Business and politics

Resisting the Trump Organization Business Model

A recent 60 Minutes episode provided further evidence of how the pharmaceutical industry successfully pressured federal regulators to allow excessive prescribing of powerful opioids, paving the way for the ongoing epidemic of fatal overdoses. In recent days there have been reports that Purdue Pharma, the company at the center of the crisis, is planning a bankruptcy filing to reduce the risk from the 1,600 lawsuits that have been brought against the company.

These developments illustrate how the main structures that are supposed to deter corporate misconduct – government regulation and the civil justice system – are not up to the task. Despite the endless complaints from the business world about rules and lawsuits, there are in fact few meaningful limits on corporate behavior.

Despite years of evidence showing that many industries dominate and neutralize the government agencies that are supposed to oversee them, the proponents of deregulation all too often carry the day. The current presidential administration has embraced that ideology whole-heartedly and has even tried to promote the idea that relaxed regulation benefits not only corporations but workers and consumers.

Yet there’s growing evidence that what interests Trump most is using regulatory powers to punish his political enemies and reward his friends. That’s the message of new reporting by Jane Mayer in The New Yorker that Trump personally urged the Justice Department to try to block AT&T’s acquisition of Time Warner, apparently thinking that by sinking the deal he would harm Time Warner’s CNN unit and boost its rival, the exceedingly Trump-friendly Fox News.

There were earlier reports that Trump’s criticism of Amazon’s contract with the U.S. Postal Service was an indirect assault on the Washington Post, owned by Amazon CEO Jeff Bezos.

Aside from being an obvious abuse of presidential power, this approach is no better than a “principled” deregulatory stance. While Trump may occasionally direct his ire against companies that deserve to be punished, the vast majority of miscreants will end up being let off the hook.

Many of the same business apologists who criticize regulation also fulminate against lawsuits. These tort reformers don’t explain how else we are supposed to deal with rogue corporations. Nor do they acknowledge that such companies can greatly limit their exposure with the help of the bankruptcy court.

Purdue Pharma would be far from the first corporation to use Chapter 11 in this way. The filing would not shield the company entirely, but it would greatly reduce its financial liability and make it easier to survive the process.

Moreover, the Wall Street Journal pointed out that “Purdue’s assets may not be enough to resolve the company’s potential liability, in part because most of its profits had been regularly transferred to members of the company’s controlling family, the Sacklers.” In other words, much of the corporation’s ill-gotten gains are already out of the reach of the plaintiffs.

When restraints are weak or non-existent, it is more likely that companies will adopt the business model of the Trump Organization, which appears to be that of breaking every rule and cheating everyone it can. Our challenge is to find new ways to fight back.

Trump’s Muddled Class Warfare

Among the various roles played by Donald Trump during his State of the Union address was that of class warrior. He described a divide between “wealthy politicians and donors” living in gated communities while supposedly pushing for open borders and “working class Americans” who are “left to pay the price for illegal immigration—reduced jobs, lower wages, overburdened schools, hospitals that are so crowded you can’t get in, increased crime, and a depleted social safety net.”

Trump’s efforts to stir up worker resentment focus almost exclusively on situations in which foreigners can be depicted as the real culprits. He has no difficulty demonizing undocumented immigrants or the Chinese government, yet he rarely has any critical words for the traditional targets of populist anger: the super-wealthy and powerful corporations. On the contrary, those interests have enjoyed a privileged place during the Trump era, receiving lavish benefits in the form of tax breaks and regulatory rollbacks.

The latest example of the latter came less than 24 hours after Trump concluded his remarks in the House chamber. His Consumer Financial Protection Bureau announced plans to gut restrictions on payday lenders that were developed during the Obama Administration and were scheduled to take effect later this year.

The new rules were designed to put the responsibility on lenders to make sure their customers could afford the loans they were being offered. This was seen as a necessary safeguard in an industry notorious for charging astronomical interest rates to vulnerable customers who frequently ended up with massive debts after rolling over a series of short-term loans.

Prior to being neutered by the Trump Administration, the CFPB conducted a series of enforcement actions against payday lenders for egregious practices. For example, in 2014 the bureau brought a $10 million action against ACE Cash Express, alleging that the company “used illegal debt collection tactics – including harassment and false threats of lawsuits or criminal prosecution – to pressure overdue borrowers into taking out additional loans they could not afford.”

Payday lending has effectively been outlawed in about 20 states, but the Obama-era rules would have made a big difference in the rest of the country where the disreputable business is still allowed to function with annual interest rates of 300 percent or more. It will come as no surprise that many of the latter states are ones in which Trump enjoys high levels of popularity.

I can’t help but wonder what working class Trump supporters will think of this policy. Coal miners cannot be completely faulted for believing that Trump’s moves to dismantle power-plant emission controls may help them get work, but will struggling low-income families be cheered to learn that the administration is making it easier for payday lenders to exploit them rather than following the lead of the states that put a lid on usury?

Or, to put it more broadly, how long will Trump be able to pretend to be a working-class populist while pursuing the worst kind of plutocratic policies?

Backlash of the Billionaires

Most of those who have thrown their hat in the ring for the 2020 presidential race have been met with varying mixtures of enthusiasm and indifference. Howard Schultz is another story. The former Starbucks CEO has engendered a wave of hostility based on concern that his plan to run as an independent would split the anti-Trump vote and usher in another term for the current occupant of the White House.

Schultz is making himself even more unpopular by unleashing a string of attacks on some of the key policy proposals being discussed by progressive Democrats, denouncing Medicare for All and taxes on the wealthy as un-American and ill-informed.

This could simply be an appeal to what remains of the right flank of the Democrats, but it also seems to be part of an emerging backlash among the super-wealthy and corporate elites to a progressive agenda that would affect them directly. Schultz is not the only billionaire complaining at the prospect of having to pay more to Uncle Sam. Michael Bloomberg, another potential presidential contender, has been mouthing off against Sen. Elizabeth Warren’s wealth tax idea and defending U.S.-style capitalism.

We may soon see large corporations speaking out as well. Foxconn did not explicitly link its decision to abandon plans to create 13,000 manufacturing jobs in Wisconsin to the election of progressive Tony Evers as governor, but Republican leaders in the state legislature are making the connection.

Big business has had the best of both worlds during the past two years. While a few corporations such as Foxconn have directly aligned themselves with Trump, most large companies have dissociated themselves from the president’s odious positions on immigration and nationalism. Some business figures such as Larry Fink of BlackRock have been promoting the idea that they are the true paradigms of civic virtue.

At the same time, these executives and their corporations have been making out like bandits from the tax breaks and regulatory rollbacks—including those eroding worker protections–promoted by the faux-populist Trump Administration and its Republican allies in Congress.

The time may soon be coming when large corporations and billionaires have to choose between pretending they are part of the resistance and giving up some of their economic privileges. Or maybe they will lose both.

After all, the idea that large corporations are a force for good is already a dubious notion. Take the case of Starbucks, which has cultivated an image of being a progressive employer but has had to pay more than $46 million to resolve collective-action lawsuits alleging wage and hour violations.

The big question is whether big business and the super wealthy will accept that they have to give back some of their advantages. We know that the likes of the Koch brothers and Sheldon Adelson will fight to their last breath. The Foxconn disinvestment decision could be a harbinger of a coming capital strike in some quarters.

Yet it will be more interesting to see how far purported liberals like Schultz and Bloomberg are willing to go in resisting progressive reforms, and whether they will be joined by the corporate social responsibility crowd. In the words of the old union song, they will have to decide which side they are on.

Abandoning Human Rights to Benefit Crooked Corporations

According to the grievance-based worldview of Donald Trump, the United States is constantly being cheated. He purports to be addressing this through his trade policies and his attitudes toward international organizations such as NATO. Yet he seems to be a lot less concerned about another kind of cheating: the ongoing fraud committed against the federal government by military contractors.

This is an old story yet it takes on new relevance amid the current controversies over the murder of U.S.-based journalist Jamal Khashoggi by the Saudi government and ongoing American support for the brutal Saudi military intervention in Yemen. Trump’s main justification for refusing to take stronger action against the kingdom is his claim that it would jeopardize potential U.S. arms sales to the Saudis, the value of which Trump wildly inflates.

Trump usually frames this in terms of jobs, but it is actually more a matter of revenue and profits for major weapons producers such as Lockheed Martin and Raytheon. It comes down to this: Trump is undermining the moral stature of the United States and giving a green light to despots who want to eradicate dissidents, all in the name of pumping up the cash flow of a handful of corporations.

Although he fancies himself a master dealmaker, it is unclear what Trump is receiving in return from these companies. In the past, Trump has made noise about the cost of some Lockheed and Boeing contracts but there was little follow-up. The big weapons producers are not now among the president’s favorite tweet targets.

There is every reason to believe that the big contractors are continuing their long-standing practices of charging excessive amounts for their weapons and then cheating on the terms of the contracts. Sometimes they get caught doing the latter and are made to pay penalties they can easily afford.

To take a recent example: in early November the Justice Department announced that Northrop Grumman had agreed to pay $27.45 million to resolve allegations that it overstated the number of hours its employees had worked on two battlefield communications contracts with the Air Force. This matter, like most of the cases brought against military contractors, was handled primarily under the False Claims Act, which allows for a civil settlement and monetary penalties but no criminal liability.

The Northrop case was unusual in that there was a parallel criminal investigation of one of the contracts, but the Justice Department reached an agreement with the company under which it forfeited an additional $4.2 million and no criminal charges were filed.

This was just the latest in a series of False Claims Act cases in which Northrop has paid out in excess of half a billion dollars in penalties for various contract frauds. It is far from unique in this regard. For example, as shown in Violation Tracker, Boeing has paid out $744 million in penalties in eight False Claims Act cases since 2000 and Lockheed has paid $125 million in 13 cases.

It is bad enough that President Trump is abandoning U.S. support for human rights; it is even worse that he is doing so to benefit a group of corporations that regularly cheat the government he heads.

Have Voters Killed the Crappy Coverage Comeback?

Democrats seized the House while Republicans increased their majority in the Senate, but the unambiguous and across-the-board winner in the election was regulation – specifically, regulation of the health insurance industry.

Rarely has the public sent such a clear message that it wanted government to rein in corporations and market forces in favor of consumer and public interest protections. The desire to retain provisions of the Affordable Care Act protecting those with pre-existing conditions was key to Democratic gains. Republicans responded by pretending they agreed with that principle, but few were fooled by this deception.

At the same time, voters in three deep red states – Idaho, Nebraska and Utah – approved ballot initiatives in favor of ACA Medicaid expansion. This amounted to an embrace not just of regulation but of out-and-out government-controlled health coverage.

All these results should put an end to the longstanding Republican crusade to repeal the ACA, but it remains to be seen whether there is also a termination of the Trump Administration’s effort to undermine the law through steps such as allowing wider sale of substandard policies.

One encouraging sign came even before the votes were counted. On November 2 a federal judge in Miami, acting at the request of the Federal Trade Commission, issued an order temporarily shutting down a Florida company called Simple Health Plans LLC, which along with related firms was selling policies the FTC called “predatory” and “worthless.”

The FTC complaint against the companies spells out a variety of deceptive practices meant to make customers think they were buying real coverage when in fact they were getting medical discount memberships of limited value.

It’s telling that one of the websites used by the firms is called Trumpcarequotes.com. Trumpcare is actually an appropriate term for the crappy coverage—both because Trump has been touting such plans and because the Trump name has been involved in previous scams such as Trump University. Let’s not forget that after his election Trump had to pay $25 million to settle litigation related to that venture, a step that the New York State Attorney General called “a major victory for the over 6,000 victims of his fraudulent university.”

The ACA’s provisions relating to protection for pre-existing conditions are inseparable from those setting minimum standards for coverage. Ensuring the right of patients to buy insurance is meaningless if they end up with plans that pay for next to nothing.

The proliferation of junk insurance through the efforts of companies such as Aetna was one of the dismal realities of the U.S. health insurance market that gave rise to the ACA. Republicans have been promoting similar low-cost plans as their solution to the supposed crisis of Obamacare. This is a cynical ploy to use a perverse form of consumerism to restore the old days of limited regulation. Let’s hope the election results have taught them a lesson about the consequences of messing with healthcare.

DOJ is also Defying Trump on Foreign Bribery

Millions of words have been published about Donald Trump’s feud with the Justice Department over the Mueller investigation. Little is being written about another way in which DOJ is thwarting the president’s will: the ongoing prosecution of foreign bribery.

Starting before he became a candidate for the White House, Trump has railed against the Foreign Corrupt Practices Act, the 1977 law that allows for both civil and criminal cases to be brought against officials that engage in bribery and related practices committed anywhere in the world as long as their company does business in or has securities trading in the United States. He continued to complain about FCPA’s supposed unfairness after taking office.

These complaints seem to have had little effect on DOJ or on the Securities and Exchange Commission, which enforces the civil side of the law. Data collected for Violation Tracker, including a forthcoming update, show that since Trump took office DOJ and SEC have announced more than a dozen case resolutions with total penalties of more than $1.5 billion.

Several of those resolutions have been announced during the past two months. In early July DOJ and SEC each announced cases with combined penalties of $76 million against Credit Suisse and one of its subsidiaries for improperly winning banking business by giving jobs to family members and friends of Chinese government officials. Just the other day, the SEC announced that the French pharmaceutical company Sanofi would pay $25 million to resolve allegations that its subsidiaries in Kazakhstan and the Middle East made corrupt payments to win business.

It is true that many of the cases announced under Trump have involved foreign companies. Others include Japan’s Panasonic, Sweden’s Telia, and Canada’s Kinross Gold. Yet the culprits have also included some U.S.-based companies. Last year, for example, Halliburton had to pay $29 million to resolve allegations relating to its actions in Angola. Earlier this year, Dun & Bradstreet paid $9 million in connection with two of its subsidiaries in China. Most recently, investment manager Legg Mason agreed to pay more than $34 million to settle allegations that one of its subsidiaries was involved in a scheme to bribe officials in Libya.

While DOJ and SEC seem to be carrying out their mission of investigating FCPA violations by a wide range of companies, it remains to be seen whether that includes the Trump Organization, which according to various media reports may have corrupt practices act liability in a variety of countries (see, for example, The New Yorker piece on Azerbaijan).

This may be another test of whether Trump – and his business interests – are exempt from the law, but for now it is good to see that Trump has not succeeded in undermining an important tool in prosecuting other corporate bad actors.

Trump’s Law and Order Campaign Skips the Workplace

The Trump Administration has left little doubt that one of its main missions is to roll back the regulatory initiatives of the Obama years, especially the Clean Power Plan and the Consumer Financial Protection Bureau. Although Trump has been less overt about it, his corporate-friendly approach also includes weakening rules that have been around for decades.

An important case in point concerns the Fair Labor Standards Act, the key federal wage and hour law that was signed into law 80 years ago by President Franklin Roosevelt. The culmination of decades of struggle over excessive workweeks, inadequate pay levels and child labor, the FLSA put the federal government in the business of combatting wage theft and other forms of workplace exploitation.

It accomplished that through a system of workplace investigations and the imposition of financial penalties on employers large and small. In a move that has received limited attention, the Trump Labor Department is seeking to replace rigorous enforcement with a system called Payroll Audit Independent Determination (or PAID) that puts employers on the honor system. Beginning with the dubious premise that wage and hour violations mainly derive from inadvertent mistakes made by managers, PAID will encourage employers to report irregularities on their own. When they do they will still have to pay back wages but will not be assessed damages or penalties.

Such a system makes a mockery of real enforcement. What makes matters worse is that PAID, which is being billed as a pilot program for now, is being pursued right after the U.S. Supreme Court’s disastrous Epic Systems ruling. That decision affirms the right of employers to compel workers to sign mandatory arbitration agreements that would severely curtail their ability to bring collective action lawsuits. As my colleagues and I at the Corporate Research Project and Jobs With Justice Education Fund showed in a recent report, these lawsuits have allowed workers to recover billions of dollars from large corporations.

PAID was featured in a recent NBC News feature on how the Trump Administration is relaxing regulatory enforcement in numerous areas. This prompted a group of Democratic Senators to express concern about PAID to the DOL, whose spokesperson responded that it was “premature to comment” on the program.

The controversy over PAID comes amid growing concern about the prevalence of wage theft. Some of those abuses apparently exist right inside the federal government. The Labor Department, which has not yet left the investigation business, is reported to be examining the practices of a company called Seven Hills, which manages the food court at the Pentagon.

Faced with the prospect of diminished DOL enforcement and restrictions on lawsuits, activists are looking to other solutions. Some of the most encouraging work is happening at the local and state levels. For example, Centro de Trabajadores Unidos en la Lucha (Center for Workers United in Struggle) is pressing Minneapolis Mayor Jacob Frey and the City Council to pass an ordinance dealing with wage theft.

In some parts of the country, law enforcement officials are taking the term wage theft literally and treating it as a criminal offense. For example, after a joint investigation by the Washington State Attorney General’s Office and the Department of Labor & Industries, a construction company and its owner pled guilty last month to a criminal charge of first-degree theft. Earlier this month, the New York Attorney General and the Inspector General of the Port Authority announced the arrest of a contractor for failing to pay prevailing wages at a publicly-funded construction project at LaGuardia Airport.

While it would be terrible to see DOL’s wage and hour enforcement system dismantled, there are other ways rogue employers can be brought to justice.

Fake Environmental Regulation?

The Trump Administration likes to play with fire. Now it may be playing with a fire-resistant material that is also a deadly carcinogen. After years of receding as a public health threat, asbestos could make a comeback.

When Donald Trump joined his father in the New York real estate business in the late 1960s, the use of asbestos in high-rise construction was widespread. Yet within a few years it was revealed that the substance was highly dangerous for those who mined it, those who processed it and those who applied it. The hazard had actually been known for decades but had been kept secret by companies such as Johns-Manville in one of the most egregious corporate deceptions of the 20^th Century. Paul Brodeur’s 1985 book on the subject was called Outrageous Misconduct.

Asbestos producers and users were hit with tens of thousands of lawsuits, which forced Manville and other companies into bankruptcy. Use of the material was largely eliminated and vast sums were spent to remove existing asbestos from countless buildings.

Donald Trump appears to be ignorant of this history. In 2012 he tweeted his support for asbestos, claiming that if it had been more widely used in the old World Trade Center the Twin Towers would have survived the 9/11 attack. He did not mention that asbestos fibers were present in the dust clouds generated by the disaster and are believed to be among the causes of the high rate of cancer among first responders and Ground Zero workers.

In recent days there have been reports suggesting that Trump’s Environmental Protection Agency might be putting the president’s pro-asbestos sentiments into action. In early July the EPA issued what is known as a significant new use rule (or SNUR), inviting manufacturers to petition the agency to seek approval for asbestos products. An article in Fast Company sounded the alarm, stating that the EPA “has made it easier for companies to begin using asbestos again.”

The EPA is vehemently denying that is the case, insisting that it is actually strengthening asbestos regulation. An agency scientist told CNN that “the SNUR is really a good news story for public health protection.” The argument is that the rule would allow the EPA on a case-by-case basis to impose restrictions that may not currently exist. Unfortunately, it’s true that the United States, unlike many other countries, never fully banned the use of asbestos.

It is difficult to believe that the EPA, which has engaged in a deregulatory frenzy since Trump took office, will suddenly abandon its industry friends and embrace public health considerations in responding to new asbestos proposals.

One industry player, the Russian asbestos producer Uralasbest, apparently does not think so. The company, encouraged by the EPA’s reluctance to push for a total ban on the material, is decorating its shipments with a seal of approval containing Trump’s face and the statement “Approved by Donald Trump, the 45^th President of the United States.”

Corporate Impunity

In the early days of the Trump era, there was speculation that the new administration would be tough on corporate crime. Attorney General Jeff Sessions gave a speech in April 2017 in which he vowed that his Justice Department “will continue to investigate and prosecute corporate fraud and misconduct; bribery; public corruption; organized crime; trade-secret theft; money laundering; securities fraud; government fraud; health care fraud; and Internet fraud, among others.’ He added that DOJ has “a responsibility to protect American consumers.”

A new report from Public Citizen and the Corporate Research Project of Good Jobs First called Corporate Impunity shows just how hollow that promise was. Based on data from Violation Tracker, it shows that during the first year of the Trump Administration there was a substantial drop in regulatory enforcement and prosecution of corporate criminal offenses. In contrast to the zero-tolerance attitude toward migrants and refugees, the administration is showing considerable indulgence when it comes to corporate offenders.

In making a comparison to the previous administration, it is worth recalling the mixed record of the Obama years. That administration had a poor record with regard to holding top corporate executives personally responsible for serious offenses such as the abuses leading to the financial meltdown and the Deepwater Horizon oil spill disaster in the Gulf of Mexico. It continued the misguided policy of offering corporate miscreants deferred-prosecution and non-prosecution agreements.

Yet at least the Obama Administration took steps to increase the financial penalties levied on corporations for their misdeeds. For the first time, billion-dollar fines and settlements became a common occurrence.

Corporate Impunity judges the Trump Administration by that same measure—the level of monetary penalties imposed on companies. It finds, for example, that such penalties imposed by the Trump DOJ in its first year were less than one-tenth the level in each of the last two years of Obama.

The report limits its analysis of regulatory agencies to those which were headed by a Trump appointee for most of 2017. Of the 12 agencies examined, ten showed a decline in the number of enforcement actions. In some cases, those drops were steep. The Federal Trade Commission and the Securities and Exchange Commission had decreases of more than 40 percent, and five others dropped more than 25 percent.

For some agencies, the decline in the number of cases was much less severe than the drop in penalty amounts. At the Environmental Protection Agency, for example, the caseload in Trump’s first year was down 12 percent while the penalty total plunged more than 90 percent.

The results for Trump’s second year are likely to be even more dismal once results are tabulated for agencies such as the Consumer Financial Protection Bureau, which racked up an impressive record during the Obama years and attempted to do the same under Trump until the agency was captured in late 2017 by the White House and subsequently neutered.

Trump’s enforcement record shows that he really is a populist—a corporate populist creating a society in which large companies reign supreme and in many ways are above the law.

Turmoil On the Road to Autarky

Donald Trump got elected in 2016 essentially by promising everything to everyone except immigrants and environmentalists. In the economic realm he vowed to resurrect dying industries such as coal, to achieve trade supremacy over the rest of the world, to dismantle the regulatory state, and to bring about growth rates not seen for decades. Now those corporate executives who sold their soul to Trump are realizing he cannot deliver on all those promises.

This is most apparent with regard to trade. Companies such as Harley-Davidson and General Motors are complaining about the consequences of Trump’s ham-handed use of tariffs, which instead of bringing about concessions from U.S. trading partners are prompting retaliatory moves. A front-page story in the New York Times headlined “Industries in U.S. Feel Undermined by Trade Policies” states: “Even as the president’s pro-business stance is broadly embraced by the corporate community, in some significant cases the very industries that Mr. Trump has vowed to help say that his proposals will actually hurt them.”

This epiphany took a while to happen because most of Trump’s previous dubious initiatives were domestic in nature. Large corporations stood by as the administration and Congressional Republicans went after the Affordable Care Act because the main victims were individuals who did not get employer-sponsored coverage but were not poor enough to qualify for Medicaid. They went along with the tax bill because it enriched them handsomely even as it set the stage for future fiscal distress. They were largely silent as Trump’s plans to rebuild infrastructure and to address the opioid crisis fizzled out.

Yet trade involves other countries, whose leaders and citizens are a lot less in thrall to Trump and don’t seem to take his bullying routine very seriously. Even mild-mannered countries such as Canada are showing plenty of backbone. Meanwhile, countries such as China, which have engaged in unfair practices that should be addressed in a more coherent way, are able to take the moral high ground.

While Trump is not budging, this foreign resistance is starting to close markets and raise costs for a long list of domestic industries. Globalized companies cannot afford to follow Trump on the road to autarky. For some big firms the European market, for instance, is as important or even more important than the domestic one.

Yet it is not clear that Corporate America is willing to stand up to Trump in a major way. Rather than challenge the president directly, they may simply shift investment and sourcing to lessen the impact of the trade barriers. We need not worry too much about GM and Harley.

The problem is that the trade standoff will eventually take its toll on the U.S. economy as a whole, threatening the delicate balance of low unemployment and mild inflation while hastening the arrival of the next recession. And that will hurt Trump’s individual supporters a lot harder than his corporate backers.