Regulation

Gently Regulating Corporate Election Involvement

A recent announcement by the Federal Election Commission that it was fining the National Enquirer’s parent company was unusual in two ways.

The first had to do with which parties were targeted by the FEC and which were not. The agency imposed a penalty of $187,500 against A360 Media LLC (formerly known as American Media Inc.) for making a payment to Karen McDougal in 2016 to suppress her story about having had an affair with Donald Trump.

Watchdog group Common Cause alleged that the payment – which was facilitated by Trump’s former personal lawyer Michael Cohen– amounted to an illegal in-kind contribution to Trump’s campaign by American Media. The FEC agreed, but it chose not to sanction the beneficiary of the payment. In other words, this was another example of how Trump manages to avoid personal consequences for misconduct for which he was ultimately responsible.

The FEC action was also out of the ordinary because it entailed a penalty directed at a company. It has become so rare for the FEC to bring cases against corporations themselves (as opposed to their political action committees), that I have not been including the agency among those federal regulators from whom I collect data for Violation Tracker.

Seeing the A360 decision, I decided it was time to add the FEC, but I didn’t know how many corporate cases could be found. I knew that the heyday of prosecuting corporations for election finance violations came in the 1970s as an outgrowth of the Watergate investigations. Those cases would have to be left out, since Violation Tracker coverage begins in 2000.

I also knew that there were likely to be few cases after January 2010, when the U.S. Supreme Court’s Citizens United decision wiped away most limitations on campaign spending by corporations as well as other entities. The ban on the direct use of corporate funds for campaign contributions remained in place.

The other factor has to do with the FEC itself, which often deadlocks along partisan lines and has difficulty imposing penalties against corporations or other entities and individuals.

As I dove into the case archives on the FEC website, I focused on what the agency calls Matters Under Review and ignored its administrative fines brought against PACs and campaign committees for matters such as late filing of reports.

I ultimately found a total of 31 cases in the period since January 2000 in which a corporate entity was fined $5,000 or more for an election violation. There were only four penalties above $100,000 – including one for $1 million – and the overall average was just $77,000.

Most of these cases involved allegations that the corporation improperly reimbursed employees for their individual donations to try to get around the ban on the use of corporate funds.

It is difficult to believe that fewer than three dozen corporations broke this rule and other remaining regulations during the past two decades. Instead, the low case count is another symptom of underregulation of corporate activities with regard to elections and much more.

Note: the new FEC entries will be added to Violation Tracker later this month as part of an overall update of the database.

The Obscure Companies Threatening the Planet

Hilcorp Energy, a privately held oil and gas producer based in Texas, shows up in Violation Tracker with only $2 million in regulatory penalties, compared to more than $1.5 billion for petroleum giant Exxon Mobil. Yet according to a detailed new report published by Ceres and the Clean Air Task Force, Hilcorp dwarfs Exxon when it comes to climate-ruining emissions of methane gas.

Hilcorp is one of a group of lesser-known energy producers which turn out to be responsible for a remarkable portion of greenhouse gas emissions. The findings of the Ceres report, which outed the companies using data from the EPA’s Greenhouse Gas Reporting Project, were surprising enough to merit a front-page article in the New York Times.

Among the other low-profile/high-emissions companies featured in the report are Terra Energy Partners, Flywheel Energy, Blackbeard Operating and Scout Energy. These firms have few or no listings in Violation Tracker.

One of the reasons these companies fly under the radar is that they are not publicly traded. Some are controlled by private equity firms, making their business even more opaque.

As the Times article points out, some of these producers have purchased operations from larger, publicly traded corporations subject to more scrutiny. For example, Hilcorp acquired gas wells in the San Juan Basin in northwestern New Mexico from ConocoPhillips, reducing that company’s carbon footprint while doing nothing to reduce the burden on the climate.

It is significant that the Ceres report is appearing in the wake of the showdown at Exxon Mobil, where institutional investors concerned about the risks associated with climate change have just succeeded in winning three seats on the corporation’s board of directors.

That is a vitally important development in the effort to bring about change at the company which is still the largest overall emitter of greenhouse gases. The Ceres findings point out the necessity for the climate movement to target not only the corporate giants but also the smaller players which are having an outsized impact.

One difficulty in changing the practices of both larger and smaller corporations is the fact that the U.S. environmental regulatory system does little to punish firms for their greenhouse gas emissions. A producer such as Hilcorp can get away with its massive methane emissions because it does not need to worry about activist institutional investors or the possibility of substantial penalties from the EPA.

The EPA has gone after automobile producers such as Hyundai for their greenhouse gas emissions, but the agency has faced strong legal obstacles in the effort to regulate emissions by power plants and energy producers.

Those obstacles need to be overcome, and corporations of all kinds need to face substantial monetary penalties for their contributions to the climate crisis.

Note: Apart from the Ceres report, good use of the EPA’s greenhouse gas data has been made by the Political Economy Research Institute’s Greenhouse 100 Polluters Index, which ranks parent companies by the total emissions of their subsidiaries. In that index, power plant owners such as Vistra Energy and Duke Energy are at the top. Exxon is number 11 and Hilcorp number 36.

SCOTUS Boosts Crooked Corporations

The U.S. Supreme Court has given a boost to crooked corporations in a ruling that restricts the powers of one of the federal government’s oldest regulatory agencies, the Federal Trade Commission, which has been operating since 1914. The Justices ruled unanimously that the FTC does not have the authority to go to court and win redress for unfair and deceptive business conduct. It must first go through a cumbersome administrative process.

Since the 1970s the FTC has been obtaining court injunctions against rogue companies and compelling them to provide monetary relief to consumers. In Violation Tracker we document nearly 500 cases brought by the agency since 2000, with total fines and payouts of more than $14 billion. More than a dozen of those cost companies more than $100 million.

Just the other day, the FTC announced it was sending more than $59 million collected on behalf of consumers who were victims of an allegedly deceptive scheme by Reckitt Benckiser Group and Indivior Inc. to thwart lower-priced generic competition with the branded drug Suboxone. Many of these enforcement actions may no longer be possible.

The high court ruling may prompt Congress to revise the law to allow the FTC to go back to using court injunctions. Yet for now the regulatory landscape is in flux. Corporations embroiled in disputes with the FTC, such as Facebook, are claiming that the agency lacks the authority to proceed. Facebook is still smarting from a previous FTC case from 2019 in which it paid a $5 billion penalty for privacy violations.

Given the similarities between the FTC Act and the law governing the Food and Drug Administration, there may be challenges to the FDA’s use of injunctions. The ruling is even being cited in disputes not involving federal agencies. A group of generic drug manufacturers being sued by state attorneys general for price-fixing is claiming that the ruling should also bar actions seeking injunctive relief under Section 16 of the Clayton Act.

On the other hand, there are indications that the FTC may choose to partner with state AGs on consumer protection actions in areas other than antitrust, relying on their power to seek relief from corporations over issues such as unlawful debt collection and privacy violations.

Legal observers also believe that the Consumer Financial Protection Bureau may help fill the gap created by SCOTUS, as least in financial sector cases, given that its authorizing legislation, the Dodd-Frank Act, explicitly allows it to sue for restitution and other relief without first going through lengthy administrative proceedings. It can also do so against a broader range of misconduct.

Nonetheless, it is disappointing to see the FTC and possibly other agencies lose the ability to bring prompt action against corporate miscreants. Business misconduct shows no signs of abating, so regulators need as many tools as possible to end the abuses and force corporations to compensate those who have been adversely affected.

Exercising Enforcement

It is not surprising that Peloton Interactive Inc. thought it could refuse to tell the Consumer Product Safety Commission the identity of a child who was killed in an accident involving one of the company’s treadmills. And it was not surprising that Peloton was shocked when the CPSC unilaterally issued a press release urging owners of the Tread+ to stop using the machine in homes with small children or pets.

The reason is that the CPSC has long been one of the more toothless of the federal regulatory agencies. As shown in Violation Tracker, over the past decade it has brought only about 50 enforcement actions involving monetary penalties. During the Trump Administration, the agency almost faded away, bringing only seven actions. There were none at all during the final two years of Trump’s tenure.

Instead, the CPSC has relied on the willingness of manufacturers to reveal safety problems on their own and voluntarily recall defective products. Peloton did disclose the fatal accident on its website and to the CPSC, but by withholding key details it thwarted the agency’s ability to investigate the matter. It also softened the negative impact of the announcement by making the disingenuous claim that it was protecting the privacy of the family involved.

Peloton also applied more of its own spin in the announcement by suggesting it was enough for users to “make sure” that the space around the equipment is clear. By contrast, the CPSC press release, which the company denounced as “inaccurate and misleading,” noted that it was aware of 39 incidents involving the Tread+, including at least one that occurred while a parent was running on the treadmill. The agency said this indicated that the risks were not limited to situations in which a child has unsupervised access to the treadmills, which cost more than $4,000.

Issuing the release without the company’s consent was a remarkable step for the CPSC, given that a provision of the Consumer Product Safety Act known as Section 6(b) restricts the ability of the agency to reveal company-specific information.

The agency is also limited in its ability to impose mandatory recalls. To do so, the CPSC would need a court order, meaning that a recalcitrant manufacturer could tie up the matter in protracted litigation, all while continuing to sell the dangerous product.

All of this is to say that the less than dazzling enforcement record of the CPSC is to some extent the result of structural impediments. Past attempts to remove those restrictions were not successful, but the Peloton dispute has prompted a renewal of those efforts. U.S. Senator Richard Blumenthal (D-CT) and U.S. Representatives Jan Schakowsky (D-IL) and Bobby L. Rush (D-IL) recently introduced legislation that would repeal Section 6(b).

Corporate lobbyists have worked so hard to promote the idea of over-regulation that many people will be surprised to hear the extent to which an agency such as the CPSC is prevented from taking strong action. The Peloton case is a reminder that the real problem is often not too much regulation but too little.

Public Money and Public Health

When a company is the subject of front-page stories about serious misconduct, the firm would normally have a track record of regulatory infractions documented in Violation Tracker. Yet Emergent BioSolutions, which has had to throw out millions of doses of Covid-19 vaccine because of serious production flaws, does not have a single entry in the database.

This is not because Emergent has had a perfect track record until the present. On the contrary, investigations by the New York Times, the Washington Post and the Associated Press have reported that probes by two federal agencies and by Johnson & Johnson, which contracted with Emergent to manufacture the vaccine, had found serious deficiencies, especially with regard to its efforts to prevent contamination.

If you read those articles carefully, you will see that the findings come from unpublished documents obtained through Freedom of Information Act requests or that were leaked to reporters. In other words, the public was unaware of the deficiencies being found by inspectors from the Food and Drug Administration and J&J auditors. There were no public enforcement actions against the company that would have shown up in the regulatory data collected for Violation Tracker. There are also no substantive references to regulatory issues in the publicly traded company’s 10-K filing.

I also searched the Nexis news archive for articles or press releases about Emergent. Prior to the recent revelations, almost all the coverage about the company focused on the numerous government contracts it has received. Two decades ago, it was the nation’s sole producer of the anthrax vaccine, as a result of which it received many millions of dollars in federal contracts. It also received funding to work on drugs for Ebola and Zika prior to getting on the Covid-19 gravy train.

Among the agencies providing this backing has been the Biomedical Advanced Research and Development Authority, an office within the Department of Health and Human Services. BARDA was apparently aware of shortcomings at Emergent but did little about them. The Times investigation found that in dealing with the company the agency “acted more as a partner than a policeman.”

Along with the federal largesse, Emergent has received millions of dollars in state economic development incentives. In 2004, Maryland provided up to $10 million in assistance for the facility that was producing the anthrax vaccine. The state provided a $2 million loan when Emergent built a new headquarters in 2013, with Montgomery County and the city of Gaithersburg kicking in another $1 million. More public money was provided to the company’s Baltimore operations, where the Covid-19 work has been performed pursuant to an estimated $1.5 billion in manufacturing contracts.

While the production problems were kept quiet, Emergent was able to pretend that all was well at the company. Its CEO Robert Kramer’s total compensation jumped to $5.6 million last year. The company’s stock price at one point last summer soared to $135.

Now all that is over. The stock price is at less than half that level. The company is facing multiple investigations whose results are likely to be made public. Kramer should not expect a big boost in pay.

It is unclear how much Emergent’s practices have set back the country’s campaign to defeat the coronavirus. Yet it seems clear this was an egregious case of a corporation living high on public money without paying adequate attention to public health.

The State of Environmental Enforcement

Climate change is the most pressing environmental issue of our time, but we still have to contend with plenty of air pollution, water contamination and hazardous waste proliferation. That task will be easier now that the EPA is abandoning the lax practices of the Trump Administration and is once again getting serious about enforcement.

Yet the federal agency will not be taking on the challenge by itself. Enforcement of laws such as the Clean Air Act and the Clean Water Act is a function shared by the EPA and state environmental agencies. Not all states are equally enthusiastic about this responsibility.

Evidence of this can be found in the latest expansion of Violation Tracker consisting of more than 50,000 penalty cases my colleagues and I at the Corporate Research Project collected from state environmental regulators and attorneys general and just posted in the database. An analysis of the data is contained in a report titled The Other Environmental Regulators.

These cases include $21 billion in fines and settlements (limited to those of $5,000 or more) imposed against companies of all sizes, with the largest amounts coming in actions brought against BP in connection with the 2010 Deepwater Horizon disaster in the Gulf of Mexico.

It should come as no surprise that the oil and gas industry accounts for much more in aggregate penalties — $8.2 billion – than any other sector of the economy. Utilities come in second with $6 billion. The worst repeat offender is Exxon Mobil, which was involved in 272 different cases with $576 million in total penalties. Those cases were spread across 24 different states.

That last number might have been even higher if all states were diligent about their enforcement duties. Instead, we found disparities that go beyond what might be expected from differences in size. There were unexpected results at both ends of the spectrum.

Given its reputation for being hostile to regulations, we were surprised that Texas turned out to have far more enforcement actions than any other state—over 9,500 since 2000. The Texas Commission on Environmental Quality and the Railroad Commission of Texas (which oversees pipelines and surface mining) may be cozy with industry when it comes to rulemaking and permitting, but they seem to be serious about enforcing regulations that are on the books.

At the bottom of the list are states such as Oklahoma and Kansas that appear to have brought only a tiny number of enforcement actions over the past 20 years. That is the conclusion we reached because the states post no significant enforcement case information on their websites and denied our open records requests for lists of cases. Little also turned up in news archive searches. It is difficult to believe that the many oil and gas operators in Oklahoma, for instance, hardly ever committed infractions.

Given that state environmental agencies are, to a great extent, enforcing federal laws, there should be much greater consistency in their oversight activities and their disclosure of those efforts.

Note: When using Violation Tracker you can locate state environmental cases by choosing one of the environmental listings in the Option 1 state agency dropdown, or you can do an Option 2 search that includes State as the Level of Government and Environmental Violation as the Offense Type.

EPA’s New Leadership Will Also Encourage More State Enforcement

The confirmation and swearing in of Michael Regan as administrator of the EPA creates an opportunity for the agency to repair the damage done during the Trump years. Part of that effort will be to change the dynamic between the EPA and state environmental regulators.

It is often forgotten that responsibility for enforcement of laws such as the Clean Air Act and the Clean Water Act is actually shared between the federal and state governments. I was reminded on this in the course of preparing the latest expansion of Violation Tracker, which will consist of more than 50,000 state-government environmental enforcement actions dating back to the beginning of 2000. The new data will be posted later in March along with a report examining the relative level of activity among the states.

Regan ran the Department of Environmental Quality in North Carolina, one of the agencies from which we collected data. The DEQ has brought around 1,500 successful enforcement actions over the past decade, putting it among the top ten states according to our tally, which is limited to cases in which a penalty of $5,000 or more was imposed.

The DEP and the North Carolina Attorney General have collected more than $950 million in fines and settlements, putting it among the top five states in terms of aggregate penalty dollars. North Carolina’s penalty total was boosted enormously by an $855 million settlement reached with Duke Energy earlier this year involving coal ash cleanup.

Regan is not the first state official to head the EPA. But consider the contrast with the person Donald Trump chose to be his first EPA administrator: Scott Pruitt, who had served as the attorney general of Oklahoma and who made a name for himself in that position by repeatedly suing the EPA to bring about regulatory rollbacks. Oklahoma, by the way, came in at the bottom of our tally of state enforcement caseloads.

Under Pruitt and his successor, the former coal lobbyist Andrew Wheeler, the EPA backed away from aggressive enforcement in favor of voluntary compliance, which for many corporations is an invitation to ignore regulations. This not only affected enforcement work at the federal level but also encouraged a hands-off approach by the states that emboldened environmental scofflaws.

Fortunately, places such as North Carolina went their own way. Now that Regan is running the show at EPA, states will feel encouraged to pursue meaningful enforcement of the laws governing air, water and hazardous waste pollution. Maybe even Oklahoma will be inspired to change its ways.

A Reckoning for Texas

Electric utilities come in in numerous forms. Some are cooperatives or municipals devoted to serving the interests of their members. Others are investor-owned entities that are unabashedly focused on the pursuit of profit. Texas has some of both, but the Lonestar State stands out for its decision to operate a statewide power grid cut off from all other states. This move is now causing massive hardship amid the polar vortex.

Hare-brained energy market approaches have been around for some time in Texas. Houston was the headquarters of Enron, which made use of federal deregulation to promote aggressive energy trading schemes that turned out to thoroughly fraudulent. It was only a few months after Enron declared bankruptcy that the Texas legislature adopted a statewide electricity market deregulation scheme.

Since then, the old-line utilities have been broken up, bought and sold like so many Monopoly properties. For instance, Dallas Power & Light morphed into TXU Electric Delivery, which in turn became Oncor Electric Delivery. Oncor was then taken over by California-based Sempra Energy.

Houston Lighting and Power was split up into several companies, including CenterPoint Energy. When the storm hit, CenterPoint was focused on a complicated financial deal involving its subsidiary Enable Midstream Partners.

Amid this wheeling and dealing, Texas utilities seemed to have forgotten about their most important responsibility: serving their customers. They created the now ridiculously named Electric Reliability Council of Texas to coordinate their efforts, but neither that non-profit nor the individual companies thought to prepare for the kind of extreme weather situation that is now crippling the state.

There have been signs that Texas climate was becoming erratic. In 2018 hailstones the size of tennis balls caused $1 billion in damages in North Texas. Houston had its earliest snow ever. Bloomberg is reporting that ERCOT was warned a decade ago that Texas utility facilities needed to be winterized to assure service during colder weather.

ERCOT deserves no sympathy, but it is absurd for politicians like Gov. Greg Abbott to put all the blame on the non-profit when he has long been a climate change denier, a deregulation proponent and a renewable energy basher.

The current disaster should serve as a wake-up call to Texas politicians as well as Texas utilities that they should focus less on ideological posturing and financial maneuvers and pay more attention to the needs of the residents of the state.

Solving the Corporate Identity Crisis

Like the Republican Party, Corporate America is embroiled in a battle between its evil impulses and its better angels. Nowhere is this clearer than with regard to environmental policy.

On one side are the ESG proponents such as BlackRock’s CEO Larry Fink, who according to the New York Times, is using his firm’s role as a massive institutional investor to pressure corporations to embrace sustainable practices. In his annual letter to companies, he called not just for vague aspirations but specific plans that are incorporated in long-term strategies and reviewed by boards of directors.

General Motors has just announced that it will phase out gasoline-powered cars and trucks and will sell only zero-emissions vehicles by 2035. The company will spend $27 billion developing about 30 types of electric vehicles.

At the same time, fossil fuel companies are going ballistic over the Biden Administration’s plan to suspend oil and gas leasing on federal lands, despite the fact that some 90 percent of exploration occurs on private property and is not affected by the executive order. Biden has also not called for a ban on fracking, despite allegations during the presidential campaign that this was his real plan.

The conflict within the business world was epitomized by the U.S. Chamber of Commerce, which issued a press release that welcomed the Biden Administration’s focus on climate change while rejecting the leasing action.

There is also a corporate identity crisis with regard to employment practices, especially those in the high-tech sector. For many years, Silicon Valley companies had reputations as great places to work and were even accused of coddling their employees.

Now companies such as Amazon have replaced Walmart as the exemplars of bad employers. That image has intensified as groups of workers have begun to turn to collective action to address their concerns. Rather than embracing the right of employees to have a real voice at work, high-tech employers are adopting old-fashioned union-busting tactics. Amazon has even taken a move from the Donald Trump playbook by opposing mail-in voting during a representation election in Alabama.

The one clear lesson from the corporate inconsistencies is that ESG and other voluntary business practices are no substitute for strong government oversight. We should not have to wait until big business decides whether it really wants to help save the planet or will cling to fossil fuels as long as possible.

We should also not have to wait until giant companies decide whether they will treat their workers with respect or continue to regard them as little more than vassals.

It is thus encouraging that the Biden Administration is taking decisive action to restore effective regulation of both the environment and the workplace as well as areas such as consumer protection. Once agencies such as the EPA, the NLRB and the CFPB go back to enforcing the law in an aggressive manor, corporate ambivalence will become much less relevant and we can be confident that the entire private sector will feel pressured to do the right thing.

Regulatory Renewal

One of the biggest betrayals committed by Donald Trump was his inclusion of a traditional Republican attack on regulation in a purportedly populist agenda. He managed to get many of his working-class followers to believe that weakening oversight of business was in their interest while it was actually a boon to the large corporations he pretended to challenge.

Some initial steps by President Biden indicate that he is ending that charade and will return regulatory agencies to their intended missions, especially when those involve helping working families. This intention can be seen both in his nominations for new agency heads and early confrontations with some Trump holdovers.

One of those confrontations took place at the Consumer Financial Protection Bureau, an agency that was created by the 2010 Dodd-Frank Act and which incurred the wrath of business-friendly Congressional Republicans for its aggressive enforcement actions against financial sector abuses. Those politicians took special aim at the provisions in Dodd-Frank that gave the CFPB’s director a great deal of independence.

The Trump Administration worked hard to defang the CFPB and in 2017 succeeded in putting the agency under the control of OMB Director Mick Mulvaney, who was openly contemptuous of its mission. In 2018 Trump named Kathy Kraninger, a Mulvaney crony with no experience in financial regulation, to head the agency. After being confirmed on a party-line vote, Kraninger went on to weaken the CFPB’s rules against predatory lending and reduced enforcement activity against large banks.

Immediately upon taking office, Biden demanded Kraninger’s resignation. Ironically, Biden was able to take that action because opponents of the agency’s independence had prevailed in a Supreme Court decision. The new administration turned the tables and used the ruling to facilitate the reinvigoration of the agency.

While Kraninger agreed to resign, Biden had to fire Peter Robb, the powerful general counsel of the National Labor Relations Board. A veteran management-side lawyer whose anti-union activity dates back to his involvement with the Reagan Administration’s attack on the air traffic controller’s union, Robb has spent the past three years doing his best to thwart the agency’s mission of promoting collective bargaining. He even tried to limit worker free speech by asking a federal court to bar the use of large inflatable rats on picket lines.

Robb’s term was not supposed to expire until November, but the Biden Administration apparently decided it was worth alienating Republicans in order to stop the damage Robb has been inflicting on labor rights.

Replacing these key policymakers at the CFPB and the NLRB will go a long way in reorienting the agencies back to their mission of protecting working families from the predatory practices of the financial services industry and the abusive practices of employers. They fit together with the overall change of direction signaled in the executive order Biden issued on his first day reversing Trump’s deregulatory framework.

These personnel and broad policy moves will hopefully be just the first steps in an extended campaign by the Biden Administration to end the demonization of regulation and to use the powers of the federal government to promote economic justice.