Archive for the ‘Corporate Crime’ Category

Uncle Sam’s Favorite Corporations

Tuesday, March 17th, 2015

UncleSam_WebTeaserIt’s said that the partisan divide is wider than ever, but there is one subject that unites the Left and the Right: opposition to the federal business giveaway programs popularly known as corporate welfare.

These programs include cash grants that underwrite corporate R&D, special tax credits allocated to specific firms, loan guarantees that help companies such as Boeing sell their big-ticket items to foreign customers, and of course the huge amounts of bailout assistance provided by the Treasury Department and the Federal Reserve to major banks during the financial meltdown. The costs to taxpayers is tens of billions of dollars a year.

Back in 1994 then-Labor Secretary Robert Reich gave a speech arguing that it was unfair to cut financial assistance to the poor while ignoring special tax breaks and other benefits enjoyed by business. Reich inspired a strange bedfellows coalition led by public interest advocate Ralph Nader and then-House Budget chair John Kasich (now governor of Ohio). Ultimately, the effort was stymied, as every business subsidy’s entrenched interests lobbied back. The subsidy-industrial complex emerged largely unscathed.

Nonetheless, the anti-corporate welfare movement has continued up to the present, with the latest battled being waged mainly by some Tea Party types against the Export-Import Bank.

Throughout these two decades of subsidy analysis and debate, the focus has been on aggregate costs, either by program, by industry or by type of company. Except for bailouts, very little analysis has been done of which specific corporations benefit the most from federal largesse.

My colleagues and I at Good Jobs First have just completed a project which will allow those on all sides of the debate to identify the companies enjoying corporate welfare. Today we are releasing Subsidy Tracker 3.0, a expansion to the federal level of our database which since 2010 has provided information on the recipients of state and local economic development subsidy awards.

We have collected data on 164,000 awards from 137 federal programs run by 11 cabinet departments and six independent agencies. Much of the data, covering the period from FY 2000 to the present, is extracted from the wider range of content on USA Spending, which also covers non-corporate-welfare money flows such as federal grants to state and local governments and federal contracts. We also tracked down about 40 other sources from a variety of lesser known reports and webpages. Farm subsidies are excluded as they are already ably covered by the Environmental Working Group’s agriculture database.

Our data does not cover the full range of federal business assistance, given that most tax breaks are offered as provisions of the Internal Revenue Code that any qualifying firm can claim. We include only the small number of tax credits (mostly in the energy areas) that are allocated to specific firms. But we’ve got plenty of company-specific grants, loans, loan guarantees and bailouts.

Today we are also releasing a report, Uncle Sam’s Favorite Corporations, that analyzes the federal data. While we don’t endorse or critique any of the wide-ranging programs themselves, we do find some remarkable patterns among the recipients.

The degree of big business dominance of grants and allocated tax credits is comparable to what we previously found for state and local subsidies. A group of 582 large companies account for 67 percent of the $68 billion total, with six companies receiving $1 billion or more.

At the top of the list with $2.2 billion in grants and allocated tax credits is the Spanish energy company Iberdrola, whose U.S. wind farms have made extensive use of a Recovery Act program designed to subsidize renewable energy.

Mainly as a result of the massive rescue programs launched by the Federal Reserve in 2008 to buy up toxic securities and provide liquidity in the wake of the financial meltdown, the totals for loans, loan guarantees and bailout assistance run into the trillions of dollars. These include numerous short-term rollover loans, so the actual amounts outstanding at any given time, which are not readily available, were substantially lower but likely amounted to hundreds of billions of dollars. Since most of these loans were repaid, and in some cases the government made a profit on the lending, we tally the loan and bailout amounts separately from grants and allocated tax credits.

The biggest aggregate bailout recipient is Bank of America, whose gross borrowing (excluding repayments) is just under $3.5 trillion (including the amounts for its Merrill Lynch and Countrywide Financial acquisitions). Three other banks are in the trillion-dollar club: Citigroup ($2.6 trillion), Morgan Stanley ($2.1 trillion) and JPMorgan Chase ($1.3 trillion, including Bear Stearns and Washington Mutual). A dozen U.S. and foreign banks account for 78 percent of total face value of loans, loan guarantees and bailout assistance.

Other key findings:

  • Foreign direct investment accounts for a substantial portion of subsidies. Ten of the 50 parent companies receiving the most in federal grants and allocated tax credits are foreign-based; most of their subsidies were linked to their energy facilities in the United States. Twenty-seven of the 50 biggest recipients of federal loans, loan guarantees and bailout assistance were foreign banks and other financial companies, including Barclays with $943 billion, Royal Bank of Scotland with $652 billion and Credit Suisse with $532 billion. In all cases these amounts involve rollover loans and exclude repayments.
  • A significant share of companies that sell goods and services to the U.S. government also get subsidized by it. Of the 100 largest for-profit federal contractors in FY2014 (excluding joint ventures), 49 have received federal grants or allocated tax credits and 30 have received loans, loan guarantees or bailout assistance. Two dozen have received both forms of assistance. The federal contractor with the most grants and allocated tax credits is General Electric, with $836 million, mostly from the Energy and Defense Departments; the one with the most loans and loan guarantees is Boeing, with $64 billion in assistance from the Export-Import Bank.
  • Federal subsidies have gone to several companies that have reincorporated abroad to avoid U.S. taxes. For example, power equipment producer Eaton (reincorporated in Ireland but actually based in Ohio) has received $32 million in grants and allocated tax credits as well as $7 million in loans and loan guarantees from the Export-Import Bank and other agencies. Oilfield services company Ensco (reincorporated in Britain but really based in Texas) has received $1 billion in support from the Export-Import Bank.
  • Finally, some highly subsidized banks have been involved in cases of misconduct. In the years since receiving their bailouts, several at the top of the recipient list for loans, loan guarantees and bailout assistance have paid hundreds of millions, or billions of dollars to U.S. and European regulators to settle allegations such as investor deception, interest rate manipulation, foreign exchange market manipulation, facilitation of tax evasion by clients, and sanctions violations.

 

Bailouts and Bad Actors

Thursday, March 5th, 2015

moneybagsontherunNewly released transcripts of the 2009 meetings of the Federal Reserve’s open market committee show that monetary policymakers were still agonizing over whether they were doing enough to stabilize the teetering global financial system.

These documents have a special interest for me because, as I discussed in last week’s Digest, my colleagues and I at Good Jobs First recently collected a great deal of data about the Fed’s special bailout programs in 2008 and 2009 as part of the extension of our Subsidy Tracker database into the federal realm. The Fed’s info is part of the more than 160,000 entries we have amassed from 137 federal programs of various kinds. Subsidy Tracker 3.0 will go public on March 17.

In last week’s post I mentioned that the Fed programs involved the outlay of some $29 trillion (yes, trillion) and that the totals for several large banks (Bank of America, Citigroup, Morgan Stanley and JPMorgan Chase ) each exceeded $1 trillion. I pointed out that these totals referred to loan principal and did not reflect repayments (information on which is not readily available).

What I also should have pointed out is that some of the Fed lending consisted of relatively short-term loans that were often rolled over. In other words, the actual amount outstanding at any given time was considerably lower than the eye-popping trillion dollar figures. That’s not to say that the amounts were chicken feed. It’s safe to say that the loan totals were in the hundreds of billions of dollars, and here again company-specific amounts are not available.

This is still high enough to justify the point I was making about the bailout amounts far outstripping the sums these banks have been paying out in settlements with the Justice Department to resolve allegations about investor deception in the sale of what turned out to be toxic securities in the run-up to the financial meltdown. And the amounts still justify anger at the current crusade by the big banks to weaken the Dodd-Frank regulatory safeguards adopted by the same government that bailed them out.

What is also worth pointing out is that the bad actor-bailout recipients are not limited to the big U.S. banks. Large totals also turn up for major European banks that have been involved in their own legal scandals in recent years. The biggest foreign recipient of Fed support turns out to be Barclays, which has an aggregate loan amount (including rollover loans and excluding repayments) of more than $900 billion. Next is Royal Bank of Scotland with more than $600 billion and Credit Suisse with more than $500 billion.

In 2012 Barclays had to pay $450 million to U.S. and European regulators to settle allegations that it manipulated the LIBOR interest rate index. The following year Royal Bank of Scotland had to pay $612 million to settle similar allegations. In 2014 Credit Suisse had to pay $2.6 billion in penalties to settle Justice Department charges that it conspired to help U.S. taxpayers dodge federal taxes. This was a rare instance in which a large company actually had to plead guilty to a criminal charge.

The frustrating truth is that the global financial system is dominated by big banks that seem to have little respect for the law and for financial regulation, but they do not hesitate to turn to government when they need to be rescued from their own excesses.

A Crowded Corporate Hall of Shame

Thursday, January 29th, 2015

2015_PublicEye_KeyVisual_550x275Over the past year, Chevron has had success in getting a U.S. federal judge to block enforcement of a multi-billion-dollar judgment imposed by a court in Ecuador, and the oil giant managed to pressure the U.S. law firm representing the plaintiffs to drop out of the case and pay the company $15 million in damages. Chevron has just had another significant win but of a less desirable kind.

The Berne Declaration and Greenpeace Switzerland recently announced that Chevron had received the most votes in a competition to determine the world’s most irresponsible corporation and thus was the “winner” of the Public Eye Lifetime Award.

For the past ten years, the two groups have countered the elite mutual admiration society taking place at the annual World Economic Forum in Davos, Switzerland by highlighting the misdeeds of large corporations. The previous awardees ranged from banks such as Citigroup to drug companies such as Novartis to Walt Disney, which was chosen because of its use of foreign sweatshop labor to produce its toys.

A few months ago, Public Eye sponsors decided to bring the project to a close but do so with a splash by naming the company that stood out as the worst. Activists from around the world promoted their choices from among six nominees: Dow Chemical, Gazprom, Glencore, Goldman Sachs and Wal-Mart Stores, along with Chevron. Amazon Watch, which led the Chevron effort, prevailed. Glencore and Wal-Mart were the runners-up.

Public Eye’s award ceremony featured the Yes Men satirical group, which in one of its rare un-ironic pronouncements stated: “Corporate Social Responsibility is like putting a bandage on a severed head – it doesn’t help”. This sentiment is especially appropriate in relation to Chevron, which has long sought to portray itself, through ads headlined WILL YOU JOIN US, as not only mindful of environmental issues but as a leader of the sustainability movement.

Given the prevalence of business misconduct, choosing the most irresponsible corporation is no easy matter. Even within the petroleum industry, Chevron’s environmental sins in Ecuador and the rest of its rap sheet must be weighed against the record of a company such as BP, infamous for the Gulf of Mexico oil spill disaster as well as safety deficiencies at its refineries that resulted in explosions such as one in Texas that killed 15 workers in 2005. Also worthy of consideration are Royal Dutch Shell, with its human rights abuses in Nigeria, and Exxon Mobil, with its own record of oil spills as well as climate change denial.

And what about the mining giants and their notorious treatment of indigenous communities around the world. A prominent activist once called Rio Tinto “a poster child for corporate malfeasance.” Then there is Big Pharma, made up of corporations that tend toward price-gouging and product safety lapses. And we shouldn’t leave out the auto industry, which in the past year has been shown to be a lot sloppier about safety matters than we could have imagined. Also not to be forgotten are the weapon makers, whose products are inherently anti-social.

Yet perhaps the biggest disappointment for corporate critics in the United States may be the fact that the Lifetime Award did not go to Wal-Mart. For the past two decades, the Behemoth of Bentonville has epitomized corporate misbehavior in a wide variety of areas — most notably in the labor relations sphere, but also promotion of foreign sweatshops, gender discrimination, destruction of small business, tax dodging, bribery (especially in Mexico) and the spread of suburban sprawl with its attendant impact on climate change. Yet perhaps the most infuriating thing about Wal-Mart has been its refusal to abandon its retrograde labor practices while working so hard, like Chevron, to paint itself as a sustainability pioneer.

It’s too bad that we will no longer have the annual Public Eye awards, but corporate misconduct will apparently be with us for a long time to come.

Prosecuting Corporate Culprits

Thursday, January 8th, 2015

SteinzorOn December 18th, the national page of the New York Times contained two stories on atypical events in the business world. One was headlined “Pharmacy Executives Face Murder Charges in Meningitis Deaths” and the other “Chemical Company Owners are Charged in Spill That Tainted West Virginia Water.”

By all rights, articles like these should be as common as those reporting on the prosecution of warring gang members or drug kingpins. Actually, they should be more common, since street crime is declining while corporate malfeasance seems to be on the rise.

The reasons for the reluctant prosecution of corporate crime are carefully dissected in the new book Why Not Jail? Industrial Catastrophes, Corporate Malfeasance, and Government Inaction by Rena Steinzor (photo), a law professor at the University of Maryland.

Steinzor, who is also president of the Center for Progressive Reform, starts by pointing a finger at what she calls “hollow government,” by which she means “outmoded and weak legal authority, funding shortfalls that prevent the effective implementation of regulatory requirements, and the relentless bashing of the civil service.”

What makes the decline of health, safety and environmental regulation so troubling is that for quite a while the system was, Steinzor notes, working fairly well. Both the food and drug laws of the early 20th Century and the environmental and workplace health legislation of the 1970s were helping to reduce deaths and illnesses.

Yet by the beginning of the new century, regulatory agencies were becoming timid while industry opponents and their Congressional allies grew ever more aggressive and successful. Steinzor takes the Obama Administration to task for often putting politics above regulatory rigor and for allowing the OMB’s Office of Information and Regulatory Affairs to continue its traditional practice of weakening proposed rules.

Steinzor also excoriates the Justice Department for its widespread use of deferred prosecution agreements and non-prosecution agreements, both before and during the Obama Administration. She sees these techniques as exactly the wrong approach in addressing corporate culpability in situations such as the Massey Energy mine collapse and two disasters — the Macondo well blowout and Texas City refinery explosion — linked to BP.

Rather than letting corporations buy their way out of these situations with financial settlements and promises not to sin again, Steinzor shows how it is possible to basic use legal concepts such as recklessness and willful blindness to bring criminal prosecutions against culpable managers and executives, especially when “industrial activities cause grave harm to public health, consumer or worker safety, or the environment.”

This needs to be done not only at the federal level, but also by local prosecutors, who have the powerful but largely neglected weapon of state manslaughter laws at their disposal.

Steinzor acknowledges that it will be difficult to change the attitudes of prosecutors, who all too often go for the easier approaches.

Another obstacle is the reluctance prosecutors seem to have about bringing cases they think might threaten the continued existence of a large corporation, a phobia stemming from the demise of the Arthur Andersen accounting firm in 2002 in the wake of its criminal conviction for actions relating to the Enron fraud.

It is significant that the two prosecutions cited at the start of these piece involve executives at relatively small firms. Until we also see executives at Fortune 500 companies facing the risk of time behind bars, the current corporate crime wave will continue unabated.

The 2014 Corporate Rap Sheet

Wednesday, December 31st, 2014

gotojailThe bull market in corporate crime surged in 2014 as large corporations continued to pay hefty fines and settlements that seem to do little to deter misbehavior in the suites. Payouts in excess of $1 billion have become commonplace and some even reach into eleven figures, as seen in the $16.65 billion settlement Bank of America reached with the Justice Department to resolve federal and state claims relating to the practices of its Merrill Lynch and Countrywide units in the run-up to the financial meltdown.

This came in the same year in which BofA reached a $9.3 billion settlement with the Federal Housing Finance Agency concerning the sale of deficient mortgage-backed securities to Fannie Mae and Freddie Mac and in which the Consumer Financial Protection Bureau ordered the bank to pay $727 million to compensate consumers harmed by deceptive marketing of credit card add-on products.

The BofA cases helped boost the total penalties paid by U.S. and European banks during the year to nearly $65 billion, a 40 percent increase over the previous year, according to a tally by the Boston Consulting Group reported by the Wall Street Journal.

Among the other big banking cases were the following:

  • France’s BNP Paribas pleaded guilty to criminal charges and paid an $8.9 billion penalty to U.S. authorities in connection with charges that it violated financial sanctions against countries such as Sudan and Iran.
  • Citigroup paid $7 billion to settle federal charges relating to the packaging and sale of toxic mortgage-backed securities.
  • U.S. and European regulators fined five banks — JP Morgan Chase, Citigroup, HSBC, Royal Bank of Scotland and UBS — a total of more than $4 billion after accusing them of conspiring to manipulate the foreign currency market.
  • Credit Suisse pleaded guilty to one criminal count of conspiring to aid tax evasion by U.S. customers and paid a penalty of $2.6 billion.
  • JPMorgan Chase paid $1.7 billion to victims of the Ponzi scheme perpetuated by Bernard Madoff to settle civil and criminal charges that it failed to alert authorities about large numbers of suspicious transactions made by Madoff while it was his banker.

Banks were not the only large corporations that found themselves in legal trouble during the year. The auto industry faced a never-ending storm of controversy over its safety practices. Toyota was hit with a $1.2 billion criminal penalty by U.S. authorities for concealing defects from customers and regulators. The National Highway Traffic Safety Administration fined General Motors $35 million (the maximum allowable) for failing to promptly report an ignition switch defect that has been linked to numerous deaths. Hyundai and its subsidiary Kia paid $300 million to settle allegations that they misstated the greenhouse gas emissions of their vehicles.

Toxic dumping. Anadarko Petroleum paid $5.1 billion to resolve federal charges that had been brought in connection with the clean-up of thousands of toxic waste sites around the country resulting from decades of questionable practices by Kerr-McGee, now a subsidiary of Anadarko.

Pipeline safety. The California Public Utilities Commission proposed that $1.4 billion in penalties and fined be imposed on Pacific Gas & Electric in connection with allegations that the company violated federal and state pipeline safety rules before a 2010 natural gas explosion that killed eight people.

Contractor fraud. Supreme Group BV had to pay $288 million in criminal fines and a $146 million civil settlement in connection with allegations that it grossly overcharged the federal government while supplying food and bottled water to U.S. personnel in Afghanistan.

Bribery. The French industrial group Alstom consented to pay $772 million to settle U.S. government charges that it bribed officials in Indonesia and other countries to win power contracts. Earlier in the year, Alcoa paid $384 million to resolve federal charges that it used a middleman to bribe members of Bahrain’s royal family and other officials to win lucrative contracts from the Bahraini government.

Price-fixing. Japan’s Bridgestone Corporation pleaded guilty to charges that it conspired to fix prices of anti-vibration rubber auto parts and had to pay a criminal fine of $425 million.

Defrauding consumers. AT&T Mobility had to pay $105 million to settle allegations by the Federal Trade Commission and the Federal Communications Commission that it unlawfully billed customers for services without their prior knowledge or consent.

The list goes on. Whether the economy is strong or weak, many corporative executives cannot resist the temptation to break the law in the pursuit of profit.

Note: For fuller dossiers on some of the companies listed here, see my Corporate Rap Sheets.

Getting Even Tougher on Corporate Crime

Thursday, December 4th, 2014

blankenshipWest Virginia’s coal country is not very fond of the Environmental Protection Agency these days, but another part of the federal government — the Justice Department — is viewed more sympathetically.

The reason is that Don Blankenship, the most reviled man in the state, is being prosecuted. A federal grand jury recently handed up an indictment with four criminal counts against Blankenship (photo), the former CEO of Massey Energy, for conspiring with other managers to violate safety laws on a massive scale, thereby creating the conditions that led to the 2010 Upper Big Branch disaster, in which 29 miners were killed.

It is a rarity for criminal charges to reach the CEO level, and if any chief executive deserves such special treatment, Blankenship is the one. The indictment paints a picture of a manager who was utterly contemptuous of federal safety regulations and thus of the safety and well being of his employees. He is said to have called the use of workers for safety compliance “ridiculous” and “crazy.”

What’s really crazy is that Blankenship is not facing even more serious charges. He could theoretically spend as much as 31 years in prison, but if convicted he would likely serve much less time. The indictment makes a compelling case for the conspiracy charges, but they also detail activity that could easily be construed as homicide or at least negligent homicide. In fact, back in 2010 there were calls for Blankenship to be charged with murder.

Blankenship is emblematic of a type of business misconduct that brings about serious harm or even death to workers, consumers or the general public. This kind of brazen corporate behavior originated in the 19th Century and persisted in the 20th, especially in industries such as tobacco and asbestos. A new investigation by the Center for Public Integrity documents steps by the petroleum industry beginning in the late 1940s to suppress evidence linking benzene, an ingredient in gasoline, to leukemia.

It was not long ago that business apologists were claiming that such egregious cases of corporate irresponsibility were a thing of the past. We were made to believe that Big Business had cleaned up its act and was now taking the lead in promoting ethical and sustainable practices.

That notion took a beating in 2010, which saw not only the Upper Big Branch explosion but also the Deepwater Horizon disaster in the Gulf of Mexico brought about by the negligence of BP, Transocean and Halliburton.

This year corporate wrong-doing is once again in full bloom. At the center of it has been General Motors, the company whose dangerous Corvair compact gave rise to the modern public interest movement. Fifty years later, the new, post-bankruptcy GM is again facing charges of endangering lives through foolish cost-cutting measures.

GM, however, is not alone this time. We’re seeing negligent behavior by other automakers, including the Japanese, and now a scandal is growing over the practices of airbag supplier Takata, which is alleged to have covered up evidence that its products were rupturing and spewing metal debris at drivers. Now the company is resisting calls in the U.S. for a nationwide recall.

For a long time, the discussion on business misconduct has focused on the need to bring criminal charges against top executives. That’s a worthy goal, but we need to give more attention to the nature of the charges. A CEO who has knowingly placed human lives in danger should be prosecuted as toughly as street criminals who do the same. Potential penalties along the lines of life imprisonment may be the only thing that can deter the Don Blankenships of the world.

Bankers Gone Wild (Again)

Thursday, November 13th, 2014

get_out_of_jail_freeThere seems to be no end to the chutzpah of the big banks. They brazenly break the law and then pay growing but still quite affordable penalties to get out of their legal jeopardy.

The latest examples have just been reported by the New York Times. The front page of the newspaper has a blood-boiling story on how the likes of JPMorgan Chase, Bank of America and Citigroup intimidate people who have gone through personal bankruptcy into paying back debts that have been discharged in court. Although the debts are not legally collectable, the banks keep the obligations alive on credit reports, meaning that borrowers are faced with a choice between paying and having their credit rating ruined. Such a tactic makes loan sharks look good by comparison.

According to the Times, the practice is being investigated by the Justice Department. Before long we will read of a settlement, and the banks will move on to a new way of cheating their customers.

JPMorgan and Citi are also involved in a settlement just announced by U.S. and European regulators involving another sleazy banking practice: the manipulation of foreign currency markets. The U.S. Commodity Futures Trading Commission ordered five banks to pay more than $1.4 billion in penalties, including $310 million each from JPMorgan and Citi. Britain’s Financial Conduct Authority fined the five banks (which also include HSBC, Royal Bank of Scotland and UBS) another $1.7 billion, including around $350 million each for JPMorgan and Citi. Swiss regulators hit UBS with an additional $138 million penalty.

In foreign exchange markets, the daily setting of rates is known as the fix. Evidence released by regulators made it abundantly clear that traders at the five banks saw to it that the fix was fixed (i.e. manipulated) by colluding rather than competing.

These settlements involved civil charges. The Justice Department is reportedly investigating criminal misconduct by the banks. That’s good news, but there is a strong possibility that these probes will result in something disappointing.

The Justice Department has a long track record of allowing large corporations to evade serious criminal charges by offering miscreants the option to enter into deferred prosecution or non-prosecution agreements that amount to get-out-of-jail-free cards. And even when token criminal charges are enforced, as happened in the Credit Suisse tax case last May and the UBS interest-rate-manipulation case before that, the consequences are hardly devastating.

This failure of corporate prosecution is the subject of a new book called Too Big to Jail by Brandon Garrett, a professor of the University of Virginia School of Law. In an interview with the Corporate Crime Reporter, Garrett says: “There are a number of ways to punish a company. The concern is that none of those ways are being taken seriously enough.” Garrett proposes a system in which corporations plead guilty and are put on probation – hopefully a more rigorous form than the probation BP was on (because of its 2007 case involving an explosion at its Texas City refinery) at the time of the Deepwater Horizon disaster.

Garrett’s notion that having a judge (rather than just a monitor) involved in these cases is laudable, but it is not clear that would be enough to rein in corporate lawlessness.

Note: Garrett has posted a handy list of more than 300 deferred and non-prosecution agreements on his website.

 

The Environmental Prosecution Gap

Thursday, August 21st, 2014

With reports of a $16 billion Justice Department settlement with Bank of America following on the heels of other big payouts by misbehaving banks, it may seem that corporate crime these days is mainly an issue for the financial sector. The big banks have plenty of blemishes on their record, but then again so do other large corporations when it comes to areas such as environmental compliance.

After all, it was only four months ago that Anadarko Petroleum had to pay $5.1 billion to resolve federal charges that had been brought in connection with the clean-up of thousands of toxic waste sites around the country resulting from decades of questionable practices by Kerr-McGee, now a subsidiary of Anadarko. This settlement set a record for an environmental case, surpassing the $4 billion in penalties BP had to pay in 2012 as part of its guilty plea on criminal charges relating to the Deepwater Horizon disaster in the Gulf of Mexico.

Despite high-profile cases such as these, environmental offenses are being prosecuted in a less than vigorous manner. This problem is brought home in a recent analysis by The Crime Report website produced at the Center on Media, Crime and Justice at the John Jay College of Criminal Justice in New York.

In a review of enforcement data in the EPA’s ECHO database, The Crime Report found that the agency has become increasingly disinclined to bring criminal rather than civil charges against violators. In recent years, the report notes, fewer than one-half of one percent of violations trigger criminal investigations, which require the involvement of the Justice Department to proceed in court.

Part of the problem is that criminal cases are much more difficult to pursue. The Crime Report quotes attorney Mark Roberts of the non-profit Environmental Investigation Agency as saying: “I think a criminal prosecution will be defended much harder … If you’re in that tiny percentage that gets charged criminally, you want to win.”

While delivering the bad news about weak prosecution, The Crime Report makes it easier for researchers and activists to access data about environmental violations. It took data from ECHO and created an interactive map that provides summaries by EPA region and by urban area, and also allows zooming in on specific facilities. When an urban area is chosen on the map, a table appears below showing the largest penalties overall, with breakdowns by categories such as Clean Air Act violations and Clean Water Act violations.

This is especially useful for clusters of heavily polluting facilities such as those in what is informally known as Cancer Alley between Baton Rouge and New Orleans. Yet a look at the data for this area shows the limitations not only of the EPA’s criminal prosecutions but its enforcement activity in general. Drilling down shows dozens of facilities that were often found to be in non-compliance yet were hit with little or nothing in the way of penalties during the past five years.

There are some fairly significant fines, such as the $198,000 paid by PCS Nitrogen in Geismar and the $84,000 paid by the Total Petroleum Styrene Monomer Plant in Carville. Yet, for the most part, the data paint a picture that is a far cry from the right’s depiction of the EPA as a tyrannical force preying on defenseless businesses.

Whether it is in banking or petrochemicals, aggressive prosecutions are the only way to get large corporations to clean up their act.

 

Real Abuses, Sham Reforms

Thursday, July 17th, 2014

bosses_900It is now a full century since the Progressive Era ended some of the worst abuses of concentrated economic power. This year is the 100th anniversary of the Clayton Act and the Federal Trade Commission Act.   It is 103 years since the dissolution of the Standard Oil trust, 108 years since the passage of the Pure Food and Drug Act.

Yet even a casual reading of the business news these days suggests that we live in an economy disturbingly similar to the age of the robber barons.

Back then, the trusts shifted their incorporation to states such as New Jersey and Delaware that were willing to rewrite their business laws to accommodate the needs of oligopolies. Today large corporations are reincorporating themselves in foreign tax havens to dodge taxes. The practice is reaching epidemic proportions in the pharmaceutical industry.

Back then, unscrupulous drug companies and meatpackers sold adulterated products that could sicken or even kill their customers. Today General Motors is caught in a growing scandal about ignition switch defects that resulted in at least 13 deaths. The news about the automaker’s recklessness grows worse by the day, with the New York Times now reporting that company withheld information from federal regulators about the cause of fatal accidents.

Back then, wheeler-dealers such as James Fisk peddled dubious securities in companies that later collapsed, impoverishing investors. Today we’re still trying to get over the impact of the toxic mortgage-backed securities that the big banks packaged and sold during the housing bubble. Just the other day, Citigroup became the latest of those banks to settle charges brought by the Justice Department. Yet the $7 billion extracted from Citi, like the amounts obtained from the other banks, will cause little pain for the mammoth institution and will thus do little to deter future misconduct. The provision in the settlement for “consumer relief” is too little, too late.

And, of course, back then, the trusts got to be trusts by eliminating their competition. Today concentration is alive and well. Recently, the second largest U.S. tobacco company, Reynolds American, proposed a takeover of Lorillard, the number three in the industry. If this deal goes through, it won’t be long before Reynolds tries to marry Altria/Philip Morris, putting virtually the entire carcinogenic industry in the hands of one player, the way it was a century ago during the reign of the American Tobacco Company, aka the Tobacco Trust.

The movement toward a Media Trust just accelerated with the revelation that Rupert Murdoch’s 21st Century Fox, already huge, is seeking to take over Time Warner. The deal would put a mind-boggling array of entertainment properties under one roof. Murdoch offered to sell off Time Warner’s CNN – a meaningless concession given that the news network has struggled to survive against Murdoch’s despicable Fox News. Murdoch’s move comes as another media octopus, Comcast, is awaiting approval for its deal to take over Time Warner’s previously spun off cable business.

While we have all too many indications of a new Gilded Age, still scarce are signs of an effective response. We’ve got a good amount of muckraking journalism and a fair number of people (and even a few elected officials) who calls themselves progressives. Yet somehow this does not add up to a movement that can take a real bite out of corporate crime.

Part of the problem is that many of those in power professing progressive values are not serious about challenging corporate power. Some historians argue that the original Progressives were, like the New Dealers who came later, mainly concerned with saving capitalism from itself rather than changing the system. Yet they still managed to impose significant restrictions on big business through antitrust and other forms of regulation.

Today’s progressive officials often seem to want nothing more than to give the appearance of reform. That’s the story at the Justice Department, which has raised settlement levels and extracted some token guilty pleas but still allows corporations to buy their way out of serious legal jeopardy. Meanwhile, antitrust enforcement is tepid, and as the GM case increasingly shows, regulation is often a joke.

A resurgence of robber-baron behavior requires real, not sham reform.

Inverted Values

Thursday, July 10th, 2014

medtronic-headquartersConservatives are up in arms about the surge of undocumented women and children coming across the border from Mexico. So great a threat is purportedly being caused by this influx that Republican members of Congress are clamoring for legislation that would allow faster deportations. Even President Obama seems to agree.

Much less urgency is being expressed about another sort of immigration crisis: the presence of a growing number of foreign-based corporations masquerading as American companies. Large-scale tax dodging by these firms does much more harm to the United States than the modest impact of those desperate Central Americans.

A recent report by the Congressional Research Service describes a new wave of companies going through a process politely known as “inversions.” What’s really happened is that these firms have renounced their U.S. “citizenship” and reincorporated themselves in tax haven countries in order to escape federal taxes.

Yet these companies go on operating as before, keeping their U.S. offices, their U.S. sales and all the other benefits of doing business here but not paying their fair share of the cost of government. They are the real illegitimate aliens.

While a few members of Congress have spoken out against this corporate treason, many adhere to the idea that the companies are blameless — that it is the supposedly oppressive tax system that is to blame. The editorialists at the Wall Street Journal, who can always be counted on to go to any length to defend corporate avarice, recently began a piece on inversions by writing: “What kind of country does this to itself?”

This is typical of the pro-corporate mindset: Big business, apparently, can do no wrong, so if a company does something controversial, it is the rest of us who are to blame.

In reality, many of the companies that have turned to inversions are not only tax dodgers; they are bad actors in other respects. Take the case of Medtronic, which is involved in the most recent re-registration deal involving a plan to merge with Covidien, a competitor in the medical devices industry that earlier turned itself into an “Irish” company.

Only a couple of weeks before the Covidien deal became public, the U.S. Justice Department announced that Medtronic would pay $9.9 million to resolve allegations under the False Claims Act that it made improper payments to physicians to get them to implant the company’s pacemakers and defibrillators in Medicare and Medicaid patients. The settlement came less than three years after Medtronic had to pay $23.5 million to resolve another False Claims Act case involving other kinds of improper inducements to physicians.

And five years before that, Medtronic paid $40 million to settle yet another kickback case. In 2010 the company had to pay $268 million to settle lawsuits claiming that defective wires in its defibrillators caused at least 13 deaths.

An even worse track record belongs to Pfizer, which attempted an inversion a couple of months ago by seeking to acquire Britain’s AstraZeneca but has backed off for now. In 2009 Pfizer agreed to pay $2.3 billion to resolve criminal and civil charges relating to the  improper marketing of Bextra and three other medications. The amount was a record for a healthcare fraud settlement. John Kopchinski, a former Pfizer sales representative whose complaint helped bring about the federal investigation, told the New York Times: “The whole culture of Pfizer is driven by sales, and if you didn’t sell drugs illegally, you were not seen as a team player.”

Like Medtronic, Pfizer has had problems with questionable payments. In August 2012 the SEC announced that it had reached a $45 million settlement with the company to resolve charges that its subsidiaries, especially Wyeth, had bribed overseas doctors and other healthcare professionals to increase foreign sales.

Or take the case of Walgreen, which is reported to be planning an inversion of its own. In 2008 it had to pay $35 million to settle claims that it defrauded the federal government by improperly switching patients to different version of three prescription drugs in order to increase its reimbursements from Medicaid. Last year, the Drug Enforcement Administration announced that the giant pharmacy chain would pay a record $80 million in civil penalties to resolve charges that it failed to properly control the sales of narcotic painkillers at some of its stores.

The examples could continue. Corporations resorting to extreme measures such as foreign re-incorporations are not innocent victims. Their tax dodging is just another symptom of corporate cultures that put profit maximization above loyalty to country and adherence to the law.