Subsidies and Bad Actors

March 12th, 2015 by Phil Mattera

coalashAre corporate subsidies a right or a privilege? Should a company’s accountability track record be a factor in determining eligibility? These questions take on increased relevance in light of two new developments.

The first is that utility giant Duke Energy is being fined $25 million by environmental regulators in North Carolina. The penalty, the largest in state history, relates to the contamination of groundwater by coal ash from Duke’s Sutton power plant near Wilmington. Federal prosecutors are reportedly pursing a separate and broader case against Duke in connection with its large spill of toxic coal ash from another plant into the Dan River.

The other development is that my colleagues and I at Good Jobs First are about to make public a new version of our Subsidy Tracker that for the first time extends coverage to the federal level (the release date is March 17). Without giving away too much ahead of time, I can say that Duke Energy is among the ten largest recipients of grants and allocated tax credits (those awarded to a specific company) for the period since 2000, with a total in the hundreds of millions of dollars.

Duke got about half of its subsidies in the form of grants from Energy Department programs designed to promote renewable energy and smart grid development. The other half came from a Recovery Act provision that allows companies to receive cash payments for the installation of renewable energy equipment.

Like other large utilities, Duke has taken steps in the direction of renewables while still deriving most of its power from fossil fuels and nuclear. Are federal subsidies helping to wean Duke off dirtier forms of energy, or are they simply enriching a company that is still committed to dirty energy and has shown some serious lapses in its management of its fossil fuel facilities?

Duke is hardly the only major subsidy recipient with a tainted track record. Previously, I discussed the fact that both U.S. banks and foreign banks that received huge amounts of bailout assistance later had to pay billions of dollars to settle allegations on issues such as currency market manipulation and abetting tax evasion.

Federal officials may argue that they were not aware of these practices when the bailouts happened (though these banks hardly had spotless records as of 2008), or they may claim that they had no choice but to bail them out, since they were too big to allow to fail.

Yet the list of large federal subsidy recipients includes other major corporate miscreants. Take the case of BP, which the new database will show as having receiving more than $200 million in federal grants and allocated tax credits. Much of that money postdates its 2010 catastrophe in the Gulf of Mexico, and even more came after the 2005 explosion at its Texas City, Texas refinery that killed 15 workers and for which the company $60 million in fines to the EPA and $21 million to OSHA.

In the wake of the Deepwater Horizon disaster, BP was barred from receiving federal contracts, though the debarment was later lifted. Perhaps an even stronger case can be made for disqualifying regulatory violators from receiving federal subsidies, since they are more akin to gifts than payment for goods or services rendered. This is not likely to happen anytime soon, but the release of the new Subsidy Tracker will make it a lot easier to identify which bad actors have been enjoying Uncle Sam’s largesse.

Bailouts and Bad Actors

March 5th, 2015 by Phil Mattera

moneybagsontherunNewly released transcripts of the 2009 meetings of the Federal Reserve’s open market committee show that monetary policymakers were still agonizing over whether they were doing enough to stabilize the teetering global financial system.

These documents have a special interest for me because, as I discussed in last week’s Digest, my colleagues and I at Good Jobs First recently collected a great deal of data about the Fed’s special bailout programs in 2008 and 2009 as part of the extension of our Subsidy Tracker database into the federal realm. The Fed’s info is part of the more than 160,000 entries we have amassed from 137 federal programs of various kinds. Subsidy Tracker 3.0 will go public on March 17.

In last week’s post I mentioned that the Fed programs involved the outlay of some $29 trillion (yes, trillion) and that the totals for several large banks (Bank of America, Citigroup, Morgan Stanley and JPMorgan Chase ) each exceeded $1 trillion. I pointed out that these totals referred to loan principal and did not reflect repayments (information on which is not readily available).

What I also should have pointed out is that some of the Fed lending consisted of relatively short-term loans that were often rolled over. In other words, the actual amount outstanding at any given time was considerably lower than the eye-popping trillion dollar figures. That’s not to say that the amounts were chicken feed. It’s safe to say that the loan totals were in the hundreds of billions of dollars, and here again company-specific amounts are not available.

This is still high enough to justify the point I was making about the bailout amounts far outstripping the sums these banks have been paying out in settlements with the Justice Department to resolve allegations about investor deception in the sale of what turned out to be toxic securities in the run-up to the financial meltdown. And the amounts still justify anger at the current crusade by the big banks to weaken the Dodd-Frank regulatory safeguards adopted by the same government that bailed them out.

What is also worth pointing out is that the bad actor-bailout recipients are not limited to the big U.S. banks. Large totals also turn up for major European banks that have been involved in their own legal scandals in recent years. The biggest foreign recipient of Fed support turns out to be Barclays, which has an aggregate loan amount (including rollover loans and excluding repayments) of more than $900 billion. Next is Royal Bank of Scotland with more than $600 billion and Credit Suisse with more than $500 billion.

In 2012 Barclays had to pay $450 million to U.S. and European regulators to settle allegations that it manipulated the LIBOR interest rate index. The following year Royal Bank of Scotland had to pay $612 million to settle similar allegations. In 2014 Credit Suisse had to pay $2.6 billion in penalties to settle Justice Department charges that it conspired to help U.S. taxpayers dodge federal taxes. This was a rare instance in which a large company actually had to plead guilty to a criminal charge.

The frustrating truth is that the global financial system is dominated by big banks that seem to have little respect for the law and for financial regulation, but they do not hesitate to turn to government when they need to be rescued from their own excesses.

Banks Bite the Hand that Rescued Them

February 26th, 2015 by Phil Mattera

moneybags_handoutInvestment bank Morgan Stanley has disclosed that it will pay only $2.6 billion to settle U.S. Justice Department allegations that it deceived investors in the sale of toxic securities in the run-up to the financial meltdown.

I say “only” because the amount is substantially lower than the figures paid by Bank of America ($16.7 billion), JPMorgan Chase ($13 billion) and Citigroup ($7 billion) in similar cases. Thanks to the efforts of groups such as U.S. PIRG, we know that these amounts are less onerous than they appear because the companies are often allowed to deduct the payouts from their corporate income tax obligations.

My colleagues and I at Good Jobs First have been assembling data that does more to put the payouts in perspective. As part of an expansion of our Subsidy Tracker database to the federal level, we obtained information on the massive bailout programs implemented by the Federal Reserve in 2008 to stabilize the teetering financial system by purchasing toxic assets on the books of financial institutions and by serving as a lender of last resort.

These programs, with esoteric names such as the Term Auction Facility, the Term Asset-Backed Securities Loan Facility and the Term Securities Lending Facility, are not as well known as the Treasury Department’s Troubled Asset Relief Program, but the amounts involved are eye-popping. A 2011 paper by James Fulkerson of the University of Missouri-Kansas City estimates that the Fed made bailout commitments worth a total of more than $29 trillion. Yes, that’s trillion with a t.

We’ve been going through the recipient lists the Fed (reluctantly) made public for 11 bailout programs to match the entities to their parent companies. We’re not quite done with that process, but it appears that the totals for a few large banks, including Bank of America, Citigroup and JPMorgan Chase as well as Morgan Stanley, will end up being in excess of $1 trillion each (excluding repayment amounts). Our final figures will be released March 17, both in what we are calling Subsidy Tracker 3.0 and in an accompanying report.

It’s already clear that the settlement amounts paid by the banks (especially in after-tax terms) have been easily absorbed as costs of doing business. The Fed bailout data shows that another reason the banks have been little fazed by their legal expenses is that they received government assistance worth a thousand times more during their time of grave vulnerability in 2008 and 2009 — vulnerability that was largely of their own making due to reckless securitization of subprime mortgages and consumer loans.

After Lehman Brothers collapsed in 2008, the Fed was apparently willing to spare no expense in rescuing the other big financial players. Its efforts ensured the survival of the big banks that are riding high today. Perhaps the top executives of these banks should keep this fact in mind before criticizing the modest regulations put in place to save them (and us) from their excesses.

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New in Corporate Rap Sheets: Entergy, the utility that has bet heavily on nukes and engages in creative billing.

Unions Back from the Dead

February 19th, 2015 by Phil Mattera

refinerystrikersRight-wing governors in states such as Illinois and Wisconsin, corporate front men such as Rick Berman, and an unholy alliance of the American Legislative Exchange Council and the Heritage Foundation are among those seeking to nail shut the coffin of what they see as a dying labor movement. Yet recent events allow unions to channel Mark Twain and declare that the reports of their death have been greatly exaggerated.

As the Bureau of Labor Statistics announced that strikes last year sank to their second lowest level since 1947, workers at oil refineries around the country have been walking picket lines. A simmering labor dispute between shippers and members of the International Longshore and Warehouse Union may result in a work stoppage at West Coast ports.

Discussions of wage stagnation, which all too often are devoid of references to declining union membership rates, are starting to acknowledge the importance of collective bargaining. Mainstream columnist Nicholas Kristof of the New York Times just published a piece headlined “The Cost Of a Decline In Unions” in which he cites research estimating that deunionization (which has brought membership levels below 7 percent in the private sector) may account for one-third of the rise of income inequality among men.

This comes after Kristof recites some of the obligatory criticisms (“corruption, nepotism and rigid work rules”), but he has seen the light in stating that “in recent years, the worst abuses by far haven’t been in the union shop but in the corporate suite.” He hedges a little bit at the end by saying “at least in the private sector, we should strengthen unions, not try to eviscerate them” but the column is remarkable nonetheless.

Also remarkable is the announcement by Wal-Mart Stores that it will raise the wages of all its U.S workers to at least $9 an hour. Wal-Mart, the country’s largest private sector employer, remains entirely non-union, but the move is an indication of the impact that labor groups such as Making Change at Walmart and OUR Walmart have had on the giant retailer. Their work is far from done; $9 an hour is still too low and there are many other reforms the company needs to make. But the fact that Wal-Mart, which has a notoriously intransigent history, has budged is a significant achievement.

The non-traditional organizing at Wal-Mart is just one example of alternative approaches to building worker power. Others include the minority union model being tested by the United Auto Workers at the Volkswagen plant in Tennessee and the worker center model employed by groups such as ROC United.

Yet traditional collective bargaining still has a role to play, and not only in raising pay levels. The oil refinery walkout, for example, is not about wages (which are good, thanks to Steelworker contracts), but instead involve issues such as workplace safety. In an industry with companies such as BP, with its abysmal refinery safety record, that is no small matter. In fact, it can be a matter of life and death.

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New in Corporate Rap Sheets: Dollar General, the king (for now) of deep discounters is facing pressure over the safety of its cheap merchandise.

Another Chance to Punish HSBC

February 12th, 2015 by Phil Mattera

swissleaksIt’s reassuring that the Justice Department is reportedly pushing a group of big banks, including Citigroup and JPMorgan Chase, to plead guilty to felony counts in connection with their brazen manipulation of the foreign currency market.

Yet Justice also needs to undo the damage done by its ill-advised 2012 decision to enter into a deferred prosecution agreement with HSBC, which was allowed to pay $1.9 billion in settlements  rather than having to plead guilty to charges that it helped drug traffickers and terrorist groups evade money-laundering restrictions. Those practices had been detailed in a 300-page report by the U.S. Senate’s Permanent Subcommittee on Investigations, whose chair at the time, Sen. Carl Levin, called HSBC’s compliance culture “pervasively polluted for a long time.” A subsequent Matt Tiabbi Rolling Stone article about HSBC’s misdeeds quoted former Senate investigator Jack Blum as saying: “They violated every goddamn law in the book.”

The key prosecutor in the 2012 case was Loretta Lynch, the U.S. Attorney for the Eastern District of New York and now President Obama’s choice to succeed Eric Holder as Attorney General. The deal is back in the news in connection with extraordinary revelations about the role of HSBC’s Swiss private banking unit in abetting widespread tax evasion by thousands of wealthy individuals from around the world.

The International Consortium of Investigative Journalists (ICIJ), working in concert with news organizations around the world, adds another major dimension to the misconduct at HSBC. What ICIJ calls its Swiss Leaks project is based on a vast amount of internal bank data that former HSBC technology employee Hervé Falciani provided to tax authorities in various countries in 2010. A French official later re-leaked the data to Le Monde, whose staffers realized they had more information that they could possibility research on their own and so enlisted ICIJ and others, including 60 Minutes in the U.S., to join in the fun.

All this amounts to one of the most remarkable examples ever of collaborative investigative journalism on a global scale. The ICIJ site has links to investigations published not only in Western Europe but also in countries ranging from Ecuador and Argentina to Egypt and India. The geographic diversity stems from the fact that the leaked data relates to more than 100,000 HSBC clients in some 200 countries.

ICIJ takes pains to point out that there may be legitimate reasons for these people to have accounts in Switzerland, but it is clear that a substantial number of the clients were using them to conceal income from tax collectors. They also included individuals involved in unsavory pursuits such as arms trafficking, blood diamonds and bribery.

Some of the governments that received the data from Falciani have already begun bringing cases against individuals, but the revelations are also causing crises for some governments themselves. This is especially so in Britain, where Prime Minister David Cameron is under fire for having chosen a former HSBC executive to serve as a minister.

Even more precarious is the position of HSBC itself, which stands accused of not just allowing rich people to open the secret accounts but also of actively assisting their tax dodging. The Guardian, for instance, is reporting that HSBC contacted clients to market techniques that would allow them to evade a system under which the bank was supposed to collect a sort of withholding tax on the secret accounts on behalf of European Union revenue authorities.

This brings things back to Loretta Lynch, who is not yet confirmed by the Senate but who is already facing pressure from the likes of Elizabeth Warren to come down harder on HSBC this time around. She should give in to those pressures.

Holder’s departure from the Justice Department creates an opportunity to end the shameful practice of letting unscrupulous large companies buy their way out of serious legal jeopardy with payments, which despite growing in size still do little to deter ongoing corporate crime.

Also see my updated Corporate Rap Sheet on HSBC.

Project Zero Corporate Taxes

February 5th, 2015 by Phil Mattera

bad-appleGoogle’s Project Zero works on computer security, but that name could more be more accurately applied to the efforts of high-tech giants and other large U.S. corporations when it comes to federal tax policy: they want to pay less and less, and ultimately nothing at all. President Obama’s new tax reform proposal could end up assisting the business campaign.

Obama is endorsing the long-standing business proposal for a reduction in the statutory rate (from 35 to 28 percent) while at the same time offering an even lower rate (14 percent) on repatriated foreign profits being held abroad and a 19 percent rate on future overseas business income (minus foreign taxes paid). The revenue from the tax on accumulated offshore earnings would be earmarked for infrastructure projects.

Much of the reaction to the plan has framed the offshore provisions as a big tax hit on companies such as Apple, Microsoft and Citigroup. The Business Roundtable accused Obama of seeking “steep tax increases on businesses that will negatively impact their competitiveness.”

This view make sense only if you take as the norm the current effective tax rate imposed on these cash hoards, which is zero. In reality, that cash — which in the case of Apple alone exceeds $130 billion — should be seen as the ill-gotten gains of systematic international tax dodging and thus hardly worthy of preferential tax treatment.

This was made clear with respect to Apple in a 2013 report by the Senate investigations subcommittee that described a wide array of loopholes and tricks used by the iPhone producer. Nonetheless, CEO Tim Cook came to Capitol Hill and testified that Apple was not using gimmicks but simply managing its foreign cash holdings prudently. Sen. Rand Paul was taken in by this deceit and declared that Apple was owed an apology.

Too many members of Congress are willing not only to accept the legitimacy of offshore cash hoards but also to go along with misguided schemes to “incentivize” companies to bring some of that money back home. Last month, Sen. Paul and his Democratic colleague Barbara Boxer called for a “tax holiday” that would allow the repatriation of foreign profits with a tax rate of only 6.5 percent. This would be a replay of 2005 holiday that brought some $300 billion back to the United States, but it turned out that very little of the money was used to stimulate investment and job creation, as proponents had promised. Instead, much of it was spent on corporate stock buybacks.

Although he is not using the term, Obama’s 14 percent proposal amounts to the same kind of dubious tax holiday scheme. His higher rate is being regarded in business circles as simply an opening offer that corporate lobbyists will bring down to “reasonable” levels.

The corporate position on repatriated profits looks all the more unreasonable in light of the recent financial performance of leading offshore cash hoarder Apple. The company has more money than it knows what to do with. In January it reported quarterly profits of $18 billion, thanks to the sale of a ridiculous number of iPhones. This was a record not only for Apple but was the biggest quarterly net in corporate history.

Apple may not be sure how to use that windfall, but like many other large companies it is certain what it does not want to do: pay its fair share of taxes.

A Crowded Corporate Hall of Shame

January 29th, 2015 by Phil Mattera

2015_PublicEye_KeyVisual_550x275Over the past year, Chevron has had success in getting a U.S. federal judge to block enforcement of a multi-billion-dollar judgment imposed by a court in Ecuador, and the oil giant managed to pressure the U.S. law firm representing the plaintiffs to drop out of the case and pay the company $15 million in damages. Chevron has just had another significant win but of a less desirable kind.

The Berne Declaration and Greenpeace Switzerland recently announced that Chevron had received the most votes in a competition to determine the world’s most irresponsible corporation and thus was the “winner” of the Public Eye Lifetime Award.

For the past ten years, the two groups have countered the elite mutual admiration society taking place at the annual World Economic Forum in Davos, Switzerland by highlighting the misdeeds of large corporations. The previous awardees ranged from banks such as Citigroup to drug companies such as Novartis to Walt Disney, which was chosen because of its use of foreign sweatshop labor to produce its toys.

A few months ago, Public Eye sponsors decided to bring the project to a close but do so with a splash by naming the company that stood out as the worst. Activists from around the world promoted their choices from among six nominees: Dow Chemical, Gazprom, Glencore, Goldman Sachs and Wal-Mart Stores, along with Chevron. Amazon Watch, which led the Chevron effort, prevailed. Glencore and Wal-Mart were the runners-up.

Public Eye’s award ceremony featured the Yes Men satirical group, which in one of its rare un-ironic pronouncements stated: “Corporate Social Responsibility is like putting a bandage on a severed head – it doesn’t help”. This sentiment is especially appropriate in relation to Chevron, which has long sought to portray itself, through ads headlined WILL YOU JOIN US, as not only mindful of environmental issues but as a leader of the sustainability movement.

Given the prevalence of business misconduct, choosing the most irresponsible corporation is no easy matter. Even within the petroleum industry, Chevron’s environmental sins in Ecuador and the rest of its rap sheet must be weighed against the record of a company such as BP, infamous for the Gulf of Mexico oil spill disaster as well as safety deficiencies at its refineries that resulted in explosions such as one in Texas that killed 15 workers in 2005. Also worthy of consideration are Royal Dutch Shell, with its human rights abuses in Nigeria, and Exxon Mobil, with its own record of oil spills as well as climate change denial.

And what about the mining giants and their notorious treatment of indigenous communities around the world. A prominent activist once called Rio Tinto “a poster child for corporate malfeasance.” Then there is Big Pharma, made up of corporations that tend toward price-gouging and product safety lapses. And we shouldn’t leave out the auto industry, which in the past year has been shown to be a lot sloppier about safety matters than we could have imagined. Also not to be forgotten are the weapon makers, whose products are inherently anti-social.

Yet perhaps the biggest disappointment for corporate critics in the United States may be the fact that the Lifetime Award did not go to Wal-Mart. For the past two decades, the Behemoth of Bentonville has epitomized corporate misbehavior in a wide variety of areas — most notably in the labor relations sphere, but also promotion of foreign sweatshops, gender discrimination, destruction of small business, tax dodging, bribery (especially in Mexico) and the spread of suburban sprawl with its attendant impact on climate change. Yet perhaps the most infuriating thing about Wal-Mart has been its refusal to abandon its retrograde labor practices while working so hard, like Chevron, to paint itself as a sustainability pioneer.

It’s too bad that we will no longer have the annual Public Eye awards, but corporate misconduct will apparently be with us for a long time to come.

Precarious Pipelines

January 22nd, 2015 by Phil Mattera

waterpickupProponents of the Keystone XL pipeline in Congress were annoyed at President Obama’s wisecrack in the State of the Union, but events 1700 miles away are an even bigger embarrassment for House members of both parties who voted for a bill ordering the administration to proceed with the controversial project.

The latest reminder that oil pipelines are an especially risky business emerged recently near Glendive, Montana when a burst pipeline spilled tens of thousands of gallons of light crude into the Yellowstone River. The accident contaminated the water supply of Glendive with carcinogenic benzene, and although later tests have yielded better results, residents have been using bottled water. Evidence of the spill has been visible along some 60 miles of the river.

All this is reminiscent of the 2011 rupture of an Exxon Mobil pipeline that caused a spill in the same river. The U.S. Transportation Department’s Pipeline and Hazardous Materials Safety Administration (PHMSA) has proposed that the company be fined $1.7 million in connection with the accident.

This time, however, the rupture occurred in a pipeline owned by a modest-sized company, which goes to show that small business is not always immune from the ills of mega-corporations. The operator is Bridger Pipeline, a unit of a privately held group called True Companies.

According to the PHMSA website, Bridger has been involved in nine incidents since 2006, including three spills, all much smaller than the current situation. In 2007 the company was fined $100,000 for not having written guidelines for pipeline employee qualifications. Later it was fined $70,000 (reduced to $45,000) for other safety infractions. With the new accident, Bridger will probably join the ranks of the more serious violators.

What makes the Glendive accident all the more significant is that it occurred not far from where the Keystone XL would cross the Yellowstone. Those of a more pessimistic nature might say that this incident is an omen of what the bigger pipeline might bring.

Bridger’s link to Keystone XL is not just a matter of proximity. There have been reports that the firm’s Four Bears pipeline in North Dakota would have a connection to Keystone. North Dakota Sen. John Hoeven praised Four Bears for exactly this reason in 2012.

In 2012 Tad True of the True Companies appeared at a House hearing meant to celebrate the oil boom in North Dakota. His testimony argued for greater use of pipelines, calling them “safe and getting safer.” Numerous House members apparently took his message to heart, but the residents of Glendive may have another opinion on the matter.

Debunking Anti-Regulatory Rhetoric

January 15th, 2015 by Phil Mattera

dimonBelief in the infallibility of papal pronouncements is not as great as it used to be, but conservatives have lost none of their reverence for the statements of corporate executives. Nowhere is this clearer than in the new Congress, where Republicans seem preoccupied with addressing calls for regulatory “reform” from business leaders.

The vote in the House to begin gutting Dodd-Frank is the case in point. Conservatives appear to have taken to heart the dubious complaints by banks that they are being crippled by what are actually far from draconian restrictions.

JPMorgan Chase CEO Jamie Dimon is keeping up the drumbeat, telling reporters the other day that “banks are under assault.” Would that it were so. Dimon cited as “evidence” the fact that his institution needs to deal with multiple regulatory agencies: “You should all ask the question about how American that is, how fair that is.”

First of all, the fragmentation of bank regulation in the United States is an old issue that has nothing to do with the severity of the oversight. Several agencies treating banks with kid gloves do not amount to something more onerous than having one do so.

What makes Dimon’s laments all the more absurd is that they come from the head of a bank with an abominable track record. This is the bank that in 2013 had to pay $13 billion to settle federal and state allegations concerning the sale of toxic mortgage-backed securities. It is also the bank that suffered a $2 billion trading loss generated by a group of London-based traders that top management failed to rein in and that Dimon himself all but excused in a blustering appearance before a Congressional committee.

And it is the bank that a year ago paid $1.7 billion to victims of the Ponzi scheme perpetuated by Bernard Madoff to settle civil and criminal charges of failing to alert authorities about large numbers of suspicious transactions made by Madoff while it was his banker.

Criticisms of financial regulations coming from someone like Dimon should be accorded as much respect as denunciations of the racketeering laws coming from a mobster.

Another key source of overheated anti-regulation rhetoric is the U.S. Chamber of Commerce. The Washington Post’s Dana Milbank has published a funny but telling account of how top officials of the powerful trade association reacted when he asked them how their dire warnings about the threats to free enterprise posed by the Obama Administration squared with the recent good news about the economy.

Chamber President Tom Donohue and chief lobbyist Bruce Josten called Milbank “crazy” for saying that the Chamber had ever issued such warnings, with Donohue offering to buy the journalist lunch if he could produce such statements. Of course, Milbank goes on to reproduce several overwrought quotes.

It’s quite possible that the likes of Donohue and Josten are so used to speaking in exaggerated terms that they forget the meaning of their words.

Unfortunately, their acolytes in Congress, who receive those words wrapped in campaign contributions, take the messages all too seriously.

Prosecuting Corporate Culprits

January 8th, 2015 by Phil Mattera

SteinzorOn December 18th, the national page of the New York Times contained two stories on atypical events in the business world. One was headlined “Pharmacy Executives Face Murder Charges in Meningitis Deaths” and the other “Chemical Company Owners are Charged in Spill That Tainted West Virginia Water.”

By all rights, articles like these should be as common as those reporting on the prosecution of warring gang members or drug kingpins. Actually, they should be more common, since street crime is declining while corporate malfeasance seems to be on the rise.

The reasons for the reluctant prosecution of corporate crime are carefully dissected in the new book Why Not Jail? Industrial Catastrophes, Corporate Malfeasance, and Government Inaction by Rena Steinzor (photo), a law professor at the University of Maryland.

Steinzor, who is also president of the Center for Progressive Reform, starts by pointing a finger at what she calls “hollow government,” by which she means “outmoded and weak legal authority, funding shortfalls that prevent the effective implementation of regulatory requirements, and the relentless bashing of the civil service.”

What makes the decline of health, safety and environmental regulation so troubling is that for quite a while the system was, Steinzor notes, working fairly well. Both the food and drug laws of the early 20th Century and the environmental and workplace health legislation of the 1970s were helping to reduce deaths and illnesses.

Yet by the beginning of the new century, regulatory agencies were becoming timid while industry opponents and their Congressional allies grew ever more aggressive and successful. Steinzor takes the Obama Administration to task for often putting politics above regulatory rigor and for allowing the OMB’s Office of Information and Regulatory Affairs to continue its traditional practice of weakening proposed rules.

Steinzor also excoriates the Justice Department for its widespread use of deferred prosecution agreements and non-prosecution agreements, both before and during the Obama Administration. She sees these techniques as exactly the wrong approach in addressing corporate culpability in situations such as the Massey Energy mine collapse and two disasters — the Macondo well blowout and Texas City refinery explosion — linked to BP.

Rather than letting corporations buy their way out of these situations with financial settlements and promises not to sin again, Steinzor shows how it is possible to basic use legal concepts such as recklessness and willful blindness to bring criminal prosecutions against culpable managers and executives, especially when “industrial activities cause grave harm to public health, consumer or worker safety, or the environment.”

This needs to be done not only at the federal level, but also by local prosecutors, who have the powerful but largely neglected weapon of state manslaughter laws at their disposal.

Steinzor acknowledges that it will be difficult to change the attitudes of prosecutors, who all too often go for the easier approaches.

Another obstacle is the reluctance prosecutors seem to have about bringing cases they think might threaten the continued existence of a large corporation, a phobia stemming from the demise of the Arthur Andersen accounting firm in 2002 in the wake of its criminal conviction for actions relating to the Enron fraud.

It is significant that the two prosecutions cited at the start of these piece involve executives at relatively small firms. Until we also see executives at Fortune 500 companies facing the risk of time behind bars, the current corporate crime wave will continue unabated.