Banking

Stopping the Growth of Rogue Corporations

The federal response to corporate misconduct over the past two decades has alternated between tougher monetary penalties and the promotion of voluntary measures to lure companies into behaving better. Neither has worked very well.

Companies came to saw the increased fines as a tolerable cost of doing business (especially when they were tax deductible), while voluntarism was never a match for corporate greed.

It was thus intriguing when the Federal Reserve recently adopted a new approach in dealing with Wells Fargo. That bank, of course, has become notorious for its brazen scheme of creating millions of accounts not requested by customers, in order to generate illicit fees. It paid a fine of $100 million, with a lot more expected to follow. This came after a series of other scandals, including mortgage abuses that resulted in a $5.3 billion settlement in 2012.

The Fed, on Chair Janet Yellen’s final working day in office, issued an unusually blunt press release saying that the board was taking steps in response to “widespread consumer abuses and other compliance breakdowns” at Wells.

In an unprecedented step, the Fed imposed a restriction on the bank’s ability to grow “until it sufficiently improves its governance and controls.” In an industry for which getting larger is the guiding principle, Wells will feel intense pressure to satisfy the Fed’s demands. In fact, concurrently with the Fed’s action Wells announced that it would replace one-quarter of its 16-person board of directors by the end of the year.

Bank-friendly politicians have not had much to say about the Fed’s action, but it is clear that the restriction placed on Wells represents a forceful rebuttal to those pressing for a weakening of financial industry regulation. The ouster of Yellen by President Trump was a coup for the deregulation crowd, but we can take some solace in reports that her successor Jerome Powell oversaw the Fed’s negotiations with Wells.

The Fed’s action should be promoted as an example of how regulatory agencies and the Justice Department need to get more creative in dealing with egregious and repeat violators. Rogue corporations will only change their behavior if the penalties really sting.

The restriction on growth begins to meet this requirement because it makes Wells more vulnerable. An inability to become larger through acquisitions means that the bank will lose ground to its big competitors. Wells is probably too big to be a potential takeover target itself, but it could come under pressure from activist investors to restructure or even sell off portions of itself.

Moreover, the restrictions will probably depress the bank’s stock price, and that will be felt personally by the executives who encouraged or overlooked the misconduct.

At the same time, the house-cleaning among directors is an important message to send to board members at other misbehaving companies. That message would be even more effective if directors are not just removed but held personally liable for allowing the corrupt practices to happen.

The Fed has not always been the most aggressive of regulators. Let’s hope its action on Wells inspires other agencies to get tougher with corporate miscreants.

The Corporate Death Penalty for Wells Fargo?

Wells Fargo’s seemingly endless transgressions have reached the point that there is growing discussion of a possibility rarely considered even in some of the most egregious corporate scandals: putting it out of business.

Rep. Maxine Waters, the top ranking Democrat on the House Financial Services Committee, recently issued a report that recounted the banks sins (including a reference to the $11 billion Violation Tracker tally of its penalties), saying that Wells has “demonstrated a pattern of egregiously harming its customers.”

Such statements have been heard frequently since the Wells bogus account scandal came to light last year. But Waters goes on to argue: “When a megabank has engaged in a pattern of extensive violations of law that harms millions of consumers, like Wells Fargo has, it should not be allowed to continue to operate within our nation’s banking system, and avail itself of all of the associated privileges afforded to it.”

A similar sentiment is expressed in a letter just submitted to the Office of the Comptroller of the Currency by the AFL-CIO, Americans for Financial Reform and five other groups. The letter asks the OCC to consider whether, “in light of the bank’s pattern of law breaking,” the bank “should forfeit its national banking charter.”

The issue was even brought up in a recent Congressional hearing in which Wells CEO Tim Sloan was being grilled by members of the Senate Banking Committee. Sen. Elizabeth Warren said that Sloan should be fired, while Sen. Brian Schatz of Hawaii went further by asking Sloan: “Why shouldn’t the OCC revoke your charter?”

“We serve one out of every three Americans, we have 270,000 team members,” Sloan responded before Schatz cut him off, saying: “So, you’re too big.”

Those comments encapsulate how a debate about the possible shutdown of a bank or other company as large as Wells Fargo would play out. The corporation would emphasize the disruptive effect on its customers and employees, suggesting they would be the unintended victims. Of course, in the case of Wells it was the bank itself that victimized customers and staff.

Schatz’s comment points to the direction any serious effort to penalize a rogue corporation should take: the emphasis should not be a precipitous shutdown but rather a breakup into smaller entities that would be subjected to rigorous regulation and scrutiny. Care should be taken in the process to protect the interests of customers and employees, though upper level executives should be shown the door.

Discussions of the corporate death penalty have come and gone over the years. The need to deal with a brazen recidivist such as Wells may finally bring more serious consideration to a tool that could be more effective than billions in penalties in ending the ongoing corporate crime wave.

Federal Watchdog Agencies Still On Guard

Donald Trump likes to give the impression that he has made great strides in dismantling regulation. While there is no doubt that his administration and Republican allies in Congress are targeting many important safeguards for consumers and workers, the good news is that those protections in many respects are still alive and well.

This conclusion emerges from the data I have been collecting for an update of Violation Tracker that will be posted later this month. As a preview of that update, here are some examples of federal agencies that are still vigorously pursuing their mission of protecting the public.

Federal Trade Commission. In June the FTC, with the help of the Justice Department, prevailed in litigation against Dish Network over millions of illegal sales calls made to consumers in violation of Do Not Call regulations. The satellite TV provider was hit with $280 million in penalties.

Drug Enforcement Administration. The DEA is a regulatory entity as well as a law enforcement agency. In July it announced that Mallinckrodt, one of the largest manufacturers of generic oxycodone, had agreed to pay $35 million to settle allegations that it violated the Controlled Substances Act by failing to detect and report suspicious bulk orders of the drug.

Federal Reserve. The Fed continues to take action against both domestic and foreign banks that fail to exercise adequate controls over their foreign exchange trading, in the wake of a series of scandals about manipulation of that market. The Fed imposed a fine of $136 million on Germany’s Deutsche Bank and $246 million on France’s BNP Paribas.

Consumer Financial Protection Bureau. Last month the beleaguered CFPB ordered American Express to pay $95 million in redress to cardholders in Puerto Rico and the U.S. Virgin Islands for discriminatory practices against certain consumers with Spanish-language preferences.

Securities and Exchange Commission. In May the SEC announced that Barclays Capital would pay $97 million in reimbursements to customers who had been overcharged on mutual fund fees.

Equal Employment Opportunity Commission. The EEOC announced that the Texas Roadhouse restaurant chain would pay $12 million to settle allegations that it discriminated against older employees by denying them front-of-the-house positions such as hosts, servers and bartenders.

Justice Department Antitrust Division. The DOJ announced that Nichicon Corporation would pay $42 million to resolve criminal price-fixing charges involving electrolytic capacitors.

Federal agencies are also finishing up cases dating back to the financial meltdown. For example, in July the Federal Housing Finance Agency said that it had reached a settlement under which the Royal Bank of Scotland will pay $5.5 billion to settle litigation relating to the sale of toxic securities to Fannie Mae and Freddie Mac. And the National Credit Union Administration said that UBS would pay $445 million to resolve a similar case.

It remains to be seen whether federal watchdogs can continue to pursue these kinds of cases, but for now they are not letting talk of deregulation prevent them from doing their job.

Note: The new version of Violation Tracker will also include an additional ten years of coverage back to 2000.

Corporate America Doesn’t Qualify for Moral Leadership Either

It may turn out that Donald Trump’s greatest contribution to American business is allowing the chief executives of tainted corporations to take a morally superior posture toward a presidency that seems to be completely devoid of principle. Their brands are boosted as his becomes increasingly toxic.

It is a good thing that big business is taking steps to separate itself from Trump. The collapse of the two advisory councils is not only a rebuke to Trump’s offensive comments on the events in Charlottesville but also an overdue retreat from entities that were set up mainly to foster the illusion that this administration is taking serious steps to reform the economy.

Yet it is dismaying that the moral vacuum created by Trump is being filled by the likes of Walmart chief executive Douglas McMillon, who got himself featured on the front page of the New York Times for a statement criticizing Trump.

For years the giant retailer was a national symbol of discriminatory practices. In 2009 it had to pay $17.5 million to settle a lawsuit alleging that it discriminated against African-Americans in the recruitment and hiring of truck drivers. The company was also widely accusing of gender discrimination. In 2010 the company was required to pay $11.7 million to settle a case brought by the U.S. Equal Employment Opportunity Commission, and it was facing potential damages in the billions from a class action suit brought on behalf of more than 1 million female employees until the Supreme Court came to its rescue and threw out the case for what amounted to technical reasons.

In addition to discrimination, Walmart has been at the center of countless controversies involved wage theft, union-busting, tax avoidance, bribery and much more.

After Merck CEO Kenneth Frazier led the way among business critics of Trump’s embrace of white nationalism, the president struck back with a tweet referring to “ripoff drug prices.” While Trump was just being vindictive, it’s true that Merck’s reputation is far from untarnished.

In 2011 the drugmaker agreed to pay a $321 million criminal fine and a $628 million civil settlement to resolve allegations that it illegally promoted and marketed the painkiller Vioxx. This came after Merck had to remove the drug from the market in the wake of reports that the company for years covered up evidence of serious safety issues surrounding its blockbuster product. This is just one of a long list of its cases involving illegal marketing, overbilling, false claims and anti-competitive practices.

Another of the CEOs who spoke out in response to Trump’s comments was JPMorgan Chase’s Jamie Dimon. Earlier this year, the bank had to pay $53 million to settle a case brought by the U.S. Attorney in Manhattan accusing it of engaging in discrimination on the basis of race and national origin in its mortgage business.

JPMorgan Chase was one of the parties that helped bring about the financial collapse of a decade ago, and in 2013 it agreed to a $13 billion settlement of federal and state allegations relating to the packaging and sale of toxic mortgage-backed securities.

In 2015 JPMorgan had to pay a $550 million criminal fine to resolve federal charges that it and other large banks conspired to manipulate foreign exchange markets. There are many more entries in the corporate rap sheet of this company, which since the beginning of 2010 has had to pay out more than $28 billion in fines and settlements.

It would be difficult to find any members of the disbanded advisory councils whose companies have not engaged in serious misconduct of one sort or another.

Such is the peril of looking for paradigms of virtue in the business world. Corporate executives should, along with many others, speak out against Trump’s reprehensible comments, but they cannot lay claim to moral leadership.

The Other Trump Collusion Scandal

For months the news has been filled with reports of suspicious meetings between Trump associates and Russian officials. Another category of meetings also deserves closer scrutiny: the encounters between Trump himself and top executives of scores of major corporations since Election Day. What do these companies want from the new administration?

During the presidential campaign, Trump often hinted that he would be tough on corporate misconduct — especially the offshoring of jobs — and this won him a significant number of votes. After taking office, however, much of the economic populism has disappeared in favor of a shamelessly pro-corporate approach, especially when it comes to regulation. Big business has put aside whatever misgivings it had about Trump and now seeks favors from him.

There is always a fine line between deregulation and the encouragement of corporate crime and misconduct. We should be concerned about the latter, given the roster of executives who have made pilgrimages to the White House.

Public Citizen has just published a report looking at the track record of the roughly 120 companies whose executives have met publicly with Trump since November 8 and finds that many of them “are far from upstanding corporate citizens.”

Using data from Violation Tracker (which I and my colleagues produce at the Corporate Research Project of Good Jobs First), Public Citizen finds that more than 100 of the visitors were from companies that appear in the database as having paid a federal fine or settlement since the beginning of 2010.

In its tally of these penalties, which includes those associated with companies such as Goldman Sachs and Exxon Mobil whose executives were brought right into the administration, Public Citizen finds that the total is about $90 billion.

At the top of the list are companies from the two sectors that have been at the forefront of the corporate crime wave of recent years: banks and automakers. JPMorgan Chase, with penalties of almost $29 billion, is in first place. Also in the top dozen are Citigroup ($15 billion), Goldman Sachs ($9 billion), HSBC ($4 billion) and BNY Mellon ($741 million). Volkswagen, still embroiled in the emissions cheating scandal, has the second highest penalty total ($19 billion). Two other automakers make the dirty dozen: Toyota ($1.3 billion) and General Motors ($936 million).

The rest of the dirty dozen are companies from another notorious industry: pharmaceuticals. These include Johnson & Johnson ($2.5 billion), Merck ($957 million), Novartis ($938 million) and Amgen ($786 million).

All these companies have a lot to gain from a relaxation of federal oversight of their operations. While it remains unclear whether the Trump campaign used its meetings with Russian officials to plan election collusion, there is no doubt that the administration has been using its meetings with corporate executives to plan regulatory rollbacks that will have disastrous financial, safety and health consequences.

Trump’s Other Ban

Trump’s travel ban and his rightwing Supreme Court pick are troubling in themselves, but they are also serving to deflect attention away from the plot by the administration and its Republican allies to undermine the regulation of business.

Surprisingly little is being said about Trump’s January 30 executive order instructing federal agencies to identify two prior regulations for elimination for each new rule they seek to issue. It also dictates that the total incremental cost of new rules (minus the cost of repealed ones) should not exceed zero for the year.

While Trump’s appointees will probably not propose much in the way of significant new rules that would have to be offset, the order amounts to a ban on additional regulation. It boosts the long-standing effort by corporate apologists to delegitimize regulation by focusing on the number of rules and their supposed cost while ignoring their social benefits.

Meanwhile, the regulation bashers are also busy on Capitol Hill. Republicans have resurrected the rarely used Congressional Review Act as a mechanism for undoing the Obama Administration’s environmental regulations as well as its Fair Pay and Safe Workplaces executive order concerning federal contractors.

Both Trump and Congressional Republicans are also targeting the Dodd-Frank law that enhanced financial regulation after the 2008 meltdown. Calling the law a “disaster,” Trump recently said “we’re going to be doing a big number on Dodd-Frank,” adding: “The American dream is back.”

If Trump was referring to the aspirations of the wolves of Wall Street, then that dream may indeed be in for a resurgence. For much of the rest of the population, the consequences would be a lot less pleasant.

To take just one example, an attack on Dodd-Frank would certainly include an assault on the Consumer Financial Protection Bureau that was created by the law and which has aggressively gone after financial predators. As Violation Tracker shows, during the past five years the agency has imposed more than $7 billion in penalties in around 100 enforcement actions against banks, payday lenders, credit card companies and others. Its $100 million fine against Wells Fargo last September brought attention to the bank’s bogus-account scheme.

The CFPB has not let the election results impede its work. Since November 8 it has announced more than a dozen enforcement actions with penalties totaling more than $80 million. The largest of those involves Citigroup, two of whose subsidiaries were fined $28.8 million for keeping borrowers in the dark about options to avoid foreclosure and burdening them with excessive paperwork demands when they applied for foreclosure relief.

Citigroup, one of the companies that has the most to gain from restrictions on the CFPB and Dodd-Frank in general, has shown up often as I have been collecting data on recent enforcement cases from various agencies for a Violation Tracker update that will be released soon.

The Securities and Exchange Commission recently announced that Citigroup Global Markets would pay $18.3 million to settle allegations that it overcharged at least 60,000 investment advisory clients with unauthorized fees. In a separate SEC case, Citi had to pay $2.96 million to settle allegations that it misled investors about a foreign exchange trading program.

Around the same time, the Commodity Futures Trading Commission filed and settled (for $25 million) allegations that Citigroup Global Markets engaged in the illicit practice of spoofing — bidding or offering with the intent to cancel the bid or offer before execution — in U.S. Treasury futures markets and that it failed to diligently supervise the activities of its employees and agents in conjunction with the spoofing orders.

Citi’s record, along with that of other rogue banks, undermines the arguments of Dodd-Frank foes and in fact makes the case for stricter oversight. Yet the reality of financial misconduct is about to be overwhelmed by a barrage of alternative facts about the magic of deregulation.

Update: After this piece was written, Congress voted to repeal another provision of Dodd-Frank known as Cardin-Lugar or Section 1504, which required publicly traded extractive companies to report on payments to foreign governments in their SEC filings. The disclosure was meant as an anti-corruption measure.

The 2016 Corporate Rap Sheet

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Principles versus Interests

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

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

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

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

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

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

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

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

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

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

Criminal Enterprises

Most cases of corporate misconduct are forgotten soon after a fine or settlement is announced, but the Wells Fargo phony account scandal seems to have real staying power. The company had to pay $185 million in penalties. CEO John Stumpf was forced to resign and pay back $41 million in compensation after being lacerated in two Congressional hearings. The city of Chicago and the California Treasurer cut some business ties with the bank.

Now Wells is facing a more serious legal challenge. It’s been reported that California Attorney General Kamala Harris is considering criminal identity theft charges against the bank over the millions of bogus accounts and the related fees that were improperly charged to customers. The AG’s office has demanded that Wells turn over a mountain of documents about accounts created not only in California but also in other states when California employees were involved.

It’s too soon to say for sure, but this case and other potential criminal actions could have a catastrophic effort on Wells. Criminal cases against major banks are rare, and most of those are resolved through deferred prosecution or non-prosecution agreements that allow the corporation to avoid a conviction. An exception came last year when Citicorp, JPMorgan Chase and two foreign banks pleaded guilty to charges of manipulating the foreign exchange market. They had to get special waivers to continue operating in certain areas that normally exclude felons.

The Wells case may do more damage, given the scope of the misconduct and the fact that it involves the bank’s core business. In this way it is comparable to the scandal surrounding Volkswagen and its systematic fraud concerning emissions testing.

These two situations pose a challenging question: What should be done about a large corporation engaged in flagrant misconduct? Another monetary penalty is not going to make much difference. As Violation Tracker shows, even before the recent case Wells had paid out more than $10 billion in fines and settlements in some two dozen cases involving a variety of abuses.

Stumpf’s ouster was an important step, but is there any reason to think that the executives who remain are all that different? A boycott of the company’s services is merited, but it would have to be much bigger in scope to have a real impact.

The usual way that regulators and prosecutors handle criminal enterprises is to force them out of business, but these are usually relatively small operations. What should be done with an institution such as Wells, which has more than 260,000 employees, some 8,600 branches and offices, and 70 million (presumably real) customers?

The answer for dealing with Wells Fargo might be to break it up into a number of smaller companies that are kept under close supervision and barred from operating in riskier areas. In other words: use a variation of Glass-Steagall as a way of discouraging fraudulent behavior. Even better would be if these smaller institutions operated under employee ownership.

My point is that we need to get more creative in dealing with systemic corporate crime so we’re not forced to endure an endless series of scandals.

False Claims and Other Frauds

ViolationTracker_Logo_Development_R3 The False Claims Act sounds like the name of a Donald Trump comedy routine, but it is actually a 150-year-old law that is widely used to prosecute companies and individuals that seek to defraud the federal government. It is also the focus of the latest expansion of Violation Tracker, the database of corporate crime and misconduct we produce at the Corporate Research Project of Good Jobs First. The resource now contains 112,000 entries from 30 federal regulatory agencies and all divisions of the Justice Department. The cases account for some $300 billion in fines and settlements.

Through the addition of some 750 False Claims Act and related cases resolved since the beginning of 2010, we were able to identify the biggest culprits in this category. Drug manufacturers, hospital systems, insurers and other healthcare companies have paid nearly $7 billion in fines and settlements. Banks, led by Wells Fargo, account for the second largest portion of False Claims Act penalties, with more than $3 billion in payments. More than one-third of the 100 largest federal contractors have been defendants in such cases during the seven-year period.

Among the newly added cases involving healthcare companies, the largest is the $784 million settlement the Justice Department reached last April with Pfizer and its subsidiary Wyeth to resolve allegations that they overcharged the Medicaid program. DaVita HealthCare Partners, a leading dialysis provider, was involved in the next two largest cases, in which it had to pay a total of $800 million to resolve allegations that it engaged in wasteful practices and paid referral kickbacks while providing services covered under Medicare and other federal health programs.

Wells Fargo accounts for the largest banking-related penalty and the largest False Claims Act case overall in the new data: a $1.2 billion settlement earlier this year to resolve allegations that the bank falsely certified to the Department of Housing and Urban Development that certain residential home mortgage loans were eligible for Federal Housing Administration insurance, with the result that the government had to pay FHA insurance claims when some of those loans defaulted.

Thirty-five of the 100 largest federal contractors (in FY2015) have paid fines or settlements totaling $1.8 billion in False Claims Act-related cases since the beginning of 2010. The biggest contractor, Lockheed Martin, paid a total of $50 million in four cases, while number two Boeing paid a total of $41 million in two cases.

The database has also added new search features, such as the ability to search by 49 different types of offenses, ranging from mortgage abuses to drug safety violations. Users can view summary pages for each type of offense, showing which parent companies have the most penalties in the category. Penalty summary pages for parents, industries and agencies now also contain tables showing the most common offenses. Users can add one or more offense type to other variables in their searches.

Among types of offenses, the largest penalty total comes from cases involving the packaging and sale of toxic securities in the period leading up to the financial meltdown in 2008. The top-ten primary case types are as follows:

Toxic securities abuses: $68 billion
Environmental violations: $63 billion
Mortgage abuses: $43 billion
Other banking violations: $18 billion
Economic sanction violations: $14 billion
Off-label/unapproved promotion of medical products: $12 billion
False Claims Act cases: $11 billion
Consumer protection violations: $9 billion
Interest rate benchmark manipulation: $7 billion
Foreign Corrupt Practices Act cases: $6 billion

We also added a feature allowing for searches limited to companies linked to parent companies with specific ownership structures such as publicly traded, privately held, joint venture, non-profit and employee-owned. That’s in addition to updating the data from the agencies already covered and increasing the size of the parent company universe to 2,165.

The uproar over the Wells Fargo sham accounts scandal is heightening the discussion of corporate crime. Violation Tracker hopes to be a tool in efforts to turn that discussion into lasting change.