Phil Mattera

Pay for Delay

Forty years ago, federal policymakers thought they had found a solution to the problem of escalating prescription drug prices. The Hatch-Waxman Act of 1984 made it easier for generic manufacturers to bring to market lower-cost alternatives to brand-name medicines whose patent protection was expiring.

Fast forward to 2023. Recently, a federal judge in New York approved a $54 million class action settlement between plaintiffs led by a police union health plan and two drug companies accused of participating in an improper agreement to delay the introduction of a generic version of the Alzheimer’s drug Namenda. In 2020 another group of plaintiffs in a related case received a settlement of $750 million.

Once hailed as heroes that would restore consumer-friendly competition to the pharmaceutical industry, many generic producers instead became conspirators in what are known as “pay for delay” schemes to extend the market domination of costly brand-name products.

The extent of this degeneration is documented in data I have been collecting for an expansion of Violation Tracker and that will be analyzed in a report to be published next week. That expansion covers class action lawsuits designed to combat illegal price-fixing by large companies in a wide range of industries. This private litigation often follows actions brought by federal and state prosecutors.

Cases involving pay for delay, which amounts to an indirect form of price-fixing, make up a substantial portion of the litigation challenging anti-competitive practices. I was able to identify more than 100 settlements over the past two decades in which generic and brand-name producers paid out nearly $8 billion. Cases brought by federal agencies or state attorneys general resulted in another $2 billion in fines and settlements.

The company that has paid out the most is generics giant Teva Pharmaceuticals, whose 19 settlements (including those involving subsidiaries) total $2.5 billion. AbbVie’s total is $1.5 billion in 21 cases. Five other companies—GlaxoSmithKline, Sun Pharmaceuticals, Pfizer, Novartis and Bristol-Myers Squibb each have totals between $500 million and $800 million.

The largest single penalty came in 2015 in an action brought by the Federal Trade Commission accusing Cephalon Inc. of illegally blocking generic competition to its blockbuster sleep-disorder drug Provigil. The settlement required Teva Pharmaceuticals, which had acquired Cephalon in 2012, to make a total of $1.2 billion available to compensate purchasers, including drug wholesalers, pharmacies, and insurers, which overpaid because of Cephalon’s illegal conduct.

High drug costs are one of the factors contributing to inflation in the United States. Unlike energy prices, which are highly susceptible to swings in international markets, drug prices are largely under the control of manufacturers, due to patents and the unwillingness (until recently) of the federal government to allow Medicare to negotiate with the industry.

Big Pharma, not satisfied with those benefits, has frequently crossed the line into illegality through these pay-for-delay schemes. The $10 billion in penalties paid by the industry is in all likelihood far less than the economic gains it has reaped by artificially prolonging the market life of overpriced medications. It’s something to keep in mind during the next expensive visit to the pharmacy.

The report, Conspiring Against Competition, will be published on April 18.

The Two Faces of Howard Schultz

One person from Starbucks responded to a subpoena from Senate labor committee chair Bernie Sanders, but there seemed to be two versions of Howard Schultz at the witness table.

Schultz number one was the typical anti-union corporate executive. Despite the vast number of unfair labor practice charges that have been filed by Starbucks workers, many of which have been sustained by NLRB administrative law judges, he insisted the company has done nothing wrong. Accused of failing to bargain in good faith at the locations where employees have voted for representation, he blamed the union.

While giving gave lip service to the idea that workers have a right to seek union representation, Schultz added that “the company has a right to express a preference.” Not only does such a right not exist, but Starbucks has, as fired activist Jaysin Saxton testified at the hearing, gone far beyond stating its opinion. It stands accused of using many classic union-busting tactics as well as new ones such as refusing to allow credit card tipping at pro-union locations.

The other Howard Schultz tried to portray himself as a model employer, insisting that Starbucks offers much better pay and benefits than its competitors in the retail sector. Even if there is some truth in this, it is not saying much that you treat your workforce a bit better than Walmart and McDonald’s.

This Schultz argued that unionization might be appropriate at companies that treat their workers unfairly, but not at a supposedly enlightened one like Starbucks. What he could not seem to comprehend is that as much as the company claims to value and respect its green-aproned “partners,” they may want to relate to management on a more equal footing.

If Starbucks really believed in employee empowerment, it would have adopted a neutral stance toward unionization, as Microsoft did in response to the union push at Activision Blizzard. Instead, it has resorted to retrograde anti-union practices that strengthen the case for collective bargaining.

This approach throws into question the idea that Starbucks is a high-road company. Despite its carefully cultivated reputation, there have long been signs of questionable policies at the coffee chain. Some of these can be seen in the Starbucks entries in Violation Tracker, which documents more than $50 million in penalties over the past two decades. Almost all of these are employment-related.

For example: in 2013 the company agreed to pay $3 million to settle litigation alleging it denied baristas their right under California law to take uninterrupted meal breaks. Starbucks has paid millions of dollars to settle lawsuits accusing it of improperly classifying employees such as assistant store managers as exempt from overtime pay. In 2019 the company paid $176,000 to state and local agencies in New York to settle allegations it improperly penalized employees who could not find a substitute when they needed to take a sick day.

Long-standing problems such as these, along with its more recent repressive practices, suggest that Starbucks may not be such a paragon of corporate virtue after all. In fact, it may very well be one of those unfair employers that even Howard Schultz admits should be unionized.

A Marriage of Two Tainted Banks

The acquisition of struggling Credit Suisse by its rival UBS may calm the international banking waters, but it will do nothing to improve the compliance profile of the Swiss financial services sector. That’s because both Credit Suisse and UBS have seriously tainted records. Combining them will simply put all those problems under one roof.

Let’s start with Credit Suisse. Its problems extend back at least to the late 1980s, when it was named as one of the banks that allegedly laundered money for a Turkish-Lebanese drug ring. Credit Suisse also played a role in the Reagan Administration’s Iran/Contra scandal.

In the 1990s Credit Suisse was one of the Swiss banks sued in the United States by relatives of Holocaust victims who had been unable to access assets held by the banks for decades. There were also charges that the banks profited by receiving deposits of funds that had been looted by the Nazis. In 1998 the banks agreed to pay a total of $1.25 billion in restitution. The judge in the case later accused the banks of stonewalling in paying out the settlement.

After it acquired a controlling interest in First Boston in the late 1980s and formed CS First Boston, Credit Suisse ended up with more U.S. legal entanglements. CSFB was a target of U.S. divestment activists in the early 1990s because of Credit Suisse’s operations in apartheid-era South Africa. Later that decade, it was one of the investment banks sued for their role in the 1994 bankruptcy of California’s Orange County. In 1998 CSFB agreed to pay $870,000 to settle SEC charges of having misled investors in Orange County bonds and then settled a suit brought against it by the county for $52.5 million.

In 2003, CSFB was one of ten major investment firms that agreed to pay a total of $1.4 billion to settle federal and state charges involving conflicts of interest between their research and investment banking activities. CSFB’s share was $200 million.

In 2009 Credit Suisse agreed to forfeit $268 million to the United States and $268 million to the New York County District Attorney’s Office to resolve criminal charges that it violated economic sanctions in its dealings with customers from countries such as Iran and Sudan.

In 2014 the U.S. Justice Department fined Credit Suisse $1.1 billion and ordered it to pay $666 million in restitution to the IRS after the bank pleaded guilty to charges of conspiring to help U.S. customers evade taxes through the use of offshore accounts.

In 2017 the Justice Department announced a $5.3 billion settlement with Credit Suisse concerning its marketing of toxic mortgage-backed securities a decade earlier. The settlement included a $2.5 billion civil penalty and $2.8 billion in relief to distressed homeowners and affected communities.

Credit Suisse has paid hundreds of millions more in penalties in other cases involving foreign bribery, foreign exchange market manipulation, defrauding investors and much more. Its penalty total in Violation Tracker is more than $11 billion.

And the scandals continue. For example, Credit Suisse is currently embroiled in a corruption case involving the tuna fishing industry in Mozambique.

UBS has a record that is no better. Union Bank of Switzerland and Swiss Bank Corporation, which merged in 1998 to form UBS, were both involved in that same money laundering scandal with Credit Suisse. They were both also embroiled in controversies over investments in South Africa and their polices regarding the accounts of Holocaust victims.

UBS also entered the U.S. market (through the purchase of PaineWebber) and was implicated in the conflict-of-interest scandals. It, too, was prosecuted by the Justice Department for conspiring to aid tax evasion, paying $780 million in penalties.

In 2008 UBS agreed to buy back $11 billion in securities and pay $150 million in penalties as part of the resolution of multi-state litigation alleging it misled customers in the marketing and sale of auction rate securities.

It has paid hundreds of millions more in fines and settlements in cases dealing with financial market manipulation and other offenses. Including that $11 billion securities buyback, its Violation Tracker penalty total is over $17 billion.

In short, the marriage of UBS and Credit Suisse will bring together two banks with highly problematic records. The combined company should work not only to help stabilize financial markets but also to address its legacy of misconduct.

Woke Capitalism or Sleepy Oversight?

Some of the same people who are trying to convince us that January 6 was a peaceful sightseeing outing and that the situation in Ukraine is a minor territorial dispute have come up with a remarkable explanation for the collapse of Silicon Valley Bank. They claim it is the result of what they call “woke capitalism.”

Politicians such as Florida Gov. Ron DeSantis and House Oversight Chair James Comer are echoing claims by propagandist Tucker Carlson that SVB’s collapse was the result of its involvement with ESG—environmental, social and governance policies meant to promote objectives such as sustainability and diversity.

There are two problems with this claim. The first is that SVB was hardly a leader in the ESG world. The bank’s preoccupation was apparently to ingratiate itself with venture capitalists, private equity investors and start-up entrepreneurs, whether or not they were pursuing social goals. It was also chummy with California wineries. SVB wanted to be a power in Silicon Valley, not a crusader. Like most banks, it made some ESG-type investments, but they were a small part of its portfolio.

The other problem is that there is no connection between ESG practices and the forces that led to SVB’s demise. Based on what has come to light so far, it appears what happened at the bank was largely a result of poor risk management. SVB failed to pay adequate attention to the consequences of having loaded up on long-term government debt securities that were rapidly losing value at a time of escalating interest rates.

Along with that poor internal risk management, there was apparently a failure of regulatory oversight. To some extent, this was the fault of the Trump Administration and Congress, which in 2018 watered down the Dodd-Frank Act and exempted banks of SVB’s size from intensive scrutiny.

As pointed out by the New York Times, Moody’s was more alert to the perils at SVB than the regulators or the bank’s own executives. Last week the credit rating agency contacted the bank’s CEO Greg Becker to warn him that SVB’s bonds were in danger of being downgraded to junk status.

This set off a scramble by SVB to raise more capital. Once depositors got wind of this, they began emptying their accounts, many of which had balances above the $250,000 limit normally insured by the FDIC. Soon there was a full-blown run on the bank, prompting regulators to take over SVB and shut it down. The Biden Administration then bailed out the depositors in whole, using assessments from other banks. ESG has nothing to do with any of this.

As this is being written, the business news is focusing on problems at Credit Suisse. It will be interesting to see if the U.S. Right tries to apply the woke label to that situation as well. Although it gives lip service to ESG, Credit Suisse has a track record of less than enlightened practices. Two decades ago, it was being sued over its investments in apartheid-era South Africa. It has a history of lending to oil and gas projects and has been slow to respond to demands to reduce that exposure.

As shown in Violation Tracker, Credit Suisse’s record in the U.S. includes numerous cases in which it paid penalties to resolve allegations relating to the facilitation of tax evasion, foreign bribery and other misconduct. Its U.S. penalty total is over $11 billion.

Come to think of it, the Right will probably decide that a bank with a history of making money from racism, fossil fuels, tax evasion and bribery is worthy of support.

The woke capitalism critique cannot be taken seriously as an explanation of what happened at SVB. Yet there is the danger that it will serve to divert attention for some away from the real problems: reckless bank management and sleepy financial regulation.

Ill-Gotten Gains

The Justice Department has just announced a pilot program in which corporate executives involved in wrong-doing would be personally penalized. This is meant to alter the usual practice of having the company – and theoretically the shareholders – assume all of those costs.

As described in recent speeches by Deputy Attorney General Lisa Monaco and Assistant AG Kenneth Polite, DOJ would not go after the executives directly. Instead, companies that adopt executive-pay clawback policies would receive reductions in the penalties they have to pay.

Clawbacks are not a new idea, but their use has been limited. DOJ is now adding them to a package of efforts to create incentives for better corporate conduct. In this case, the company gets the carrot while misbehaving executives get the (financial) stick.

There are limitations with this approach. For one, it assumes that misconduct happens when executives go rogue. In reality, the offenses often occur as part of company policy. It is unclear whether in those cases the board of directors could compel everyone in the C-suite to surrender chunks of their compensation. Nonetheless, the DOJ program could help end the assumption of many unscrupulous corporate executives that they are shielded from personal liability.

As it turns out, this DOJ initiative comes just as we are starting to learn more about the true magnitude of executive compensation. To comply with new SEC rules, publicly traded companies are issuing proxy statements with additional calculations reflecting the value of stock awards based on changes in share prices over the course of the year.

These new calculations, dubbed compensation actually paid, show that some executives are effectively receiving even more lavish pay packages than we thought. The Wall Street Journal notes the example of Eli Lilly, which recently reported that the compensation of CEO David Ricks last year under the new approach amounted to $64.1 million, well above the $21.4 million reported using the traditional measure.

I found another example in the proxy of AbbVie, also a pharmaceutical producer. The compensation actually paid to CEO Richard Gonzalez was over $67 million (compared to $26 million under the old calculation).

The compensation-actually-paid figure is not always far in excess of the traditional total compensation amount. Among the limited number of proxies that have been issued so far, the new amount is sometimes lower than the old one.

Bloated compensation, whether measured by the new method or the old one, is most problematic when it occurs at companies with tainted track records. AbbVie is a case in point. Last year its subsidiary Allergan agreed to pay over $2 billion to state attorneys general to settle litigation concerning the improper marketing of opioid medications. In Violation Tracker, AbbVie has cumulative penalties of nearly $6 billion.

There are many other examples of companies with long rap sheets that go on paying their top executives far too much. One is tempted to think that those individuals are in effect being rewarded for breaking the rules when that fattens the bottom line.

It is unclear that the new DOJ clawback program will do much to change this dynamic, but it may serve as a stepping stone to more aggressive measures to rein in corporate misconduct.

Strings Attached

The Biden Administration is causing a stir with its decision to place some conditions on the massive subsidies that are to be awarded to semiconductor companies under the CHIPS and Science Act. A front page story in the New York Times quotes some economists and business advocates expressing concern that the requirements will detract from the main objectives of the law.

What has these critics upset are provisions that would require giant corporations such as Intel to provide child care for employees, pay union wages to construction workers, run the plants on low-emission sources of energy and avoid stock buybacks. An official at the U.S. Chamber of Commerce told The Times that such practices would “increase cost and delay bringing production online.” Not surprisingly, he argued that the administration should instead focus on “removing regulatory barriers.”

What these protestations ignore is that there is nothing new about attaching strings when government provides financial assistance to corporations. This is done frequently at the state and local level, where agencies providing tax abatements, cash grants, loans and other aid to companies in the name of economic development require the firms to meet job quality standards relating to wages and benefits. The practice is not universal but neither is it uncommon.

Until now, the federal government has tended not to offer large subsidy packages to individual companies, yet it has applied strings when bailouts were provided. For example, in 2009, amid the financial meltdown, the Obama Administration issued guidelines restricting executive compensation at large companies receiving help through the Troubled Asset Relief Program.

In the related area of federal procurement, there are long-standing policies promoting job quality standards. The Davis-Bacon Act, which became law in 1931, requires that contractors on public works projects pay their workers the prevailing wage in the area. The Walsh-Healey Public Contracts Act of 1936 set certain minimum labor standards for companies providing goods to federal agencies, and the McNamara-O’Hara Service Contract Act of 1965 did the same for service providers. In 2021 the Biden Administration raised the minimum wage federal contractors have to pay to $15 an hour, and it mandated project labor agreements, which usually raise pay to union levels, for federal construction projects costing more than $35 million.

This is not to say that the laws are always effective. Worker advocacy groups frequently point out employment abuses committed by federal contractors. Violation Tracker contains more than 9,000 cases in which employers were fined for failing to obey federal or state prevailing wage regulations. Hopefully, these fines led to higher levels of compliance.

Those challenging the CHIPS Act provisions promoting job quality and other public policy objectives are repeating arguments that have been made for decades by Big Business and its defenders. Despite all their free market-rhetoric, large corporations are happy to accept taxpayer-funded financial assistance. Yet they cannot accept the idea that the aid might come with some obligations.

The strings the Biden Administration is attaching to the semiconductor subsidies are actually not very radical, but they are a helpful step in the direction of making sure that companies receiving government assistance meet higher standards in their treatment of workers, communities and the environment.

Ending the Under-Regulation of the Railroads

When an apparent contract impasse between rail unions and management threatened to bring about a national shutdown late last year, the Biden Administration was quick to act. Unfortunately, the action it took was to ban the walkout without requiring any concessions from the giant rail corporations.

Two months later, a freight train operated by one of those corporations, Norfolk Southern, derailed in East Palestine, Ohio. Many of the 150 railcars—which included tankers filled with hazardous materials such as vinyl chloride—caught fire and burned for days. During this time, the Biden Administration was widely criticized for failing to act promptly.

After a couple of weeks, the administration did catch up, especially once the Environmental Protection Agency got more directly involved. Now the EPA is in charge of the response and is finally requiring Norfolk Southern to remediate the area under plan approved by the agency rather than doing the voluntary cleanup the company had previously promised.

Like many accidents before it, the East Palestine derailment has brought to light some disturbing truths about the way in which the federal government regulates—or fails to regulate—the railroad industry. It is in the wake of these incidents that all the claims by rightwing legislators and corporate executives about heavy-handed oversight of business are revealed to be baseless.

Instead, the problem with railroads is that they are under-regulated and that government officials are too chummy with the major carriers. This is especially true with regard to the Federal Railroad Administration, the unit of the Transportation Department responsible for rail safety.

The FRA’s gentle approach to regulation goes back many years. Here’s an excerpt from a 1996 article in the Los Angeles Times:

The National Transportation Safety Board on Wednesday blamed the Federal Railroad Administration, the Burlington Northern Santa Fe and the railroad industry as a whole for February’s disastrous freight train wreck in the Cajon Pass near San Bernardino…The board said the runaway train derailment apparently occurred because the FRA, the industry and the Santa Fe division of the newly formed Burlington Northern Santa Fe railroad failed to ensure that the train was equipped with a backup electronic brake system that probably could have stopped the train after its main braking system failed… “The problem is that we asked the FRA to do something immediately, and they didn’t do it,” Robert Lauby, chief of the NTSB’s railroad division, told the board.

A 2004 article in the New York Times documented close personal ties between FRA officials and industry executives and lobbyists, adding: “Critics of the agency say that it has, over the years, bred an attitude of tolerance toward safety problems, and that fines are too rare, too small and too slowly collected.” A 2005 audit of the FRA by the Transportation Department’s inspector general expressed concern about the agency’s failure to adequately address systemic safety problems in the industry.

In 2015, following a series of derailments and spills of trains carrying crude oil, the FRA proposed new regulations that were widely criticized as inadequate by members of Congress, state and local officials, and safety advocates.

The Obama Administration did, however, try to implement new rules requiring trains carrying “high hazardous materials” to install electronic braking systems to stop trains more quickly than conventional air brakes. The rule was finalized in 2015, only to be repealed as part of the Trump Administration’s crusade to eliminate regulations.

Reporting published since the East Palestine disaster depicts Norfolk Southern as having taken full advantage of the FRA’s lax oversight and as one of the most aggressive opponents of a proposed regulation that would bar railroads from operating trains with only a single crewmember.

In recent years the company has boosted profits while its accident rates have grown, leading to charges that it is cutting corners on safety to fatten the bottom line. A USA Today analysis found that Norfolk Southern has had the second-highest rate among the major railroads each year since 2019.

The exact cause of the East Palestine derailment is not yet known. If the National Transportation Safety Board finds it was something preventable, that will put heat on both the company and the FRA. The company will face calls to invest more to upgrade its equipment, even at the cost of profits. And the agency will feel new pressure to end its cozy relationship with the industry and show that it is serious about protecting the public.

A Harebrained Response to Labor Shortages

At a time of widespread labor shortages, one might expect policymakers to welcome asylum seekers and economic migrants eager for an opportunity to make a living in the United States. Instead, as the Washington Post reports, legislators in some states have come up with a harebrained proposal for filling those jobs: loosening the restrictions on child labor.

Lawmakers in Wisconsin lifted restrictions on working hours during the school year, but the measure was vetoed by the governor. The Ohio Senate passed a similar bill but it died in the House. Even worse are bills introduced in Iowa and Minnesota that would allow teens as young as 14 to work in dangerous occupations such as meatpacking and construction.

It is unclear whether these legislators are aware that labor activists and social reformers fought for many years in the 19^th and early 20^th centuries to restrict the exploitation of children in factories, mines, mills and other workplaces. They eventually made progress at the state level, leading to the passage of the federal Fair Labor Standards Act in 1938. The FLSA barred young workers from some occupations and limited the hours they could work in others, both for safety reasons and to prevent adverse effects on educational attainment. Adoption of strong child labor laws came to be viewed as one of the hallmarks of a humane society.

While the FLSA and state regulations eliminated the worst forms of child labor, they did not end abuses entirely. Violation Tracker documents more than 4,000 cases over the past two decades in which an employer paid a penalty for breaking the rules. The fines imposed in these cases amount to $99 million, or an average of about $24,000 per case—a reflection of the fact that penalty levels are far from harsh.

Most child labor violators are small firms, but some large corporations have also committed the offense. Chipotle Mexican Grill has the highest penalty total, mainly due to a $7.75 million settlement the company reached in 2022 with the New Jersey Department of Labor and Workforce Development. An audit conducted by the agency of Chipotle outlets had found over 30,000 violations across the state. Two years earlier, Chipotle reached a $1.87 million settlement with the Massachusetts Attorney General over child labor and other wage and hour violations.

Among the other big companies with substantial child labor penalties from multiple cases are: CVS Health ($464,099), Albertsons ($337,790) and Walmart ($317,378).

Most child labor violations are related to potential harm to young workers, but there are also cases in which the harm is real and even deadly. A 2018 report by the Government Accountability Office cited estimates that workers aged 17 and under sustain thousands of injuries each year. That same report included data showing that work-related fatalities for that same age group totaled 452 for the period from 2003 to 2016. The largest numbers of deaths were in agriculture, followed by construction and mining.

The sensible response to all these statistics would be to tighten the rules regarding child labor, not to weaken them. There are better ways to address labor shortages.

Biden’s Catalogue of Corporate Abuses

There was not much soaring oratory in President Biden’s State of the Union address, but the speech was an unapologetic call for a full set of progressive policy initiatives. It was also a bold critique of big business practices affecting workers, consumers and communities. Biden offered what amounted to a catalogue of corporate misconduct.

Although Biden implicitly praised the private sector for strong job creation during the past few years and explicitly hailed companies planning to make big investments in U.S. semiconductor production (with generous federal subsidies), he also spoke of the prior decades during which corporations moved large numbers of well-paid manufacturing jobs overseas and devastated many communities.

Biden chastised Big Pharma for charging exorbitant prices and generating high profits, warning that he would veto any attempts by Congress to repeal new legislation that will require the industry to negotiate Medicare drug prices for the first time.

Calling the tax system unfair, Biden lambasted large companies that have managed to avoid paying anything to the federal government and praised the adoption of a 15 percent minimum. Addressing those corporations, he stated: “just pay your fair share.”

Citing Big Oil’s record profits over the past year, Biden criticized the industry for not investing more in domestic production and instead using the windfall for stock buybacks that boost share prices. He called for quadrupling the tax on those transactions.

Biden went after insurance companies for surprise medical bills and called out nursing homes “that commit fraud, endanger patient safety, or prescribe drugs they don’t need.” He took credit for cracking down on shipping companies that charged excessive rates during the supply-chain crunch.

Touting a bill called the Junk Fee Prevention Act, Biden lashed out at hidden surcharges and fees imposed by hotels, airlines, banks, credit card companies, cable TV and cellphone providers, ticket services, and other sectors. “Americans are tired of being played for suckers,” he declared.

Biden took aim at large employers that require workers, even in low-skilled positions, to sign non-competition agreements, blocking them from taking a job with a competing company. Saying he is “sick and tired of companies breaking the law by preventing workers from organizing” unions, he called for passage of the PRO Act.

Speaking of the efforts to keep small business afloat during the pandemic, he vowed to double-down on efforts to prosecute corruption in those programs.

Biden also joined the chorus of voices denouncing the tech giants, stating “we must finally hold social media companies accountable for the experiment they are running on our children for profit.” He called for legislation to “stop Big Tech from collecting personal data on kids and teenagers online, ban targeted advertising to children, and impose stricter limits on the personal data these companies collect on all of us.”

There was a lot more to the speech, but this was a remarkable recitation of the sins of unbridled big business. It is significant that Biden delivered this critique without ever using the word “regulation,” which the Right has endlessly demonized. Yet he spoke repeatedly of both administrative and legislative initiatives to address the abuses.

The latter category is dead in the water in the new divided Congress. It will be up to the Biden Administration to show what it can do through executive action to turn his critique into significant change.

Handling Crime in the Suites

Figuring out how to get corporate executives to obey the law has been a perennial challenge. The Justice Department has apparently concluded that the key to compliance may be to threaten something CEOs and other C-Suite bigwigs love dearly: their annual bonuses.

As Law360 reports, compliance experts are abuzz about an unusual provision the DOJ included in the plea agreement it recently negotiated with Denmark’s Danske Bank. The company had agreed to forfeit $2 billion and plead guilty to fraud in connection with allegations that its lax anti-money-laundering (AML) controls allowed shady customers from Russia and other eastern European countries to funnel suspicious funds through Danske’s subsidiary in Estonia.

What is remarkable in the plea agreement is a requirement that Danske tie its executive bonuses to compliance with the stricter AML procedures the bank agreed to implement. The agreement states:

“The Bank will implement evaluation criteria related to compliance in its executive review and bonus system so that each Bank executive is evaluated on what the executive has done to ensure that the executive’s business or department is in compliance with the Compliance Programs and applicable laws and regulations. A failing score in compliance will make the executive ineligible for any bonus for that year.”

The bank is also supposed to structure its compensation system to “incentivize future compliant behavior and discipline executives for conduct occurring after the filing of the Agreement that is later determined to have contributed to future compliance failures.”

Tying executive compensation to compliance is not entirely new. For example, last year the SEC adopted a rule requiring executives at publicly traded companies to return bonuses in the event of erroneous financial reporting. The use of such clawbacks was raised in the 2010 Dodd-Frank Act and took a dozen years to come into existence.

I am of two minds about this innovation. On the one hand, it is encouraging that DOJ is experimenting with new ways to punish corrupt behavior in the corporate world. Imposing consequences on individual executives is an improvement over the usual practice of simply having the company pay a monetary penalty to make the case go away.

On the other hand, it is a bit dismaying that the punishment being contemplated for those executives is quite so mild. Taking a hit to a bonus worth six or seven figures may be unpleasant to a corporate executive, but it is far from a multi-year prison sentence.

The focus on financial incentives and disincentives for individual business offenders is consistent with the approach DOJ tends to take when cases are brought against companies. As I wrote about recently, the Department is offering corporations new inducements – in the form of reduced monetary penalties — to get them to voluntarily disclose misconduct. This is addition to continuing the practice of allowing companies to enter into leniency agreements known as deferred prosecution and non-prosecution agreements so they do not have to plead guilty to criminal charges.

Time and again, we see corporate miscreants treated with kid gloves. The repeated calls for getting tough on crime never seem to apply when the offenses occur in the suites rather than the streets.