Targeting Those at the Top

It remains to be seen how high the new special counsel Robert Mueller aims his probe of the Trump campaign, but there are reports that another prominent investigation is targeting those at the top. German prosecutors are said to be examining the role of Volkswagen chief executive Matthias Muller and his predecessor Martin Winterkorn in the emissions cheating scheme perpetrated by the automaker. They are also looking at the chairman of Porsche SE, which has a controlling interest in VW.

Mueller and Muller, by the way, have more of a connection than the similarity of their names. Last year, the former FBI director was chosen by a federal judge to serve as the “settlement master” to help resolve hundreds of lawsuits brought against VW in U.S. courts. Mueller has played a similar role regarding suits brought against Japanese airbag maker Takata.

Although Winterkorn was forced to resign after the emissions scandal erupted in 2015, he and Muller — who was VW’s head of product planning while the cheating was taking place — denied any wrongdoing, and the company sought to pin the blame on lower-level managers.

The initial U.S. Justice Department case against VW named no executives at all, though a company engineer later pleaded guilty to fraud charges and in January DOJ indicted six other VW middle managers.

There is no question that many individuals had to be involved in a scheme as widespread as the one at VW. Although it was corrupt, VW was also bureaucratic, so it is to be expected that lower-level managers either sought permission from their superiors for undertaking a risky scheme — or they were carrying out a plot that originated from above.

In fact, the New York Times reports that it has been shown internal company emails and memos suggesting that VW engineers implementing the scheme were operating with the knowledge and consent of top managers.

As the evidence mounts, the issue for German prosecutors may no longer be whether the likes of Muller and Winterkorn were involved but whether they, the prosecutors, are willing to bring charges against those at the apex of the corporate hierarchy.

In the United States, a reluctance to take that step has tainted the prosecution of business crime for more than a decade. At a time when discussion of whether anyone is above the law is the focus of discussion in the government realm, we should not forget that the principle applies in the corporate sector as well.

Will DOJ Give a Deep Discount to Wal-Mart?

The Justice Department has a lot on its plate these days, but it has apparently found time to cook up a deal that would save Wal-Mart hundreds of millions of dollars. According to Bloomberg and the Wall Street Journal, DOJ is offering the giant retailer the chance to settle a foreign bribery case for $300 million, an amount far less than the penalty of up to $1 billion the Obama Administration was seeking in the long-running negotiations to resolve the matter.

I suppose we should be grateful that DOJ is not letting Wal-Mart off the hook entirely, given that Donald Trump once described the Foreign Corrupt Practices Act as a “horrible law.” Moreover, there has been speculation that Trump’s own business dealings may be vulnerable to FCPA prosecution in places such as Azerbaijan.

Attorney General Jeff Sessions has gone out of his way to affirm the commitment of his department to enforcing the FCPA, yet this is the same person who just involved himself in the firing of FBI Director James Comey after promising to recuse himself from the probe of the Trump campaign’s Russian ties.

It could be that Sessions intends to go on bringing FCPA cases but with reduced settlement amounts. That would be at least a partial victory for companies like Wal-Mart, whose FCPA problems first gained widespread attention after the New York Times published a 2012 investigation of widespread bribery in the company’s Mexican operations. In response, the company launched its own examination of possible misconduct in countries such as Brazil, India and China.

Given Wal-Mart’s size and prominence, a large penalty would be appropriate to send a message to the corporate world about the consequences of corrupt practices. The $1 billion amount reportedly sought by the Obama Administration would have been the largest single FCPA penalty ever imposed.

Instead, the reported $300 million settlement amount would not even rank among the top ten, according to the list maintained by the FCPA Professor blog. That list, topped by Siemens at $800 million and Alstom at $772 million, is dominated by foreign companies, including some such as VimpelCom (now known as Veon) and Snamprogetti (now part of Italy’s Saipem) that are hardly household names.

Giving a deep discount to a domestic behemoth would raise questions about the enforcement of a law that is meant to fight corruption worldwide.

DOJ’s decision on what to do about the Wal-Mart FCPA case will provide an important clue about how it intends to deal with corporate crime in general. The Obama Administration struggled to find the best way to deter business misconduct, and if nothing else increased penalties in major cases to unprecedented levels. Imposing a relatively small penalty on Wal-Mart would reverse that trend and signal to corporations that they have less to worry about from the Trump Justice Department.

Another Form of Denial

Lurking behind the assault on regulation being carried out by the Trump Administration and its Congressional allies is the assumption that corporations, freed from bureaucratic meddling, will tend to do the right thing. That assumption is belied by a mountain of evidence that companies, if allowed to pursue profit without restraint, will act in ways that harm workers, consumers and communities. In fact, they will do so even when those restraints are theoretically in effect.

The latest indication of the true proclivities of big business comes in a report just released by the U.S. Chemical Safety Board on a 2015 explosion at the Exxon Mobil refinery in Torrance, California. That accident spewed toxic debris and kept the facility at limited capacity for a year, boosting gasoline prices in the region and costing drivers in the state an estimated $2.4 billion.

According to the safety board, the accident was not an act of god but rather the result of substandard practices on the part of Exxon. The report states:

The CSB found that this incident occurred due to weaknesses in the ExxonMobil Torrance refinery’s process safety management system.  These weaknesses led to operation of the FCC [fluid catalytic cracking] unit without pre-established safe operating limits and criteria for unit shutdown, reliance on safeguards that could not be verified, the degradation of a safety-critical safeguard,  and the re-use of a previous procedure deviation without a sufficient hazard analysis that confirmed that the assumed process conditions were still valid.

Exxon was also found to have used critical equipment beyond its expected safe operating life. The CSB investigation also discovered that a large piece of debris from the explosion narrowly missed hitting a tank containing tens of thousands of pounds of highly toxic modified hydrofluoric acid. Exxon refused to respond to the agency’s request for information detailing the safeguards it had (or did not have) in place to prevent or mitigate a release of the acid. The agency has gone to court to try to get the information.

The CSB is an investigatory and not a regulatory body, so it does not have the power to penalize Exxon for its role in bringing about what the agency called a “preventable” incident. Yet its report adds another entry to Exxon’s dismal corporate rap sheet. The Torrance refinery itself, which came from the Mobil side of the family, has a long history of fires, explosions and leaks. The rest of Exxon has a track record that includes the disastrous Exxon Valdez oil spill in Alaska, numerous pipeline accidents and much more, including many years of climate denial. This tainted record did not prevent the company’s CEO from being the U.S. Secretary of State.

Last year, the Torrance refinery was sold by Exxon to PBF Energy, which has subsequently experienced “multiple incidents,” as the CSB diplomatically put it.

No matter how many instances of corporate negligence are brought to light, there are always business apologists ready to point the finger at regulators instead. The gospel of deregulation is now the state religion of the Trump Administration. How many preventable disasters will it take to share that belief?