Double-Dipping by PPP Healthcare Loan Recipients

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

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

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

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

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

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

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

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

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

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

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

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

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

The Rap Sheets of the Big Ventilator Producers

Earlier this year, the U.S. Attorney’s Office in South Carolina announced that a company called ResMed had agreed to pay more than $37 million to settle allegations under the False Claims Act that it illegally paid kickbacks to promote sales of equipment used to treat sleep apnea.

The case did not receive much attention at the time, but ResMed, which also produces ventilators, is now one of the companies involved in the controversy over the distribution of equipment that hospitals desperately need to save lives during the coronavirus pandemic.

New York Gov. Andrew Cuomo and other state chief executives have been complaining about price-gouging and shipments that fail to materialize, as health systems across the country compete for a woefully inadequate supply of ventilators, some of which have reportedly been exported.

This apparent profiteering should come as no surprise, given the track record of the ventilator industry, in which ResMed is not the only producer with a history of alleged misconduct. In fact, all the big publicly traded companies in the industry have paid millions of dollars in penalties in False Claims Act, kickback and bribery cases.  Along with ResMed, they are Philips, General Electric, Hill-Rom, and Medtronic.

In 2016 a Philips subsidiary called Respironics agreed to pay $34.8 million to settle allegations similar to those faced by ResMed involving the payment of kickbacks to suppliers for the purchase of sleep apnea equipment. In 2013 the Securities and Exchange Commission ordered Philips to pay $4.5 million for violations of the Foreign Corrupt Practices Act stemming from improper payments to healthcare officials in Poland.  

In 2011 GE Healthcare agreed to pay $30 million to settle False Claims Act allegations that a subsidiary caused Medicare to overpay for a radiopharmaceutical used in certain cardiac diagnostic imaging procedures by giving the federal government false or misleading information about doses.

Also in 2011 Hill-Rom agreed to pay $41.8 million to settle allegations that for years it knowingly submitted numerous and repeated false claims to the Medicare program for certain specialized medical equipment – bed support surfaces for treatment of pressure ulcers or bed sores – for patients for whom the equipment was not medically necessary.

Since 2006 Medtronic and its subsidiaries have paid more than $160 million in penalties in eight False Claims Act cases. The largest of these was a $75 million settlement agreed to by Medtronic Spine to resolve allegations that its marketing activities caused hospitals to submit false claims for kyphoplasty procedures, minimally-invasive surgeries used to treat compression fractures of the spine caused by osteoporosis, cancer or benign lesions.

Along with the False Claims Act cases, which are civil matters, a Medtronic subsidiary agreed to plead guilty and pay more than $17 million in 2018 to resolve a criminal charge that it promoted a neurovascular device for uses that were not approved by the FDA and were potentially dangerous.

It is true that none of these cases involved mechanical ventilators, but they do suggest something about ethical practices at the five companies. These are corporations accused of putting their own financial interests ahead of those of the federal government and thus the taxpayers. One of them has a subsidiary that is literally a corporate criminal.  

The coronavirus crisis is exposing many vulnerabilities of U.S. society. Among them is that the survival of many thousands of people now depends in large part on the behavior of a group of companies that have been something less than model corporate citizens.

This makes it all the more scandalous that the Trump Administration refuses to make full use of the Defense Production Act to end profiteering in the ventilator industry and force it to serve the needs of the country during this national emergency.

The 2019 Corporate Rap Sheet

While the news has lately focused on political high crimes and misdemeanors, 2019 has also seen plenty of corporate crimes and violations. Continuing the pattern of the past few years, diligent prosecutors and career agency officials have pursued their mission to combat business misconduct even as the Trump Administration tries to erode the regulatory system. The following is a selection of significant cases resolved during the year.

Online Privacy Violations: Facebook agreed to pay $5 billion and to modify its corporate governance to resolve a Federal Trade Commission case alleging that the company violated a 2012 FTC order by deceiving users about their ability to control the privacy of their personal information.

Opioid Marketing Abuses: The British company Reckitt Benckiser agreed to pay more than $1.3 billion to resolve criminal and civil allegations that it engaged in an illicit scheme to increase prescriptions for an opioid addiction treatment called Suboxone.

Wildfire Complicity: Pacific Gas & Electric reached a $1 billion settlement with a group of localities in California to resolve a lawsuit concerning the company’s responsibility for damage caused by major wildfires in 2015, 2017 and 2018. PG&E later agreed to a related $1.7 billion settlement with state regulators.

International Economic Sanctions: Britain’s Standard Chartered Bank agreed to pay a total of more than $900 million in settlements with the U.S. Justice Department, the Treasury Department, the Federal Reserve, the New York Department of Financial Services and the Manhattan District Attorney’s Office concerning alleged violations of economic sanctions in its dealing with Iranian entities.

Emissions Cheating: Fiat Chrysler agreed to pay a civil penalty of $305 million and spend around $200 million more on recalls and repairs to resolve allegations that it installed software on more than 100,000 vehicles to facilitate cheating on emissions control testing.

Foreign Bribery: Walmart agreed to pay $137 million to the Justice Department and $144 million to the Securities and Exchange Commission to resolve alleged violations of the Foreign Corrupt Practices Act in Brazil, China, India and Mexico.

False Claims Act Violations: Walgreens agreed to pay the federal government and the states $269 million to resolve allegations that it improperly billed Medicare, Medicaid, and other federal healthcare programs for hundreds of thousands of insulin pens it knowingly dispensed to program beneficiaries who did not need them.

Price-fixing: StarKist Co. was sentenced to pay a criminal fine of $100 million, the statutory maximum, for its role in a conspiracy to fix prices for canned tuna sold in the United States.  StarKist was also sentenced to a 13-month term of probation.

Employment Discrimination: Google’s parent company Alphabet agreed to pay $11 million to settle a class action lawsuit alleging that it engaged in age discrimination in its hiring process.

Investor Protection Violation: State Street Bank and Trust Company agreed to pay over $88 million to the SEC to settle allegations of overcharging mutual funds and other registered investment company clients for expenses related to the firm’s custody of client assets.

Illegal Kickbacks: Mallinckrodt agreed to pay $15 million to resolve claims that Questcor Pharmaceuticals, which it acquired, paid illegal kickbacks to doctors, in the form of lavish dinners and entertainment, to induce them to write prescriptions for the company’s drug H.P. Acthar Gel.

Worker Misclassification: Uber Technologies agreed to pay $20 million to settle a lawsuit alleging that it misclassified drivers as independent contractors to avoid complying with labor protection standards.

Accounting Fraud: KPMG agreed to pay $50 million to the SEC to settle allegations of altering past audit work after receiving stolen information about inspections of the firm that would be conducted by the Public Company Accounting Oversight Board.  The SEC also found that numerous KPMG audit professionals cheated on internal training exams by improperly sharing answers and manipulating test results.

Trade Violations: A subsidiary of Univar Inc. agreed to pay the United States $62 million to settle allegations that it violated customs regulations when it imported saccharin that was manufactured in China and transshipped through Taiwan to evade a 329 percent antidumping duty.

Consumer Protection Violation: As part of the settlement of allegations that it engaged in unfair and deceptive practices in connection with a 2017 data breach, Equifax agreed to provide $425 million in consumer relief and pay a $100 million civil penalty to the Consumer Financial Protection Bureau. It also paid $175 million to the states.

Ocean Dumping: Princess Cruise Lines and its parent Carnival Cruises were ordered to pay a $20 million criminal penalty after admitting to violating the terms of their probation in connection with a previous case relating to illegal ocean dumping of oil-contaminated waste.

Additional details on these cases can be found in Violation Tracker, which now contains 397,000 civil and criminal cases with total penalties of $604 billion.

Note: I have just completed a thorough update of the Dirt Diggers Digest Guide to Strategic Corporate Research. I’ve added dozens of new sources (and fixed many outdated links) in all four of the guide’s parts: Key Sources of Company Information; Exploring A Company’s Essential Relationships; Analyzing A Company’s Accountability Record; and Industry-Specific Sources.

The Insurance Industry’s No-Lose Situation

Many voices are speaking out about the Republican effort to undo the Affordable Care Act, but one party diligently refrains from public comment: the insurance industry. While the industry is undoubtedly exerting its influence in the closed-door negotiations to restructure the wildly unpopular GOP bill, it is not airing those views more widely.

It doesn’t have to, because the healthcare debate between the two major parties is largely a disagreement on how best to serve the needs of Aetna, Anthem and the other big players.

The ACA, of course, was built on the premise that government should expand coverage largely by providing subsidies to help the uninsured purchase plans from private companies. When those companies became dissatisfied with the composition of their new client base and starting jacking up premiums in response, ACA supporters were put in the position of advocating for new insurer financial incentives.

Meanwhile, the Republicans are seeking to help the industry by rolling back Medicaid expansion and allowing it to return to the pre-Obamacare practice of selling bare-bones junk insurance, which would be the only kind that many people could afford after subsidies are decimated.

This is probably a no-lose situation for the insurers: either they get paid more to provide decent coverage or they are freed to sell highly profitable lousy plans.

All those legislators catering to insurers one way or the other are forgetting that healthcare reform was made necessary by the ruthless behavior of that same industry. If those companies had not been denying coverage whenever possible, it would not have been necessary for the ACA to set minimum standards. And if those firms had not been raising premiums relentlessly, it would not have been necessary for the ACA to take steps — which turned out to be inadequate — to try to restrain costs.

The industry’s unethical practices are not limited to the individual marketplace. The big insurers have also exploited the decision by policymakers to give them a foothold in the big federally funded programs: Medicaid and Medicare.

As Senate Republicans were cooking up their repeal and replace bill, the U.S. Attorney’s Office in Los Angeles joined two cases against one of the industry’s giants, UnitedHealth Group. The whistleblower suits accuse the company of systematically overcharging the federal government for services provided under the Medicare Advantage Program.

The complaints in the cases allege that UnitedHealth routinely scoured millions of medical records, searching for data it could use to make patients seem sicker than they actually were and thus justify bigger payments for the company, which was also accused of failing to correct invalid diagnoses made by providers. Either way, the complaints argue, UnitedHealth was bilking Medicare Advantage, which was created on the assumption that bringing the private sector into a government program would cut costs.

Such assumptions continue to afflict federal health policy as a whole. Too many members of Congress continue to worship the market in the face of all the evidence that the private insurance industry cannot be the foundation of a humane healthcare system.

Regulation is Not Dead Yet

Donald Trump tries to give the impression that his crusade against business regulation is moving ahead rapidly. While several rules have been rescinded and more are threatened, it turns out that for now the enforcement systems at most agencies are functioning normally.

In preparing a forthcoming update of the Violation Tracker database, I’ve found that since the inauguration federal regulatory agencies have announced more than 160 case resolutions with fines and settlements totaling more than $1.6 billion. This two-month dollar amount does not compare to the $20 billion collected by the Obama Administration during its final tens weeks in office. Yet it does show that the so-called administrative state is not dead yet.

A large portion of the Trump collections come from enforcement actions against a single company that are in line with the new president’s views. The Chinese telecommunications company ZTE was penalized $1.2 billion for violating economic sanctions against Iran and North Korea by supplying them with prohibited items. The Commerce Department’s Bureau of Industry and Security imposed a $661 million civil penalty and the Treasury’s Office of Foreign Assets Control collected another $106 million while the Justice Department got ZTE to plead guilty and pay $430 million in fines and criminal forfeiture.

The remaining $422 million was collected in cases brought by 21 different agencies and four divisions of the Justice Department. Among the larger actions:

  • The Commodity Futures Trading Commission reached an $85 million settlement with the Royal Bank of Scotland to resolve allegations that it attempted to manipulate interest-rate benchmarks.
  • The Federal Energy Regulatory Commission reached an $81 million settlement with GDF Suez to resolve allegations that it manipulated energy markets.
  • TeamHealth Holdings agreed to pay $60 million to settle Justice Department allegations that its subsidiary IPC Healthcare Inc. violated the False Claims Act by overbilling Medicare, Medicaid, the Defense Health Agency and the Federal Employees Health Benefits Program.
  • Offshore oil driller Wood Group PSN was ordered to pay a total of $9.5 million to resolve criminal charges that it falsely reported over several years that its personnel had performed safety inspections on offshore facilities and that it negligently discharged oil into the Gulf of Mexico.
  • Keurig Green Mountain agreed to pay $5.8 million to settle allegations by the Consumer Product Safety Commission that it failed to report a defect in its Mini Plus Brewing System that had caused scores of serious burn injuries.
  • The Consumer Financial Protection Bureau imposed a $3 million penalty on Experian for deceptively marketing credit scores.

The list also includes: 14 settlements with the Equal Employment Opportunity Commission by employers in cases involving gender, pregnancy and disability discrimination; six cases in which private sponsors of Medicare Advantage plans violated consumer protection rules; two cases in which companies were charged with violating the Controlled Substances Act by failing to properly monitor opioid prescriptions; and much more.

On the other hand, the situation remains puzzling at the Labor Department, where agencies such as OSHA have not announced a single enforcement action since Trump took office. [UPDATE: It’s been pointed out to me that despite the absence of OSHA press releases the agency is still posting enforcement actions on its website on this page, which shows numerous cases since Inauguration Day.]

It is likely that most of the 160 cases were initiated while the Obama Administration was in office, but it is heartening that they have gotten resolved under the new management. The career officials in the various agencies should be commended for continuing to do their job in difficult circumstances. Let’s hope they can convince their new bosses that there is a value to protecting consumers, workers and the public against corporate misconduct in its many forms.

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.

False Claims and Other Frauds

ViolationTracker_Logo_Development_R3The 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:

  1. Toxic securities abuses: $68 billion
  2. Environmental violations: $63 billion
  3. Mortgage abuses: $43 billion
  4. Other banking violations: $18 billion
  5. Economic sanction violations: $14 billion
  6. Off-label/unapproved promotion of medical products: $12 billion
  7. False Claims Act cases: $11 billion
  8. Consumer protection violations: $9 billion
  9. Interest rate benchmark manipulation: $7 billion
  10. 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.

The 2014 Corporate Rap Sheet

gotojailThe bull market in corporate crime surged in 2014 as large corporations continued to pay hefty fines and settlements that seem to do little to deter misbehavior in the suites. Payouts in excess of $1 billion have become commonplace and some even reach into eleven figures, as seen in the $16.65 billion settlement Bank of America reached with the Justice Department to resolve federal and state claims relating to the practices of its Merrill Lynch and Countrywide units in the run-up to the financial meltdown.

This came in the same year in which BofA reached a $9.3 billion settlement with the Federal Housing Finance Agency concerning the sale of deficient mortgage-backed securities to Fannie Mae and Freddie Mac and in which the Consumer Financial Protection Bureau ordered the bank to pay $727 million to compensate consumers harmed by deceptive marketing of credit card add-on products.

The BofA cases helped boost the total penalties paid by U.S. and European banks during the year to nearly $65 billion, a 40 percent increase over the previous year, according to a tally by the Boston Consulting Group reported by the Wall Street Journal.

Among the other big banking cases were the following:

  • France’s BNP Paribas pleaded guilty to criminal charges and paid an $8.9 billion penalty to U.S. authorities in connection with charges that it violated financial sanctions against countries such as Sudan and Iran.
  • Citigroup paid $7 billion to settle federal charges relating to the packaging and sale of toxic mortgage-backed securities.
  • U.S. and European regulators fined five banks — JP Morgan Chase, Citigroup, HSBC, Royal Bank of Scotland and UBS — a total of more than $4 billion after accusing them of conspiring to manipulate the foreign currency market.
  • Credit Suisse pleaded guilty to one criminal count of conspiring to aid tax evasion by U.S. customers and paid a penalty of $2.6 billion.
  • JPMorgan Chase paid $1.7 billion to victims of the Ponzi scheme perpetuated by Bernard Madoff to settle civil and criminal charges that it failed to alert authorities about large numbers of suspicious transactions made by Madoff while it was his banker.

Banks were not the only large corporations that found themselves in legal trouble during the year. The auto industry faced a never-ending storm of controversy over its safety practices. Toyota was hit with a $1.2 billion criminal penalty by U.S. authorities for concealing defects from customers and regulators. The National Highway Traffic Safety Administration fined General Motors $35 million (the maximum allowable) for failing to promptly report an ignition switch defect that has been linked to numerous deaths. Hyundai and its subsidiary Kia paid $300 million to settle allegations that they misstated the greenhouse gas emissions of their vehicles.

Toxic dumping. Anadarko Petroleum paid $5.1 billion to resolve federal charges that had been brought in connection with the clean-up of thousands of toxic waste sites around the country resulting from decades of questionable practices by Kerr-McGee, now a subsidiary of Anadarko.

Pipeline safety. The California Public Utilities Commission proposed that $1.4 billion in penalties and fined be imposed on Pacific Gas & Electric in connection with allegations that the company violated federal and state pipeline safety rules before a 2010 natural gas explosion that killed eight people.

Contractor fraud. Supreme Group BV had to pay $288 million in criminal fines and a $146 million civil settlement in connection with allegations that it grossly overcharged the federal government while supplying food and bottled water to U.S. personnel in Afghanistan.

Bribery. The French industrial group Alstom consented to pay $772 million to settle U.S. government charges that it bribed officials in Indonesia and other countries to win power contracts. Earlier in the year, Alcoa paid $384 million to resolve federal charges that it used a middleman to bribe members of Bahrain’s royal family and other officials to win lucrative contracts from the Bahraini government.

Price-fixing. Japan’s Bridgestone Corporation pleaded guilty to charges that it conspired to fix prices of anti-vibration rubber auto parts and had to pay a criminal fine of $425 million.

Defrauding consumers. AT&T Mobility had to pay $105 million to settle allegations by the Federal Trade Commission and the Federal Communications Commission that it unlawfully billed customers for services without their prior knowledge or consent.

The list goes on. Whether the economy is strong or weak, many corporative executives cannot resist the temptation to break the law in the pursuit of profit.

Note: For fuller dossiers on some of the companies listed here, see my Corporate Rap Sheets.

Waterboarding and Price Gouging

inquisitionThe shameful revelations in the Senate Intelligence Committee report on the CIA torture program are, as the New York Times editorial board put it, “a portrait of depravity.” At the same time, they constitute one of most serious federal contracting scandals of all time.

Although it sounds like an idea dreamed up by the writers of the TV series Homeland, it turns out that the creation of the “enhanced interrogation” system was left to a pair of contractors, neither of whom, as the report states, “had any experience as an interrogator, nor did either have specialized knowledge of al-Qa’ida, a background in counterterrorism, or any relevant cultural or linguistic expertise.”

The contractors had previously worked with the U.S. Air Force’s Survival, Evasion, Resistance and Escape (SERE) school, which was created to helped military personnel deal with coercive interrogation techniques to which they might be exposed if taken prisoner by a country that did not adhere to the Geneva Convention. That was before the U.S. became one of those countries.

Referred to in the report by the pseudonyms Dr. Grayson Swigert and Dr. Hammond Dunbar, the two are psychologists whose real names are reported to be James Mitchell and John “Bruce” Jessen. Their firm, Mitchell, Jessen & Associates of Spokane, Washington, is said to have been paid $81 million by the CIA for its dubious services. The agency thoughtfully provided the firm “a multi-year indemnification agreement to protect the company and its employees from legal liability arising out of the program.”

Among the brutal methods promoted by Mitchell and Jessen was waterboarding, which the report says they described as an “absolutely convincing technique.”

It may have been the case that the water used for that torture was provided by another rogue contractor. The Justice Department recently announced that Supreme Group BV would pay $288 million in criminal fines and a $146 million civil settlement in connection with allegations that it grossly overcharged the federal government while supplying food and bottled water to U.S. personnel in Afghanistan, one of the countries where the torture took place.

Supreme Group, which is based in the Netherlands but has its main operating base in Dubai, had been awarded an $8.8 billion supply contract that was extended twice before coming to an end in 2013. The fraud was uncovered thanks to a whistleblower inside the company. Despite the egregious nature of the charges and the hefty penalties, Supreme is not, according to the Wall Street Journal, being barred from seeking new federal business.

The abuses of Mitchell and Jessen deserve to be judged more harshly than those of Supreme Group, but they are both examples of the loose morals of many of the parties selling their services to the federal government. Each in its own way serves as a rebuttal to those who extol outsourcing and the superiority of the private sector.

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New in Corporate Rap Sheets: a profile of Newmont Mining and its record of environmental and human rights controversies around the world.

Handouts for Corporate Tax Deserters

moneybags_handoutPresident Obama says “I don’t care if it’s legal—it’s wrong.” Even Fortune magazine calls it “positively un-American.” But will Congress do anything to block the brazen moves by a growing number of large U.S. companies to reincorporate abroad to dodge federal taxes?

One group of Democratic lawmakers is trying to discourage the trend by tightening the restrictions on federal contract awards to so-called inverted companies, but such firms still receive another form of financial assistance from Uncle Sam.

The lawmakers have drafted a bill with the appropriately provocative title of No Contracts for Corporate Deserters Act. It would bar contract awards to reincorporators which are at least 50-percent U.S.-owned and which do no substantial business in the country in which they are nominally based.

Tougher rules are definitely necessary. Although Congress pats itself on the back for the restrictions first enacted during an earlier wave of reincorporations, some of the inverted companies have managed to find loopholes allowing them to continue to enjoy the benefits of extensive federal contracting. Ingersoll-Rand, which purports to be an Irish company but derives 60 percent of its revenue from the United States, has 80 percent of its long-lived assets in this country and has its “corporate center” near Charlotte, North Carolina, received $64 million in federal contracts in 2013. Eaton Corporation, which also claims to have become Irish, received $131 million that year.

In his July 24 remarks on the subject, President Obama also declared: “You shouldn’t get to call yourself an American company only when you want a handout from American taxpayers.” Such handouts are not limited to lucrative contract awards. Inverted companies are also receiving cash grants from the federal government.

Take the case of Eaton. In 2013 it received a $2.4 million grant from the Energy Department’s Conservation Research and Development Program. That was just one of eight grants it received from Energy that year with a total value of about $4 million.

Delphi Automotive, which claims to be based on the island of Jersey in the English Channel, has also received numerous grants from the Energy Department, including $5.1 million last year through the Fossil Energy Research and Development Program.

Grants have also gone to companies involved in recent inversion deals. Pfizer, which was seeking to undergo an inversion through a merger with AstraZeneca but which has dropped the bid for now, received $3.8 million in assistance this year from the Defense Department for work on nanoparticles.

These grants are part of a controversial practice by which the federal government underwrites commercial research activity by large companies in industries such as food processing, pharmaceuticals, aerospace and electric utilities. And this, in turn, is part of the larger sphere of federal financial assistance to business that also includes direct payments, low-cost loans, loan guarantees and the like.

These activities, often labeled corporate welfare, are a frequent target of criticism from both the left and the right. Conservatives are currently engaged in a campaign to eliminate the Export-Import Bank, which provides financing for deals benefiting corporations such as Boeing and Bechtel. Bipartisan efforts such as Green Scissors and the Toward Common Ground reports issued by U.S. PIRG and National Taxpayers Union have sought to end funding for the most wasteful programs.

Those efforts are usually driven by ideology (conservatives don’t want governments “picking winners”), by a desire to cut federal spending, or by other issues (progressives point out that many federal subsidies promote environmentally destructive practices). Now there’s another reason to be up in arms over corporate welfare.

The fact that some “corporate deserters” are getting grants from Uncle Sam could provide an additional form of pressure against the tax dodgers. Seeing these companies get contracts is bad enough; realizing that they may be getting direct handouts is even more infuriating.