Archive for the ‘Tax avoidance/evasion’ Category

Burger King’s Tax Dodge is Just the Latest of Its Restructuring Schemes

Thursday, August 28th, 2014

mergerkingNothing says America like hamburger chains such as Burger King, yet the fast-food giant is the latest company to put tax dodging above national loyalty.

The home of the Whopper wants to carry out one of the so-called inversions that are all the rage among large U.S. corporations. Burger King is proposing to merge with the much smaller Canadian doughnut and coffee chain Tim Hortons and register the combined company north of the border, where it would be able to take advantage of lower tax rates on its U.S. revenues.

An interesting twist is that a large part of Burger King’s financing for the deal is coming from Warren Buffett, who apart from his investment prowess is known for his statements calling on the wealthy (individuals, at least) to pay more in federal taxes.

While many are criticizing Buffett for hypocrisy, the sage of Omaha seems to be taking refuge behind Burger King’s claim that the deal is not tax-driven but is instead a growth opportunity. That does not pass the laugh test, but it is true that Burger King has been willing to submit to frequent restructuring in its never-ending quest to emerge from the shadow of its much larger rival McDonald’s.

In its 60-year history, Burger King has undergone many changes. In 1967 founders James McLamore and David Edgerton sold the chain to the flour giant Pillsbury, which for two decades struggled to find the right formula for the company. In 1989 Pillsbury was taken over by Britain’s Grand Metropolitan, which continued the ceaseless experimentation. After Grand Met merged with Guinness to form Diageo, Burger King did not fit well with a global company focused on alcoholic beverages.

In 2002 the burger chain was taken over by private equity firms Texas Pacific Group (now TPG Capital) , Bain Capital and Goldman Sachs Capital Partners. After they extracted what they could from the company, the buyout firms arranged for an initial public offering that would allow them to profit even more. Four years after the IPO, the chain was taken over by another private equity firm, 3G Capital of Brazil. After only two years, 3G took a portion of Burger King public again. Now 3G, which partnered with Buffett on the takeover of H.J. Heinz, is at it again with the Tim Hortons deal.

One thing that is clear from this history is that Burger King is not, in fact, a purely American company. But that doesn’t legitimize the Canadian inversion. All it shows is that Burger King’s problems predated the Tim Hortons deal.

The chain has gone through a dizzying series of ownership changes that have probably done little to help its underlying business. And there’s also the issue of how that business is structured. As the Wall Street Journal points out, Burger King is essentially an “assetless company.” It owns less than 1 percent of its nearly 14,000 worldwide outlets, with the rest in the hands of franchisees.

This means that the company is largely removed from the day-to-day operations of its outlets and is instead focused on the royalties it collects from the franchisees. This means that it, even more than other fast-food chains, can claim to be uninvolved in controversial matters such as wage rates and other employment practices.

That posture may no longer be tenable. The recent ruling by the National Labor Relations Board holding McDonald’s jointly liable for labor and wage violations by its franchise operators may very well be applied to other chains.

For decades, Burger King has been treated as a pawn in the financial machinations of global corporations and buyout firms. Now its owners want U.S. taxpayers to help underwrite the latest scheme. Hopefully, they won’t get their way this time.

Handouts for Corporate Tax Deserters

Thursday, July 31st, 2014

moneybags_handoutPresident Obama says “I don’t care if it’s legal—it’s wrong.” Even Fortune magazine calls it “positively un-American.” But will Congress do anything to block the brazen moves by a growing number of large U.S. companies to reincorporate abroad to dodge federal taxes?

One group of Democratic lawmakers is trying to discourage the trend by tightening the restrictions on federal contract awards to so-called inverted companies, but such firms still receive another form of financial assistance from Uncle Sam.

The lawmakers have drafted a bill with the appropriately provocative title of No Contracts for Corporate Deserters Act. It would bar contract awards to reincorporators which are at least 50-percent U.S.-owned and which do no substantial business in the country in which they are nominally based.

Tougher rules are definitely necessary. Although Congress pats itself on the back for the restrictions first enacted during an earlier wave of reincorporations, some of the inverted companies have managed to find loopholes allowing them to continue to enjoy the benefits of extensive federal contracting. Ingersoll-Rand, which purports to be an Irish company but derives 60 percent of its revenue from the United States, has 80 percent of its long-lived assets in this country and has its “corporate center” near Charlotte, North Carolina, received $64 million in federal contracts in 2013. Eaton Corporation, which also claims to have become Irish, received $131 million that year.

In his July 24 remarks on the subject, President Obama also declared: “You shouldn’t get to call yourself an American company only when you want a handout from American taxpayers.” Such handouts are not limited to lucrative contract awards. Inverted companies are also receiving cash grants from the federal government.

Take the case of Eaton. In 2013 it received a $2.4 million grant from the Energy Department’s Conservation Research and Development Program. That was just one of eight grants it received from Energy that year with a total value of about $4 million.

Delphi Automotive, which claims to be based on the island of Jersey in the English Channel, has also received numerous grants from the Energy Department, including $5.1 million last year through the Fossil Energy Research and Development Program.

Grants have also gone to companies involved in recent inversion deals. Pfizer, which was seeking to undergo an inversion through a merger with AstraZeneca but which has dropped the bid for now, received $3.8 million in assistance this year from the Defense Department for work on nanoparticles.

These grants are part of a controversial practice by which the federal government underwrites commercial research activity by large companies in industries such as food processing, pharmaceuticals, aerospace and electric utilities. And this, in turn, is part of the larger sphere of federal financial assistance to business that also includes direct payments, low-cost loans, loan guarantees and the like.

These activities, often labeled corporate welfare, are a frequent target of criticism from both the left and the right. Conservatives are currently engaged in a campaign to eliminate the Export-Import Bank, which provides financing for deals benefiting corporations such as Boeing and Bechtel. Bipartisan efforts such as Green Scissors and the Toward Common Ground reports issued by U.S. PIRG and National Taxpayers Union have sought to end funding for the most wasteful programs.

Those efforts are usually driven by ideology (conservatives don’t want governments “picking winners”), by a desire to cut federal spending, or by other issues (progressives point out that many federal subsidies promote environmentally destructive practices). Now there’s another reason to be up in arms over corporate welfare.

The fact that some “corporate deserters” are getting grants from Uncle Sam could provide an additional form of pressure against the tax dodgers. Seeing these companies get contracts is bad enough; realizing that they may be getting direct handouts is even more infuriating.

Dominant and Diabolical Dynasties

Thursday, July 24th, 2014

mellonFor more than 30 years, Forbes magazine has been publishing a list of the 400 richest Americans. These annual celebrations of wealth are often accompanied by text emphasizing entrepreneurship. Readers are supposed to come away with the conclusion that these tycoons earned their treasure.

Now, in a move that says a great deal about where American society is headed, Forbes has published its first ranking of America’s Richest Families. No longer is the individual striver being venerated; now we are supposed to marvel at the compilation of 185 families with accumulated wealth of at least $1 billion. Forbes, unselfconsciously using a phrase that could have been penned by ruling class analyst William Domhoff, headlines the feature “Dominant Dynasties.”

Perhaps a bit uneasy about glorifying financial aristocracies, Forbes writes: “One thing that stands out is how many of the great fortunes of the mid-19th century have dissipated. The Astors and the Vanderbilts, the Morgans and the Carnegies, none make the cut.”

The fact that not all 150-year-old family fortunes have survived hardly makes the United States a model of economic egalitarianism. Forbes has to admit that the du Ponts, whose wealth dates back two centuries, are still high on the list (to the tune of $15 billion), as are the Rockefellers ($10 billion). The magazine chose to put on its cover members of the sixth and seventh generations of the Mellon dynasty, whose wealth is pegged at $12 billion.

Even among the newer fortunes, many go back several generations. Few of the listed families include living founders. In some cases family members are living of off the success of their forebears; in other cases, they have built on the achievements of their parents and grandparents. Yet in all cases they have benefited from a tax system that increasingly favors inherited wealth.

That tilt dates back to initiatives taken by the man responsible for the fortune enjoyed by the individuals on the Forbes cover: Andrew Mellon (illustration). As Secretary of the Treasury in the 1920s he unabashedly pushed for reductions in income and estate tax rates, even though as one of the country’s richest men he had a great deal to gain personally from those cuts.

Aside from the questions relating to the perpetuation of class structure, there is the issue of where the fortunes came from in the first place. That subject cannot be avoided when the family at the very top of the list, the Waltons, enjoys wealth estimated at $152 billion thanks to their affiliation with a retail empire built on cheap labor, union-busting and a variety of other sins.

The Kochs, number two with $89 billion, have grown rich through the exploitation of fossil fuel-based industries that are threatening the planet, as did the Rockefellers and many others on the list. The du Pont fortune was originally based on gunpowder and was later enhanced by inventions that included dangerous chemicals such as perfluorinated compounds (used in Teflon) linked to serious health and environmental problems.

Lower down on the list is the Steinbrenner fortune ($3.1 billion), which is based not only on the absurd appreciation in the value of the New York Yankees but also from a shipping business whose interests were furthered by illegal campaign contributions to Richard Nixon in the 1970s. There’s also the Lindner fortune ($1.7 billion), which was built in part by Carl Lindner’s close association with the junk bond empire of the felonious Michael Milken.

Balzac is credited with the statement that “behind every great fortune is a great crime.” Further research will be required to know if that is true of all the entries on the Forbes list, but there are no doubt plenty of examples. And along with any specific crimes is the offense against democracy generated by the unbridled accumulation of intergenerational wealth.

Inverted Values

Thursday, July 10th, 2014

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

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

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

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

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

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

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

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

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

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

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

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

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

Too Big to Punish

Thursday, May 22nd, 2014

get_out_of_jail_freeEver since the financial meltdown, corporate critics have been clamoring for criminal charges to be brought against major financial institutions. With the exception of the guilty plea extracted from an obscure subsidiary of UBS in a case involving manipulation of the LIBOR interest rate index, the Obama Administration long resisted these calls, continuing the dubious practice of offering corporate miscreants deferred prosecution agreements and escalating but still affordable fines.

The Justice Department has now given in to the pressure, forcing Credit Suisse’s parent company to plead guilty to a criminal charge of conspiring to aid tax evasion by helping American citizens conceal their wealth through secret offshore accounts. Yet what should be a watershed moment in corporate accountability is starting to feel like a big letdown.

Despite weeks of handwringing by corporate apologists about the risks for a bank of having a criminal conviction, along with impassioned pleas for mercy by Credit Suisse lawyers, the world has hardly come tumbling down for the Swiss financial giant since Attorney General Eric Holder announced the plea.

Particularly unsatisfying is the fact that no top executives at the bank were charged, meaning that we were prevented from seeing any high-level perp walks. While some lower level bank employees were prosecuted, CEO Brady Dougan is getting off scot free. Even the Financial Times found this unseemly, suggesting that he should have had the good manners to resign. Dougan, instead, handled things in classic damage-control mode, treating the matter as over and done, stating: “We can now focus on the future and give our full attention to executing our strategy.”

The Justice Department is bragging about the plea and the $2.6 billion in penalties, but it is downplaying the failure to achieve one of the main objectives of the case. Credit Suisse is not being compelled to turn over the names of the holders of the secret accounts.

Other parts of the federal government seem to be doing everything possible to cushion the impact of the plea. The SEC has decided, at least for the time being, to exempt Credit Suisse from a law that requires a bank to relinquish its investment-advisor license in the event of a guilty plea. The Federal Reserve, which received $100 million of the penalties, issued a “cease and desist order requiring Credit Suisse promptly to address deficiencies in its oversight, management, and controls governing compliance with U.S. laws,” but it has given no indication that the bank’s activities will be restricted.

There are also no signs that the private sector will punish Credit Suisse. Customers do not appear to be shunning the bank, and the stock market has reacted to the plea with equanimity. The company’s stock price has fallen only a few points since the reports of a possible conviction emerged in recent weeks, and in the wake of the actual plea it has held steady.

When an individual is convicted of a crime, his or her life is usually thrown into disarray. Along with a possible loss of liberty, there may be a forfeiture of assets and a loss of livelihood. Especially for white-collar offenders, there is likely to be ostracism.

For corporate offenders, we’ve long seen how companies can buy their way out of serious consequences through non-prosecution and deferred prosecution deals. Now that get-out-of-jail-free card seems to be available to a company with an actual conviction.

Why, then, did the Justice Department bother pursuing criminal charges? It’s difficult to avoid the conclusion that the prosecution was meant solely as a symbolic gesture—a political move to quiet criticism of the administration’s treatment of corporate misconduct.

The handling of the Credit Suisse case may end up doing more harm than good, both in symbolic and substantive terms. The moves to mitigate the impact on the bank neutralize the administration’s effort to appear tough on corporate crime. They also undermine whatever deterrent effect the prosecution was supposed to achieve.

Large corporations may no longer be too big to convict, but they are still regarded as too big to punish.

Note: For details on the sins of Credit Suisse, see its updated Corporate Rap Sheet.

A New Generation of Corporate Tax Traitors

Thursday, May 15th, 2014

Large U.S.-based corporations have long demonstrated that they are willing to put profits before patriotism. Over the past two decades, about two dozen of those companies have moved their legal headquarters offshore in order to drastically reduce their federal tax obligations. This disreputable practice is once again in vogue and being brought to a new level by Pfizer’s effort to acquire AstraZeneca and register the combined operation in the United Kingdom. The big Walgreen drugstore chain is also considering a foreign reincorporation move.

During the last big wave of what are politely known as corporate inversions, there was a great deal of protest. The decision by companies such as Tyco International and Ingersoll-Rand to reincorporate abroad was widely denounced as being akin to treason. Reacting to the controversy, Stanley Works dropped plans for a similar move.

Today there is surprisingly little anger over Pfizer’s plan. In fact, the business press is filled with articles indicating that numerous other companies are thinking along the same lines. Pfizer is facing some opposition, but it is mainly in Britain, where the company’s CEO Ian Read (photo) was grilled by members of parliament concerned that the merger will have a negative impact on employment at AstraZeneca.

While Pfizer has been quite open about the tax dodging aspect of its takeover bid, companies involved in inversions tend to justify their move by emphasizing the global nature of their business. The problem with this argument is that it is not supported by the facts. The companies that reincorporate abroad continue to do more business in the United States than in any other country. For example, the purportedly Irish company Ingersoll-Rand derives 59 percent of its revenues from the United States and has 80 percent of its long-lived assets in that country.

Inverted companies usually continue to trade on U.S. stock exchanges and keep their real headquarters at home. They also continue to win contract awards from the federal government. Accenture, another company claiming to be Irish, does more than $1 billion a year in business with Uncle Sam.

Along with their federal tax avoidance, many of the turncoat companies also take widespread advantage of tax breaks and other economic development subsidies from state and local governments. Here are some of the aggregate totals assembled by my colleagues and me at Good Jobs First for our Subsidy Tracker database:

If Pfizer succeeds in its bid, it would add another $200 million to this list, plus $9.2 million that has gone to AstraZeneca’s U.S. operations. Walgreen has received more than $12 million in subsidies.

Along with showing little loyalty to the United States, the corporate tax traitors do not hesitate to abandon their adopted countries when it is financially advantageous to do so. A number of the companies that had reincorporated in Bermuda and the Cayman Islands in the late 1990s and early 2000s subsequently moved to Europe. These include Ingersoll-Rand, Tyco International and Seagate Technology.

Doing so allowed them to avoid the stigma and legal complications of being based in Caribbean tax havens while still enjoying the relatively low corporate tax rates provided by countries such as Ireland and Switzerland. Britain, the intended new home of Pfizer, is now also regarded as one of the more respectable tax haven destinations.

While pretending to be Irish or Swiss or British may be regarded as more acceptable than pretending to be Bermudan, what these companies are doing is still brazen tax dodging and a betrayal of the country that helped them grow into corporate behemoths in the first place.

After the inversion controversies of the early 2000s, Congress took action that thwarted the practice. In today’s political climate in Washington, it is unlikely that restrictions will be placed on the new generation of runaway corporations. Business apologists are already using the Pfizer deal not as a call to arms to block more relocations but rather as an argument for giving in to longstanding demands to gut what remains of the corporate income tax.

According to this warped logic, the United States will solve the tax haven problem only by becoming one itself.

Slapping Corporate Wrists a Little Harder

Thursday, May 1st, 2014

moneybagsontherunGovernments will go to ridiculous lengths to punish criminals. States that cling to the death penalty now resort to back-alley methods for obtaining the drugs used in lethal injections, leading to grotesque results such as the recent botched execution of Clayton Lockett in Oklahoma.

When it comes to corporate crime, a very different standard is applied. Prosecutors go out of their way to soften the impact on offenders. Criminal charges are often not filed, and when they are companies are offered deferred prosecution agreements that allow them to pay fines and make promises not to sin again.

Federal prosecutors are now feeling pressure to take a harder line, especially with global banks that may have flouted U.S. laws relating to tax evasion and international sanctions. The New York Times reports that the Justice Department is pushing to get guilty pleas from Credit Suisse, which has faced charges of helping wealthy Americans dodge taxes through secret bank accounts, and BNP Paribas, which is being investigated for violating U.S. economic sanctions against countries such as Sudan and Iran.

Getting a guilty plea from a major bank (rather than from one of its obscure subsidiaries, as happened in the LIBOR-manipulation case involving UBS) would be an important step in affirming that these institutions are not above the law. The problem is that the Justice Department does not seem to want to impose the kind of penalties that normally go along with a criminal conviction.

According to the Times, prosecutors are meeting with banking regulators “about how to criminally punish banks without putting them out of business and damaging the economy.”

We would never hear such a statement made about, say, an illegal gambling ring. There is no concern that going after such an operation would eliminate jobs and harm the economy.

As for banks, even when they are found to have engaged in egregious behavior, they are treated as legitimate institutions that must be preserved. It is true that not every employee may have been involved in criminal misconduct, but that is no reason why the continued survival of the bank in its existing form has to be regarded as an essential component of any resolution of criminal charges.

Corporate crime will not disappear until prosecutors are willing to consider truly punitive penalties for companies that engage in serious misbehavior. By this I mean consequences that go well beyond fines that a company can easily afford (and can often deduct from its taxes).

It’s often said that bringing criminal charges against corporations is pointless, since a company cannot be put in prison. Leaving aside the question of the feasibility of putting corporate executives behind bars, this view fails to acknowledge the other ways in which a firm’s liberty can be restricted.

We see such an example in the current scandal involving Los Angeles Clippers owner Donald Sterling, who is being fined $2.5 million and banned for life by the National Basketball Association for making racist statements but who also may be forced to sell the team. Why is the Justice Department not talking about forcing banks such as Credit Suisse and BNP Paribas to divest themselves of the operations in which the prohibited practices took place? I would prefer to see such criminal enterprises confiscated outright, but that may be too much to hope for.

Prosecutors have to weigh the economic impact of cases that might, for instance, lead to the revocation of a bank’s license to operate, which is considered the corporate equivalent of the death penalty. This is apparently behind the caution being exhibited in the Credit Suisse and BNP Paribas negotiations.

The lesson that prosecutors seem to have taken from the 2002 conviction of Arthur Andersen, the accounting firm that abetted Enron’s frauds, is that putting a company out of business is a big mistake. I don’t understand why.

The demise of Andersen and Enron and Drexel Lambert did not bring about economic calamity. In fact, the economy was probably better off without these corrupt institutions. We might also be better off if today’s miscreants met a similar fate, or at least had to undergo radical restructuring. And that would send a clear message to other corporations that they have to clean up their act.

 

Note: For an analysis of an industry that has a lot to clean up, including widespread wage theft, see the report just issued by the Restaurant Opportunities Center United and other groups on the National Restaurant Association and its members. I contributed the Rogues Gallery section.

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.

GE Dumps Workers as It Dredges the Hudson

Thursday, October 17th, 2013

DUMP_YRD_SIGNFor 30 years, General Electric resisted calls to remove the toxic substances it had dumped into New York’s Hudson River over several decades. Now that the process is well under way, the company is striking back at the state by shutting its cleaned-up plant along the river and moving some 200 jobs to Florida. The workers slated to be laid off feel that they are now being dumped.

The site of the dispute is Fort Edward (about 200 miles north of New York City), where from the late 1940s to the mid-1970s GE produced electric capacitors using insulating material containing polychlorinated biphenyls (PCBs). Vast quantities of PCB-contaminated waste ended up in the river’s waters and riverbed.

By the 1970s PCBs were recognized to be a human carcinogen and their manufacture was banned in the United States.  In 1975 the New York State Department of Environmental Conservation ordered GE to cease its PCB dumping and negotiated a path-breaking settlement under which the company would help pay the cost of cleaning up the pollution that had closed the river to commercial fishing and become a national symbol of corporate irresponsibility.

As the projected cost of the clean-up escalated, GE resisted dredging the river’s sediment, which was estimated to contain more than 130 metric tons of PCBs, and instead proposed dubious alternatives such as using bacteria to try to break down the toxic wastes. The company continued this obstruction for years, even after the EPA ordered it in 2001 to pay an estimated $460 million to remove 2.65 million cubic yards of sediment. The legal battle finally ended in 2005, but it took until 2009 for GE to actually begin the dredging. The process is now in its fifth year.

The workers at the Fort Edward plant may not be around to celebrate the completion of the clean-up. A few weeks ago, GE announced that it planned to close the plant and move the operation to Clearwater, Florida. The Fort Edward workers have been represented by the United Electrical (UE) union for the past 70 years, while the Clearwater plant—as you might expect—is non-union.

The Fort Edward move is just the latest of a long series of actions by GE that have weakened the economy of upstate New York. The city of Schenectady, where Thomas Edison moved his electrical equipment operation in 1886, has alone lost tens of thousands of jobs through waves of GE downsizing.

GE also seems to feel no sense of obligation in connection with the economic development subsidies it has received from state and local government agencies in New York. The biggest giveaways have come downstate. In 1987, a year after it was acquired by GE, NBC pressured New York City to give it $98 million in tax breaks under the threat of moving its operations to New Jersey.  In 1999 investment house Kidder Peabody, then owned by GE, got its own $31 million package to stay in the city.

There have also been subsidies upstate. For example, in 2009 GE got a $5 million grant and a $2 million tax abatement for its operations in Schenectady. The company’s research center in Niskayuna, New York has received millions of dollars in local tax breaks.

When GE has not received enough subsidies for its satisfaction, the company sometimes tries to reduce its local tax bills by challenging the assessed value of its property. In 2002, for example, it sued to get the value of its turbine plant in Rotterdam, New York reduced from $159 million to $41 million. A compromise ruling gave GE some of what it wanted and forced the town to reimburse the company about $6 million. Not satisfied, the company later brought a new challenge and got the town to negotiate a payment-in-lieu-of-taxes deal.

And, of course, GE is notorious for its dodging in other states and at the federal level, where it also gets subsidized through agencies such as the Export-Import Bank and got TARP-related assistance for its GE Capital unit.

Members of UE Local 332 are vowing to fight the plant shutdown, but they are up against a company that has shown it is  willing to go to great lengths to get its way on environmental, labor and tax issues.

Corporate Privacy is Alive and Well

Thursday, June 13th, 2013

we-the-corporations02-e1294670618870Recent revelations about the electronic surveillance programs of the federal government, which are being carried out with the cooperation of large telecommunications and internet companies, show that personal privacy rights are in serious peril.

Much is being said and written about the discrepancy between the seemingly invincible status of the Second Amendment and the disintegrating Fourth Amendment. Yet the more significant contrast may be between individuals and corporations with regard to privacy and protection from government intrusion.

Despite all the complaints from business groups about the supposedly overbearing Obama Administration, large corporations have it pretty good. This is especially the case in the matter of taxes.

Although the finances of publicly traded companies are supposed to be an open book, firms are not required to make public their tax returns. This allows them to conceal the inconsistencies between what they disclose to shareholders and what they report to Uncle Sam. The recent report by the Senate Permanent Subcommittee on Investigations about tax dodging by Apple showed there was a $4.4 billion discrepancy between the FY2011 tax liability presented in the company’s 10-K annual report and what it listed in its corporate tax return (which the committee had to subpoena).

Revelations about Apple and other tax dodging companies has not resulted in any action by Congress. The European Union, by contrast, is moving ahead with a transparency initiative that will thwart tax avoidance and illegal financial flows.

Anti-corruption and pro-transparency groups in the Financial Accountability and Corporate Transparency (FACT) Coalition have been pressing the Obama Administration to support a plan, backed by British Prime Minister David Cameron, to require the registration of owners of shell companies—a move that would make illicit financial transfers more difficult. The idea will be discussed at the upcoming G8 summit, but there is little indication that Obama, much less the U.S. Congress, is prepared to sign on to Cameron’s “transparency revolution.”

Large corporations enjoy a great deal of privacy with regard to state as well as federal tax liabilities. Publicly traded companies are required only to disclose aggregate figures on the taxes they are paying (or not paying) to the states overall, making it impossible to get a clue on how much dodging is going on in individual states. Although there have been efforts at times to compel publicly traded companies to make public their state tax returns, those documents remain as private as their federal returns.

Corporate financial statements are also usually devoid of any information on the billions of dollars companies receive each year in economic development subsidies from state and local governments. There has, however, been progress in piercing the corporate privacy veil in this arena, but it is mixed.

At the state level, disclosure is better than it has ever been, but there is a great deal of inconsistency from state to state and from program to program within states. Much of the transparency progress relates to grant and low-cost loans, while the tax breaks—which are often the big-ticket items—lag. Fewer than half the states post a significant amount of information online about corporate tax credits.

And as my colleagues and I at Good Jobs First showed in a recent report, disclosure is even more primitive among most large cities and counties. All the disclosed data is collected in our Subsidy Tracker search engine.

Taxes and subsidies are not the only areas in which corporate privacy remains strong. There are also serious limitations, for example, in what companies have to reveal about their labor practices. Even publicly traded companies are providing less and less in their 10-K annual reports about collective bargaining. Reading the 10-K of Wal-Mart, for instance, you would never know that it has fought tooth-and-nail against unions and is now facing a non-traditional organizing campaign. Whether they are sympathetic or not to the goals of the campaign, shouldn’t shareholders at least be told that it exists and what the company is doing in response?

As poor as the transparency rules are for publicly traded companies, they shine in connection with the absence of significant requirements with regard to privately held firms. The secrecy afforded to family-controlled mega-corporations such as Koch Industries and Cargill is a serious public policy problem.

While companies such as Facebook and Google claim to be sympathetic to the concerns of their customers about government surveillance, they continue to enjoy a higher level of privacy. Corporations have been aggressive in asserting First Amendment rights equivalent to those of natural persons, but when it comes to the Fourth Amendment, they seem to be ahead of us humans.