U.S., compared with the
better results achieved in Austria," the memo told Gaston Glock. The company manufactures parts in
Austria and assembles guns for the American market at a plant outside Atlanta.
Four days later, on Feb. 16, Jannuzzo followed up with a letter to Gaston Glock. Jannuzzo disputed the
contention by company executives in Austria that the malfunctioning pistols needed a "breaking-in
period," after which they would work properly. This notion "flies in the face of the Glock pistol's
reputation as being the best shooting semi-automatic 'out of the box,'" Jannuzzo wrote.
In an interview, Jannuzzo adds: "It was a problem, and it was much more of a problem than they
[executives in Austria] wanted to admit.…They never knew which guns were going to break."
Guevara, the Glock general counsel, disagreed: "Each pistol undergoes numerous quality control
checks throughout the manufacturing and assembly process.…Additionally, the firearms industry is
highly regulated in the United States (and internationally), and Glock fully complies with all rules and
regulations with respect to every aspect of Glock's business, including sales."
COVER STORY September 10, 2009, 5:00PM EST
Glock's Secret Path to Profits
It's the largest supplier of handguns to law enforcement in the U.S. But behind its
success lies a troubling tale of business intrigue
By Paul Barrett, Brian Grow and Jack Ewing
Gaston Glock, an Austrian manufacturer of shovels and knives, had an improbable dream: He would
make a fortune selling handguns in America. In the early 1980s, Glock, a self-taught firearm designer,
produced an innovative pistol for the Austrian military. He then devised a plan for promoting his
invention in the U.S., the world's richest gun market. First, he'd persuade American police they needed a
lightweight weapon with more ammunition than traditional revolvers. Then he'd use his law enforcement
bona fides to win over private gun buyers.
The strategy succeeded spectacularly. By the late 1980s, major police departments across the U.S.
wanted more firepower to combat crack-cocaine violence. Glock had the answer. No less impressed,
street gangsters adopted the squared-off Austrian handgun as an emblem of thuggish prestige. Hiphoppers
rapped about Glocks; Hollywood put the pistol in the hands of action heroes.
Gaston Glock shouldered past the storied American brand Smith & Wesson (SWHC) to make his
creation the best-known police handgun in the U.S., and probably the world. When American soldiers
hauled Saddam Hussein from his underground hideout in 2003, the deposed Iraqi ruler surfaced with a
Glock.
Today the company claims 65% of the American law-enforcement market, an amazing accomplishment
for a privately held manufacturer based in tiny Ferlach in southern Austria. U.S. fans celebrate
"Glockmas," the 80-year-old founder's July 19 birthday. U.S. sales soared 71% in the first quarter of its
2010 fiscal year, largely due to what gun executives call the "Obama stimulus": fear among gun owners
that the liberal President plans to curb the marketing of handguns. Gaston Glock played on that anxiety
in an open letter to customers in January. "As shooters and gun owners, we must band together with
even greater zeal than in the past," he wrote. "We are not going to roll over and have our guns taken
away because of some of our misguided neighbors, no matter who they are."
Behind the Glock phenomenon, however, is another story, one rife with intrigue and allegations of
wrongdoing. The company's hidden history raises questions about its taxpayer-financed law-and-order
franchise. Is this a company that deserves the patronage of America's police? Does Glock merit the
lucrative loyalty of private American gun buyers? The Glock tale also underscores the difficulty U.S.
regulators have overseeing complex international businesses.
CLAIMS OF SKIMMING
Allegations of corruption permeate Gaston Glock's empire. His former business associate, Charles
Marie Joseph Ewert, now resides in a prison in Luxembourg, having been convicted in 2003 of
contracting to have Glock killed. The murder plot—thwarted when the victim, then 70, fought off a
hammer-wielding hit man—led to a trial that revealed a network of shell companies linked to Gaston
Glock. That corporate web is now under scrutiny by the U.S. Internal Revenue Service, according to
lawyers familiar with the probe. Attorneys for Glock have acknowledged the misuse of company funds.
But they blame most of the wrongdoing on Ewert, a money man known in the European press as
"Panama Charly."
Among the Glock-related material the IRS allegedly is examining: boxes of invoices and memos
provided by the company's former senior executive in the U.S., Paul F. Jannuzzo. Once one of the most
prominent gun industry executives in America, Jannuzzo said in a federal complaint he filed last year
that Gaston Glock used his companies' complicated structure to conceal profits from American tax
authorities. "[Glock] has organized an elaborate scheme to both skim money from gross sales and to
launder those funds through various foreign entities," Jannuzzo alleged in the sealed May 12, 2008, IRS
filing, which BusinessWeek has reviewed. "The skim is approximately $20.00 per firearm sold,"
according to the complaint. Glock's U.S. unit, which generates the bulk of the company's sales, has sold
about 5 million pistols since the late 1980s, Jannuzzo estimates in an interview.
A burly man with a staccato delivery, Jannuzzo has several potential motives for airing these allegations.
As a whistleblower, he is seeking a percentage of any federal tax recovery. He is also fighting
embezzlement charges by his former employer. Since 2007, the company has been providing
information about Jannuzzo to authorities in Cobb County, Ga., where Glock's American subsidiary is
based. The Cobb County District Attorney's Office is prosecuting Jannuzzo—who once represented the
company at a White House Rose Garden ceremony and on CBS' (CBS) 60 Minutes—for siphoning
corporate money into a Cayman Islands account. Jannuzzo, who left the company in 2003, claims he's
the victim of a vendetta.
Speaking on behalf of the company and Gaston Glock, Carlos Guevara, the general counsel of Glock
Inc. in the U.S., said in a written statement: "Glock has acted lawfully and properly throughout its history.
Unfortunately, Glock was victimized by several former employees and fiduciaries," including Ewert and
Jannuzzo. "The Glock companies are exceptionally well-run and managed. Glock's tax filings and
reporting are accurate."
Still, eyebrow-raising goings-on appear to have been standard at Glock. After the attempt on Gaston
Glock's life, an internal investigation conducted at his instruction turned up documents apparently
showing that a Glock affiliate in Panama helped in 1995 to start a bank called Unibank Offshore in the
Turkish Republic of Northern Cyprus. Unibank's co-founder was an alleged money launderer named
Hakki Yaman Namli.
In the U.S., Jannuzzo and another former Glock executive, Peter S. Manown, have claimed that for
years they distributed company funds to their wives and Glock employees with the understanding that
the money would be donated to congressional candidates—an apparent violation of U.S. election law.
The ex-executives, who say they acted with Gaston Glock's approval, have estimated the total amount
in the hundreds of thousands of dollars. Buttressing this allegation are ledger entries and cancelled
checks. Guevara, the company lawyer, said: "Glock has never authorized, and would never authorize,
any act that would violate U.S. campaign finance laws."
Glock's political and public relations activities in the U.S. sometimes have tended toward strangeness.
Internal records show payments of thousands of dollars a month over several years to a gun industry
lobbyist named Richard Feldman. In interviews, Feldman says that at Gaston Glock's request he spent
some of the money in 1999 and 2000 to arrange U.S. appearances by Jörg Haider, then the leader of
Austria's anti-immigrant, far-right Freedom Party. Glock has been described in Austria as a political
supporter of Haider, although the arms maker has sued both an Austrian newspaper and a politician
there for making that claim. The arrangements Feldman says he worked on included Haider's
attendance at a January 2000 banquet in New York honoring the birthday of slain civil rights leader
Martin Luther King Jr. The King dinner, sponsored by the Congress of Racial Equality, received media
coverage because Hillary Clinton criticized her then-rival for a New York Senate seat, Rudolph Giuliani,
for attending the celebration Haider present.
Before he died in a car accident last year, Haider stirred controversy, according to media reports, for
praising the "character" of elite Nazi SS troops and the "employment policy" of Adolph Hitler. "Glock
urged me to help Haider overcome some of the [image] problems," says Feldman. The lobbyist says he
thoroughly researched the situation to satisfy himself that neither Glock nor Haider ever supported the
Nazi cause. "There were loose statements [by Haider] that were blown out of proportion," he says.
Glock's Guevara did not respond to questions about the company's or Gaston Glock's relationship with
Haider.
GERMAN ARMY CAMPS
Gaston Glock has recounted that he first learned about firearms during a short stint as a teenager in a
German military training camp near the end of World War II. "I saw rifle, pistol, hand grenade," he
recalled in a deposition taken during a product-liability lawsuit in Knoxville, Tenn., in November 1993. "I
was getting acquainted when you pull a trigger, that it makes boom." He said he spent "just a few days
in camps of the German Army" in 1944 or 1945, when he was 15 or 16 years old. Asked about his
wartime experience in subsequent U.S. court proceedings, he has characterized his contact with the
German military as extremely limited.
After the war, Glock, a civilian engineer, held a series of manufacturing jobs and eventually came to run
his own company. He learned in 1980 that the Austrian army was in the market for a new sidearm.
Despite a lack of experience designing guns, he sought the pistol contract. Intense research and
consultation with weapon experts prepared him to make a breakthrough. The Austrian Defense Ministry
awarded him the contract in 1982, bypassing five other manufacturers.
Simpler than most pistols, the Glock costs relatively little to make. In a 1994 patent lawsuit in the U.S.,
Glock estimated its profit margin per pistol at 68%. The guns typically sell for $450 to $600 in U.S. retail
gun stores. The Glock's polymer frame is formed from a mold, not from the more conventional tooled
steel. The Glock ammunition magazine, which snaps into the handle, can hold as many as 19 rounds.
Revolvers typically hold only six bullets, which are fired from a revolving cylinder.
When early Glock models began surfacing in the U.S. in the 1980s, they caused a sensation, recalls
Massad Ayoob, a personal defense instructor who runs the Lethal Force Institute in Concord, N.H., and
has done promotional writing about Glock. "They looked like something out of Star Trek," he says.
DELIGHTING LAW ENFORCEMENT
To sell his gun to U.S. police departments, Glock employed a combination of German-speaking
executives and retired American cops. Many police chiefs were receptive to the pitch that they should
trade in six-shot revolvers for more potent Glocks. "The bad guys were starting to carry high-capacity
weapons, unlike what they had carried in the past," recalls Sheriff John H. Rutherford of Jacksonville,
Fla. As a lieutenant, he led a study in 1987 that resulted in the department buying Glocks. The 1,700-
member force still uses the brand.
"It was a conscious decision to go after the law enforcement market first," Gaston Glock told Advertising
Age in June 1995, when the trade magazine honored him as one of its "Marketing 100" stars. "We
assumed that, by pursuing the law enforcement market, we would then receive the benefit of 'after sales'
in the commercial market." Police departments from New York to Miami to St. Paul, Minn., signed on.
The strategy closely resembles that of firearm pioneer Samuel Colt, who popularized his six-shooter in
the mid-19th century by seeking endorsements from soldiers and lawmen.
Syndicated columnist Jack Anderson raised the Glock profile when he wrote in January 1986 that Libya,
a notorious terrorist threat, was trying to acquire Austrian-made "plastic" guns that could evade metal
detectors. Glock pistols are actually made mostly of metal and are easily identified by alert airport
screeners. The company denied it was marketing to Libya. Rather than tarnish the gunmaker, the
Anderson column helped spread the idea that serious bad guys preferred Glocks, says Robert Ricker, a
longtime lobbyist for the firearm industry. "It was an incredible lucky break," Ricker adds. "It raised public
awareness, got people interested in it." Sales grew rapidly.
At nearly every turn, Gaston Glock and his executives displayed impressive marketing and legal savvy.
When arch-rival Smith & Wesson in 1994 came out with a Glock-like pistol called the Sigma, Jannuzzo
led a successful patent-infringement lawsuit. S&W agreed to pay an undisclosed settlement and modify
its gun. An S&W spokesman declined to comment on the confidential resolution, other than to say the
company had neither admitted nor denied wrongdoing. Glock now offers about 40 models in various
calibers. "They're simple, they work, and you don't have to mess with them," says Herman Gunter III, an
investment adviser in Live Oak, Fla. He owns two Glocks for personal defense and target shooting.
The company has boosted its profits with innovative pricing strategies. It has offered discounts to police
on new pistols if cities turn over used service weapons and guns confiscated from criminals. Glock has
arranged to have the second-hand firearms sold on the used-gun market, where former police weapons
command a premium.
With Jannuzzo as its U.S. front man, Glock deftly ducked repeated legal assaults on the gun industry.
Jannuzzo, a former state prosecutor in New Jersey who joined the company in 1991, displayed a knack
for talking compromise while rarely giving much ground. In one notable episode in 2000, he made
encouraging noises about a master settlement with the Clinton Administration and more than 20 cities
that would have shielded gunmakers from future liability in exchange for restrictions on gun marketing.
But at the last minute, Jannuzzo pulled back from the deal, leaving rival Smith & Wesson as the only
industry signatory. A boycott led by the National Rifle Assn. temporarily crippled S&W, while Glock and
other manufacturers enjoyed a sales surge. The settlement later collapsed, and the issue faded when
Congress passed a statute in 2005 to protect gunmakers in court.
Even as the Glock company faced courtroom challenges in the U.S., a more personal and dangerous
conflict was playing out for Gaston Glock in Europe. Beginning in 1987, the Austrian industrialist had
employed Charles Ewert as his financial architect. "I was not a salesman. I am a technician...so I had to
find a partner that helps me to sell the pistol," Glock explained in a U.S. court deposition in September
1995.
Ewert, a mustachioed Luxembourg resident now in his late 50s, wasn't exactly a salesman either.
Nicknamed "the Duke" by Glock employees because of his imperious manner, he was a purveyor of
shell companies: paper corporations that can be used to shield income from taxation—sometimes
legitimately and sometimes in questionable ways. Ewert designed a network of shells to lessen the gun
empire's exposure to product liability and potential taxation, according to documents filed with the
Luxembourg court. These firms absorbed millions of dollars, the records show.
VIOLENT ATTACK
Over time, Ewert transferred ownership of some of the Glock-affiliated shells to himself, according to
Luxembourg court judgments. Suspicious of Ewert, Gaston Glock sought an explanation in July 1999.
On the afternoon of a meeting scheduled at Ewert's office near the tony Rue Royale in central
Luxembourg, Glock was attacked in an underground garage. The hit man, a former professional wrestler
and French Legionnaire named Jacques Pecheur, bashed the businessman on the head with a rubber
mallet, a technique apparently aimed at making it look like the victim had fallen down and fatally injured
himself. Glock, physically fit from daily swimming—often in the frigid lake abutting his home near
Klagenfurt, Austria—fought back. When police arrived, they found Glock bleeding from gashes to his
skull. Pecheur, 67, was unconscious.
Luxembourg investigators found Ewert's business card in Pecheur's car and determined that the two
had met at a gun range in Paris in 1998. Both were convicted of participating in a conspiracy to kill
Glock. Pecheur received a sentence of 17 years, Ewert 20.
Ewert denies any involvement in the attack, which he blames on unnamed Glock associates who he
alleges wanted to gain control of the manufacturer. "They needed me out of the way so they could grab
everything," he says in an interview at a maximum-security prison in rural Luxembourg. His lawyers are
appealing his conviction to the European Court of Human Rights in Strasbourg, France, arguing that
police improperly seized records from Ewert's office that were protected by attorney-client privilege.
Pecheur was released early from prison in 2007 for good behavior, his attorney, Fränk Rollinger, says.
Pecheur couldn't be located for comment.
Although Gaston Glock saw his antagonists punished and regained control of his corporate holdings, the
investigation of the attempted killing and related financial fraud opened a window on the gun company's
finances. Most striking are their sheer complexity. With Ewert's help, Gaston Glock purchased a
Panamanian shell company called Reofin International in 1987. Reofin then bought Unipatent Holding, a
Luxembourg shell. Unipatent received a 50% stake in Glock's unit in the U.S., where the company
generated the vast majority of its revenue. "The purpose of this holding company [Unipatent] was to
appear externally as a partner of Glock and hold approximately 50% of the shares of its subsidiaries,"
according to an Apr. 3, 2000, document entitled "Establishment of the Glock Group," which Gaston
Glock's attorneys filed with the Luxembourg court.
Three other shell companies in Ireland, Liberia, and Curaçao were created to issue bills for various
"services" to Glock headquarters in Austria and operating units in Latin America and Hong Kong. But
these service firms "had no economic substance and were motivated by tax reasons," according to a
confidential 92-page analysis of the Glock companies in 2002 by auditing firm PricewaterhouseCoopers.
PwC had been retained by the provisional administrator of Unipatent appointed by the Luxembourg
court. The PwC auditors found that the service companies' role appeared to be the shielding of profits
from potential taxation in Austria, Latin America, and Hong Kong.
The Latin American and Hong Kong units, in turn, appeared to be used to extract profits from the U.S.
subsidiary, PwC alleged—an assertion reiterated by the 2008 IRS complaint filed by Jannuzzo.
American tax liability allegedly was artificially lowered by having pistols manufactured in Austria sold first
to the Latin American and Hong Kong units and then resold for higher prices to Glock Inc. in the U.S. By
inflating costs to the American subsidiary, this arrangement decreased the profits the subsidiary
reported to the IRS, according to Jannuzzo.
A spokeswoman for the IRS, Patricia Bergstrom, declined to confirm or deny that the agency is
investigating Gaston Glock or his companies. The IRS, says Jannuzzo, has interviewed him about Glock
three times since June 2008.
Glock's Guevara said that the company has undergone "a series of comprehensive governmental audits
going back to 1988" in the U.S. and Austria. "No audit has ever resulted in findings of tax fraud in any
jurisdiction," he added.
For nearly three years after the attempt on his life, Gaston Glock employed a team of investigators to
probe the workings of his own company. This group, referred to in internal correspondence as "the ATeam,"
was headed by James R. Harper III, an ex-U.S. Justice Dept. prosecutor. Harper discovered that
Reofin, the Glock affiliate in Panama, had taken part in starting Unibank Offshore in Northern Cyprus in
1995. Unibank's co-founder, according to documents BusinessWeek has reviewed, was Hakki Yaman
Namli. Law enforcement officials in the U.S. and Europe have alleged that Namli, who is of Turkish
descent, launders funds for crime syndicates. In 2003, a federal grand jury in Manhattan indicted him for
fraud carried out through another outfit in Northern Cyprus, First Merchant Bank, which Namli controlled.
A year later, the U.S. Treasury designated First Merchant as a "primary money-laundering concern."
Turkey closed the bank in 2006. Namli is listed as a fugitive in the New York case.
Harper told Gaston Glock and Jannuzzo he believed that Ewert was the one who involved the Glock
companies with Namli. But Harper wrote in a memo to Jannuzzo dated Nov. 1, 2000, that Gaston Glock
"is in danger of being flagged as an international money launderer because by all appearances...Ewert
was working at [Gaston] Glock's direction up until the time of the assault [on Glock]." Harper added: "Mr.
Glock doesn't understand the breadth of the problems or the potential disaster that could befall him."
Glock's Guevara said that neither the company nor Gaston Glock has ever had any relationship with "a
banking institution in Turkey or [the] Turkish Republic [of] Northern Cyprus."
In recent years, the gun company's U.S. operation has been rattled by scandal. Local authorities in
Georgia have prosecuted Jannuzzo and fellow former executive Peter Manown at the behest of their
former employer. On Oct. 18, 2007, Manown, an attorney who handled many of Gaston Glock's
personal matters in the U.S., testified that he and Jannuzzo had embezzled company funds and
funneled the money to accounts in the Cayman Islands. He said the pair also skimmed money from
Glock real estate transactions. And Manown said he and Jannuzzo had withdrawn more than $500,000
from Glock accounts for political campaign contributions from 1993 to at least 2003. The executives put
some of that cash in their own pockets, he testified. "There was so much money flying around in this
company," Manown said. "It was like Monopoly money." He recounted confessing his transgressions
privately to Gaston Glock back in 2003 and repaying some of the stolen money. The former Glock
executive pled guilty in 2008 to theft and received a suspended 10-year sentence.
In connection with the campaign contributions, Manown testified that Gaston Glock knew what his
underlings were doing: "This was all done with Mr. Glock's blessing." Manown said he and Jannuzzo
would withdraw cash for political contributions from a Glock account at the since-closed Summit Bank
(SBGA) in Atlanta. Sometimes the Glock executives withdrew "$9,000 so it would stay under the
reporting radar of the bank," Manown said. He was referring to the federal anti-money laundering rule
that requires banks to report to the Treasury Dept. any cash withdrawal of $10,000 or more. Purposely
evading the requirement is a federal crime punishable by up to five years in prison.
Manown went on to explain that he and Jannuzzo at times wrote checks on the Glock account to
themselves and to their wives. Jannuzzo later "spread [some of the money] around [to] other people at
Glock," with the understanding that they would use the funds to make political contributions, Manown
added. He kept a handwritten ledger of many of the withdrawals. A Nov. 1, 2000, entry shows $60,000
designated for "Bush election campaign per GG and PJ 4 RF." GG apparently is Gaston Glock; PJ, Paul
Jannuzzo; and RF, Richard Feldman, the lobbyist and consultant. The Cobb County District Attorney's
Office declined to comment on any "matters related to open cases."
ALLEGATIONS OF THEFT
A review of federal campaign donations by Glock employees between 1991 and 2004, conducted for
BusinessWeek by the nonprofit Center for Responsive Politics, shows more than 100 individual
donations worth a total of at least $80,000. Jannuzzo says many more contributions were made by
Glock employees and associates for less than $200 apiece to avoid election-law reporting requirements.
Among the recipients of Glock-affiliated campaign contributions were former Atlanta-area Republican
congressman Bob Barr, and two current Republican members of Congress from Georgia,
Representative Phil Gingrey and Senator Saxby Chambliss.
Barr said in a written statement that all donations he received from people affiliated with Glock were
"fully and appropriately reported to the [Federal Election Commission], and so far as we knew, were
legitimate." A spokeswoman for Gingrey said in a separate statement: "We have never knowingly
received any unlawful contributions." A Chambliss spokeswoman said that to be on the safe side, the
senator planned to return contributions from Glock-affiliated donors.
Glock had a number of reasons to try to make an impression on Capitol Hill. Gun control proposals that
could affect its business were being debated. The gun industry also lobbied for federal protection from
liability lawsuits, culminating in the enactment of such a law in 2005.
In his written response, Glock's Guevara said: "Manown and Jannuzzo stole over $500,000 of Glock
money for themselves and then labeled it political contributions to hide their crimes. In any event, we
conducted our own due diligence, which revealed that Manown's statement that Glock money was
spread to employees to make political contributions is entirely false (except as to Manown and
Jannuzzo). With respect to the allegation that Glock contributed $60,000 to the 2000 Presidential
political campaign, the evidence shows that Manown stole this money from Glock and transferred it to
Cayman Island accounts controlled by Manown and Jannuzzo."
Manown's confession in Cobb County had serious consequences for Jannuzzo. On Jan. 14, 2008, the
onetime U.S. chief of Glock's U.S. operation was arrested and charged by local authorities with theft and
racketeering. The indictment alleges Jannuzzo stole a semi-automatic pistol from his former place of
employment and conspired with Manown to embezzle $177,000 from Gaston Glock. Jannuzzo denies
the charges. He says he never stole any money. The dealings described in the indictment related to his
effort to help his former colleague Manown resolve his mismanagement of Glock funds, Jannuzzo says.
As for the disputed handgun, Jannuzzo maintains he volunteered to return it but no one at Glock ever
took him up on the offer.
In contrast to these denials, Jannuzzo admits he reimbursed fellow Glock employees and others for
making political contributions, which was illegal. He says he first discussed the practice with Gaston
Glock in 1993 during a meeting in Austria. The reimbursements, Jannuzzo adds, continued for at least
10 years. Glock indicated strong interest in the donations. "He would say, 'How are we doing? What do
the candidates look like? Do we need to make some contributions?'" Jannuzzo adds: "[Gaston Glock]
knew 100%. I talked to him personally about it on the phone."
No one has been charged in connection with the alleged reimbursements. Some may now be beyond
prosecution because the statute of limitations has expired.
Barrett is an assistant managing editor at BusinessWeek. Grow is a correspondent in BusinessWeek's Atlanta
bureau. Ewing is BusinessWeek's European regional editor.
BUSINESS EXCHANGE: READ, SAVE, AND ADD CONTENT ON BW'S NEW WEB 2.0
TOPIC NETWORK
Hoarding Rounds
The "Obama stimulus" that caused a surge in gun sales has created another bull market—for bullets.
The Los Angeles Times (SUNW) reported on Aug. 30 that ammunition prices have jumped as gun
enthusiasts, worried about new restrictions, stock up on firearms and ammo. "Bullet factories are
running around the clock to meet demand," the Times noted. The Obama Administration has not,
however, made a move to toughen gun control, let alone ammunition control.
To read this article, go to http://bx.businessweek.com/us-manufacturing/reference
Glock Pistol Used by Police Raised Safety
Issues
In the late 1990s, U.S. employees expressed concerns to the Austrian gun maker
regarding the Glock 22
By Paul Barrett and Brian Grow
Glock markets its weapons as "safe action pistols." But internal company documents reviewed by
BusinessWeek—and reported here for the first time—reveal that in the late 1990s, company employees
in the U.S. expressed concern about the safe performance of the Glock 22, a model commonly used by
American police officers.
If these documents had surfaced in injury lawsuits filed over the years against Glock, they could have
created potentially serious liability trouble for the company, according to plaintiffs' lawyers. "Documents
of this sort were requested in pretrial discovery by us and by lawyers in other cases," says Daniel G.
Abel, an attorney who helped represent the city of New Orleans in an ultimately unsuccessful lawsuit
against the gun industry in the late 1990s. "These documents should have been disclosed in discovery.
There is no excuse—no legitimate excuse—for their not being disclosed."
Glock's general counsel, Carlos Guevara, said in a written response: "Glock pistols are remarkably safe
and reliable, historically and currently, and are of exceedingly high quality.…When involved in products
liability cases, we respond to discovery requests following the rules of the jurisdiction, evidentiary rules
and practices, and pursuant to the laws of the United States and orders of the courts."
Safety has long been a point of contention for Glock of Austria. Unlike most handguns, which have
external on-off safeties, Glock pistols are equipped with internal mechanisms that prevent firing. These
internal safeties are disengaged merely by depressing the trigger. The ability to fire immediately, without
worrying about an external safety, is one feature Glock has stressed as an advantage when selling its
guns, especially to police departments.
Skeptics see this feature in a different light. The Consumer Federation of America has cited the Glock's
design as one reason the gun has been the subject of dozens of lawsuits filed after unintentional
shootings, including a number by police officers. The company has won or confidentially settled most of
these cases without acknowledging any liability.
Paul F. Jannuzzo, Glock's former top executive in the U.S., says in an interview that, overall, the
company's pistols are as safe as comparable handguns—and more durable. "The one problem," he
says, "was [the Glock] would go off sometimes when it wasn't supposed to."
OCCASIONAL JAMMING
Another problem that surfaced in the 1990s and persisted for years thereafter was occasional jamming,
Jannuzzo says. In 1998 he and other Glock officials in the U.S. discovered guns that failed to fire
properly. "These malfunctions were very difficult to clear and could not be cleared with the normal 'tap,
rack' drill," stated a Feb. 12, 1998, memo from American employees to Glock founder and owner Gaston
Glock entitled "Performance of G 22s." "Law enforcement officers see this type of stoppage as a serious
failure and one which has life-threatening implications," the memo added. "If these were received by the
FBI or DEA [both Glock customers], they would immediately suspend the contract and demand a retest
or other action."
The memo described tests on eight sample guns that were fired more than 2,000 times in all. "In
particular, we are concerned with the difference in the poor test results in the U.S., compared with the
better results achieved in Austria," the memo told Gaston Glock. The company manufactures parts in
Austria and assembles guns for the American market at a plant outside Atlanta.
Four days later, on Feb. 16, Jannuzzo followed up with a letter to Gaston Glock. Jannuzzo disputed the
contention by company executives in Austria that the malfunctioning pistols needed a "breaking-in
period," after which they would work properly. This notion "flies in the face of the Glock pistol's
reputation as being the best shooting semi-automatic 'out of the box,'" Jannuzzo wrote.
In an interview, Jannuzzo adds: "It was a problem, and it was much more of a problem than they
[executives in Austria] wanted to admit.…They never knew which guns were going to break."
Guevara, the Glock general counsel, disagreed: "Each pistol undergoes numerous quality control
checks throughout the manufacturing and assembly process.…Additionally, the firearms industry is
highly regulated in the United States (and internationally), and Glock fully complies with all rules and
regulations with respect to every aspect of Glock's business, including sales."
COVER STORY September 10, 2009, 5:00PM EST
Glock's Secret Path to Profits
It's the largest supplier of handguns to law enforcement in the U.S. But behind its
success lies a troubling tale of business intrigue
By Paul Barrett, Brian Grow and Jack Ewing
Gaston Glock, an Austrian manufacturer of shovels and knives, had an improbable dream: He would
make a fortune selling handguns in America. In the early 1980s, Glock, a self-taught firearm designer,
produced an innovative pistol for the Austrian military. He then devised a plan for promoting his
invention in the U.S., the world's richest gun market. First, he'd persuade American police they needed a
lightweight weapon with more ammunition than traditional revolvers. Then he'd use his law enforcement
bona fides to win over private gun buyers.
The strategy succeeded spectacularly. By the late 1980s, major police departments across the U.S.
wanted more firepower to combat crack-cocaine violence. Glock had the answer. No less impressed,
street gangsters adopted the squared-off Austrian handgun as an emblem of thuggish prestige. Hiphoppers
rapped about Glocks; Hollywood put the pistol in the hands of action heroes.
Gaston Glock shouldered past the storied American brand Smith & Wesson (SWHC) to make his
creation the best-known police handgun in the U.S., and probably the world. When American soldiers
hauled Saddam Hussein from his underground hideout in 2003, the deposed Iraqi ruler surfaced with a
Glock.
Today the company claims 65% of the American law-enforcement market, an amazing accomplishment
for a privately held manufacturer based in tiny Ferlach in southern Austria. U.S. fans celebrate
"Glockmas," the 80-year-old founder's July 19 birthday. U.S. sales soared 71% in the first quarter of its
2010 fiscal year, largely due to what gun executives call the "Obama stimulus": fear among gun owners
that the liberal President plans to curb the marketing of handguns. Gaston Glock played on that anxiety
in an open letter to customers in January. "As shooters and gun owners, we must band together with
even greater zeal than in the past," he wrote. "We are not going to roll over and have our guns taken
away because of some of our misguided neighbors, no matter who they are."
Behind the Glock phenomenon, however, is another story, one rife with intrigue and allegations of
wrongdoing. The company's hidden history raises questions about its taxpayer-financed law-and-order
franchise. Is this a company that deserves the patronage of America's police? Does Glock merit the
lucrative loyalty of private American gun buyers? The Glock tale also underscores the difficulty U.S.
regulators have overseeing complex international businesses.
CLAIMS OF SKIMMING
Allegations of corruption permeate Gaston Glock's empire. His former business associate, Charles
Marie Joseph Ewert, now resides in a prison in Luxembourg, having been convicted in 2003 of
contracting to have Glock killed. The murder plot—thwarted when the victim, then 70, fought off a
hammer-wielding hit man—led to a trial that revealed a network of shell companies linked to Gaston
Glock. That corporate web is now under scrutiny by the U.S. Internal Revenue Service, according to
lawyers familiar with the probe. Attorneys for Glock have acknowledged the misuse of company funds.
But they blame most of the wrongdoing on Ewert, a money man known in the European press as
"Panama Charly."
Among the Glock-related material the IRS allegedly is examining: boxes of invoices and memos
provided by the company's former senior executive in the U.S., Paul F. Jannuzzo. Once one of the most
prominent gun industry executives in America, Jannuzzo said in a federal complaint he filed last year
that Gaston Glock used his companies' complicated structure to conceal profits from American tax
authorities. "[Glock] has organized an elaborate scheme to both skim money from gross sales and to
launder those funds through various foreign entities," Jannuzzo alleged in the sealed May 12, 2008, IRS
filing, which BusinessWeek has reviewed. "The skim is approximately $20.00 per firearm sold,"
according to the complaint. Glock's U.S. unit, which generates the bulk of the company's sales, has sold
about 5 million pistols since the late 1980s, Jannuzzo estimates in an interview.
A burly man with a staccato delivery, Jannuzzo has several potential motives for airing these allegations.
As a whistleblower, he is seeking a percentage of any federal tax recovery. He is also fighting
embezzlement charges by his former employer. Since 2007, the company has been providing
information about Jannuzzo to authorities in Cobb County, Ga., where Glock's American subsidiary is
based. The Cobb County District Attorney's Office is prosecuting Jannuzzo—who once represented the
company at a White House Rose Garden ceremony and on CBS' (CBS) 60 Minutes—for siphoning
corporate money into a Cayman Islands account. Jannuzzo, who left the company in 2003, claims he's
the victim of a vendetta.
Speaking on behalf of the company and Gaston Glock, Carlos Guevara, the general counsel of Glock
Inc. in the U.S., said in a written statement: "Glock has acted lawfully and properly throughout its history.
Unfortunately, Glock was victimized by several former employees and fiduciaries," including Ewert and
Jannuzzo. "The Glock companies are exceptionally well-run and managed. Glock's tax filings and
reporting are accurate."
Still, eyebrow-raising goings-on appear to have been standard at Glock. After the attempt on Gaston
Glock's life, an internal investigation conducted at his instruction turned up documents apparently
showing that a Glock affiliate in Panama helped in 1995 to start a bank called Unibank Offshore in the
Turkish Republic of Northern Cyprus. Unibank's co-founder was an alleged money launderer named
Hakki Yaman Namli.
In the U.S., Jannuzzo and another former Glock executive, Peter S. Manown, have claimed that for
years they distributed company funds to their wives and Glock employees with the understanding that
the money would be donated to congressional candidates—an apparent violation of U.S. election law.
The ex-executives, who say they acted with Gaston Glock's approval, have estimated the total amount
in the hundreds of thousands of dollars. Buttressing this allegation are ledger entries and cancelled
checks. Guevara, the company lawyer, said: "Glock has never authorized, and would never authorize,
any act that would violate U.S. campaign finance laws."
Glock's political and public relations activities in the U.S. sometimes have tended toward strangeness.
Internal records show payments of thousands of dollars a month over several years to a gun industry
lobbyist named Richard Feldman. In interviews, Feldman says that at Gaston Glock's request he spent
some of the money in 1999 and 2000 to arrange U.S. appearances by Jörg Haider, then the leader of
Austria's anti-immigrant, far-right Freedom Party. Glock has been described in Austria as a political
supporter of Haider, although the arms maker has sued both an Austrian newspaper and a politician
there for making that claim. The arrangements Feldman says he worked on included Haider's
attendance at a January 2000 banquet in New York honoring the birthday of slain civil rights leader
Martin Luther King Jr. The King dinner, sponsored by the Congress of Racial Equality, received media
coverage because Hillary Clinton criticized her then-rival for a New York Senate seat, Rudolph Giuliani,
for attending the celebration Haider present.
Before he died in a car accident last year, Haider stirred controversy, according to media reports, for
praising the "character" of elite Nazi SS troops and the "employment policy" of Adolph Hitler. "Glock
urged me to help Haider overcome some of the [image] problems," says Feldman. The lobbyist says he
thoroughly researched the situation to satisfy himself that neither Glock nor Haider ever supported the
Nazi cause. "There were loose statements [by Haider] that were blown out of proportion," he says.
Glock's Guevara did not respond to questions about the company's or Gaston Glock's relationship with
Haider.
GERMAN ARMY CAMPS
Gaston Glock has recounted that he first learned about firearms during a short stint as a teenager in a
German military training camp near the end of World War II. "I saw rifle, pistol, hand grenade," he
recalled in a deposition taken during a product-liability lawsuit in Knoxville, Tenn., in November 1993. "I
was getting acquainted when you pull a trigger, that it makes boom." He said he spent "just a few days
in camps of the German Army" in 1944 or 1945, when he was 15 or 16 years old. Asked about his
wartime experience in subsequent U.S. court proceedings, he has characterized his contact with the
German military as extremely limited.
After the war, Glock, a civilian engineer, held a series of manufacturing jobs and eventually came to run
his own company. He learned in 1980 that the Austrian army was in the market for a new sidearm.
Despite a lack of experience designing guns, he sought the pistol contract. Intense research and
consultation with weapon experts prepared him to make a breakthrough. The Austrian Defense Ministry
awarded him the contract in 1982, bypassing five other manufacturers.
Simpler than most pistols, the Glock costs relatively little to make. In a 1994 patent lawsuit in the U.S.,
Glock estimated its profit margin per pistol at 68%. The guns typically sell for $450 to $600 in U.S. retail
gun stores. The Glock's polymer frame is formed from a mold, not from the more conventional tooled
steel. The Glock ammunition magazine, which snaps into the handle, can hold as many as 19 rounds.
Revolvers typically hold only six bullets, which are fired from a revolving cylinder.
When early Glock models began surfacing in the U.S. in the 1980s, they caused a sensation, recalls
Massad Ayoob, a personal defense instructor who runs the Lethal Force Institute in Concord, N.H., and
has done promotional writing about Glock. "They looked like something out of Star Trek," he says.
DELIGHTING LAW ENFORCEMENT
To sell his gun to U.S. police departments, Glock employed a combination of German-speaking
executives and retired American cops. Many police chiefs were receptive to the pitch that they should
trade in six-shot revolvers for more potent Glocks. "The bad guys were starting to carry high-capacity
weapons, unlike what they had carried in the past," recalls Sheriff John H. Rutherford of Jacksonville,
Fla. As a lieutenant, he led a study in 1987 that resulted in the department buying Glocks. The 1,700-
member force still uses the brand.
"It was a conscious decision to go after the law enforcement market first," Gaston Glock told Advertising
Age in June 1995, when the trade magazine honored him as one of its "Marketing 100" stars. "We
assumed that, by pursuing the law enforcement market, we would then receive the benefit of 'after sales'
in the commercial market." Police departments from New York to Miami to St. Paul, Minn., signed on.
The strategy closely resembles that of firearm pioneer Samuel Colt, who popularized his six-shooter in
the mid-19th century by seeking endorsements from soldiers and lawmen.
Syndicated columnist Jack Anderson raised the Glock profile when he wrote in January 1986 that Libya,
a notorious terrorist threat, was trying to acquire Austrian-made "plastic" guns that could evade metal
detectors. Glock pistols are actually made mostly of metal and are easily identified by alert airport
screeners. The company denied it was marketing to Libya. Rather than tarnish the gunmaker, the
Anderson column helped spread the idea that serious bad guys preferred Glocks, says Robert Ricker, a
longtime lobbyist for the firearm industry. "It was an incredible lucky break," Ricker adds. "It raised public
awareness, got people interested in it." Sales grew rapidly.
At nearly every turn, Gaston Glock and his executives displayed impressive marketing and legal savvy.
When arch-rival Smith & Wesson in 1994 came out with a Glock-like pistol called the Sigma, Jannuzzo
led a successful patent-infringement lawsuit. S&W agreed to pay an undisclosed settlement and modify
its gun. An S&W spokesman declined to comment on the confidential resolution, other than to say the
company had neither admitted nor denied wrongdoing. Glock now offers about 40 models in various
calibers. "They're simple, they work, and you don't have to mess with them," says Herman Gunter III, an
investment adviser in Live Oak, Fla. He owns two Glocks for personal defense and target shooting.
The company has boosted its profits with innovative pricing strategies. It has offered discounts to police
on new pistols if cities turn over used service weapons and guns confiscated from criminals. Glock has
arranged to have the second-hand firearms sold on the used-gun market, where former police weapons
command a premium.
With Jannuzzo as its U.S. front man, Glock deftly ducked repeated legal assaults on the gun industry.
Jannuzzo, a former state prosecutor in New Jersey who joined the company in 1991, displayed a knack
for talking compromise while rarely giving much ground. In one notable episode in 2000, he made
encouraging noises about a master settlement with the Clinton Administration and more than 20 cities
that would have shielded gunmakers from future liability in exchange for restrictions on gun marketing.
But at the last minute, Jannuzzo pulled back from the deal, leaving rival Smith & Wesson as the only
industry signatory. A boycott led by the National Rifle Assn. temporarily crippled S&W, while Glock and
other manufacturers enjoyed a sales surge. The settlement later collapsed, and the issue faded when
Congress passed a statute in 2005 to protect gunmakers in court.
Even as the Glock company faced courtroom challenges in the U.S., a more personal and dangerous
conflict was playing out for Gaston Glock in Europe. Beginning in 1987, the Austrian industrialist had
employed Charles Ewert as his financial architect. "I was not a salesman. I am a technician...so I had to
find a partner that helps me to sell the pistol," Glock explained in a U.S. court deposition in September
1995.
Ewert, a mustachioed Luxembourg resident now in his late 50s, wasn't exactly a salesman either.
Nicknamed "the Duke" by Glock employees because of his imperious manner, he was a purveyor of
shell companies: paper corporations that can be used to shield income from taxation—sometimes
legitimately and sometimes in questionable ways. Ewert designed a network of shells to lessen the gun
empire's exposure to product liability and potential taxation, according to documents filed with the
Luxembourg court. These firms absorbed millions of dollars, the records show.
VIOLENT ATTACK
Over time, Ewert transferred ownership of some of the Glock-affiliated shells to himself, according to
Luxembourg court judgments. Suspicious of Ewert, Gaston Glock sought an explanation in July 1999.
On the afternoon of a meeting scheduled at Ewert's office near the tony Rue Royale in central
Luxembourg, Glock was attacked in an underground garage. The hit man, a former professional wrestler
and French Legionnaire named Jacques Pecheur, bashed the businessman on the head with a rubber
mallet, a technique apparently aimed at making it look like the victim had fallen down and fatally injured
himself. Glock, physically fit from daily swimming—often in the frigid lake abutting his home near
Klagenfurt, Austria—fought back. When police arrived, they found Glock bleeding from gashes to his
skull. Pecheur, 67, was unconscious.
Luxembourg investigators found Ewert's business card in Pecheur's car and determined that the two
had met at a gun range in Paris in 1998. Both were convicted of participating in a conspiracy to kill
Glock. Pecheur received a sentence of 17 years, Ewert 20.
Ewert denies any involvement in the attack, which he blames on unnamed Glock associates who he
alleges wanted to gain control of the manufacturer. "They needed me out of the way so they could grab
everything," he says in an interview at a maximum-security prison in rural Luxembourg. His lawyers are
appealing his conviction to the European Court of Human Rights in Strasbourg, France, arguing that
police improperly seized records from Ewert's office that were protected by attorney-client privilege.
Pecheur was released early from prison in 2007 for good behavior, his attorney, Fränk Rollinger, says.
Pecheur couldn't be located for comment.
Although Gaston Glock saw his antagonists punished and regained control of his corporate holdings, the
investigation of the attempted killing and related financial fraud opened a window on the gun company's
finances. Most striking are their sheer complexity. With Ewert's help, Gaston Glock purchased a
Panamanian shell company called Reofin International in 1987. Reofin then bought Unipatent Holding, a
Luxembourg shell. Unipatent received a 50% stake in Glock's unit in the U.S., where the company
generated the vast majority of its revenue. "The purpose of this holding company [Unipatent] was to
appear externally as a partner of Glock and hold approximately 50% of the shares of its subsidiaries,"
according to an Apr. 3, 2000, document entitled "Establishment of the Glock Group," which Gaston
Glock's attorneys filed with the Luxembourg court.
Three other shell companies in Ireland, Liberia, and Curaçao were created to issue bills for various
"services" to Glock headquarters in Austria and operating units in Latin America and Hong Kong. But
these service firms "had no economic substance and were motivated by tax reasons," according to a
confidential 92-page analysis of the Glock companies in 2002 by auditing firm PricewaterhouseCoopers.
PwC had been retained by the provisional administrator of Unipatent appointed by the Luxembourg
court. The PwC auditors found that the service companies' role appeared to be the shielding of profits
from potential taxation in Austria, Latin America, and Hong Kong.
The Latin American and Hong Kong units, in turn, appeared to be used to extract profits from the U.S.
subsidiary, PwC alleged—an assertion reiterated by the 2008 IRS complaint filed by Jannuzzo.
American tax liability allegedly was artificially lowered by having pistols manufactured in Austria sold first
to the Latin American and Hong Kong units and then resold for higher prices to Glock Inc. in the U.S. By
inflating costs to the American subsidiary, this arrangement decreased the profits the subsidiary
reported to the IRS, according to Jannuzzo.
A spokeswoman for the IRS, Patricia Bergstrom, declined to confirm or deny that the agency is
investigating Gaston Glock or his companies. The IRS, says Jannuzzo, has interviewed him about Glock
three times since June 2008.
Glock's Guevara said that the company has undergone "a series of comprehensive governmental audits
going back to 1988" in the U.S. and Austria. "No audit has ever resulted in findings of tax fraud in any
jurisdiction," he added.
For nearly three years after the attempt on his life, Gaston Glock employed a team of investigators to
probe the workings of his own company. This group, referred to in internal correspondence as "the ATeam,"
was headed by James R. Harper III, an ex-U.S. Justice Dept. prosecutor. Harper discovered that
Reofin, the Glock affiliate in Panama, had taken part in starting Unibank Offshore in Northern Cyprus in
1995. Unibank's co-founder, according to documents BusinessWeek has reviewed, was Hakki Yaman
Namli. Law enforcement officials in the U.S. and Europe have alleged that Namli, who is of Turkish
descent, launders funds for crime syndicates. In 2003, a federal grand jury in Manhattan indicted him for
fraud carried out through another outfit in Northern Cyprus, First Merchant Bank, which Namli controlled.
A year later, the U.S. Treasury designated First Merchant as a "primary money-laundering concern."
Turkey closed the bank in 2006. Namli is listed as a fugitive in the New York case.
Harper told Gaston Glock and Jannuzzo he believed that Ewert was the one who involved the Glock
companies with Namli. But Harper wrote in a memo to Jannuzzo dated Nov. 1, 2000, that Gaston Glock
"is in danger of being flagged as an international money launderer because by all appearances...Ewert
was working at [Gaston] Glock's direction up until the time of the assault [on Glock]." Harper added: "Mr.
Glock doesn't understand the breadth of the problems or the potential disaster that could befall him."
Glock's Guevara said that neither the company nor Gaston Glock has ever had any relationship with "a
banking institution in Turkey or [the] Turkish Republic [of] Northern Cyprus."
In recent years, the gun company's U.S. operation has been rattled by scandal. Local authorities in
Georgia have prosecuted Jannuzzo and fellow former executive Peter Manown at the behest of their
former employer. On Oct. 18, 2007, Manown, an attorney who handled many of Gaston Glock's
personal matters in the U.S., testified that he and Jannuzzo had embezzled company funds and
funneled the money to accounts in the Cayman Islands. He said the pair also skimmed money from
Glock real estate transactions. And Manown said he and Jannuzzo had withdrawn more than $500,000
from Glock accounts for political campaign contributions from 1993 to at least 2003. The executives put
some of that cash in their own pockets, he testified. "There was so much money flying around in this
company," Manown said. "It was like Monopoly money." He recounted confessing his transgressions
privately to Gaston Glock back in 2003 and repaying some of the stolen money. The former Glock
executive pled guilty in 2008 to theft and received a suspended 10-year sentence.
In connection with the campaign contributions, Manown testified that Gaston Glock knew what his
underlings were doing: "This was all done with Mr. Glock's blessing." Manown said he and Jannuzzo
would withdraw cash for political contributions from a Glock account at the since-closed Summit Bank
(SBGA) in Atlanta. Sometimes the Glock executives withdrew "$9,000 so it would stay under the
reporting radar of the bank," Manown said. He was referring to the federal anti-money laundering rule
that requires banks to report to the Treasury Dept. any cash withdrawal of $10,000 or more. Purposely
evading the requirement is a federal crime punishable by up to five years in prison.
Manown went on to explain that he and Jannuzzo at times wrote checks on the Glock account to
themselves and to their wives. Jannuzzo later "spread [some of the money] around [to] other people at
Glock," with the understanding that they would use the funds to make political contributions, Manown
added. He kept a handwritten ledger of many of the withdrawals. A Nov. 1, 2000, entry shows $60,000
designated for "Bush election campaign per GG and PJ 4 RF." GG apparently is Gaston Glock; PJ, Paul
Jannuzzo; and RF, Richard Feldman, the lobbyist and consultant. The Cobb County District Attorney's
Office declined to comment on any "matters related to open cases."
ALLEGATIONS OF THEFT
A review of federal campaign donations by Glock employees between 1991 and 2004, conducted for
BusinessWeek by the nonprofit Center for Responsive Politics, shows more than 100 individual
donations worth a total of at least $80,000. Jannuzzo says many more contributions were made by
Glock employees and associates for less than $200 apiece to avoid election-law reporting requirements.
Among the recipients of Glock-affiliated campaign contributions were former Atlanta-area Republican
congressman Bob Barr, and two current Republican members of Congress from Georgia,
Representative Phil Gingrey and Senator Saxby Chambliss.
Barr said in a written statement that all donations he received from people affiliated with Glock were
"fully and appropriately reported to the [Federal Election Commission], and so far as we knew, were
legitimate." A spokeswoman for Gingrey said in a separate statement: "We have never knowingly
received any unlawful contributions." A Chambliss spokeswoman said that to be on the safe side, the
senator planned to return contributions from Glock-affiliated donors.
Glock had a number of reasons to try to make an impression on Capitol Hill. Gun control proposals that
could affect its business were being debated. The gun industry also lobbied for federal protection from
liability lawsuits, culminating in the enactment of such a law in 2005.
In his written response, Glock's Guevara said: "Manown and Jannuzzo stole over $500,000 of Glock
money for themselves and then labeled it political contributions to hide their crimes. In any event, we
conducted our own due diligence, which revealed that Manown's statement that Glock money was
spread to employees to make political contributions is entirely false (except as to Manown and
Jannuzzo). With respect to the allegation that Glock contributed $60,000 to the 2000 Presidential
political campaign, the evidence shows that Manown stole this money from Glock and transferred it to
Cayman Island accounts controlled by Manown and Jannuzzo."
Manown's confession in Cobb County had serious consequences for Jannuzzo. On Jan. 14, 2008, the
onetime U.S. chief of Glock's U.S. operation was arrested and charged by local authorities with theft and
racketeering. The indictment alleges Jannuzzo stole a semi-automatic pistol from his former place of
employment and conspired with Manown to embezzle $177,000 from Gaston Glock. Jannuzzo denies
the charges. He says he never stole any money. The dealings described in the indictment related to his
effort to help his former colleague Manown resolve his mismanagement of Glock funds, Jannuzzo says.
As for the disputed handgun, Jannuzzo maintains he volunteered to return it but no one at Glock ever
took him up on the offer.
In contrast to these denials, Jannuzzo admits he reimbursed fellow Glock employees and others for
making political contributions, which was illegal. He says he first discussed the practice with Gaston
Glock in 1993 during a meeting in Austria. The reimbursements, Jannuzzo adds, continued for at least
10 years. Glock indicated strong interest in the donations. "He would say, 'How are we doing? What do
the candidates look like? Do we need to make some contributions?'" Jannuzzo adds: "[Gaston Glock]
knew 100%. I talked to him personally about it on the phone."
No one has been charged in connection with the alleged reimbursements. Some may now be beyond
prosecution because the statute of limitations has expired.
Barrett is an assistant managing editor at BusinessWeek. Grow is a correspondent in BusinessWeek's Atlanta
bureau. Ewing is BusinessWeek's European regional editor.
BUSINESS EXCHANGE: READ, SAVE, AND ADD CONTENT ON BW'S NEW WEB 2.0
TOPIC NETWORK
Hoarding Rounds
The "Obama stimulus" that caused a surge in gun sales has created another bull market—for bullets.
The Los Angeles Times (SUNW) reported on Aug. 30 that ammunition prices have jumped as gun
enthusiasts, worried about new restrictions, stock up on firearms and ammo. "Bullet factories are
running around the clock to meet demand," the Times noted. The Obama Administration has not,
however, made a move to toughen gun control, let alone ammunition control.
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