Archive for December, 2016

The 2016 Corporate Rap Sheet

Thursday, December 22nd, 2016

The two biggest corporate crime stories of 2016 were cases not just of technical lawbreaking but also remarkable chutzpah. It was bad enough, as first came to light in 2015, that Volkswagen for years installed “cheat devices” in many of its cars to give deceptively low readings on emissions testing.

Earlier this year it came out that the company continued to mislead U.S. regulators after they discovered the fraud. VW has agreed to pay out more than $15 billion in civil settlements but it is not yet clear what is going to happen in the ongoing criminal investigation.

Brazenness was also at the center of the revelation in August that employees at Wells Fargo, presumably under pressure from managers, created more than one million bogus accounts in order to generate fees from customers who had no idea what was going on. The story came out when the Consumer Financial Protection Bureau announced that the bank would pay $100 million to settle with the agency and another $85 million in related cases.

But that was just the beginning of the consequences for Wells. CEO John Stumpf was raked over the coals in House and Senate hearings, and he subsequently had to resign. Criminal charges remain a possibility.

The other biggest corporate scandal of the year involved drugmaker Mylan, which imposed steep price increases for its EpiPens, which deliver lifesaving treatment in severe allergy attacks. The increases had nothing to do with rising production costs and everything to do with boosting profits. The company’s CEO was also grilled by Congress, which however could do little about the price gouging.

Here are some of the other major cases of the year:

Toxic Securities. There is still fallout from the reckless behavior of the banks leading up to the 2008 financial meltdown. Goldman Sachs paid more than $5 billion to settle a case involving the packaging and sale of toxic securities, while Morgan Stanley paid $2.6 billion in a similar case.

Mortgage Fraud. Wells Fargo had to pay $1.2 billion to settle allegations that during the early 2000s it falsely certified that certain residential home mortgage loans were eligible for Federal Housing Administration insurance. Many of those loans later defaulted.

False Claims Act. Wyeth and Pfizer agreed to pay $784 million to resolve allegations that Wyeth (later acquired by Pfizer) knowingly reported to the government false and fraudulent prices on two of its proton pump inhibitor drugs.

Kickbacks. Olympus Corp. of the Americas, the largest U.S. distributor of endoscopes and related equipment, agreed to pay $623 million to resolve criminal charges and civil claims relating to a scheme to pay kickbacks to doctors and hospitals in the United States and Latin America.

Misuse of customer funds. Merrill Lynch, a subsidiary of Bank of America, agreed to pay $415 million to settle Securities and Exchange Commission allegations that it misused customer cash to generate profits for the firm and failed to safeguard customer securities from the claims of its creditors.

Price-fixing. Japan’s Nishikawa Rubber Co. agreed to plead guilty and pay a $130 million criminal fine for its role in a conspiracy to fix the prices of and rig the bids for automotive body sealing products installed in cars sold to U.S. consumers.

Accounting fraud. Monsanto agreed to pay an $80 million penalty and retain an independent compliance consultant to settle allegations that it violated accounting rules and misstated company earnings pertaining to its flagship product Roundup.

Consumer deception. Herbalife agreed to fully restructure its U.S. business operations and pay $200 million to compensate consumers to settle Federal Trade Commission allegations that the company deceived customers into believing they could earn substantial money selling diet, nutritional supplement, and personal care products.

Discriminatory practices. To resolve a federal discrimination case, Toyota Motor Credit Corp. agreed to pay $21.9 million in restitution to thousands of African-American and Asian and Pacific Islander borrowers who were charged higher interest rates than white borrowers for their auto loans, without regard to their creditworthiness.

Sale of contaminated products. B. Braun Medical Inc. agreed to pay $4.8 million in penalties and forfeiture and up to an additional $3 million in restitution to resolve its criminal liability for selling contaminated pre-filled saline flush syringes in 2007.

Pipeline spills. To resolve allegations relating to pipeline oil spills in Michigan and Illinois and 2010, Enbridge agreed to pay Clean Water Act civil penalties totaling $62 million and spend at least $110 million on a series of measures to prevent spills and improve operations across nearly 2,000 miles of its pipeline system in the Great Lakes region.

Mine safety. Donald Blankenship, former chief executive of Massey Energy, was sentenced to a year in prison for conspiring to violate federal mine safety standards in a case stemming from the 2010 Upper Big Branch disaster that killed 29 miners.

Wage theft. A Labor Department investigation found that Restaurant Associates and a subcontractor operating Capitol Hill cafeterias violated the Service Contract Act by misclassifying employees and paying them for lower-wage work than they actually performed. The workers were awarded more than $1 million in back pay.

False advertising. For-profit DeVry University agreed to pay $100 million to settle Federal Trade Commission allegations that it misled prospective students in ads touting the success of graduates.

Trump University. Shortly after being elected president, Donald Trump agreed to pay $25 million to settle fraud allegations made by the New York State Attorney General and others concerning a real estate investment training course.

Remember: thousands of such cases can be found in the Violation Tracker database my colleagues and I at the Corporate Research Project of Good Jobs First produce. Look for expanded coverage in 2017.

Trump and the Reverse Revolving Door

Thursday, December 15th, 2016

Late in his presidential campaign Donald Trump seized on the issue of government ethics, and since the election he has talked about putting stricter limits on the ability of federal officials to move into jobs with government contractors. That process, called the revolving door, creates the possibility that an official will skew decisions in favor of a future employer.

What Trump has not discussed is a related phenomenon that can also have a pernicious effect on federal policymaking: the appointment of lobbyists and corporate executives to public posts in which they are likely to pursue policy in a way that benefits their former (and probably future) employers and business interests. This is known as the reverse revolving door.

Not only has Trump not challenged that practice, he has embraced it with gusto — and personally embodies it. Along with retired generals and conservative zealots, his proposed cabinet includes hedge fund investor Steve Mnuchin as Treasury Secretary, vulture investor Wilbur Ross as Commerce Secretary and fast food executive Andy Puzder as Labor Secretary. And now comes the coup de grace: the nomination of ExxonMobil chief executive Rex Tillerson as Secretary of State.

Despite claims that Trump is breaking all the rules, his decision to include prominent private sector figures in his cabinet is far from novel. There are ample precedents for such an approach, especially but not exclusively in Republican administrations.

The pattern has been most pronounced with the Treasury Secretary. Over the past 60 years, that post has frequently been awarded to members of the financial and corporate  elite. Eisenhower, for example,  gave the job to George Humphrey of the steel company M.A. Hanna. Kennedy chose C. Douglas Dillon, who had been with the Wall Street firm Dillon, Read. Carter tapped W. Michael Blumenthal, who had headed the manufacturer Bendix International.

Clinton’s second Treasury Secretary was Robert Rubin of Goldman Sachs. Reagan’s first Treasury Secretary was Donald Regan, head of Merrill Lynch. George W. Bush turned to the corporate sector three times, choosing Paul O’Neill of Alcoa, John Snow of CSX and Henry Paulson of Goldman Sachs. Obama’s second Treasury Secretary was Jack Lew, who had worked at Citigroup.

While Trump has picked a retired general to run the Pentagon (a separate problem), the position of Secretary of Defense is another top cabinet post that has often been filled by corporate figures. Eisenhower’s choice was  Charles E. Wilson, the former General Motors president who in his confirmation hearing famously said: “For years I thought what was good for our country was good for General Motors, and vice versa. The difference did not exist.” Kennedy tapped Robert McNamara, who had just been named president of the Ford Motor Co. Reagan’s first Defense Secretary was Caspar Weinberger, who had joined the engineering giant Bechtel Corp. a few years earlier after a career in the public sector. George W. Bush chose Donald Rumsfeld, who had stints as chief executive of G.D. Searle and later General Instrument.

Looking at cabinets as a whole, it was during the Reagan Administration that an overall business presence first became quite pronounced. In addition to Regan and Weinberger, the corporate veterans in Reagan’s cabinet included Secretary of State Alexander Haig, who had become president of United Technologies after his military career. After Haig resigned in 1982, Reagan replaced him with George Shultz, who had headed Bechtel Corp. during the 1970s. Commerce Secretary Malcolm Baldridge had been chairman of Scovill Inc. Even the Secretary of Labor, Raymond Donovan, had a business background as an executive at a New Jersey construction company.

This pattern was repeated in 2001. The elevation of George W. Bush and Dick Cheney to the two highest posts in the land could itself be seen as a significant case of the reverse revolving door. Bush, after all, spent much of his career as a businessman in the oil & gas industry and then as a part-owner of the Texas Rangers baseball team. Bush had not risen to great heights in the corporate world before running for governor of Texas, but he had clearly been shaped by that world. Cheney had spent five years as the chief executive of the controversial Halliburton Co.

Bush chose as his chief of staff Andrew Card, who had been a vice president of General Motors and a lobbyist for the auto industry. In addition to selecting Alcoa CEO Paul O’Neill to head Treasury and one-time corporate executive Donald Rumsfeld to run Defense, Bush chose oil executive Donald Evans as Secretary of Commerce and Anthony Principi, an executive with a medical services company, to be Secretary of Veterans Affairs. Secretary of State Condoleezza Rice had not been a corporate executive but was on the board of Chevron, which had named an oil tanker after her.

Trump’s corporate cabinet picks may be in keeping with some past practices, but they are troubling nonetheless. As with Reagan and Bush II, the nominations are clearly intended to foster an attack on regulation and the promotion of corporate-friendly policies.

With Tillerson there an even bigger issue. The main problem with reverse revolving door appointments is the danger of conflicts between the interests of a particular corporation and the public interest on specific issues. A corporation of the size and influence of Exxon Mobil is not just another company — it is in effect a state unto itself.

Trump praises Tillerson for the extent of his dealings with foreign leaders. Yet he did not develop those relationships representing the interests of the United States. Exxon Mobil has its own foreign policy that has frequently gone in different directions than that of the country in which it is nominally base.

Much attention is being focused on Tillerson’s dealings with Russia, which are indeed disturbing. Yet those dealings are just one example of how Exxon Mobil pursues its business interests without regard to other considerations such as human rights — an issue in the U.S. Secretary of State is supposed to champion.

In the 1950s GM’s Charlie Wilson could get away with identifying the interests of his company with those of the country as a whole. Tillerson cannot do the same.

Note: This report draws on a chapter I wrote for a 2005 report published by the Revolving Door Working Group.

Principles versus Interests

Thursday, December 8th, 2016

The website of every large corporation these days has a section labeled Corporate Social Responsibility containing high-minded language about its commitment to sustainability, community development, human rights and the like.

For the most part, these positions serve mainly as a form of corporate image-burnishing and have little real-world applicability. Now, however, a group of large U.S. and foreign banks are being challenged to live up to their CSR principles in connection with one of the most contentious projects of our day: the Dakota Access Pipeline.

Following a recent decision by the Army Corps of Engineers to block the final permit needed to route the pipeline (usually referred to as DAPL) under North Dakota’s Lake Oahe and dangerously closely to the Standing Rock Sioux Reservation, the project is stalled. Yet that could quickly change with the incoming Trump Administration.

Meanwhile, attention has turned to a syndicate of 17 lenders that have committed a $2.5 billion line of credit to the project.  Among the leaders of the pack are Citigroup and TD Securities, owned by Canada’s Toronto-Dominion Bank. Of the 17, all but two are endorsers of a CSR document known as the Equator Principles. (The list of endorsers is here; the two members of the syndicate not among them are China’s ICBC Bank and Suntrust Robinson Humphrey.)

The principles were drawn up in 2003 by a group of major banks facing increasing pressure from environmental and human rights groups over their involvement in controversial projects undertaken by mining, petroleum and timber corporations.

In adopting the principles, banks committed to providing loans only to those projects whose sponsors could demonstrate that they would be performed in a “socially responsible” manner and according to “sound environmental principles.” Sponsors were also supposed to conduct assessments that took into consideration issues such as the impact on indigenous communities.

The current version of the Equator Principles states that projects affecting  indigenous  peoples  should include “a  process  of Informed Consultation and Participation, and will need to comply  with the rights and protections for  indigenous peoples contained in relevant national law, including  those  laws implementing host country obligations under international law…Projects with adverse impacts on indigenous people will require their Free, Prior and Informed Consent.”

It is highly questionable that Equity Transfer Partners and the other companies involved in DAPL have met this test. On the contrary, the harsh response of the project sponsors and local law enforcement agencies to the peaceful protests at the site has demonstrated an utter disregard for the concerns of Native water protectors.

It is no surprise that opponents of the pipeline are calling the lenders to task. In November a group of more than 500 civil society organizations from 50 countries issued a joint letter to the 17 lenders citing the Equator Principles and calling on them to suspend their financial support of the project until the concerns of the Standing Rock Sioux Tribe are fully addressed.

So far there is no sign that the lenders are prepared to withdraw their support of the pipeline. This means there will be more clashes ahead — both between police and protestors, and between the profit interests of the lenders and their purported principles.

Unequal Spoils

Thursday, December 1st, 2016

In his 2009 utopian novel Only the Super-Rich Can Save Us, Ralph Nader conjures up a scenario in which a group of enlightened U.S. billionaires spark a populist uprising against excessive corporate power. Calling themselves Meliorists, people such as Warren Buffett, George Soros, Ted Turner and Bill Gates Sr. use their wealth to bankroll creative efforts to undermine the stranglehold of big business and promote an agenda of universal healthcare, a living wage, sustainable energy, public financing of elections and other forms of popular democracy.

It is unlikely that Donald Trump has read the 733-page volume, but his emerging administration is well on its way to becoming an ugly variation on Nader’s theme. Rather than enlightened billionaires promoting a progressive agenda, Trump is building a government that will be run by wealthy proponents of reactionary policies. After a presidential campaign in which he railed against elites and suggested that he would shake up the system, he is filling his cabinet and other top jobs with individuals who, like himself, have exploited it to the hilt.

Trump’s pick for Treasury Secretary, Steve Mnuchin, worked for 17 years at Goldman Sachs but made his real money purchasing distressed IndyMac Bank amid the financial crisis in 2009, and after engaging in controversial foreclosure practices resold it at a hefty profit. The proposed Commerce Secretary Wilbur Ross, whose personal wealth is estimated by Forbes at $2.9 billion, has an even longer track record as a vulture investor who has turned around failing businesses but often at a high cost to employees. Betsy DeVos, Trump’s choice for Education Secretary, is a school privatization zealot who comes from a wealthy family and is married to an heir to the Amway fortune.

According to news reports, Trump is likely to name even more members of the 0.1 Percent to his administration. Plutocracy, once used as a rhetorical flourish, is increasingly a literal description of where things are heading.

Even those members of the Trump team who are not listed on the Forbes 400 are known for promoting policies that benefit the billionaire class rather than the workers who voted for the Republican ticket. Health and Human Services nominee Tom Price is a pharma-friendly, anti-Obamacare fanatic who seems to want to create a system of bare-bones coverage that is highly profitable to the insurance industry. Seema Verma, named to head the agency that oversees Medicare and Medicaid, is a pro-privatization consultant. And then there are the dozens of industry lobbyists installed on the landing teams for individual federal agencies who are helping target a wide range of regulations that protect consumers, workers and the general public.

Perhaps out of an awareness that his supporters may be starting to look askance at this power grab by corporate interests, Trump has taken pains to fulfill his campaign promise to help workers at the Carrier Corporation plant in Indianapolis whose jobs were being sent to Mexico.

The president-elect has just announced a deal in which some 800 of the 1,400 affected workers will save their jobs. This is welcome news for those workers and their families, who probably don’t care that Mike Pence used his soon-to-expire powers as governor to grant the company the kind of special “incentives” that Trump frequently denounced during the campaign.

For the rest of the country, it difficult to avoid thinking that Trump and Pence are using the Carrier situation mainly as a way to boost their popularity and distract people from the overwhelmingly pro-business bent of the rest of the transition.

We are likely to see more of this as the Trump Administration creates a new form of inequality: big and lucrative policy gains for the powerful and smaller, mainly symbolic benefits for the rest of the population. The question is: will Trump’s working class enthusiasts settle for crumbs while the powerful gorge themselves?