Capital Punishment or Capital Reward?

July 13th, 2017 by Phil Mattera

When Betsy DeVos  was nominated to head the Department of Education, the main concern was what harm a “choice” crusader would bring to K-12 public schools. Recently we’ve seen that she can also cause damage with regard to post-secondary education.

DeVos announced plans to delay the implementation of rules on for-profit colleges that the Obama Administration fought long and hard to bring into being. Calling the plan unfair, DeVos said she wants to redo the rulemaking process from scratch – a clear sign that she wants to weaken or eliminate the restrictions.  That’s the premise of a lawsuit just filed against DeVos by the attorneys general of 18 states and the District of Columbia.

The Obama campaign against predatory colleges was one of the most consequential initiatives of the administration on corporate misconduct. In addition to the rules – one of which is designed to bar federal loans at schools whose graduates don’t earn enough to pay off their debt and another that would make it easier to erase debt incurred at bogus institutions – the Obama Education Department and the Consumer Financial Protection Bureau brought enforcement actions that helped bring about the demise of flagrant abusers such as Corinthian Colleges and ITT Educational Services.

And this came after the Obama Administration pushed Congress to get commercial banks out of the student loan business.

Taken together, the Obama era measures against predatory for-profit education represent one of the rare instances in which government action targeted not just an illegitimate practice or a miscreant company but an entire industry. The message was not simply that for-profit colleges needed to be reformed but rather that they should not continue to exist. It was capital punishment for capital.

It comes as no surprise that the billionaire DeVos, who has had personal involvement with dubious business ventures, is seeking to undo the crackdown on for-profit colleges. And it is yet another example of how the Trump Administration is working against the interests of those lower-income voters who put him in office.

The same dynamic can be seen in the healthcare arena. The Republican “solution” to the problems of the Affordable Care Act is to make it easier for insurance companies to offer bare-bones junk insurance while dismantling Medicaid, both in its traditional form and its expansion under the ACA. The latest version of the Senate bill is willing to retain the hated taxes on high-income earners as long as the assault on the socialistic Medicaid program moves forward.

It appears that the right’s desire to protect the interests of corporations – including the most predatory – is even greater than its wish to redistribute income upward. Thus the one thing that Republicans have made sure to do with their stranglehold on the federal government has been to roll back as many business regulations as possible.

It remains to be seen how long Trump and Congressional Republicans can get away with telling their working class supporters that predatory corporations are the ones that deserve relief.

 

 

The Insurance Industry’s No-Lose Situation

July 6th, 2017 by Phil Mattera

Many voices are speaking out about the Republican effort to undo the Affordable Care Act, but one party diligently refrains from public comment: the insurance industry. While the industry is undoubtedly exerting its influence in the closed-door negotiations to restructure the wildly unpopular GOP bill, it is not airing those views more widely.

It doesn’t have to, because the healthcare debate between the two major parties is largely a disagreement on how best to serve the needs of Aetna, Anthem and the other big players.

The ACA, of course, was built on the premise that government should expand coverage largely by providing subsidies to help the uninsured purchase plans from private companies. When those companies became dissatisfied with the composition of their new client base and starting jacking up premiums in response, ACA supporters were put in the position of advocating for new insurer financial incentives.

Meanwhile, the Republicans are seeking to help the industry by rolling back Medicaid expansion and allowing it to return to the pre-Obamacare practice of selling bare-bones junk insurance, which would be the only kind that many people could afford after subsidies are decimated.

This is probably a no-lose situation for the insurers: either they get paid more to provide decent coverage or they are freed to sell highly profitable lousy plans.

All those legislators catering to insurers one way or the other are forgetting that healthcare reform was made necessary by the ruthless behavior of that same industry. If those companies had not been denying coverage whenever possible, it would not have been necessary for the ACA to set minimum standards. And if those firms had not been raising premiums relentlessly, it would not have been necessary for the ACA to take steps — which turned out to be inadequate — to try to restrain costs.

The industry’s unethical practices are not limited to the individual marketplace. The big insurers have also exploited the decision by policymakers to give them a foothold in the big federally funded programs: Medicaid and Medicare.

As Senate Republicans were cooking up their repeal and replace bill, the U.S. Attorney’s Office in Los Angeles joined two cases against one of the industry’s giants, UnitedHealth Group. The whistleblower suits accuse the company of systematically overcharging the federal government for services provided under the Medicare Advantage Program.

The complaints in the cases allege that UnitedHealth routinely scoured millions of medical records, searching for data it could use to make patients seem sicker than they actually were and thus justify bigger payments for the company, which was also accused of failing to correct invalid diagnoses made by providers. Either way, the complaints argue, UnitedHealth was bilking Medicare Advantage, which was created on the assumption that bringing the private sector into a government program would cut costs.

Such assumptions continue to afflict federal health policy as a whole. Too many members of Congress continue to worship the market in the face of all the evidence that the private insurance industry cannot be the foundation of a humane healthcare system.

Exporting Hazards or Globalizing Regulation?

June 29th, 2017 by Phil Mattera

Americans may have initially felt a bit smug upon learning that the combustible material responsible for the Grenfell Tower disaster in London is largely banned in the United States. Perhaps our regulatory system is not as deficient as we thought.

That moral superiority went out the window when it came to light that the deadly cladding was purchased from an American-based company. Some of the outrage being exhibited toward public officials in Britain should also be aimed at Arconic, a company created from the break-up of the aluminum giant Alcoa. Arconic has announced that it will suspend sales of the cladding, known as Reynobond PE, for high-rises, but that does little good for the scores of people killed in the Grenfell fire or the thousands of others who have been forced to leave other apartment houses now found to contain the material.

Although most of the attention is on Arconic’s cladding and its role in spreading the conflagration, it turns out that fire itself was caused by another American product, a refrigerator made by Whirlpool under its Hotpoint brand. The appliance had a back made out of flammable plastic rather than the metal typically used in models sold in the United States. The London Fire Brigade had long lobbied, to no avail, to require new appliances to have fire-resistant backing.

The sale of banned products in offshore markets is, unfortunately, a longstanding practice among U.S-based multinational corporations. What’s unusual in this case is that the offshore market is a wealthy country such as Britain, whereas the dumping is normally done in poor countries.

As Russell Mokhiber points out in his 1988 book Corporate Crime and Violence, one of the earliest examples was that of the now defunct company A.H. Robins, which in the 1970s sold thousands of its Dalkon Shield intrauterine contraceptive devices in 42 countries even after it became apparent that thousands of U.S. women were experiencing severe and sometimes deadly ailments linked to the IUDs.

In 1972 the U.S. Environmental Protection Agency prohibited most uses of the insecticide DDT, yet American producers continued to sell in foreign markets for years until most other countries adopted their own bans.

U.S. companies also continued to export dangerous products such as asbestos, flammable children’s pajamas and lead-based house paint after being barred from selling them in domestic markets.

These practices illustrate the perverse way that most large companies regard the regulation of their business. They are not willing to admit that restrictions are legitimate — even when imposed in the wake or injuries and deaths — and will adhere to them only to the extent absolutely necessary. If they can continue to sell products they have been told are harmful to some customers, they will do so.

This mindset seems to result from both a knee-jerk ideological opposition to all regulation and an amoral pursuit of profits. The persistence of corporate crime suggests that attempting to reform big business from within — the dubious promise of corporate social responsibility — is far from adequate. Just as markets have superseded borders, so must regulation be globalized.

The Crappy Coverage Solution

June 22nd, 2017 by Phil Mattera

If Congressional Republicans succeed in enacting either the Senate or the House bill to repeal the Affordable Care Act, they will have carried out one of the most brazen bait and switch moves in the history of U.S. public policy.

They and Donald Trump campaigned on the idea that Obamacare exchange premiums were rising uncontrollably, yet neither of the bills does anything to address that problem. They did not vow to repeal and replace Medicaid — Trump, in fact, promised not to touch it or Medicare or Social Security — yet that is what the bills would in effect do, both for the ACA’s Medicaid expansion and traditional Medicaid.

It’s been widely noted that the Republicans seem preoccupied with repealing the taxes the ACA imposed on high earners to help pay for the cost of expanding coverage. Yet less attention is being paid to the other giveaway in the bills: the repeal of the ACA’s employer mandate. This provision should be called the Wal-Mart Windfall Act, because it would allow large low-road employers to avoid ACA rules that oblige firms with 50 or more full-time employees to provide health coverage or else pay a penalty.

The mandate is far from draconian, yet it was at least a partial remedy for the situation in which millions of workers at big-box retailers, fast-food outlets and similar workplaces were not provided affordable coverage and were encouraged to enroll in programs such as Medicaid. Now the Republicans seek to remove any obligation on the part of employers to provide coverage while also undermining the social safety net alternative.

To the extent that the Republicans have a solution to the healthcare problem it is this: bring back junk insurance. It is often forgotten that the ACA was designed not just to address the problem of the uninsured but also the underinsured.

Starting in the 1990s, large insurers such as Aetna began selling bare-bones individual policies to low-income individuals who did not get employer coverage and could not qualify for Medicaid. These policies had relatively low premiums but sky-high deductibles and numerous exclusions. In cases of a serious accident or illness, they were all but worthless. The ACA put an end to this predatory market by establishing a set of essential benefits that all plans would have to include.

Republicans don’t like to admit that they are promoting a return to crappy coverage, so they dress up their arguments with misleading phrases such as “patient-centered reforms.” Many of them also realized that the idea of lowering standards directly was not very popular, so they have returned to their favorite panacea of giving states more flexibility. This allows them to pretend they are not scrapping essential benefits while knowing that many governors and state legislatures would be all too willing to do so if given the opportunity.

The cynicism of Congressional Republicans is matched by that of the big insurance companies, for whom the ACA was tailored and are now doing nothing to defend the law. Instead, they still seem to be sulking about the two anti-competitive mergers (Aetna-Humana and Anthem-Cigna) that were opposed by Obama Administration and shot down in the courts. Having seen their oligopolistic dreams go up in smoke, they now seem to want to give up the ACA market in favor of selling bare-bones policies.

It is unclear whether the dystopian vision of the ACA opponents will come to pass, but in the meantime the wellbeing of millions of Americans is being unnecessarily endangered.

Documenting NLRB Back Pay Awards

June 14th, 2017 by Phil Mattera

Massey Energy is notorious for the 2010 Upper Big Branch disaster that killed 29 workers at a coal mine with a long history of safety violations. Yet Massey, now owned by Alpha Natural Resources, has another dubious distinction: it was responsible for the largest back pay award mandated by the National Labor Relations Board in recent years.

Massey paid out $22.8 million after the Board found it had committed unfair labor practices when it refused to recognize the United Mine Workers after it purchased a unionized West Virginia mining operation (separate from Upper Big Branch) and declined to continue the employment of most of the union members there.

The information about Massey’s payment emerges from the latest expansion my colleagues and I at the Corporate Research Project of Good Jobs First have made to the Violation Tracker database. We obtained a list of some 3,000 back pay awards through a Freedom of Information Act request to the NLRB. The awards, covering the period since the agency adopted its new NxGen database system in 2011, total more than $284 million.

This is not the complete list of unfair labor practice back pay cases during the period. The NLRB excluded from its FOIA response what are known as non-Board settlements — those reached by the parties before the NLRB has ruled on the matter. The Board said some of the awards are confidential, and since its system could not easily identify which those were, it left out all the non-Board settlements.

Among the other biggest NLRB back pay awards since 2010 are: $16.2 million paid by Midwest Generation (a subsidiary of NRG Energy), $10.7 million paid by Delphi Packard Electric (part of Delphi Automotive), $10.3 million paid by Fluor-Daniel (a unit of the engineering company Fluor), and $10 million paid by Momentive Performance Materials.

The NLRB dataset is an important addition to Violation Tracker. The Board issues press releases about only a small number of back pay awards and does not make data about other awards easily retrievable in the case information on its website. This appears to be the first time extensive NLRB back-pay award data is readily available online.

It should be noted, however, that information on back pay awards for the dozen years preceding 2011 is buried in a large NLRB dataset posted on Data.gov. My colleagues and I extracted the data. The entries for 2010 (the current starting point for Violation Tracker) are part of the new update. Earlier entries will be included in an expansion of the entire database back to 2000 that will be posted in a few months.

Those earlier entries contain some back pay awards much larger than those cited above, including $130 million paid by Lucent Technologies and Avaya Inc., and $97 million paid by CF&I Steel.

Along with the NLRB data, Violation Tracker has also been updated with recent entries from the more than 40 federal regulatory agencies already covered by the website.

Also new on the site are links on the parent-company summary pages to the pages for those companies in the Project On Government Oversight’s Federal Contractor Misconduct Database and in the list of the 100 largest federal contractors on POGO’s FedSpending site.

Violation Tracker now contains more than 161,000 entries with total penalties of more than $324 billion,  the vast majority of which is connected to some 2,460 large parent companies.

It’s good to see unfair labor practice culprits take their place alongside corporate violators of environmental, health and safety, consumer protection and other laws that protect workers and the public.

The Other Trump Collusion Scandal

June 6th, 2017 by Phil Mattera

For months the news has been filled with reports of suspicious meetings between Trump associates and Russian officials. Another category of meetings also deserves closer scrutiny: the encounters between Trump himself and top executives of scores of major corporations since Election Day. What do these companies want from the new administration?

During the presidential campaign, Trump often hinted that he would be tough on corporate misconduct — especially the offshoring of jobs — and this won him a significant number of votes. After taking office, however, much of the economic populism has disappeared in favor of a shamelessly pro-corporate approach, especially when it comes to regulation. Big business has put aside whatever misgivings it had about Trump and now seeks favors from him.

There is always a fine line between deregulation and the encouragement of corporate crime and misconduct. We should be concerned about the latter, given the roster of executives who have made pilgrimages to the White House.

Public Citizen has just published a report looking at the track record of the roughly 120 companies whose executives have met publicly with Trump since November 8 and finds that many of them “are far from upstanding corporate citizens.”

Using data from Violation Tracker (which I and my colleagues produce at the Corporate Research Project of Good Jobs First), Public Citizen finds that more than 100 of the visitors were from companies that appear in the database as having paid a federal fine or settlement since the beginning of 2010.

In its tally of these penalties, which includes those associated with companies such as Goldman Sachs and Exxon Mobil whose executives were brought right into the administration, Public Citizen finds that the total is about $90 billion.

At the top of the list are companies from the two sectors that have been at the forefront of the corporate crime wave of recent years: banks and automakers. JPMorgan Chase, with penalties of almost $29 billion, is in first place. Also in the top dozen are Citigroup ($15 billion), Goldman Sachs ($9 billion), HSBC ($4 billion) and BNY Mellon ($741 million). Volkswagen, still embroiled in the emissions cheating scandal, has the second highest penalty total ($19 billion). Two other automakers make the dirty dozen: Toyota ($1.3 billion) and General Motors ($936 million).

The rest of the dirty dozen are companies from another notorious industry: pharmaceuticals. These include Johnson & Johnson ($2.5 billion),  Merck ($957 million), Novartis ($938 million) and Amgen ($786 million).

All these companies have a lot to gain from a relaxation of federal oversight of their operations. While it remains unclear whether the Trump campaign used its meetings with Russian officials to plan election collusion, there is no doubt that the administration has been using its meetings with corporate executives to plan regulatory rollbacks that will have disastrous financial, safety and health consequences.

The Emissions Scandal Widens

June 1st, 2017 by Phil Mattera

Big business would have us believe that it is on the side of the angels when it comes to the Paris climate agreement. A group of large companies just published full-page ads in the New York Times and Wall Street Journal urging (unsuccessfully, it turned out) President Trump to remain in the accord.

Not included in the list of blue chip signatories were the big auto producers, which may reflect the realization among those companies that it is becoming increasingly difficult for them to present themselves as defenders of the environment.

On the contrary, recent developments could cause them to be regarded as among the worst environmental criminals. That’s because evidence is growing that the kind of emissions cheating associated with Volkswagen is more pervasive in the industry.

Recently, the Justice Department, acting on behalf of the Environmental Protection Agency, filed a civil complaint against Fiat Chrysler alleging that the company produced more than 100,000 diesel vehicles with systems designed to evade federal emission standards. As a result, those vehicles end up producing pollutants (especially oxides of nitrogen or NOx) well above the acceptable levels set by EPA. In its announcement of the case, DOJ noted: “NOx pollution contributes to the formation of harmful smog and soot, exposure to which is linked to a number of respiratory- and cardiovascular-related health effects as well as premature death.” This is a polite way of accusing the company of homicide.

Around the same time, a class action lawsuit was filed against General Motors accusing the company of programming some of its heavy-duty pickup trucks to cheat on diesel emissions tests.

The two companies are responding differently. GM is denying the allegations, calling them “baseless” and vowing to defend itself “vigorously.” Fiat Chrysler tried to ward off the federal lawsuit by promising to modify the vehicles. It expressed disappointment at the DOJ filing but is still vowing to work with regulators to resolve the issue. Fiat Chrysler is also maintaining that its systems are different from those used by Volkswagen, which has had to pay out billions in settlements and criminal fines; several of its executives are facing individual criminal charges.

Whether the response involves stonewalling, remediation or splitting hairs, the emergence of these new cases turns the emissions scandal from one involving a single rogue corporation to a pattern of misconduct that may turn out to be standard practice throughout the auto sector.

This in turn raises broader issues about deregulation. The Trump Administration and its Republican allies in Congress try to depict corporations as helpless victims of regulatory overreach in need of relief. What the widening emissions scandal shows is that large companies are often instead flagrantly violating the rules and in doing so are putting public health at risk. Rather than relaxing regulation, policymakers should be intensifying oversight to make it harder for cheating to occur.

The car industry would be a good place to start. Misconduct among automakers dates back decades. It was GM’s resistance to safety improvements that inspired Ralph Nader to launch the modern public interest movement in the 1960’s, and it was Ford’s negligence in the deadly Pinto scandal of the 1970s that gave new meaning to corporate greed and irresponsibility. It’s time for these companies to clean up their act once and for all.

Targeting Those at the Top

May 18th, 2017 by Phil Mattera

It remains to be seen how high the new special counsel Robert Mueller aims his probe of the Trump campaign, but there are reports that another prominent investigation is targeting those at the top. German prosecutors are said to be examining the role of Volkswagen chief executive Matthias Muller and his predecessor Martin Winterkorn in the emissions cheating scheme perpetrated by the automaker. They are also looking at the chairman of Porsche SE, which has a controlling interest in VW.

Mueller and Muller, by the way, have more of a connection than the similarity of their names. Last year, the former FBI director was chosen by a federal judge to serve as the “settlement master” to help resolve hundreds of lawsuits brought against VW in U.S. courts. Mueller has played a similar role regarding suits brought against Japanese airbag maker Takata.

Although Winterkorn was forced to resign after the emissions scandal erupted in 2015, he and Muller — who was VW’s head of product planning while the cheating was taking place — denied any wrongdoing, and the company sought to pin the blame on lower-level managers.

The initial U.S. Justice Department case against VW named no executives at all, though a company engineer later pleaded guilty to fraud charges and in January DOJ indicted six other VW middle managers.

There is no question that many individuals had to be involved in a scheme as widespread as the one at VW. Although it was corrupt, VW was also bureaucratic, so it is to be expected that lower-level managers either sought permission from their superiors for undertaking a risky scheme — or they were carrying out a plot that originated from above.

In fact, the New York Times reports that it has been shown internal company emails and memos suggesting that VW engineers implementing the scheme were operating with the knowledge and consent of top managers.

As the evidence mounts, the issue for German prosecutors may no longer be whether the likes of Muller and Winterkorn were involved but whether they, the prosecutors, are willing to bring charges against those at the apex of the corporate hierarchy.

In the United States, a reluctance to take that step has tainted the prosecution of business crime for more than a decade. At a time when discussion of whether anyone is above the law is the focus of discussion in the government realm, we should not forget that the principle applies in the corporate sector as well.

Will DOJ Give a Deep Discount to Wal-Mart?

May 11th, 2017 by Phil Mattera

The Justice Department has a lot on its plate these days, but it has apparently found time to cook up a deal that would save Wal-Mart hundreds of millions of dollars. According to Bloomberg and the Wall Street Journal, DOJ is offering the giant retailer the chance to settle a foreign bribery case for $300 million, an amount far less than the penalty of up to $1 billion the Obama Administration was seeking in the long-running negotiations to resolve the matter.

I suppose we should be grateful that DOJ is not letting Wal-Mart off the hook entirely, given that Donald Trump once described the Foreign Corrupt Practices Act as a “horrible law.” Moreover, there has been speculation that Trump’s own business dealings may be vulnerable to FCPA prosecution in places such as Azerbaijan.

Attorney General Jeff Sessions has gone out of his way to affirm the commitment of his department to enforcing the FCPA, yet this is the same person who just involved himself in the firing of FBI Director James Comey after promising to recuse himself from the probe of the Trump campaign’s Russian ties.

It could be that Sessions intends to go on bringing FCPA cases but with reduced settlement amounts. That would be at least a partial victory for companies like Wal-Mart, whose FCPA problems first gained widespread attention after the New York Times published a 2012 investigation of widespread bribery in the company’s Mexican operations. In response, the company launched its own examination of possible misconduct in countries such as Brazil, India and China.

Given Wal-Mart’s size and prominence, a large penalty would be appropriate to send a message to the corporate world about the consequences of corrupt practices. The $1 billion amount reportedly sought by the Obama Administration would have been the largest single FCPA penalty ever imposed.

Instead, the reported $300 million settlement amount would not even rank among the top ten, according to the list maintained by the FCPA Professor blog. That list, topped by Siemens at $800 million and Alstom at $772 million, is dominated by foreign companies, including some such as VimpelCom (now known as Veon) and Snamprogetti (now part of Italy’s Saipem) that are hardly household names.

Giving a deep discount to a domestic behemoth would raise questions about the enforcement of a law that is meant to fight corruption worldwide.

DOJ’s decision on what to do about the Wal-Mart FCPA case will provide an important clue about how it intends to deal with corporate crime in general. The Obama Administration struggled to find the best way to deter business misconduct, and if nothing else increased penalties in major cases to unprecedented levels. Imposing a relatively small penalty on Wal-Mart would reverse that trend and signal to corporations that they have less to worry about from the Trump Justice Department.

Another Form of Denial

May 4th, 2017 by Phil Mattera

Lurking behind the assault on regulation being carried out by the Trump Administration and its Congressional allies is the assumption that corporations, freed from bureaucratic meddling, will tend to do the right thing. That assumption is belied by a mountain of evidence that companies, if allowed to pursue profit without restraint, will act in ways that harm workers, consumers and communities. In fact, they will do so even when those restraints are theoretically in effect.

The latest indication of the true proclivities of big business comes in a report just released by the U.S. Chemical Safety Board on a 2015 explosion at the Exxon Mobil refinery in Torrance, California. That accident spewed toxic debris and kept the facility at limited capacity for a year, boosting gasoline prices in the region and costing drivers in the state an estimated $2.4 billion.

According to the safety board, the accident was not an act of god but rather the result of substandard practices on the part of Exxon. The report states:

The CSB found that this incident occurred due to weaknesses in the ExxonMobil Torrance refinery’s process safety management system.  These weaknesses led to operation of the FCC [fluid catalytic cracking] unit without pre-established safe operating limits and criteria for unit shutdown, reliance on safeguards that could not be verified, the degradation of a safety-critical safeguard,  and the re-use of a previous procedure deviation without a sufficient hazard analysis that confirmed that the assumed process conditions were still valid.

Exxon was also found to have used critical equipment beyond its expected safe operating life. The CSB investigation also discovered that a large piece of debris from the explosion narrowly missed hitting a tank containing tens of thousands of pounds of highly toxic modified hydrofluoric acid. Exxon refused to respond to the agency’s request for information detailing the safeguards it had (or did not have) in place to prevent or mitigate a release of the acid. The agency has gone to court to try to get the information.

The CSB is an investigatory and not a regulatory body, so it does not have the power to penalize Exxon for its role in bringing about what the agency called a “preventable” incident. Yet its report adds another entry to Exxon’s dismal corporate rap sheet. The Torrance refinery itself, which came from the Mobil side of the family, has a long history of fires, explosions and leaks. The rest of Exxon has a track record that includes the disastrous Exxon Valdez oil spill in Alaska, numerous pipeline accidents and much more, including many years of climate denial. This tainted record did not prevent the company’s CEO from being the U.S. Secretary of State.

Last year, the Torrance refinery was sold by Exxon to PBF Energy, which has subsequently experienced “multiple incidents,” as the CSB diplomatically put it.

No matter how many instances of corporate negligence are brought to light, there are always business apologists ready to point the finger at regulators instead. The gospel of deregulation is now the state religion of the Trump Administration. How many preventable disasters will it take to share that belief?