Archive for the ‘Regulation’ Category

Congress’s Corporate Accountability Charades

Thursday, April 3rd, 2014

bosses_900In recent days we’ve seen reprises of that old stand-by from the Congressional repertoire: hearings in which members of the House and Senate express indignation at corporate misconduct. Like similar performances that have come before, these events provided some short-term gratification but in all likelihood will ultimately prove frustrating.

The designated whipping boys this week were General Motors and Caterpillar. Both are legitimate targets. GM is embroiled in one of the worst safety scandals in its history as a result of mounting evidence that for years it concealed evidence of an ignition-switch defect that has been tied to a large number of deadly accidents. Caterpillar is under the gun because of a new Senate report accusing it of using accounting gimmicks to avoid more than $2 billion in federal taxes.

At a hearing of the Senate Commerce committee, GM chief executive Mary Barra was confronted with statements such as “The public is very skeptical of GM,” “GM is not forthcoming” and “I think this goes beyond unacceptable. I believe this is criminal.”

The amazing thing is that these statements were coming from both Democrats and Republicans, who differed little in their critique of the automaker. The same can, for the most part, be said about Barra’s only slightly milder interrogation by the House Energy and Commerce investigative subcommittee. Several Republicans sought to score some political points by emphasizing GM’s previous status as a government-controlled corporation, and Tennessee Republican Marsha Blackburn asked Barra whether the company’s safety lapses were related to the federal bailout (Barra sidestepped the question). Yet they did not press too hard in that direction.

The transcripts of the two GM hearings (available via Nexis) paint a very different picture of Congress from what we usually see these days. As Rep. Peter Welch of Vermont stated in the House hearing: “I have to congratulate General Motors for doing the impossible. You’ve got Republicans and Democrats working together.”

There was a similar seriousness of purpose and absence of simple-minded partisanship in the Senate hearing on Caterpillar. Subcommittee chair Carl Levin, a Michigan Democrat who has done extensive work to highlight corporate tax dodging, was of course aggressive in grilling company executives about Caterpillar’s funneling of vast amounts of profit through a tiny Swiss subsidiary to take advantage of an artificially low tax rate.

Yet the company did not get much sympathy from the Republican members of the subcommittee either, though Wisconsin’s Ron Johnson did manage to interject a reference to “our uncompetitive tax system.”

The unfortunate truth is that hearings such as these end up being nothing but a charade in which members of Congress pretend for a while to be tough on an egregious case of corporate malfeasance before they go back to doing the bidding of the monied interests.

For example, New Hampshire Sen. Kelly Ayotte, who was the one calling GM’s behavior “unacceptable” and “criminal,” sought to weaken the Consumer Financial Protection Bureau last year. Nevada Sen. Dean Heller, who joined in the critical questioning of Barra, once introduced a bill to prevent the Environmental Protection Agency from introducing “job-crushing regulations.”

The problem extends to Democrats as well. Veteran Rep. John Dingell, who was awarded special deference at the House hearing, has long-standing ties to General Motors and the other big U.S. automakers, which have been among his strongest political supporters. His wife Debbie Dingell worked for GM for 30 years. When the 87-year-old Dingell announced earlier this year that he plans to retire from Congress, a GM spokesperson said:  “As a champion of the auto industry, John Dingell had no peer.”

If anything, the inclination of members of Congress to do the bidding of business will only increase, now that the Supreme Court has struck down limits on total amounts wealthy individuals can give to candidates, party committees and PACs. Chief Justice John Roberts wrote: “Money in politics may at times seen repugnant to some, but so too does much of what the First Amendment vigorously protects.”

By once again equating money with speech, Roberts is ensuring that those with the most of it, including giant corporations, are the ones to which Congress, apart from brief periods of public interest grandstanding, will bow.

Coal Ash Taints a Would-Be Corporate Paradise

Thursday, March 27th, 2014

DanRiverAshPipeIt took a spill of tens of millions of gallons of water contaminated with toxic coal ash into a river used as a source of drinking water to put a halt to what was starting to look like a corporate coup in North Carolina. Duke Energy, the owner of the retired Dan River power plant in the town of Eden where the accident took place in early February, is now under siege, as is the governor who was doing its bidding.

North Carolina’s Department of Environment and Natural Resources (DENR) cited Duke Energy for “deficiencies” at the site of the spill and later charged the company with regulatory violations at other coal ash storage locations. DENR officials accused Duke, for instance, of deliberately pumping 61 million gallons of toxic slurry into the Cape Fear River several weeks after the Dan River accident. A federal criminal investigation that also covers DENR practices is also reported to be underway.

The actions were long overdue. Based in Charlotte, Duke is one of the largest utilities in the country, and it has long intimidated state regulators.  The Charlotte Observer looked into the matter and found that over the past decade the company has been fined only four times during the past decade, paying less than $4,000.

Duke gained even more sway over the agency last year after Pat McCrory took office as governor. McCrory was Duke’s guy — not just in the sense that the company supported him — but because McCrory was a manager at Duke for three decades, including the 14 years he was also serving as the mayor of Charlotte. McCrory is one of the most egregious examples of the reverse revolving door: the movement of someone from the private sector into government.

McCrory brought his corporate sensibilities with him to the governor’s job and set out to make state government even more friendly to companies such as his long-time employer. One of the areas in which this was most pronounced was in environmental policy. With the support of far-right legislators, McCrory appointed businessman John Skvarla to head DENR with the apparent intention of defanging the agency. Agency staffers were told to focus on expediting permits rather than enforcement. As the New York Times has put it:

Current and former state regulators said the watchdog agency, once among the most aggressive in the Southeast, has been transformed under Gov. Pat McCrory into a weak sentry that plays down science, has abandoned its regulatory role and suffers from politicized decision-making.

McCrory’s apparent use of public office to advance the interests of Duke goes back more than 15 years. In 1997, while mayor of Charlotte, he testified before a Congressional committee in opposition to tougher air-quality standards that would have required Duke to install costly new emission controls at its coal-burning plants. Then he flew home on Duke’s corporate jet. The North Carolina Supreme Court once raised ethical questions about McCrory’s actions in connection with a decision by Charlotte to condemn a tract of land to help Duke Power obtain an easement.

Throughout his political career, McCrory has insisted that there was no conflict of interest between his position as a manager at a major corporation and his role as a public official. The recent coal ash controversies are stretching that dubious contention to the limit. The governor has been forced to take a more positive stance toward regulation while insisting that he has not had direct communications with his former employer about its coal ash problems. The new image took a hit when it came out that the lawyer hired by DENR to represent it in the federal criminal investigation once represented Duke. Echoing McCrory’s frequent refrain about himself, an agency spokesperson insisted that this was absolutely no conflict of interest.

The coal ash spills have created a serious health problem for the people of North Carolina, but they have also served the useful purpose of debunking the corporate paradise that McCrory and his allies have tried to create. Along with the remarkable Moral Monday protests against the retrograde policies adopted by the state legislature, the new awareness of environmental carelessness on the part of companies like Duke is making it more difficult for business interest to masquerade as the public interest.

Freedom to Pollute

Thursday, January 16th, 2014

freedomindustriesRecent news reports out of West Virginia sound like they were written as part of a parody of modern business: the company responsible for a chemical leak that contaminated the water supply of hundreds of thousands of people is named Freedom Industries and was cofounded by a two-time convicted felon.

The situation, however, is far from a joke. Freedom Industries spilled a substantial quantity of a substance called 4, methylcyclohexane methanol (MCHM) into the Elk River near the intake valve for a water treatment plant serving the Charleston area, sending more than 150 people to the hospital and forcing residents to use bottled water for drinking, cooking and bathing. The plume is now heading toward Cincinnati.

As is all too common in such incidents, it turns out that the 75-year-old facility where the rupture took place had not been visited by government inspectors for more than 20 years. In fact, as a storage rather than a production facility, it was subject to little in the way of federal or state oversight. So much for the idea of regulatory excess.

Given that MCHM is used to process coal, this accident adds to the heavy toll that mining has taken on West Virginia—from the Buffalo Creek flood in 1972 to the Upper Big Branch disaster in 2010 in which 29 miners were killed. It is also significant that Freedom Industries purchases MCHM, for which it serves as a distributor, from a subsidiary of Georgia-Pacific, which in turn is controlled by the rabidly anti-regulation Koch Brothers.

To all this can be added the fact that Freedom Industries was cofounded by an individual named Carl Lemley Kennedy II. As the Charleston Gazette has reported, Kennedy filed for personal bankruptcy in 2005 after he was hit with federal charges of tax evasion and failure to remit employee withholding taxes. He is reported to have admitted to diverting more than $1 million that should have gone to the Internal Revenue Service.

Kennedy’s involvement in Freedom Industries, the Gazette notes, does not seem to have been affected by the fact that he had once pleaded guilty to selling cocaine in connection with a scandal that involved the mayor of Charleston. The paper quotes the current mayor, who is said to have known Kennedy since the 1980s, as an “edgy guy.”

Another remarkable aspect of the story reported by the Gazette is that Freedom Industries was struggling in 2009, and its Elk River facility was able to go on functioning only after the Army Corps of Engineers dredged that portion of the river using federal stimulus funds.

To summarize: a tax evader and drug dealer helped to establish a largely unregulated chemical company that benefitted from the federal stimulus but apparently did little in the way of preventive maintenance and set the stage for large-scale drinking water contamination.

Large corporations such as Dow Chemical and Exxon Mobil have caused vast amounts of environmental damage, but it shouldn’t be forgotten that small-time operators such as Freedom Industries can also do substantial harm. And it is not just producers of hazardous materials but also distributors that can be the culprits. It was another small distributor, West Fertilizer, that was involved in the ammonium nitrate explosion in Texas last April that killed 15 people. Much of the reporting in the wake of that event, particularly with respect to holes in the regulatory system, could have been recycled for the new West Virginia accident.

As long as the illusion of regulation is perpetuated in place of the real thing, these accidents will continue to happen, and the right to pollute will trump the right to be safe from pollution.

The 2013 Corporate Rap Sheet

Thursday, December 19th, 2013

Monopoly_Go_Directly_To_Jail-T-linkThe ongoing corporate crime wave showed no signs of abating in 2013. Large companies continued to break the law, violate regulations and otherwise misbehave at a high rate. Whatever lip service the business world gives to corporate social responsibility tends to be overwhelmed by bad acts.

Continuing the trend of recent years, 2013 saw an escalation of the amounts that companies have to pay, especially in the United States, to get themselves out of their legal entanglements. In November JPMorgan Chase set a record with its $13 billion settlement with the U.S. Department of Justice and other state and local agencies on charges relating to the sale of toxic mortgage-backed securities. JPMorgan’s legal problems are not over. There have recently been reports that it may face criminal charges and pay $2 billion in penalties in connection with charges that it turned a blind eye to the Ponzi scheme being run by Bernard Madoff while it was serving as his primary bank.

Other banks have also been shelling out large sums to resolve disputes over the sale of toxic securities in the run-up to the financial crisis. Much of the money has gone to settlements with mortgage agencies Fannie Mae and Freddie Mac. Bank of America alone agreed to pay out $10.3 billion ($3.6 billion in cash and $6.75 billion in mortgage repurchases) to Fannie.

Here are some of the year’s other highlights (or lowlights):

FORECLOSURE ABUSES. In January, ten mortgage servicing companies–including Bank of America, Citibank and JPMorgan Chase–agreed to an $8.5 billion settlement to resolve allegations by federal regulators relating to foreclosure abuses.

LIBOR MANIPULATION. In February, U.S. and UK regulators announced that the Royal Bank of Scotland would pay a total of $612 million to resolve allegations relating to rigging of the LIBOR interest rate index. In December, the European Union fined RBS and five other banks a total of $2.3 billion in connection with LIBOR manipulation.

ILLEGAL MARKETING. In November, the Justice Department announced that Johnson & Johnson would pay more than $2.2 billion to settle criminal and civil allegations that it improperly marketed the anti-psychotic drug Risperdal for unapproved use by older adults, children and people with development disabilities.

SALE OF DEFECTIVE MEDICAL IMPLANTS. Also in November, Johnson & Johnson agreed to pay more than $2 billion to settle thousands of lawsuits charging that the company sold defective hip implants, causing many individuals to suffer severe pain and injury from metallic debris generated by the faulty devices.

INSIDER TRADING. In March, the SEC announced that an affiliate of hedge fund giant SAC Capital Advisors had agreed to pay $602 million to settle SEC charges that it participated in an insider trading scheme involving a clinical trial for an Alzheimer’s drug being jointly developed by two pharmaceutical companies. At the same time, a second SAC affiliate agreed to pay $14 million to settle another insider trading case. Later, SAC agreed to pay $1.2 billion to settle related criminal and civil insider trading charges.

PRICE-FIXING. In July, German officials fined steelmaker ThyssenKrupp the equivalent of about $115 million for its role in a price-fixing cartel. In September, the U.S. Justice Department announced that nine Japanese automotive suppliers had agreed to plead guilty to price-fixing conspiracy charges and pay more than $740 million in criminal fines, with the largest amount ($195 million) to be paid by Hitachi Automotive Systems.

MANIPULATION OF ENERGY PRICES. In July, the Federal Energy Regulatory Commission ordered Barclays and four of its traders to pay $453 million in civil penalties for manipulating electricity prices in California and other western U.S. markets during a two-year period beginning in late 2006.

BRIBERY. In May, the Justice Department announced that the French oil company Total had agreed to pay $398 million to settle charges that it violated the Foreign Corrupt Practices Act by paying bribes to officials in Iran.

VIOLATION OF DRUG SAFETY RULES. In May, DOJ announced that generic drug maker Ranbaxy USA Inc., a subsidiary of the Indian company Ranbaxy Laboratories, had pleaded guilty to felony charges relating to the manufacture and distribution of adulterated drugs and would pay $500 million in fines.

VIOLATION OF RULES ON THE SALE OF NARCOTICS. In June, the U.S. Drug Enforcement Administration announced that the giant Walgreen 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.

DEALINGS WITH ENTITIES SUBJECT TO SANCTIONS. In June, New York officials announced that Bank of Tokyo Mitsubishi-UFJ had agreed to pay $250 million to settle allegations that it violated state banking laws by engaging in transactions with entities from countries such as Iran subject to sanctions.

LABOR LAW VIOLATIONS. In November, the National Labor Relations Board found that Wal-Mart had illegally disciplined and fired workers involved in protests over the company’s labor practices. A Wal-Mart spokesperson was found to have unlawfully threatened employees who were considering taking part in the actions.

CLEAN WATER ACT VIOLATIONS. In May, the Environmental Protection Agency announced that Wal-Mart had pleaded guilty to charges that it illegally disposed of hazardous materials at its stores across the country. The company had to pay $81.6 million in civil and criminal fines.

HEALTH AND SAFETY CODE VIOLATIONS. In August, Chevron pleaded no contest and agreed to pay $2 million to settle charges that it violated state health and safety regulations in connection with a fire at its refinery in Richmond, California that sent thousands of people to hospital for treatment of respiratory problems.

DELAYS IN RECALLING UNSAFE VEHICLES. In August, Ford Motor was fined $17.4 million by the National Highway Traffic Safety Administration for taking too long to recall unsafe sport utility vehicles.

PRIVACY VIOLATIONS. In November, Google agreed to pay $17 million to 37 states and the District of Columbia to settle allegations that the company violated privacy laws by tracking online activity of individuals without their knowledge.

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

Corporate Sponsorship of Rick Perry’s Partisan Job Piracy

Thursday, September 19th, 2013

perry_cash“If you want to live free — free from overtaxation, free from overlitigation, free from overregulation … move to Texas.” That’s the pitch Texas Gov. Rick Perry just made to business executives in Maryland in the latest of his brazenly partisan job-poaching trips to states led by Democratic governors. In advance of the trip, Perry ran ads that explicitly criticized Maryland’s Martin O’Malley, claiming to business owners that “unfortunately, your governor has made Maryland the tax and fee state.”

In an earlier trip to Missouri, Perry’s meddling in another state’s policymaking was even more direct. Arriving amid a debate over a veto by Gov. Jay Nixon of a regressive tax-cut bill, Perry gave a speech in which he appealed to legislators:  “Grow Missouri! Override that veto!” (The override failed.)

My colleagues and I at Good Jobs First have just published a report questioning whether Perry’s partisan job piracy is being financed in part with taxpayer dollars. Many of the dues-paying members of TexasOne, the entity paying for Perry’s trips, are municipal economic development corporations, which receive a portion of local sales tax receipts.

It turns out that an even larger share, roughly half, of TexasOne’s budget comes from the payments made by businesses. Corporations enjoying the benefits of Perry’s laissez-faire policies in Texas are bankrolling him to spread that gospel to Blue States while he tries to steal their jobs and simultaneously raises his personal political profile on the national stage.

The cozy relationship between Perry and Texas big business is nothing new. As Texans for Public Justice has shown in a long series of reports, Perry has perfected the art of crony capitalism during his dozen years in the governor’s office. Companies whose executives and investors have been among the most generous contributors to Perry’s races show up on lists of the largest state contractors and the recipients of state economic development subsidies, and they tend to get favorable treatment from regulatory agencies run by Perry appointees.

This pattern extends to the companies participating in TexasOne. For example, Shell Oil ($50,000 in annual payments to TexasOne) received a $2 million subsidy award (for its Motiva refinery joint venture) from the Perry-controlled Texas Enterprise Fund. Road-builder Williams Brothers Construction ($25,000 a year to TexasOne according to one source; $100,000 a year according to another) has received hundreds of millions of dollars in contracts from the Texas Department of Transportation.

The Public Utility Commission of Texas, whose members are appointed by the governor, awarded huge contracts to a group of companies to build transmission lines from wind farms in the western part of the state to the major population centers in central Texas. One of these contracts, worth $1.3 billion, was awarded to Oncor Electric Delivery (a $25,000 member of TexasOne).

On the regulatory front, a prime example is Contran Corporation, which is currently paying $100,000 a year to TexasOne. Contran is the holding company controlled by Dallas billionaire Harold Simmons, a heavy contributor to Perry’s state races. Contran ponied up $1 million for the super PAC that backed Perry’s 2012 presidential race. Earlier, the Texas Commission on Environmental Quality, whose members are also appointed by the governor, awarded a franchise for a low-level nuclear waste dump to a subsidiary of Contran called Waste Control Specialists.

In 2011, after Waste Control was granted controversial permission to store nuclear material brought in from other states, a Dallas Morning News editorial (January 11, 2011) declared: “Far too much about this process stinks of the influence that one very rich person wields as a million-dollar campaign contributor to Gov. Rick Perry.”

Major contributors to TexasOne include large corporations such as AT&T and Capital One with business interests that extend far beyond the borders of Texas. Some of these, such as Verizon, are headquartered in states targeted by Perry’s partisan job-poaching trips.

It is unclear whether these companies realize the potential problems they could face by helping to sponsor Perry’s attack on governors in states where they have a significant presence. They could alienate their political allies in those states and might also incur the wrath of their residents.

We’ve seen how consumer-oriented companies can risk losing customers if they are identified as financial backers of controversial groups or causes. Dozens of large companies ended their membership in the American Legislative Exchange Council (ALEC) when it became identified with heated issues such as minority voter suppression and stand-your-ground gun laws.

For companies serving national markets, bankrolling high-profile and partisan interstate job piracy could also become risky business.

Auto Safety Lapses Evoke the Bad Old Days

Thursday, August 22nd, 2013

Ford_pays__17_4_million_to_settle_recall_801160000_20130801222604_640_480The Big Three carmakers, once considered the epitome of corporate irresponsibility, have been viewed in a more favorable light in recent years.

After their near-death experience of a few years back—during which two of them, General Motors and Chrysler, went bankrupt and had to be rescued by the federal government—the consensus seems to be that they have cleaned up their act. They are also being rewarded in the marketplace, where Detroit’s sales have been booming.

It is true that the Big Three are no longer exclusively focused on gas-guzzling SUVs or death traps such as the Pinto. GM is promoting its electric Volt rather than dodging Michael Moore. Yet there have been some indications recently that the giant automakers may be slipping back into old habits.

Recently, the National Highway Traffic Safety Administration fined Ford Motor $17.35 million for taking too long to recall more than 400,000 SUVs that were susceptible to sudden acceleration, a problem that was linked to at least one death and nine injuries in crashes.

If you hadn’t heard about this case, it may have been because NHTSA decided not to issue a press release about the penalty. Word got out and the matter received modest coverage in a few newspapers. It was only the Corporate Crime Reporter that gave the story the prominence it deserved: front-page treatment.

The Ford penalty came a couple of months after Chrysler took the unusual step of refusing to acquiesce to NHTSA’s request that it recall 2.7 million Jeeps the agency contends are defective and prone to fires in the event of rear-impact collisions. Chrysler, now controlled by Italy’s Fiat, later relented but applied the recall to only 1.6 million vehicles. Moreover, its fix for the problem—installing trailer hitches on the vehicles—was dismissed as inadequate by the watchdog Center for Auto Safety, had been responsible for bringing the defect to light.

One would think that Ford, in particular, would be more diligent on safety issues, given the hard lessons of its past. This was the company, after all, that produced those ill-fated Pintos, whose unshielded fuel tanks near the back of the fragile compacts caused horrific explosions in rear-end collisions. Evidence later emerged that Ford was aware of the vulnerability of the gas tank, but went ahead with production of the car. In one civil case a jury awarded $125 million in damages (reduced by the judge to $3.5 million).

Ford was also embarrassed by reports that many of its cars with automatic transmissions produced during the 1970s had a tendency to slip from park into reverse. In 1981 federal regulators forced the company to send warning notices to purchasers of some 23 million vehicles about the problem. Ford may not have been happy about this, but it was a lot less onerous than the massive recall of the cars that had been urged by public interest groups.

In 1996 Ford gave in to public pressure and agreed to pay for replacing ignition switches on more than 8 million cars and trucks that were prone to short circuits that could cause fires. In 1998 State Farm, the largest auto insurer in the United States, sued Ford, charging that the company withheld information about the potential fire hazard from federal regulators and the public.

In 1999 NHTSA hit Ford with a $425,000 fine in the matter. An investigation later revealed evidence that Ford knew about ignition defects, which also sometimes caused vehicles to stall out while making turns, but remained silent. A California judge then ordered the recall of an additional two million vehicles—the first time a U.S. court had ever taken such an action against automaker.

In 2000 Bridgestone/Firestone announced a massive recall of tires, most of which had been installed on Ford sport-utility vehicles and light trucks. Ford alleged that the tire company had known of the defects for several years. Information later came out suggesting that Ford, as well as Bridgestone/Firestone, had known of the tire defects long before the recalls were announced.

An  investigation by the New York Times found that in the 1980s Ford had taken a number of design shortcuts that raised the risk of rollover accidents in what would become its wildly popular Explorer SUV.

What a track record. Let’s hope we are not returning to those bad old days of automaker recklessness.

 

Note: The latest addition to my CORPORATE RAP SHEETS is a dossier on Monsanto, the bully of agricultural biotechnology. Read it here.

Cadillacs versus Corollas in the Healthcare Debate

Thursday, August 8th, 2013

solidgoldcadillacOver the past couple of years it has appeared that critics of the Affordable Care Act were virtually all die-hard Tea Party types who couldn’t accept reality, including a ruling of the U.S. Supreme Court.

We are now seeing reminders that those who have misgivings about the ACA are not only those misguided souls who believe it amounts to a government takeover of healthcare.

One group that had raised objections to at least part of the plan are now finding that a compromise they made is coming back to haunt them. That group is the labor movement, particularly public sector unions, which had questioned the dubious decision of Senate Democrats and the Obama Administration to include an excise tax on higher-cost health plans when drafting the ACA; the provision was designed to help fund the costs of subsidizing new coverage for the uninsured.

That decision was particularly galling because Obama had strongly opposed John McCain’s proposal for health plan taxation during the 2008 Presidential campaign. Unions denounced the provision, but in early 2010 they agreed to support a modified version of it. The modifications included a delay in its effective date (until 2018 for plans covering state and local government employees or ones covered by collective bargaining agreements) and an increase in the threshold levels above which the tax would apply.

The issue has been little discussed during the past three years, but now there are reports that local governments across the country are using the coming excise tax to pressure public employee unions to accept less expensive coverage—i.e., plans in which the worker pays more and gets less—or face the prospect of other contract concessions or layoffs.

What the proponents of the excise tax chose to ignore is that unions, especially in the public sector, have often focused on negotiating better benefits because significant wage increases were not possible, either for political or fiscal reasons. In other words, better benefits were not a giveaway to public unions, as anti-government types like to claim, but rather a form of compensation for insufficient pay rates.

When the excise tax was being debated in 2009, proponents misleadingly referred to it as applying only to “Cadillac” plans. It was meant to give the impression that only luxurious coverage of the type offered to corporate executives would be affected. Now it appears that those who drive Corollas may get hurt most by the provision.

The labor movement is also worried that the ACA will weaken the multiemployer benefit plans that some unions negotiate for their members. The concern is that unionized small employers participating in those plans will be end up in a competitive disadvantage compared to non-union competitors which will be able to purchase lower-cost group coverage through the Exchanges being created by the ACA.

Last month the Wall Street Journal reported that the heads of three major unions—the Teamsters, the Food and Commercial Workers and Unite Here—were trying to get the Administration to do something about ACA’s impact on multiemployer plans but were being “stonewalled.” The unions are also concerned that the law prevents low-wage workers in group plans from gaining access to the premium and cost-sharing subsidies that will be available to those who purchase individual coverage through the Exchanges.

The lack of action in response to labor concerns contrasts with the surprise announcement last month by the Administration that it was delaying the implementation of the ACA provisions imposing financial penalties on certain employers that fail to provide affordable group coverage to their workers. The post on the White House website was entitled WE’RE LISTENING TO BUSINESSES ABOUT THE HEALTH CARE LAW.

Despite the scare-mongering that has been going on in parts of the media, the penalties for failing to provide group coverage (or for providing unaffordable coverage) are far from onerous. To begin with, they don’t apply to employers with fewer than 50 full-time workers, and the penalties don’t actually kick in unless there are more than 80 full-timers. Penalties are calculated according to the number of full-timers only, ignoring part-timers and seasonal workers.

And the penalties don’t apply at all unless one of the workers denied affordable group coverage on the job qualifies for a premium or cost-sharing subsidy when purchasing individual coverage through an Exchange. Those subsidies will not be available to anyone with household income above 400 percent of the federal poverty line. This means that even larger employers that fail to provide decent coverage but whose pay rates are somewhat above poverty levels may be able to skirt the penalties entirely.

Perhaps the Obama Administration should be listening a bit less to business and more to workers and their unions.

Deregulation Crashes and Burns

Thursday, July 11th, 2013

Canada’s Transportation Safety Board is far from reaching a conclusion on what caused an unattended train with 72 tanker cars filled with crude oil to roll downhill and crash into the Quebec town of Lac-Megantic, setting off a huge explosion that killed at least 15 people. But that hasn’t stopped Edward Burkhardt, the chief executive of the railroad, from pointing the finger at everyone in sight — except himself.

Burkhardt first tried to blame local firefighters who had extinguished a small blaze in the train before the larger accident, and now he is accusing his own employee — the person who was operating the train all by himself — for failing to apply all the hand brakes when he parked the train for the night and went to a hotel for some rest after his 12-hour shift.

Whatever were the immediate causes of the accident, Burkhardt and his company — Montreal, Maine & Atlantic (MMA) Railway and its parent Rail World Inc. — bear much of the responsibility.

Burkhardt is a living symbol of the pitfalls of deregulation, deunionization, privatization and the other features of laissez-faire capitalism. He first made his mark in the late 1980s, when his Wisconsin Central Railroad took advantage of federal railroad deregulation, via the 1980 Staggers Rail Act, to purchase 2,700 miles of track from the Soo Line and remake it into a supposedly dynamic and efficient carrier. That efficiency came largely from operating non-union and thus eliminating work rules that had promoted safety.

Wisconsin Central — which also took advantage of privatization to acquire rail operations in countries such as Britain, Australia and New Zealand — racked up a questionable safety record. Burkhardt was forced out of Wisconsin Central in a boardroom dispute in 2001, but he continued his risky practices after his new company, Rail World, took over the Bangor and Aroostook line in 2003 and renamed it MMA.

Faced with operating losses, Burkhardt and his colleague Robert Grindrod targeted labor costs with little concern about the safety consequences. In 2010 the Bangor Daily News reported that MMA was planning to reduce its crews to one person in Maine, which, amazingly, was allowed by state officials. Grindrod blithely told the newspaper: “Obviously, if you are running two men on a crew and switch to one man, you’re saving 50 percent of your labor component.” The company also succeeded in getting permission for one-man crews in Canada.

Inadequate staffing may have also played a role in a 2009 incident at an MMA maintenance facility in Maine in which more than 100,000 gallons of oil were spilled during a transfer in the facility’s boiler room. In 2011 the EPA fined the company $30,000 for Clean Water Act violations.

MMA continued to have safety problems even before the Lac-Megantic disaster. The Wall Street Journal reported that MMA had 23 accidents, injuries or other reportable mishaps from 2010 to 2012 and that on a per-mile basis the company’s rate was much higher than the U.S. national average.

The Lac-Megantic accident is prompting calls in Canada for a reconsideration of the policy of allowing a high degree of self-regulation on the part of the railroads. A review of lax regulation, including the elimination of work rules, should also occur in the United States. There’s also a scandal in the fact that railroads like MMA are still allowed to use outdated and unsafe tanker cars.

Yet some observers are seeking to exploit the deaths in Quebec by making the bizarre argument that the real lesson of the accident is the need to rely more on pipelines rather than railroads to carry the crude oil gushing out of the North Dakota Bakken fields (the content of the MMA tankers) and the tar sands of Canada. North Dakota Senator John Hoeven, for instance, is using the incident to argue the need for the controversial XL Pipeline.

How quickly these people forget that the safety record of pipelines is far from unblemished. Hoeven’s neighbors in Montana are still recovering from the 2011 rupture of an Exxon Mobil pipeline that spilled some 40,000 gallons of crude oil into the Yellowstone River.

The problem is not the particular delivery system by which hazardous substances are transported but the fact that too many of those systems are under the control of executives such as Burkhardt who put their profits before the safety of the public.

The Other Form of Violence

Thursday, April 18th, 2013

west-texas-fertilizer-plant-explosion-2Newscasts these days often seem to be less a form of journalism than a kind of bizarre game show for paranoids: what horrible possibility should one worry about the most?

Most of the time, the main choice is between terrorism and gun violence, especially in recent days as the Boston Marathon bombings have shared the airwaves with the gun control debate in the Senate.

Now the horrific events in a small town in Texas provide a reminder of another danger, which for most of the population is actually a more significant threat: industrial accidents. As of this writing, the explosion at a fertilizer plant near Waco is reported to have killed up to 15 people and injured more than 180 others.

If the past is any guide, the attention paid to this incident on a national level will fade much faster than the anxiety about the carnage in Boston or the massacre at Sandy Hook Elementary in Connecticut. The response of most people to terrorism and to gun deaths is to demand that government do something to curb the violence. When people die or are seriously injured in workplace incidents, there is a tendency not to see that as violence at all but rather as an unfortunate side effect of doing certain kinds of business. While labor unions and other advocates push for stronger enforcement of safety laws, corporations and their front groups usually succeed in keeping such regulation as weak as possible.

The truth is that corporations often show a brazen disregard for the safety of their employees—and nearby residents. Probably the biggest workplace assailant in recent years has been BP, which even before the 2010 explosion at its oil rig in the Gulf of Mexico that killed 11 workers had been cited for atrocious safety violations at its refinery in Texas City, Texas, where 15 workers were killed and about 180 injured in a 2005 explosion.

BP initially agreed to pay a then-record $21.4 million in fines for nearly 300 “egregious” violations at the refinery, but in 2009 OSHA announced that the company was not living up to its obligations under the settlement and proposed an even larger fine–$87.4 million–against the company for allowing unsafe conditions to persist. BP challenged the fine and later agreed to pay $50.6 million. Apparently deciding it could not run the refinery safely, BP announced in 2012 that it was selling the facility.

In the list of the all-time largest fines in OSHA’s history, BP is at the top of the list. It’s interesting that the next largest fine involved another fertilizer company—IMC Fertilizer, which along with Angus Chemical was initially fined $11.6 million (negotiated down to about $10 million) for violations linked to a 1991 explosion at a plant in Louisiana in which eight workers were killed and 120 injured.

The new incident at the fertilizer plant in Texas shows that risky business behavior is not limited to corporate giants. While many press accounts refer to the plant as West Fertilizer Co., the corporate entity is actually Adair Grain Inc., which according to Dun & Bradstreet has only eight employees and annual revenues of only a few million dollars.

Although the facility’s listing in the EPA’s ECHO enforcement database shows no violations and no inspections during the past five years (the period covered by ECHO), there have been press reports of an earlier citation for failing to have a risk management plan. The facility did not get an air pollution permit until 2007, after there were complaints about foul odors from the site. Last year, the company was fined all of $10,100 by the Pipeline and Hazardous Materials Safety Administration for violations in the transportation of anhydrous ammonia. There is no indication in the OSHA database that the facility has ever been inspected.

It’s the same old story: a dangerous industrial facility with limited regulatory oversight finally creates death and destruction.

Footnote: Until the accident, the only time Adair Grain rose out of obscurity was in 2007, when under the name of its affiliate Texas Grain Storage it filed a federal lawsuit against Monsanto, charging it with anticompetitive practices in its sale of Roundup herbicides (U.S. District Court for the Western District of Texas civil case SA-07-CA-673-OG). The case, which was brought with the involvement of ten mostly out-of-state law firms and sought class action status, appears to be dormant.

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The latest addition to CORPORATE RAP SHEETS is dossier on agribusiness giant Cargill, whose record includes some of the largest meat recalls in U.S. history and repeated workplace safety violations, including several at fertilizer plants it used to own. Read the Rap Sheet here.

Ending the Corporate Crime Wave

Thursday, March 7th, 2013

Stop Corporate CrimeThe top executives of giant corporations may still effectively be immune from criminal prosecution for their misdeeds, but the financial penalties imposed on their companies by regulators are beginning to be felt in the bottom line. The question is whether plunging profits are enough to get corporate malefactors to clean up their act.

In February, the Swiss bank UBS posted a quarterly loss of $2.1 billion (and an annual loss of more than $2.7 billion), largely reflecting the $1.5 billion it paid to resolve charges brought by U.S., Swiss and British prosecutors in connection with the bank’s role in manipulating the LIBOR interest rate index.

Recently, the British bank HSBC reported a 17 percent decline in profits brought about to a great extent by the $1.9 billion in penalties it had to pay to resolve allegations by U.S. regulators that its lax internal controls against money laundering aided customers with links to drug trafficking and terrorism.

Oil giant BP noted that its 2012 results were affected by a “net adverse impact” of more than $5 billion relating to the Gulf of Mexico oil spill, for which the company had to pay $4 billion to resolve charges brought by U.S. prosecutors.

GlaxoSmithKline’s announcement of 2012 results noted that its net cash flow was depressed by the cost of legal settlements, including the $3 billion it had to pay the federal government to resolve allegations of illegal marketing of prescription drugs, withholding of crucial safety data and other abuses.  GSK went so far as to include a figure for cash flow “before legal settlements” similar to the way companies like to show results before interest, taxes and depreciation to make their performance look better.

It will be interesting to see how institutional investors regard these material financial impacts. Corporations have been breaking the law for a long time, and the penalties they incur have come to be seen as a routine cost of doing business. Many corporate critics thus tend to downplay their significance and instead press for more criminal prosecutions. That chorus has just intensified with a statement by U.S. Attorney General Eric Holder that some banks have grown so large that it is difficult to prosecute them.

It is worth noting, however, that all of the cases cited above contained criminal elements. A Japanese subsidiary of UBS pleaded guilty to a felony wire fraud charge. HSBC, the Justice Department said, “accepted responsibility for its criminal conduct and that of its employees” and was offered a deferred prosecution agreement. A BP unit pleaded guilty to felony manslaughter, environmental crimes and obstruction of Congress. GSK pleaded guilty to a three-count criminal information and consented to enter into a corporate integrity agreement with the federal government.

What was missing, of course, were criminal prosecutions of high-level executives in the firms, who presumably had ultimate responsibility for the misdeeds.

I agree that chief executives should be made to pay a stiff personal price for the anti-social practices of their organizations, but I’m not entirely convinced that putting some of them behind bars would be a foolproof deterrent against corporate misconduct. After all, plenty of businesspeople have gone to prison for insider trading, yet the practice never seems to end.

Financial sanctions may be more effective if the trend toward larger penalties is escalated even further. The wave of billion-dollar settlements may be causing some pain, but the companies—especially huge and highly profitable ones like BP—will easily recover. Penalties for serious offenses need to be raised to the point that they force the company to take drastic action, such as selling off major assets. Or the government could directly seize those assets, as some were urging in the wake of the BP disaster in the gulf.

There would undoubtedly be a major backlash from business interests to a policy of imposing penalties that threaten the survival of companies. Yet the alternative is to go on living amid a perpetual corporate crime wave.

Note:  My latest Corporate Rap Sheet is on HSBC, covering both the big penalty cited above and the other scandals surrounding the bank. It can be found here.