Phil Mattera

The Corporate Marauder Undermining the Postal Service

Donald Trump got elected in part by selling the idea that his business experience would enable him to do a great job of running the government. We see how that turned out. And now we have another veteran of the private sector wreaking havoc on the United States Postal Service.

Louis DeJoy was named postmaster general after spending four decades in the trucking and logistics business, becoming wealthy enough in the process to join the ranks of Republican megadonors. He made his name and his fortune through the creation of a company called New Breed Logistics, which grew to prominence by securing contracts with large corporations such as Boeing as well as the Postal Service.

In 2014 he sold New Breed to the Fortune 500 company XPO Logistics, staying on to run the New Breed operation and serve as a director of XPO until 2018. If we want to get a sense of the management approach DeJoy is bringing to the USPS, we can look at the track record of New Breed and XPO.

As shown in Violation Tracker, XPO and its subsidiaries have racked up a total of $65 million in fines and settlements in more than 70 misconduct cases over the past two decades. Nearly two-thirds of that total comes from wage theft. Last year XPO paid $16.5 million to resolve allegations that for years it misclassified drivers as independent contractors to deny them overtime pay and paid breaks.

This year XPO paid another $5.5 million for wage and hour violations relating to workers at its Last Mile operations. Altogether, XPO and its subsidiaries have had to pay out some $40 million in wage theft lawsuits. Another $3.5 million settlement in a misclassification case brought against an XPO unit and the retailer Macy’s is awaiting final court approval.

Another problem area for XPO is employment discrimination. Two of the cases in this category relate to New Breed Logistics. In 2015 a federal appeals court upheld a $1.5 million jury verdict in a sexual harassment and retaliation case originally filed by the Equal Employment Opportunity Commission in 2010. Also in 2015, New Breed had to pay $90,000 to resolve allegations by the Office of Federal Contract Compliance Programs that it engaged in discriminatory practices at a facility in Texas.

XPO has also been called out for workplace safety and health deficiencies. It has been cited more than 20 times by OSHA for serious, willful and repeated violations.

Along with the mistreatment of workers, the rap sheet of XPO and its businesses includes allegations of cheating the federal government. This comes by way of Emery Worldwide, an air freight company that became part of Con-Way Inc., which was purchased by XPO in 2015.

In 2006 Emery paid $10 million to settle a False Claims Act lawsuit brought by the Justice Department concerning the submission of inflated bills to the Postal Service for the handling of Priority Mail at mail processing facilities during a multi-year contract.

Leave it to the Trump Administration to choose someone to head the Postal Service who was associated with a company linked to fraud committed against that same agency.

XPO continues to do business with the Postal Service, and DeJoy has continued to receive income from the company through leasing agreements at buildings he owns. Even if XPO had a spotless record, DeJoy’s ongoing dealings with it create a glaring conflict of interest.

DeJoy claims to be retreating, at least through the election, from the measures that threatened to create chaos for mail-in ballots. Nonetheless, his corporate marauder’s approach to the management of the Postal Service still poses a grave threat to the future of a vital American institution.

The Corporate Culprits Receiving Covid Bailouts

Allegations of insider trading threaten to derail a plan by the Trump Administration to provide a $765 million covid-related loan to Eastman Kodak. This comes on the heels of controversy over the administration’s use of $700 million in coronavirus relief funds as a loan to trucking company YRC Worldwide, supposedly for national security reasons.

There will undoubtedly be more revelations about these specific sweetheart deals, but they also highlight a broader question about the vast amounts of federal assistance that has been flowing to businesses during the pandemic: to what extent are funds going to companies that have a track record of misconduct and may very well continue those misdeeds while getting taxpayer aid.

My colleagues and I have been seeking to answer at least the first part of that question with our work on two databases: Covid Stimulus Watch, which collects information on recipients of CARES Act business assistance, and Violation Tracker, which for the past five years has been assembling data on penalties paid by thousands of companies for regulatory infractions and other wrongdoing.

Each of the databases seeks to match the companies named in individual covid awards or penalties to a universe of more than 3,000 larger parent corporations. That allows us to aggregate the data to show the full extent to which a parent is getting aid or being penalized across its various operations.

We are also connecting the parents across the two datasets. We have 700 examples of medium and large companies that are both receiving covid aid and that have paid federal or state penalties for misconduct.

These corporations and their subsidiaries have received a total of $52 billion in grants and $54 billion in loans from CARES Act program. They have paid a total of $112 billion in fines and settlements since 2010. The assistance has, in effect, almost totally reimbursed them for their penalties.

Behind these aggregate numbers are some significant differences among the 700 corporations. About 250 of the largest companies are on the list because the Federal Reserve has been purchasing their bonds under the Secondary Market Corporate Credit Facility. Those purchases total about $1.8 billion, but the average amount per company is only about $7 million—a small figure for the Fortune 500 and Global 500 firms that dominate the list. At the same time, these companies — which include the likes of BP, Volkswagen and Merck – account for $101 billion of the penalties, or about 90 percent.

About 150 of the parents are medium-size companies that received only Paycheck Protection Program loans worth a total of $712 million. Their penalty total is about $560 million.

The remaining 300 parents fall into two main categories. First, there are the major airlines and other aviation companies being assisted through the Payroll Support Program. They account for $17 billion in grants and $7 billion in loans. Their penalty total is $614 million, with the major airlines accounting for most of that. American Airlines, for instance, has since 2010 paid $79 million in safety penalties, $42 million in employment penalties, and $22 million in federal contracting penalties.

The subset of common parents between Covid Stimulus Watch and Violation Tracker that accounts for a substantial number of covid recipients, a large aid amount and a hefty penalty total is healthcare. About 250 for-profit and non-profit providers have received some $34 billion in grants and $44 billion in loans and accelerated payments.

These hospitals, nursing homes and medical practices have paid $8.5 billion in fines and settlements since 2010. This includes more than $1 billion in penalties for employment-related violations such as wage theft and discriminatory practices.

Yet by far the biggest portion — $5.3 billion — of the penalties paid by the healthcare providers stem from False Claims Act matters. These are cases in which they have been accused by the federal government of improperly billing Medicare and Medicaid, thus engaging in fraud. In most cases the providers face only civil charges and are allowed to pay their way out of liability.

The poster child for this group of corporations is the for-profit hospital chain Tenet Healthcare, which has received $684 million in covid grants and $817 million in loans and accelerated payments. Since 2010 Tenet has paid more than $600 million in False Claims Act penalties, including a case in which two subsidiaries pled guilty to criminal charges relating to the payment of illegal kickbacks for patient referrals.

If policymakers want to explore whether covid aid is being misused, recipients such as Tenet — which are now receiving aid from the same federal government they were previously accused of cheating — might be a good place to start.

Note: we are also in the process of identifying small companies receiving covid aid that have a history of misconduct.

Who Is Hogging Covid Stimulus Funds?

The main cause for the stalemate in Congress over a new round of covid stimulus funding is a belief by numerous Republicans that the federal government has been too generous to the unemployed. The enhanced jobless benefits created by the CARES Act need to be curtailed, they argue, to push people to return to work.

Those worrying about disincentives to work do not express similar concerns when it comes to assistance for businesses. Yet there are glaring examples of corporations that have exploited a variety of covid programs to the hilt.

Take the example of the aviation sector. As shown in Covid Stimulus Watch, the Payroll Support Program (PSP) has provided about $20 billion in grants and $7 billion in loans not only to the major airlines but also to smaller passenger carriers, air cargo companies, airport service providers and others.

Despite the generosity of this program, about 170 recipients also turned up on the list released in early July of companies that received awards under the Paycheck Protection Program. The PPP provided these firms more than $200 million in potentially forgivable loans on top of the $500 million in grants they got from the PSP. (The $200 million is calculated by using the midpoint of the ranges in which the PPP awards were disclosed.)

That double-dipping is not the end of the story. The Small Business Administration recently disclosed the names of companies that have gotten Economic Injury Disaster Loans (EIDL), a program that has been greatly expanded to provide another form of covid aid.

More than 70 of the companies that got PSP and PPP awards also show up among the EIDL recipients, making them triple-dippers. The largest total haul, $33 million, went to Ohio-based Champlain Enterprises, which operates CommutAir. The group as a whole received $130 million in grants and loans.

The use of multiple programs by the aviation sector is more troubling in light of evidence that some of the companies have engaged in large-scale layoffs at the same time they were receiving federal assistance. Recently, Rep. James Clyburn, who chairs the Select Committee on the Coronavirus Crisis, Rep. Peter DeFazio, chair of the House Committee on Transportation and Infrastructure, and Rep. Maxine Waters, chair of the House Committee on Financial Services, sent a letter to Treasury Secretary Steven Mnuchin about this situation.

The letter cited a dozen aviation contractors that had accepted PSP aid after engaging in layoffs. One of the firms was Constant Aviation, which in addition to a PSP grant of $23 million, received a PPP loan worth between $5 million and $10 million.

Another sector that is making use of multiple covid programs is healthcare. Hospitals, nursing homes and other medical practices have received tens of billions of dollars under the Provider Relief Fund and the Medicare Accelerated and Advance Payment Program. This assistance was certainly needed, yet dozens of the providers also got assistance from the PPP.

For example, Bronxcare Health System in New York, got more than $100 million from the Provider Relief Fund and then received two PPP loans worth between $4 million and $10 million. MidMichigan Health got $60 million from the Provider Relief Fund and then between $1 million and $2 million from PPP.

The nursing home chain SavaSeniorCare received a total of $35 million from more than 50 separate grants through the Provider Relief Fund as well as PPP loans worth $9.5 million to $21 million. This is on top of $24 million in accelerated Medicare payments.

Where is the hand-wringing over the possibility that all these payments are creating a disincentive for corporations to operate efficiently? These companies may argue that the funds are necessary for their survival, but so is expanded unemployment pay for the millions of people still left jobless by the pandemic.

Big Business and the PPP

By now it is clear that the recipients of Paycheck Protection Program loans were often companies larger than the mom-and-pop operations we were led to believe would be the main beneficiaries. A closer examination of the data shows assistance going not just to mid-sized companies but also to portions of Big Business.

This finding comes from a comparison of the PPP data released in early July to the 1.1 million entries my colleagues and I at Good Jobs First have assembled in our Violation Tracker and Subsidy Tracker databases. The Trackers link the individual penalty or subsidy records to a universe of nearly 4,000 parent companies.

We have now been looking for matches between Tracker data and the more than 1 million entries we have assembled in our newer database Covid Stimulus Watch, which contains data on loans and grants to companies and large non-profits from 19 programs created by the CARES Act.

So far, we have found 775 Tracker parents that have also received covid-related financial assistance, either directly or through a subsidiary. Not all of these are surprises. Some CARES Act programs were designed to help larger companies. For example, the Payroll Support Program is providing massive grants and loans to the major airlines (as well as smaller carriers, air cargo companies and others).

The healthcare systems receiving assistance from the Provider Relief Fund include the large for-profit hospital chains HCA and Tenet as well as both large and small non-profits. The Federal Reserve’s Secondary Market Corporate Credit Facility has been buying the bonds of Fortune 500 companies.

The larger corporations participating in those programs account for about two-thirds of the Tracker-Covid Stimulus Watch parent overlaps. That leaves about 220 that show up in connection with the PPP. Of these, about 150 are privately held. That means, of course, that precise information on their size is not readily available.

We chose to include these firms in the Tracker universe because of indications they are sizeable businesses. Some, in fact, are sizeable enough to be included in the Forbes list of the largest privately held companies in the United Sates.

One example is Ashley Furniture Industries, a manufacturer and retailer that Forbes estimated has $5.8 billion in revenue and 31,000 employees. Two of Ashley’s stores received PPP loans worth between $500,000 and $1.4 million (the loan amounts were disclosed in ranges).

Ma Labs, a computer components producer which Forbes puts at $2.1 billion in revenue and 1,200 employees, received a PPP loan worth between $2 million and $5 million. A more complicated example is Tauber Oil, which Forbes says has revenue of $7.4 billion but only 168 employees. It received a PPP loan of at least $2 million.

Some very large publicly traded companies can also be linked to PPP loan awards. Garden Fresh Gourmet, a salsa company in Michigan owned by Campbell Soup, got a PPP loan in the $2 million-$5 million range. Campbell Soup, with revenues of $9.9 billion, is No. 322 on the Fortune 500.

Marion Resource Recovery Facility LLC, which operates a waste management facility in Oregon, got a PPP loan of up to $250,000. The company is owned by Republic Services, No. 305 on the Fortune 500 with $10.2 billion in revenue.

Large foreign corporations also have PPP connections. For example: Hanwha Advanced Materials America LLC, which received a PPP loan in the $2 million-$5 million range, is owned by South Korea’s Hanwha Group, which ranks No. 261 on the Fortune Global 500 with revenue of $44 billion.

Welspun Pipes, a subsidiary of India’s large Welspun Group conglomerate, received a PPP loan between $5 and $10 million.

These are but a few examples of how some of the world’s largest corporations have managed to benefit from a program advertised as a lifeline for small business.

CORRECTION: I have been told by Campbell Soup that it has sold Garden Fresh Gourmet, even though the latter’s website still refers to an ownership relationship.

Foreign-Owned Regulatory Violators Found Among PPP Recipients

The massive Paycheck Protection Program was depicted as a necessary measure to save American small businesses, yet the list of recipients of the forgivable loans released by the Treasury Department contains numerous companies that are neither small nor American.

These include firms such as Jindal Saw USA LLC and JSW Steel (US) Inc., two affiliates of the Jindal Group, a multi-billion-dollar conglomerate owned by one of India’s wealthiest families. JSW Steel’s investments in the United States have been touted by Donald Trump, though the company later sued the U.S. Commerce Department when it was denied permission to import steel from India without paying a steep tariff.

Continental Carbon Company, owned by Taiwan’s International CSRC Investment Holdings Company (formerly China Synthetic Rubber Corporation), received a PPP loan worth between $5 million and $10 million.

These are two examples that have emerged from an examination of the PPP recipient list my colleagues and I have been doing as part of the integration of the data into our Covid Stimulus Watch website. Here are some others:

Giti Tire Manufacturing (USA) Ltd and Giti Tire (USA) Ltd, subsidiaries of Singapore’s Giti Tire.

Sekisui Voltek, LLC, a subsidiary of Japan’s Sekisui Chemical.

The U.S. subsidiary of Korean Air Lines (owned by the Hanjin Group).

Asahi Forge of America Corporation, a subsidiary of Japan’s Asahi Forge.

It does not come as a complete surprise that foreign-owned companies appeared on the PPP list. There was discussion of this possibility at the time the program was debated and enacted.

The issue then was whether such entities would be eligible for the loans if they were part of foreign companies with a workforce that surpassed the PPP employee limits. The muddled guidance provided by the Trump Administration has apparently allowed funds to go to firms linked to foreign corporations that are far from small businesses.

Another concern has come to light as we match PPP recipients to the data my colleagues and I have assembled for our other database, Violation Tracker: some of these foreign companies getting PPP loans have a history of misconduct.

The U.S. operations of Jindal Group have paid more than $1.4 million in penalties, mostly resulting from workplace safety and health violations.

Continental Carbon has paid over $2 million in penalties, nearly all of which involved Clean Air Act violations. Giti Tire, Sekisui, and Asahi Forge have also paid penalties to OSHA and/or the EPA.

In 2007 Korean Air Lines had to pay a $300 million criminal fine to the U.S. Justice Department after pleading guilty to conspiring to fix the prices of passenger and cargo flights. In 2018 Hanjin Transportation Co. Ltd., also part of the Hanjin Group, paid more than $6 million to the Justice Department to resolve allegations relating to a bid-rigging conspiracy that targeted contracts to supply fuel to United States Army, Navy, Marine Corps, and Air Force bases in South Korea.

In creating the Paycheck Protection Program, Congress probably did not intend to provide assistance to entities that are owned by large foreign companies and that had a track record of repeated regulatory violations and other serious misconduct.

Now that there is consideration of extending and expanding PPP, the question is whether such companies will continue to benefit from the largesse of American taxpayers.

Double-Dipping by PPP Healthcare Loan Recipients

Healthcare providers have faced significant challenges during the pandemic, but it was still surprising to see that sector show up as the largest recipient of assistance under the Paycheck Protection Program. That’s because hospitals and other providers were already receiving tens of billions of dollars in federal aid from other CARES Act programs.

To the growing list of PPP defects we can add: double-dipping by healthcare recipients.

Take the case of Bronxcare, which operates a number of health facilities in New York City. Two of its units were revealed to have gotten PPP loans worth $2 to $5 million each (the amounts were disclosed as ranges). Previously, it received more than $100 million from the HHS Provider Relief Fund.

The Great Plains Health Alliance, a health system headquartered in Kansas, received seven PPP loans worth up to $11 million. Previously, it received more than $24 million in grants under the Provider Relief Fund as well as $16 million in expedited funds through the Medicare Accelerated and Advance Payment Program.

The Erie County Medical Center in Buffalo, New York received a PPP loan worth between $5 million and $10 million after having received more than $40 million from the Provider Relief Fund and over $35 million in accelerated Medicare payments.

Bronxcare, Great Plains and Erie County Medical are all non-profits, but double-dipping can also be found among for-profit healthcare providers. Vibra Healthcare, which operates hospitals in 18 states, received at least 16 PPP loans worth between $24 million and $56 million. As ProPublica pointed out in its investigation of the company, Vibra applied for the loans in the names of numerous subsidiary LLCs rather than the parent company.

Zwanger-Pesiri Radiology, which operates imaging facilities in New York City and Long Island and received a PPP loan worth $2-$5 million, also received $4 million from the Provider Relief Fund and $9 million in accelerated Medicare payments.

Altogether, Covid Stimulus Watch contains data on more than 40 healthcare companies that got PPP loans as well as assistance from other CARES Act programs.

These overlaps are made more controversial by the fact that some of the double-dippers have checkered records when it comes to regulatory compliance, including issues relating to billing irregularities. For example, in 2016 Vibra Healthcare had to pay $32.7 million to resolve a federal False Claims Act case alleging that it billed Medicare for medically unnecessary services. In 2019 it paid $6.2 million to settle a Medicare fraud case.

In 2016 Zwanger-Pesiri paid $10.5 million to settle allegations that it billed Medicare and Medicaid for procedures that had not been ordered by physicians. Along with the usual civil allegations, the company pled guilty to two counts of criminal fraud.

In 2013 Erie County Medical Center paid $268,000 to the New York State Attorney General to resolve allegations of excessive Medicaid billing, and it paid $335,000 to the U.S. Labor Department for wage and hour violations.

The healthcare providers may have broken no rules in applying for PPP loans while also receiving assistance from other covid-related programs, but their ability to do so points to the need for the federal government to take a more coordinated approach to CARES Act assistance.

The fact that some of the double-dippers also have a history of misconduct—including cheating the same federal government now awarding them grants and loans—highlights the need for even greater scrutiny of recipients.

The Paycheck Protection Program and Wage Theft

The Trump Administration’s reluctant disclosure of the names of more than 600,000 recipients of Paycheck Protection Program aid has shown that many of the loans went to firms that are well-connected and that otherwise don’t fit the image of mom-and-pop businesses we were led to believe would be the main beneficiaries.

There is another problem: many of the recipients previously engaged in behavior that amounts to paycheck endangerment. They failed to comply with minimum wage and/or overtime requirements and thus paid their workers less than what they were owed. In other words, they engaged in wage theft.

This comes from an analysis of data my colleagues and I have collected for the Covid Stimulus Watch and Violation Tracker databases. That includes the big PPP dataset and information on penalties imposed by the Labor Department’s Wage and Hour Division, one of the many agencies whose enforcement data can be found in Violation Tracker.

We are in the process of determining which PPP recipients are on the list of wage and hour violators, so we can highlight that in Covid Stimulus Watch along with other corporate accountability data.

As a first step, I looked at the 4,800 companies identified as receiving the largest PPP loans–$5 million to $10 million. So far, I have found 88 of those recipients that paid wage theft penalties since 2010. Their penalties averaged about $100,000—which is roughly double the amount paid in back pay and fines in a typical wage and hour case.

The largest wage theft penalty I’ve found for a PPP recipient is the $1.9 million paid by Hutco Inc., a marine and shipyard staffing agency based in Louisiana. In announcing the penalty, the U.S. Department of Labor said the company had utilized improper pay and record-keeping practices, resulting in “systemic overtime violations” affecting more than 2,000 workers.

PPP recipient National Food Corporation, a major egg producer, paid $435,000 in penalties for wage and hour violations at its operations in Washington State. The company also paid $650,000 to settle a sexual harassment lawsuit filed by the Equal Employment Opportunity Commission.

Hearth Management, a PPP recipient that manages assisted living facilities in four states, paid a total of $383,000 in wage theft penalties at several locations. At a facility in Tennessee, the Labor Department reported that the company made deductions from timecards for meal breaks even when employees worked through those breaks, and it failed to include on-call and other non-discretionary supplements when calculating overtime rates.

Other PPP recipients with substantial wage theft penalties include the publisher O’Reilly Media, the electronics company Sierra Circuits, the restaurant chain Legal Sea Foods, and Erie County Medical Center in Buffalo, New York, which has also been penalized for overbilling Medicaid. Apart from the PPP money, the Erie County Medical Center has received more than $75 million in grants and loans from other federal programs related to covid relief.

We will undoubtedly find many more companies with similar track records as we analyze the other hundreds of thousands of PPP recipients.

It was not illegal for employers with a history of wage theft penalties to apply for and receive PPP assistance, yet the presence of these companies in the recipient list points to dual risks.

First, there is the possibility that these firms will “cook the books” when it comes to reporting on their use of PPP funds and submitting their requests to have the loans forgiven. Second, these firms may feel that the current economic crisis will give them cover for returning to their old practices of wage theft. At a time of massive unemployment, these firms may assume that workers will not dare to complain about being shortchanged on their pay.

For these reasons, PPP employers with a history of wage theft penalties should be subject to additional scrutiny both by the Wage and Hour Division and the Small Business Administration. Paycheck protection must mean not only the preservation of jobs but also the defense of fair labor standards.

The Other Regulators

When it comes to business regulation, we tend to focus on federal agencies, which for the financial sector means the SEC, the CFPB, the Federal Reserve and the like. Yet there is another world of financial regulation at the state level, which at a time of weakening enforcement is more important than ever.

My colleagues and I at the Corporate Research Project have just completed a deep dive in this world for a major expansion of Violation Tracker. We collected enforcement data dating back to the beginning of 2000 for each state’s regulatory agencies dealing with banking, consumer finance, insurance and securities. In all, we created 15,000 entries with total penalties of more than $17 billion.

The number of cases and penalty amounts vary greatly from state to state. Among the more than 150 agencies we looked at, some disclosed hundreds of successful enforcement actions while others reported a few dozen. Some states are active in one of the areas we examined and weak in others.

The state that has by far collected the most in overall penalties is New York, whose total is more than $11 billion. Its Department of Financial Services has gone after the world’s biggest financial institutions and has won major settlements such as the $2.2 billion paid by the French bank BNP Paribas for violating international economic sanctions and the $715 million paid by the Swiss bank Credit Suisse for facilitating tax evasion.

California is second in penalties at just over $1 billion but far ahead in the number of cases. Its financial regulatory agencies have carried out more than 2,000 successful actions. Their biggest settlement was the $225 million paid in 2017 by Ocwen Loan Servicing for mortgage abuses.

Three other states have collected more than $100 million in penalties: Arizona ($665 million in 488 cases), Texas ($632 million in 1,097 cases) and New Jersey ($339 million in 398 cases).

If we focus on the area of insurance, in which the states have pretty much exclusive jurisdiction, the largest number of penalties of $5,000 or more were found in California (1,475), Texas (950) and Virginia (633). Yet in terms of total penalty dollars, New York was first with $808 million, followed by Texas ($617 million) and California ($541 million).

We also identified more than 100 cases in which regulators from different states brought cases jointly. These actions are similar to the multi-state attorneys general cases we analyzed in our Bipartisan Crime Fighting by the States report published in September 2019.

The cases brought by groups of state insurance and securities regulators have yielded about $2 billion in penalties since 2000. The companies that have paid the most in penalties in these cases are: Citigroup ($251 million), American International Group ($204 million), Bank of America ($201 million) and the Swiss bank UBS ($179 million).

Looking at both single-state and multi-state actions in banking, insurance and securities combined, the companies that have paid the most in total penalties turn out to be the big foreign banks, which account for every spot in the top ten. That New York sanctions case puts BNP Paribas on top with more than $2 billion, followed by Deutsche Bank and Credit Suisse.

The U.S. companies with the largest overall penalty totals are State Farm Insurance ($368 million), UnitedHealth Group ($354 million), Citigroup ($295 million), American International Group ($275 million) and MetLife ($263 million).

With the addition of the state financial cases, Violation Tracker now contains 437,000 cases with total penalties of $627 billion imposed by more than 50 federal and 200 state and local agencies.

Crime Without Real Punishment

The absurdity of the corporate system of justice was on full view this week when the chief executive of Pacific Gas & Electric stood in a California courtroom and pled guilty to 84 counts of manslaughter in connection with a 2018 forest fire blamed on the utility’s faulty maintenance of transmission lines.

The CEO, Bill Johnson, was not personally pleading guilty to the crimes. He was appearing as a representative of the corporation, which was charged with the offenses and which agreed to pay the statutory maximum monetary penalty of $3.48 million—or around $40,000 per victim.

Since no executive of the company was charged and since a corporation cannot be put behind bars, no one is paying a real penalty in this case. That, unfortunately, is the norm for almost all matters of corporate misconduct.

Usually, however, a hefty monetary penalty takes the place of imprisonment. PG&E is not even facing that limited form of punishment to a meaningful degree in the immediate case, though it was separately pressured to create a $13 billion fund to compensate victims of the Camp Fire.

It is difficult to see the PG&E case as anything more than a symbolic gesture. It leaves open the question of what would be an appropriate way to deal with egregious corporate misconduct.

For a while it appeared that the utility might face serious consequences after Gov. Gavin Newsom raised the possibility of a state takeover. It now appears Newsom was simply using that threat as leverage to get PG&E to make some changes to its operations. Those changes are unlikely to be adequate for a company with such a poor track record.

Converting PG&E from an investor-owned utility into a customer-owned cooperative, as some California officials suggested, would accomplish much more. Skimping on maintenance to bolster quarterly profits would likely become a thing of the past under such an arrangement.

Such a conversion would in effect be a “death penalty” sentence for the existing PG&E. But instead of putting the company out of business, it would resurrect it in a new, more accountable form.

This is actually not a very radical idea. There are already many community-owned utilities across the United States. They even have their own trade association, the American Public Power Association. There are also many cooperative utilities. Even the federal government is involved through entities such as the Tennessee Valley Authority.

Yet these forms of public power have never represented more than a slice of the industry, which instead has been dominated by large investor-owned utilities whose clout was supposed to be kept in check by strict regulatory oversight, especially at the state level.

PG&E is a prime example of the failure of that oversight. Perhaps it is now time to return to the idea of regarding access to energy, like healthcare, as a right rather than a product.

The Real Law and Order Problem

Donald Trump’s bombastic campaign to restore law and order is focusing on minor crimes like vandalism while allowing much more serious corporate offenses to go unaddressed. Federal agencies such as OSHA are failing to fulfill their regulatory responsibilities, putting lives at risk.

Not only is the government failing to crack down on business miscreants — in some cases it is using tax dollars to give them grants and loans to weather the pandemic-generated economic crisis.

These are not just companies involved in civil infractions but also some that have faced actual criminal charges, which are rarely used against corporations.

So far, the limited information released by the Administration on the recipients of CARES Act assistance has involved two main groups: hospitals and other healthcare providers, and airlines and air cargo companies. Even within this limited universe we can find firms that have been embroiled in criminal cases.

One example is National Air Cargo Group, which recently received a grant of more than $15 million through the Payroll Support Program. In 2008 the company had to pay $28 million to resolve criminal and civil allegations that it defrauded the Defense Department when billing for air freight services. As part of the resolution, National Air Cargo pled guilty to one count of making a material misstatement to the federal government and paid more than $16 million in criminal fines and restitution (the rest of the penalty total involved the civil portion of the case).

Among the healthcare providers there is the case of WakeMed Health & Hospitals, which is receiving more than $22 million from the CARES Act Provider Relief Fund. In 2012 it had to pay $8 million to settle criminal and civil allegations that it used more costly in-patient rates when billing Medicare for services that were actually performed on an out-patient basis. The non-profit health system was offered a deferred prosecution agreement but it had to admit to the wrongdoing.

Criminal cases can also be found among the larger corporations receiving covid-related aid. Take the case of the for-profit hospital chain Tenet Healthcare, which is getting more than $300 million from the Provider Relief Fund. In 2016 Tenet and two of its subsidiaries had to pay more than half a billion dollars to resolve criminal charges and civil claims relating to a scheme to defraud the federal government and to pay kickbacks in exchange for patient referrals. Tenet got a non-prosecution agreement while the subsidiaries pled guilty to conspiracy to defraud the United States and paying health care kickbacks and bribes in violation of the Anti-Kickback Statute.

In other words, the federal government is currently paying out hundreds of millions of dollars in aid to companies that have been implicated in criminal schemes to cheat that very same government.

The most odious abuses in the American justice system involve disparate treatment based on race, but there are also serious flaws in the way corporate offenders can so easily buy their way out of serious legal jeopardy. Allowing those offenders to receive federal aid is compounding the abuse.