Archive for the ‘Environment’ Category

Volkswagen Deserves Its Day in Criminal Court

Thursday, October 1st, 2015

Volkswagen’s scheme to circumvent federal emissions regulations for millions of its cars cries out for tough prosecution. Yet it turns out that a little known loophole in the Clean Air Act exempts the automobile industry from criminal penalties.

EPA and Justice Department prosecutors are apparently considering whether criminal charges can be brought under other statutes, but it remains to be seen whether they will be successful. An inability to do so would be a major embarrassment for DOJ, which recently proclaimed its intention to move away from deferred prosecution agreements and get tougher with corporate culprits.

In case anyone questions the appropriateness of criminal charges in environmental cases, it is worth recalling that this approach has ample precedents. While it is true that many of the cases in the EPA’s criminal docket involve individuals at fly-by-night firms, that’s not always the case.

In fact, as part of the preparation for the Violation Tracker database my colleagues and I at Good Jobs First will release later this month, I’ve been going through the records. Here are some of the highlights:

The granddaddy of criminal environmental cases was the prosecution of BP for its role in the 2010 Deepwater Horizon disaster that killed 11 people and did untold damage to the Gulf of Mexico. In November 2012 BP pled guilty to environmental crimes (involving the Clean Water and Migratory Bird Treaty Acts) as well as felony manslaughter and obstruction of Congress. It was required to pay criminal fines and penalties of $4 billion.

In February 2013 Transocean, the company from which BP leased the ill-fated drilling rig, pleaded guilty to charges of violating the Clean Water Act in the period leading up to the accident and was sentenced to pay $400 million in criminal fines and penalties. Halliburton, which was responsible for cement work at the site, pleaded guilty to a charge of destroying evidence.

Oil companies are not the only defendants. In 2013 Wal-Mart Stores pleaded guilty to six counts of violating the Clean Water Act by illegally handling and disposing of hazardous materials at its retail outlets across the country. It had to pay $81 million in penalties.

This year, Duke Energy pleaded guilty to nine criminal violations of the Clean Water Act at several of its facilities in North Carolina and paid a $68 million criminal fine and was required to spend $34 million on environmental projects.

Volkswagen certainly belongs on this dishonor roll of environmental culprits. In fact, it probably deserves harsher punishment than even BP, given the brazen and intentional aspects of its behavior.

In reporting on the auto industry loophole, the Wall Street Journal quoted former Michigan Rep. John Dingell as justifying the provision by saying that civil penalties were “easier, speedier quicker” than criminal sanctions and warning regarding the latter: “The risk of them going out of business is very real.”

In cases such as this one, the convenience of prosecutors should not be a priority, and there are many people who may think that VW’s disappearance would not be a bad thing.

Think Irresponsible

Thursday, September 24th, 2015

volkswagen-clean-diesel-ad.w529.h352In the competition among industries to see which can act in the most irresponsible manner, we have a new winner. After nearly a decade during which banks and oil giants like BP were the epitome of corporate misconduct, the big automakers are now on top.

The news that Volkswagen inserted devices in millions of its “clean diesel” cars to disguise their pollution levels is the latest in a series of major scandals involving car companies. It comes on the heels of criminal charges against General Motors for failing to report a safety defect linked to more than 100 deaths. The Justice Department, unfortunately, deferred prosecution of those charges in a deal that required GM to pay $900 million. That looks like a bargain compared to the possibility that the EPA could sock Volkswagen, which once employed an ad campaign called Think Small, with penalties of some $18 billion.

Last year, Justice announced a deferred prosecution agreement with Toyota that required the Japanese company to pay $1.2 billion to settle charges that it tried to cover up the causes of a sudden acceleration problem. Later that year, Hyundai and Kia had to pay $100 million to settle DOJ and EPA allegations that they understated greenhouse gas emissions from more than 1 million cars and trucks.

This past July, Fiat Chrysler was hit with by the National Highway Traffic Safety Administration with a fine of $105 million — a record for that agency, which long had a cozy relationship with the industry — for deficiencies in its recall of defective vehicles.

Even Honda, which once had a squeaky clean reputation, was fined $70 million earlier this year by NHTSA for underreporting deaths and injuries relating to defective airbags. Those airbags were produced by the Japanese company Takata, which resisted making changes in its production process despite incidents in which the devices exploded violently, sending shrapnel flying into drivers and passengers.

The ascendance of the auto industry to the top of the corporate wrongdoing charts is actually an encore for what was a long-running performance. During the 1960s, GM inadvertently gave rise to the modern public interest movement in its ham-handed response to the issues raised by a young Ralph Nader about the safety problems of its Corvair compact. The 1970s were the era of the Ford Pinto with its fragile fuel tanks that blew up in even mild rear-end collisions. The 1990s were marked by the scandal over defective tires produced by Bridgestone/Firestone.

Although carmakers were not in the forefront of corporate misbehavior during the past decade, the industry’s record was far from unblemished. In 2005 VW presaged its current problems when it paid $1.1 million to the Justice Department to settle allegations that it failed to notify regulators and correct a defective oxygen sensor in more than 300,000 Golfs, Jettas and New Beetles.

And to make matters worse, through these decades the auto giants kept up a drumbeat of criticism of supposed regulatory excesses and, in the cases of GM and Chrysler, did not hesitate to ask for large bailouts when their markets collapsed.

The American love affair with the automobile has also put us in bed with corporate irresponsibility on a major scale.

Big Coal’s War on Its Workers

Thursday, August 27th, 2015

helmets_wide-b8e68ac63c226846ea9705fcf6fc13535c1b2b2e-s800-c85Fossil-fuel apologists have accused the Obama Administration of waging a war on coal in its effort to cut power plant greenhouse gas emissions. Yet the main source of the industry’s distress is the energy market, and the real war is the one coal companies have for years carried out against the health and safety of its workforce.

There’s no doubt that Big Coal is in trouble. One of the industry’s largest players, Alpha Natural Resources, recently filed for Chapter 11 bankruptcy protection, following the path taken by competitors such as James River Coal, Walter Energy and Patriot Coal. Financial weakness prompted the delisting of Alpha and Walter Energy from the New York Stock Exchange. Industry leader Peabody Energy has seen its share price tumble even before the current market tumult. It is now trading at around $2 a share, compared to $70 in 2011.

Given the outsize role played by coal in the climate crisis, it is difficult to work up much sympathy for the industry in its time of trouble. While it is tempting to simply let the dirty industry shrink towards disappearance, there needs to be a just transition for those who have risked their lives extracting the fossilized carbon from the ground.

The magnitude of that risk has been made clear to me recently in the preparatory work I’ve been doing for the Violation Tracker database my colleagues and I at Good Jobs First will release this fall. The initial version will cover penalties imposed by agencies such as the Environmental Protection Agency, the Occupational Safety & Health Administration and, most relevant to the current discussion, the Mine Safety & Health Administration.

Based on preliminary results, it now appears that coal mining companies will turn out to be among the corporations with the largest aggregate federal environmental, health and safety penalties during the past five years. The largest mining offender is Alpha Natural Resources, whose penalty tally will top $100 million.

That reflects the fact that Alpha is now home to two of the most controversial firms in U.S. mining history: Pittston Coal and Massey Energy. Pittston had a long record of environmental and safety violations before its operations were used in the creation of Alpha in 2002, but even more notorious was Massey, which was responsible, among other things, for the 2010 Upper Big Branch mining disaster in West Virginia that took the lives of 29 workers, the most fatalities in a U.S. coal accident in 40 years. In the wake of that disaster, which an independent report attributed to management failures, Alpha agreed to purchase Massey. We thus attribute Massey’s violations to it.

At least 20 other coal mining companies will show up in Violation Tracker with $1 million or more in total penalties. The largest amounts, in excess of $30 million each, will be linked to Murray Energy, whose head Robert Murray has vowed his firm will be the “last man standing” in the coal industry, and Patriot Coal.

Patriot, a spinoff from Peabody Energy, is a prime example of the vindictiveness of the coal industry toward miners. Its Chapter 11 filing earlier this year was its second in three years. In both cases the company has tried to use the bankruptcy court as a way to undermine its contractual commitments to United Mine Workers members and retirees, especially with regard to pension and health plan contributions. Its current move against worker benefits comes as the company, which is trying to sell off its assets, is awarding more than $6 million in executive bonuses.

A repeated health and safety violator and a raider of worker benefits. It’s hard to imagine anyone will be sad to see Patriot disappear.

Replacing Pinstripes with Prison Jumpsuits

Thursday, August 20th, 2015

Goodwin-1-e1440025102463-225x300We’ve just been treated to the rare sight of a corporate executive pleading guilty to criminal charges stemming from actions that harmed the public. This outcome was particularly satisfying given that the case was one that symbolized much of what is wrong with U.S. business and regulatory practices.

The culprit is Gary Southern, who was at the center of an incident last year in West Virginia whose details, I wrote at the time, sounded a parody: the company responsible for a toxic chemical leak into the Elk River that contaminated the water supply of hundreds of thousands of people and sickened many turned out to be named Freedom Industries and had been cofounded by a two-time convicted felon.

That felon was Carl Lemley Kennedy II, who was apparently no longer active in the company by the time the spill occurred. The man who had taken over was Southern, who is now a felon as well thanks to his plea on charges of violating the federal Clean Water Act. Five other Freedom executives had earlier admitted guilt and negligence in connection with an accident that U.S. Attorney Booth Goodwin (photo) called “completely preventable.” Southern faces up to three years in prison.

Goodwin had rejected calls to focus on restitution to the community and insisted on seeking prison time for Southern et al. “Executives are used to writing checks,” he said. “It sends a stronger message if they have to trade their three-piece suits for a prison jumpsuit.”

A similar get-tough-on-business-crime attitude was recently displayed by Manhattan District Attorney Cyrus Vance, who brought manslaughter charges against two construction managers (and the companies they worked for) in connection with the death of a worker earlier this year in an accident that occurred after the managers had, Vance alleged, ignored repeated warnings from inspectors about unsafe conditions on the site.

Let’s hope Goodwin’s message also gets through to prosecutors bringing cases against companies with a much bigger footprint than that of Freedom Industries and the New York construction firms. For a long time, large corporations and their top executives seemed to be immune from criminal prosecutions, no matter how serious the offense.

The Justice Department has started to give in to the pressure and get some big companies to plead guilty to criminal offenses, as occurred in May in a case involving allegations against Citicorp, JPMorgan Chase and other large banks in connection with the manipulation of foreign exchange markets.

Now it’s time for prosecutors to take the next step and bring individual criminal charges against Fortune 500 top executives involved in serious misconduct.

There’s no guarantee that a criminal conviction will completely reform a wayward businessperson. The Wall Street Journal has a piece about an accounting executive who, after being convicted of embezzlement and banned for life from the accounting profession, altered his name slightly (changing Stephen to Steven and adopting a different middle name) and went on providing accounting services with bogus credentials. The SEC eventually caught on and is going after him in court.

Yet we need to see whether individual prosecutions of top executives works. One way or another, we’ve got a find a way to bring an end to the corporate crime wave.

The Limits of the Koch Charm Offensive

Thursday, August 6th, 2015

koch_charlesCharles and David Koch and their Koch Industries conglomerate, long known for an unapologetic defense of unfettered capitalism and hard-right politics, are said to be going soft. The brothers are taking pains to associate themselves with more progressive policies such as criminal justice reform, while their corporation has been running feel-good ads highlighting its purported commitment to enlightened principles such as sustainability.

At the same time, the Kochs are depicting themselves as backers of supposedly responsible Republican presidential candidates and shunning iconoclastic front-runner Donald Trump.

The Koch charm offensive does have its limits. A slew of groups funded by the billionaires are at the forefront of the campaign against the Obama Administration’s Clean Power Plan and are doing their best to defend fossil fuels. When it comes to environmental policy, the Kochs are still in the stone age.

That position is not merely a matter of ideology. Their opposition to environmental and other safety regulations amounts to a defense of the way the Kochs do business.

This was made clear to me in some work I’ve been doing on a new research tool called Violation Tracker that my colleagues and I at Good Jobs First are preparing. Patterned on our Subsidy Tracker, the new resource will take company-specific data on regulatory violations and link the individual entries to the parent corporations of the culprits. This will allow us to present violation totals for large firms and show which of them are the most frequent offenders.

The initial version of Violation Tracker, which will be released this fall, will cover data from the Environmental Protection Agency, the Occupational Safety & Health Administration and a few other federal health and safety agencies. Coverage on wage and hour violations, financial sector transgressions and other forms of corporate misconduct will come later.

A preliminary tally of EPA and OSHA data from the past five years indicates that units of Koch Industries have been hit with more than $3.5 million in penalties. The biggest amount comes from Flint Hills Resources, the conglomerate’s oil refining arm. For example, in 2014 the company had to pay $350,000 and sign a consent decree to resolve EPA allegations that it was violating the Clean Air Act through flaring and leaking equipment.

Georgia-Pacific, the Koch Industries forest products company, received more than $600,000 in penalties during the five-year period. These included $60,000 in penalties proposed in January by OSHA in connection with worker exposure to formaldehyde and other dangerous substances.

In 2013 the fertilizer company Koch Nitrogen had to pay $380,000 to settle allegations that its facilities in Iowa and Kansas violated the Clean Air Act.

Regulatory violations by Koch businesses began before the five-year period that will be initially covered in Violation Tracker.

For instance, in 2000 the Justice Department and the EPA announced that Koch Industries would pay what was then a record civil environmental fine of $30 million to settle charges relating to more than 300 oil spills. Along with the penalty, Koch agreed to spend $5 million on environmental projects in Texas, Kansas and Oklahoma, the states where most of its spills had occurred. In announcing the settlement, EPA head Carol Browner said that Koch had quit inspecting its pipelines and instead found flaws by waiting for ruptures to happen.

Later in 2000, DOJ and the EPA announced that Koch Industries would pay a penalty of $4.5 million in connection with Clean Air Act violations at its refineries in Minnesota and Texas. The company also agreed to spend up to $80 million to install improved pollution-control equipment at the facilities.

In a third major environmental case against Koch that year, a federal grand jury in Texas returned a 97-count indictment against the company and four of its employees for violating federal air pollution and hazardous waste laws in connection with benzene emissions at the Koch refinery near Corpus Christi. The company was reportedly facing potential penalties of some $350 million, but in early 2001 the newly installed Bush Administration’s Justice Department negotiated a settlement in which many of the charges were dropped and the company pled guilty to concealing violations of air quality laws and paid just $10 million in criminal fines and $10 million for environmental projects in the Corpus Christi area.

In 2002 Koch Petroleum Group, the Koch entity involved in most of these environment problems, was renamed Flint Hills Resources. That name change was as cosmetic as the current charm offensive.

If the Kochs really want to improve their reputation, they should go beyond public relations and make fundamental alterations in their business practices.

Getting Tough with El Corpo

Thursday, July 16th, 2015

get_out_of_jail_freeAs part of my summer reading I’ve been taking another look at some of the key works of the past on corporate crime to consider their relevance for today.

One of the titles on my list is Russell Mokhiber’s Corporate Crime and Violence, which profiled three dozen of the most egregious cases of environmental, workplace hazard and defective product abuses that had occurred in the years leading up to the publication of the book in 1988. Among the culprits were Dow Chemical (Agent Orange), Occidental Petroleum (Love Canal), Johns Manville (asbestos), General Electric (PCBs) and Ford Motor (exploding Pintos).

Mokhiber, editor of the excellent newsletter Corporate Crime Reporter, also reviewed the debates on how to define and how to address corporate misconduct and presented his own “50-Point Law & Order Program to Curb Corporate Crime.”

What strikes me is how little has changed in the past 27 years. Now, as then, we are faced with a seemingly endless series of incidents in which large corporations have caused serious harm to communities, the environment, workers and consumers. BP has had to pay around $20 billion to settle the many charges and claims brought against it in connection with the Deepwater Horizon catastrophe in the Gulf of Mexico. An ignition switch defect that General Motors failed to correct has been linked to more than 100 deaths. Safety lapses by coal miner Massey Energy (now part of Alpha Natural Resources) allegedly led to a methane explosion that killed 29 workers.

One difference is that we now also have an epidemic of serious financial crimes by major banks. Bank of America, Citigroup, JPMorgan Chase and Wells Fargo have each had to pay billions to settle allegations relating to the sale of toxic securities in the period leading up to the financial, foreclosure abuses and other issues. European banks such as Credit Suisse, HSBC and UBS have paid billions more to U.S. and European regulators to settle issues such as tax evasion, violations of economic sanctions and manipulation of the LIBOR interest rate index.

As in 1988, there is little consensus these days on what to do about corporate miscreants. Mokhiber focused on the debate between two camps. On the one side were those who wanted to exempt corporations from criminal charges (because these non-human persons supposedly could not exhibit criminal intent or have a criminal state of mind) and instead use exclusively civil cases to extract more burdensome financial penalties.

On the other side were those, including Mokhiber, who called for applying criminal law more aggressively, arguing, among other things, that the stigma of a criminal conviction would serve as a powerful deterrent against corporate misconduct.

While the debate was never resolved, a quarter of a century later the remedies proposed by both camps have come to pass. Civil penalties have risen to unprecedented levels. Billion-dollar settlements are now commonplace in cases involving large corporations, and in a few cases such as BP, Bank of America and JPMorgan Chase, the payouts have reached eleven figures.

At the same time, settlements in which major corporations plead guilty to criminal charges are becoming more common. Responding to public pressure, the Justice Department first extracted such pleas from subsidiaries of foreign banks UBS and Credit Suisse; this year it got Citigroup and JPMorgan Chase to do the same in a case involving manipulation of foreign exchange markets.

The sad reality is that the application of penalties that seemed so bold in the 1980s seem to be doing little to chasten big business.

Corporations have adjusted to the big penalties, which in some cases are not as large as they seem because they may be tax deductible. The payments are seen as a cost of doing business, and even at their unprecedented levels, the costs are usually well below the financial benefits the culprit companies enjoyed from the illicit activity.

Being convicted felons has not changed things much for banks such as Citigroup and JPMorgan Chase. There is no sign that this stigma has cost them many customers, and their ability to continue to operate in regulated areas has been assisted by special waivers given to them by agencies such as the SEC.

Like the escaped Mexican drug lord called El Chapo, large corporations – El Corpo, so to speak – have an extraordinary and frustrating ability to neutralize measures designed to punish them for their misdeeds. If we are ever going to get corporate crime under control, we’ll have to get a lot more creative. Let’s hope it doesn’t take another 27 years to figure it out.

Subsidies and Bad Actors

Thursday, March 12th, 2015

coalashAre corporate subsidies a right or a privilege? Should a company’s accountability track record be a factor in determining eligibility? These questions take on increased relevance in light of two new developments.

The first is that utility giant Duke Energy is being fined $25 million by environmental regulators in North Carolina. The penalty, the largest in state history, relates to the contamination of groundwater by coal ash from Duke’s Sutton power plant near Wilmington. Federal prosecutors are reportedly pursing a separate and broader case against Duke in connection with its large spill of toxic coal ash from another plant into the Dan River.

The other development is that my colleagues and I at Good Jobs First are about to make public a new version of our Subsidy Tracker that for the first time extends coverage to the federal level (the release date is March 17). Without giving away too much ahead of time, I can say that Duke Energy is among the ten largest recipients of grants and allocated tax credits (those awarded to a specific company) for the period since 2000, with a total in the hundreds of millions of dollars.

Duke got about half of its subsidies in the form of grants from Energy Department programs designed to promote renewable energy and smart grid development. The other half came from a Recovery Act provision that allows companies to receive cash payments for the installation of renewable energy equipment.

Like other large utilities, Duke has taken steps in the direction of renewables while still deriving most of its power from fossil fuels and nuclear. Are federal subsidies helping to wean Duke off dirtier forms of energy, or are they simply enriching a company that is still committed to dirty energy and has shown some serious lapses in its management of its fossil fuel facilities?

Duke is hardly the only major subsidy recipient with a tainted track record. Previously, I discussed the fact that both U.S. banks and foreign banks that received huge amounts of bailout assistance later had to pay billions of dollars to settle allegations on issues such as currency market manipulation and abetting tax evasion.

Federal officials may argue that they were not aware of these practices when the bailouts happened (though these banks hardly had spotless records as of 2008), or they may claim that they had no choice but to bail them out, since they were too big to allow to fail.

Yet the list of large federal subsidy recipients includes other major corporate miscreants. Take the case of BP, which the new database will show as having receiving more than $200 million in federal grants and allocated tax credits. Much of that money postdates its 2010 catastrophe in the Gulf of Mexico, and even more came after the 2005 explosion at its Texas City, Texas refinery that killed 15 workers and for which the company $60 million in fines to the EPA and $21 million to OSHA.

In the wake of the Deepwater Horizon disaster, BP was barred from receiving federal contracts, though the debarment was later lifted. Perhaps an even stronger case can be made for disqualifying regulatory violators from receiving federal subsidies, since they are more akin to gifts than payment for goods or services rendered. This is not likely to happen anytime soon, but the release of the new Subsidy Tracker will make it a lot easier to identify which bad actors have been enjoying Uncle Sam’s largesse.

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.

Paying for Protection from Protests

Thursday, September 25th, 2014

grasberg_mine_11Responding to pressure from groups such as the International Corporate Accountability Roundtable, the Obama Administration has just announced that the United States will finally adopt a national action plan on combating global corruption, especially when it involves questionable foreign payments by transnational corporations that serve to undermine human rights. The White House statement notes that “the extractives industry is especially susceptible to corruption.”

True that. In fact, U.S.-based mining giant Freeport-McMoRan is an egregious case of a company that is reported to have made extensive payments to officials in the Indonesian military and national police who have responded harshly to popular protests over the environmental, labor and human rights practices of the company, which operates one of the world’s largest gold and copper mines at the Grasberg site (photo) in West Papua. There have been reports over the years that the U.S. Justice Department and the Securities and Exchange Commission were investigating the company for violations of the Foreign Corrupt Practices Act, but no charges ever emerged.

Here is some background on the story: Freeport moved into Indonesia in 1967, only two years after Suharto’s military coup in which hundreds of thousands of opponents were killed. The company developed close ties with the regime and was able to structure its operations in a way that was unusually profitable. Benefits promised to local indigenous people never fully materialized, and the mining operation caused extensive downstream pollution in three rivers.

Until the mid-1990s these issues were not widely reported, but then Freeport’s practices started to attract more attention. In April 1995 the Australian Council for Overseas Aid issued a report describing the oppressive conditions faced by the Amungme people living near the mine. It also described a series of protests against Freeport that were met with a harsh response from the Indonesian military. A follow-up press release by the Council accused the army of killing unarmed civilians. An article in The Nation in the summer of 1995 provided additional details, including an allegation that Freeport was helping to pay the costs of the military force.

In November 1995, despite reported lobbying efforts on the part of Freeport director Henry Kissinger, the Clinton Administration took the unprecedented step of cancelling the company’s $100 million in insurance coverage through the Overseas Private Investment Corporation because of the damage its mining operation was doing to the tropical rain forest and rivers (the human rights issue was not mentioned).

The company responded with an aggressive public relations campaign in which it attacked its critics both in Indonesia and abroad. Freeport also negotiated a restoration of its OPIC insurance in exchange for a promise to create a trust fund to finance environmental initiatives at the Grasberg site. Within a few months, however, Freeport decided to give up its OPIC coverage and proceeded to increase its output, which meant higher levels of tailings and pollution.

The criticism of Freeport continued. It faced protests by students and faculty members at Loyola University in New Orleans (where the company’s headquarters were located at the time) who called attention both to the situation in Indonesia and to hazardous waste dumping into the Mississippi River by Freeport’s local phosphate processing plant. Another hotbed of protest was the University of Texas, the alma mater of Freeport’s chairman and CEO James (Jim Bob) Moffett and the recipient of substantial grants from the company and from Moffett personally, who had a building named after him in return.

After its ally Suharto resigned amid corruption charges in 1998, Freeport had to take a less combative position. The company brought in Gabrielle McDonald, the first African-American woman to serve as a U.S. District Court judge, as its special counsel on human rights and vowed to share more of the wealth from Grasberg with the people of West Papua. But little actually changed.

Freeport found itself at the center of a new controversy over worker safety. In October 2003 eight employees were killed in a massive landslide at Grasberg that an initial government investigation concluded was probably the result of management negligence. A few weeks later, the government reversed itself, attributing the landslide to a “natural occurrence” and allowing the company to resume normal operations.

In 2005 Global Witness published a report that elaborated on the accusations that Freeport was making direct payments to members of the Indonesian military, especially a general named Mahidin Simbolon. In an investigative report published on December 27, 2005, the New York Times said it had obtained evidence that Freeport had made payments totaling $20 million to members of the Indonesian military in the period from 1998 to 2004. (A 2011 estimate by Indonesia Corruption Watch put company payments to the national police at $79 million over the previous decade.)

Reports such as these raised concerns among some of Freeport’s institutional investors. The New York City Comptroller, who oversees the city’s public pension funds, charged that the company might have violated the Foreign Corrupt Practices Act.

Back in Indonesia, protests escalated. In 2006 the military responded to anti-Freeport student demonstrations by instituting what amounted to martial law in the city of Jayapura. Around the same time, the Indonesian government released the results of an investigation by independent experts concluding that the company was dumping nearly 700,000 tons of waste into waterways every day. In 2006 the Norwegian Ministry of Finance cited Freeport’s environmental record in Indonesia as the reason for excluding the company from its investment portfolio.

In 2007 workers at the Grasberg mine staged sit-down strikes to demand changes in management practices along with improved wages and benefits. More strikes occurred in 2011. Two years later, more than two dozen workers were killed in a tunnel collapse at Grasberg. Indonesia’s National Commission on Human Rights charged that the company could have prevented the conditions that caused the accident.

Freeport’s questionable labor, environmental and human rights practices continue, yet aside from that OPIC cancellation two decades ago it has faced little in the way of penalties. It remains to be seen whether the new Obama Administration policy changes this sorry state of affairs.


Note: This piece draws from my new Corporate Rap Sheet on Freeport-McMoRan, which can be found here.

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.