Corporate Crime

The Two Faces of Pam Bondi

The Senate Judiciary Committee’s hearing on Pam Bondi’s nomination to be Attorney General was filled with talk of weaponization of the Justice Department. Republicans put that label on everything they dislike about the DOJ’s behavior during the Biden Administration, while Democrats used it to warn about what will happen if Donald Trump carries through with his vow to get the Department to exact revenge on his perceived enemies.

Nothing was said about the ways in which the DOJ has been substantially disarmed over the past eight years and will probably be further weakened in the next four. That is with regard to the prosecution of corporations, which are increasingly being treated with leniency rather than the iron fist commonly proposed for other types of offenders.

Bondi spoke repeatedly during the hearing about her intention to crack down on drug dealers, terrorists, human traffickers, and immigration violators. There were some oblique references to business malfeasance. She responded positively to comments on the False Claim Act offered by Sen. Grassley, who reminded us of his leading role in the 1986 updating of the Civil War-era law to enhance the role of whistleblowers. It was unclear, however, whether Bondi was signaling her interest in cases against major federal contractors or just ones targeting smaller fish such as individual healthcare providers.

Bondi also agreed with comments by Sen. Klobuchar about the importance of antitrust. Here it was unclear whether this indicated support for aggressive action against corporate concentration of all kinds or just cases against the Big Tech companies the Right likes to vilify. Bondi was evasive when asked about upholding legislation requiring Big Pharma to negotiate with the federal government on prescription drug prices.

While she sparred on several issues with Adam Schiff, the new Senator from California, she seemed to agree with him on the importance of preventing price-gouging in the wake of the disastrous fires in Los Angeles. Schiff, however, had referred to abusive practices by oil companies, while Bondi seemed to focus on gouging by local businesses.

The ambiguities in Bondi’s comments can also be found in her record as Attorney General of Florida from 2011 to 2018. On the one hand, Bondi’s tenure was tainted by accusations that she backed away from investigating misconduct by the for-profit Trump University because of a $25,000 contribution to a political action committee supporting her re-election campaign by a Trump family foundation.

Bondi initiated relatively few cases against large corporations, yet she was heavily involved in multistate rightwing legal initiatives to undermine the Affordable Care Act, to undo a ban on some semi-automatic weapons enacted by Connecticut in the wake of the Sandy Hook massacre, and to block a plan by the EPA and six states to improve water quality in the Chesapeake Bay by restricting pollution runoff by factory farms.

On the other hand, Bondi participated in numerous more enlightened multistate attorneys general lawsuits. These included major cases against BP for the Deepwater Horizon disaster in the Gulf of Mexico, against big banks for mortgage abuses during 2000s, against Wells Fargo related to the bogus accounts scandal, and against General Motors for selling vehicles with defective ignition switches.

There seem to be two sides to Pam Bondi. She was a rightwing partisan during and after her time as Florida AG and she may have allowed those beliefs to stand in the way of prosecuting allies such as Donald Trump. Yet she also was reasonably serious about carrying out the responsibilities of an AG to serve as a consumer champion and was willing to confront at least some powerful corporate interests.

If, as seems likely, Bondi is confirmed, she will serve in an administration headed by a man who has little regard for norms such as the independence of the DOJ and will probably be inclined to discourage investigations of companies which support him and encourage prosecutions of those he dislikes.

Which Pam Bondi will occupy the AG’s office: the partisan loyalist who carries out Trump’s illegitimate wishes or the upright law enforcement officer?

Will the Biden DOJ End With a Whimper?

Unless something dramatic happens in the next week or so, it appears that the Biden Justice Department’s prosecution of corporate misconduct will come to an end not with a bang but with a whimper.

This is in stark contrast to what happened the last time the DOJ prepared to turn over the reins to a Trump Administration expected to be less than relentless in going after corporate miscreants. In the period between the 2016 election and Trump’s inauguration, the Obama DOJ resolved a flurry of high-profile cases in which major corporations paid more than $30 billion in fines and settlements.

These included four ten-figure settlements: Deutsche Bank’s $7.2 billion toxic securities case; Credit Suisse’s $5.3 billion case in the same category; Volkswagen’s $4.3 billion case relating to emissions fraud; and Takata’s $1 billion case relating to defective airbag inflators. There were also nine-figure cases involving corporations such as Moody’s, Western Union, Shire Pharmaceuticals, and Rolls-Royce.

The Biden DOJ has bagged one significant trophy recently: in December it got the consulting firm McKinsey to agree to pay $650 million to resolve criminal and civil allegations relating to its role in assisting the disgraced company Purdue Pharma in the improper marketing of Oxycontin, which fueled the opioid epidemic. As is common in major cases of this kind, McKinsey was allowed to avoid the full impact of the criminal charges by being offered a deferred prosecution agreement.

Another major consulting company, Booz Allen, recently settled a False Claims Act case involving a contract with the Defense Department, but the penalty amount was only $15.9 million. Otherwise, the resolutions announced since the election have been run-of-the-mill cases brought against lower-profile companies.

I should point out that the Biden DOJ did achieve a couple of major wins in the period leading up to the election. In October, TD Bank paid $1.9 billion and pled guilty to charges relating to anti-money-laundering deficiencies and Raytheon paid $950 million to resolve allegations of contracting abuses and foreign bribery.

My focus here, however, is what the DOJ decides what to do once it has attained lame duck status. Faced with the prospect of turning over their cases to an overly corporate-friendly administration, prosecutors should do their best to achieve strong settlements.

In theory, career prosecutors should be able to pursue cases aggressively, regardless of the ideological orientation of the administration. Yet DOJ leadership can set policies that control how those prosecutors operate.

What complicates the current situation is that even before the election results became known, the Biden DOJ was not, apart from a few cases such as those cited above, taking a particularly aggressive posture toward corporate crime. The department put undue emphasis on offering leniency deals to encourage companies to self-report misconduct. This approach falls apart when the misconduct is not the work of a rogue employee but is instead inherent in the company’s operations and even encouraged by those at the top.

It remains unclear whether the Trump DOJ will continue on the leniency path and perhaps even offer sweetheart deals to companies that have curried favor with MAGA World–the way Meta Platforms has just done by announcing it will end its fact-checking program.

Trump’s choice to run the DOJ, Pam Bondi, does not have a strong track record in prosecuting corporate misconduct. In the eight years she was attorney general of Florida, there were only a handful of successful cases brought against large companies. She spent a lot more time as a leader of the effort by Republican AGs to overturn the Affordable Care Act.

As a fierce MAGA loyalist, she is likely to focus more on prosecuting Trump’s perceived enemies and less on rogue corporations.

Note: A new resource from Public Citizen called the Corporate Enforcement Tracker documents more than 200 pending cases and reported investigations against corporations. Since most, if not all, of these cases are unlikely to be resolved in the next ten days, their fate will be determined by the Trump DOJ.

The 2024 Corporate Rap Sheet

My colleagues and I collected more than 22,000 new entries for the U.S. version of Violation Tracker this year. We also launched Violation Tracker Global, which contains cases brought against large corporations in 52 countries. Here are some of the most notable cases of the year from both databases.

McKinsey and Opioids. McKinsey, the leading management consulting firm, had to pay $650 million in criminal and civil penalties to resolve a U.S. Justice Department (DOJ) case concerning its work for the disgraced pharmaceutical company Purdue Pharma. McKinsey was charged with conspiring with Purdue to “turbocharge” sales of OxyContin while misleading users about the addiction risks of the opioid.

TD Bank and Money Laundering. TD Bank N.A., a U.S. subsidiary of Canada’s Toronto-Dominion, pleaded guilty and agreed to pay $1.9 billion in fines and forfeiture to resolve DOJ charges that it violated the Bank Secrecy Act by failing to file reports on suspicious transactions and thereby facilitated money laundering by criminal networks.

BHP, Vale and a Mining Disaster. Mining giants BHP and Vale, co-owners of the Samarco joint venture, agreed to a US$31 billion settlement to resolve litigation brought by Brazilian communities destroyed by the 2015 Mariana mine-waste dam collapse that killed 19 people and polluted 400 miles of rivers.

Raytheon and Fraud and Bribery. Raytheon Company, a subsidiary of military contractor RTX (formerly known as Raytheon Technologies), agreed to pay over $950 million to resolve a DOJ criminal investigation into a major fraud scheme involving defective pricing on certain government contracts and violations of the Foreign Corrupt Practices Act and the Arms Export Control Act.

3M and PFAS. A federal judge in South Carolina gave final approval to a class action settlement in which 3M agreed to pay an estimated $12.5 billion to more than 10,000 public water systems to resolve allegations that PFAS chemicals produced by the company for use in firefighting foam ended up contaminating water sources.

Apple and Improper Tax Breaks. The European Commission ordered Apple to repay 13 billion euros to Ireland after determining that the special tax breaks the company had been receiving for 16 years amounted to a form of illegitimate state aid.

Meta Platforms and Biometric Data. Facebook parent Meta Platforms agreed to pay $1.4 billion to the Texas Attorney General’s office to settle a lawsuit alleging it improperly captured biometric data from millions of users for its facial recognition system without the authorization required by state law.

Teva Pharmaceuticals and Copaxone. The European Commission fined Teva 462 million euros for abusing its dominant position to delay competition to Copaxone, its medication for the treatment of multiple sclerosis. The Commission found that Teva artificially extended the patent protection of Copaxone and systematically spread misleading information about a competing product to hinder its market entry and uptake.

Uber Technologies and Wage Theft. Uber paid $148 million to settle a case brought by the Massachusetts Attorney General alleging that it violated state wage and hour law in the way it paid its drivers. The agreement also required the company to begin paying a minimum wage of $32.50 an hour and providing benefits such as paid sick leave. The case also targeted Lyft, which paid $27 million.

Glencore and Bribery. The Office of the Attorney General of Switzerland ordered commodities trading company Glencore to pay a penalty equal to about $152 million for failing to take steps to prevent the bribery of government officials in the Democratic Republic of Congo by a business partner.

Walgreens and False Claims. Walgreens Boots Alliance Inc. and Walgreen Co. agreed to pay $106 million to the DOJ to resolve alleged violations of the False Claims Act and state statutes for billing government health care programs for prescriptions never dispensed.

Veolia and a Workplace Death. A British subsidiary of France’s Veolia Group pleaded guilty to breaching the Health and Safety at Work Act after a worker died and another was seriously injured while decommissioning a North Sea gas rig. The Health and Safety Executive fined the company £3 million and ordered it to pay £60,000 in costs.

Goldman Sachs and Apple Card Users. The U.S. Consumer Financial Protection Bureau ordered Goldman Sachs to pay $64 million in fines and redress for mishandling customer service breakdowns affecting thousands of Apple Card holders. These failures meant that consumers faced long waits to get money back for disputed charges and some had incorrect negative information added to their credit reports.

You can find many more examples of the year’s corporate scandals in Violation Tracker and Violation Tracker Global. There is every reason to believe there will be many more cases for the Trackers to document in the coming year.

Prosecuting the Boss

A courtroom in Germany is currently the scene of a rare occurrence in the business world: the trial of a high-level executive for corporate crimes. Martin Winterkorn, the former top executive of Volkswagen, is facing charges of commercial fraud, market manipulation and making false statements.

Arguably, he should be facing even more serious allegations. Winterkorn is being belatedly tried in connection with the vast conspiracy in which Volkswagen executives conspired to deceive regulators and the public about the environmental impact of its diesel cars. By rigging the vehicles so their emissions appeared to be within legal limits when they were actually much higher, VW was responsible for releasing vast amounts of extra pollution into the air. The health effects are incalculable.

Winterkorn’s trial, delayed for health reasons, comes nine years after the emissions scandal erupted. During that time, the company has faced perhaps the most wide-ranging regulatory barrage in business history.

In the United States, VW paid a series of enormous penalties. These included a $14.7 billion settlement with the federal government and the state of California announced in 2016. The deal included $10 billion to be used for buying back vehicles with the illegal defeat devices and $4 billion to mitigate pollution from the cars and invest in green vehicle technology.

The following year, VW paid another $4 billion to settle a case brought by the Federal Trade Commission concerning another group of vehicles. The company pled guilty to three felony counts and paid a criminal penalty of $2.8 billion.

VW also faced regulatory actions and lawsuits around the world. Here are some of the most notable.

In its home country of Germany, VW was fined the equivalent of $1.2 billion in a case brought by government prosecutors and another $900 million in a lawsuit brought by the Federation of German Consumer Organizations.

In a case brought by Environment and Climate Change Canada, VW paid a fine equal to $150 million. The Australian Competition and Consumer Commission fined VW the equivalent of $86 million for deceiving customers about compliance with Australian diesel emissions standards.

India’s National Green Tribunal fined VW 5 billion rupees (US$71 million) for installing the cheating devices. South Korea’s Fair Trade Commission fined VW the equivalent of $31 million for false advertising on vehicle emissions. Among the other countries that penalized VW are Poland ($31 million), Brazil ($13 million), and the Netherlands ($536,000).

As important as these cases have been in highlighting VW’s egregious misconduct and extracting financial penalties, the individual prosecution of Winterkorn could have a greater long-term impact. Even though he is no longer employed by the company (he resigned under pressure in 2015), his trial is a demonstration of how a high-level executive can be held personally accountable for misdeeds under his watch. This is especially true in a case such as Winterkorn’s in which the executive is accused of committing some of those misdeeds himself.

If convicted, Winterkorn, 77, is unlikely to spend time behind bars. But a guilty verdict would send a strong signal to other unscrupulous executives.

Note: the enforcement actions discussed above (and much more) will be included in the forthcoming Violation Tracker Global.

A New DOJ Payday for Whistleblowers

Over the past decade, the Securities and Exchange Commission has paid out around $2 billion to individuals who provided information that led to successful enforcement actions against rule-breaking corporations. The awards can amount to tens of millions of dollars and sometimes reach the nine-figure level. More than a dozen other federal agencies such as the Commodity Futures Trading Commission have similar incentive programs.

The Justice Department recently announced that it will jump on the whistleblower bandwagon with a pilot program designed to assist in the prosecution of corporate crimes. DOJ’s initiative will cover certain crimes involving financial institutions, from traditional banks to cryptocurrency businesses; foreign corruption involving misconduct by companies; domestic corruption involving misconduct by companies; and healthcare fraud schemes involving private insurance plans.

To be eligible for an award, someone must provide DOJ with original non-public information that leads to a successful prosecution with a corporate penalty of at least $1 million. The whistleblower, who must not have participated in the illegal activity, could receive up to 30 percent of the first $100 million in net proceeds and 5 percent of proceeds between $100 million and $500 million. That means that a whistleblower could receive as much as $55 million.

Whistleblowing is not entirely new to DOJ. The department has long employed the False Claims Act qui tam program to investigate fraud against the federal government by contractors and Medicare healthcare providers. Many of the nearly 4,000 False Claims Act cases in Violation Tracker were made possible by whistleblowers. These cases are handled as civil matters, whereas the new pilot program will cover criminal charges.

DOJ sees the whistleblower program as part of its broader effort to encourage corporations to self-report when they detect illegal behavior within their ranks. The department took the unusual step of structuring the program so that whistleblowers remain eligible for an award if they first report the misconduct to corporate superiors and the company in turn discloses it to DOJ.

It would be ill-advised for the department to offer leniency deals to companies that engage in self-reporting only after learning that a whistleblower is ready to go public. Such deals are meant to incentivize companies to come forward of their own volition, not when the boom is about to be lowered.

Some critics complain that the DOJ pilot is deficient in that it does not adequately protect whistleblowers from retaliation. The program description deals with the issue by saying that the department could respond to retaliation by declining to award the company cooperation credit and/or “institute appropriate enforcement action.” DOJ would do well to adopt procedures like those in the Sarbanes-Oxley Act providing specific remedies for whistleblowers who experience retaliation.

Despite these limitations, it is encouraging that DOJ is adopting a practice for its criminal cases that has a long track record of success in bringing to light corporate wrongdoing of a civil nature. Let’s hope that this approach will put more pressure on rogue companies to clean up their act.

Naming the Offenders

Regulatory agencies and prosecutors seek to punish misbehaving corporations in the hope they will change their practices and obey the rules. That happens occasionally, but all too often corporate offenders go on to break the law again, sometimes repeatedly.

The prevalence of such recidivism is one of the main conclusions that arises from the data on enforcement actions—numbering more than 600,000—my colleagues and I have collected in Violation Tracker.

Now one of the more aggressive federal regulators is planning to assemble an official resource on rogue corporations. The Consumer Financial Protection Bureau just announced it will create a registry of companies that have broken consumer protection laws and that are subject to court orders regarding their ongoing behavior.

“Too often, financial firms treat penalties for illegal activity as the cost of doing business,” said CFPB Director Rohit Chopra. “The CFPB’s new rule will help law enforcement across the country detect and stop repeat offenders.”

I am happy to report that Violation Tracker played a role in the agency’s development of the registry. As noted on page 405 of the lengthy description of the plan, CFPB made use of data from Violation Tracker to estimate how many companies might be affected.

Given that CFPB’s registry will cover only nonbank consumer finance companies, its scope will be much narrower than that of Violation Tracker, which covers all kinds of corporations, large and small. Yet it is important for there to be official compilations, since they will hopefully provide more pressure on bad actors.

It would be good if the CFPB’s move inspires the Justice Department to do more to respond to calls from members of Congress and corporate accountability advocates to create a comprehensive database on corporate crime.

Last year, DOJ created a page of its website called Corporate Crime Case Database, which initially contained only about a dozen items but was described as being “still in the process of being populated.” It’s now been about 12 months since the site went up, but that process is proceeding at a glacial pace. The page currently contains all of 85 case summaries, making it far from a comprehensive database.

It is no surprise that DOJ seems reluctant to do more to highlight its criminal enforcement, given that the department has been emphasizing leniency rather than aggressive prosecution of corporate miscreants. DOJ continues to allow large corporations to escape from criminal investigations with a deferred or non-prosecution agreement under which the company pays a penalty but does not need to plead guilty.

In theory, companies which fail to change their behavior would be subject to a real prosecution in the future, but there are many cases in which one leniency agreement is followed by nothing more than another leniency agreement.

Sometimes DOJ employs another device known as a declination in which the possibility of a prosecution is completely taken off the table. This deal was recently offered to a company called Proterial (formerly known as Hitachi Cable), which misrepresented to customers that the motorcycle brake hose assemblies it sold met federal safety performance standards. The problem was not that the company failed to test the assemblies. It did the tests but lied to customers about the results, claiming that the assemblies had passed when in fact they had failed. A page on the DOJ website lists 20 declinations, but there may be more that are not disclosed.

When it comes to corporate crime, DOJ needs to engage in more aggressive prosecutions and make sure the public knows about them.

Corporate Criminals Await Sentencing

A federal court in California will soon decide whether a bold move by the Consumer Product Safety Commission and the Justice Department will pay off. At issue is whether two corporate executives should face prison time for endangering the public.

Judge Dale Fischer is considering what sentence to impose on Simon Chu and Charley Loh, who were convicted last November of conspiracy to defraud the CPSC in the first-ever criminal prosecution brought under the 1972 Consumer Product Safety Act. The two men were part owners and top officers of Gree USA, Inc., a subsidiary of the Chinese-owned Hong Kong Gree Electric Appliances Sales Co., Ltd. Chu and Loh were charged with deliberately withholding information about defective dehumidifiers that could catch fire and selling these units with false certification marks stating that the products met applicable safety standards. They were convicted of conspiracy to defraud the CPSC and failure to meet reporting requirements, though they were acquitted of wire fraud.

The CPSC worked with the Justice Department to prosecute Chu and Loh individually after first bringing a criminal action against the company. That case was resolved through a 2021 deferred prosecution agreement under which Gree was able to avoid a conviction by paying a penalty of $91 million and agreeing to provide restitution for any uncompensated victims of fires caused by its defective dehumidifiers.

It is unusual for a deferred prosecution or non-prosecution deal with a company to be followed by criminal charges against executives at the firm. Given the uncertainties related to cases against individual corporate executives, the convictions won by DOJ sent a strong signal.

The question now is whether Chu and Loh will face a strong punishment. Not surprisingly, lawyers for each of the men submitted filings to the court arguing for no prison time as all. Loh’s filing makes a case for leniency based on the fact that the CPSC failed to bring criminal charges in other instances in which companies and executives failed to promptly report hazards. At the same time, the document tried to downplay Loh’s culpability, claiming his “actions were not those of a ‘typical’ criminal or felon – though those are labels he will have to live with for the rest of his life – but of a well-intentioned man who wrongly opted for self-preservation over economic suicide.”

For good measure, the filing goes on to state: “Numerous family members, friends, and colleagues have written testimonial letters to the Court attesting to Mr. Loh’s true nature, integrity, and charitable endeavors. Their letter provide [sic] a true sense of his good character. They also confirm that he is the sole caretaker for two elderly and infirm people: his 101 year old father who has Alzheimer’s disease and his 90 year old godmother who has advanced stage cancer.”

It remains to be seen whether the judge is swayed by any of this. Prosecutors clearly are not. They are seeking ten-year prison sentences for each of the men.

Although it may not provide justification for leniency in his sentence, Loh’s argument that CPSC had failed to pursue criminal charges in similar cases does raise an awkward issue for the agency. Its position might be stronger if the actions against Loh and Chu were part of a broader effort to tighten enforcement.

That does not appear to be the case. There has been no wave of additional product safety criminal prosecutions. In fact, there has not even been a rise in civil enforcement. The CPSC has not announced any penalty actions in more than six months, and there were only half a dozen in all of last year.

It is commendable that the CPSC has acted aggressively against Gree and its executives, but it should not be a one-off. The agency needs to punish all manufacturers that fail to protect the public.

The Limits of Leniency

The mission of the U.S. Justice Department is to enforce federal law, but when it comes to corporate offenders the DOJ often exhibits a puzzling reluctance to carry out that function.

A current example of this hesitancy involves Boeing. In 2021, in the wake of two crashes linked to defects in the company’s 737 MAX airliner, DOJ initiated a criminal investigation into whether Boeing conspired to mislead the Federal Aviation Administration about the safety of the plane.

Yet instead of filing charges, DOJ offered Boeing a deferred prosecution agreement (DPA) under which it would pay about $2.5 billion in penalties while not having to plead guilty. DOJ declined to require the appointment of an independent monitor, but it required the company to strengthen its compliance and ethics procedures.

More than three years have passed, and the DOJ has concluded that Boeing has not lived up to its obligations. Rather than announcing it will now bring actual criminal charges, Boeing sent a letter to the federal judge overseeing the case saying it is “is determining how it will proceed in this matter.”

This sounds like a prelude to some other kind of leniency deal with the company. That might mean a modification of the current DPA or a new one.

Boeing’s failure to comply with the DPA is hardly unprecedented, and there have been plenty of examples of corporations that have been offered more than one leniency arrangement. Among the more than 500 deferred prosecution and non-prosecution agreements documented in Violation Tracker, there are about three dozen parent companies that have received more than one. Among those is Boeing, which in 2006 was allowed to enter into a non-prosecution agreement to resolve a case involving federal contracting violations.

Amazingly, there are ten parents that have been given more than two leniency agreements. These are mostly banks, both domestic (such as JPMorgan Chase and Wells Fargo) and foreign-based (such as Deutsche Bank and HSBC). The DOJ is willing to go to great lengths to help rogue banks avoid a guilty plea.

The rationale for leniency agreements is that they will prompt companies to clean up their practices. In all too many cases, that is not what happens. After getting its deal, the corporation ends up violating the same or other laws. At that point, DOJ should throw the book at the offender. When DOJ instead offers up more leniency, that makes a mockery of the process.

In the case of Boeing, more leniency would be especially ridiculous, given that the company is already the subject of a new criminal investigation stemming from an incident earlier this year in which a fuselage panel blew off an Alaska Airlines 737 MAX mid-flight.

At the very least, DOJ should file real criminal charges against Boeing for violating the DPA. The Department should also use this as an opportunity to rethink its entire approach to corporate criminality. The reliance on leniency is not working.

It is time to explore new forms of punishment that will compel large companies to take their legal obligations more serious—and thereby protect the public from the consequences of their misconduct.

What Does a Billion-Dollar Settlement Accomplish?

The news that the Dutch company Royal Philips has just agreed to pay $1.1 billion to settle U.S. litigation concerning defective breathing machines was reported on page B3 of the print edition of the Wall Street Journal and page B5 of the New York Times. In other words, it was not considered a major story of the day.

There was a time when a billion-dollar class action settlement would be front-page news and might have an impact on a company’s stock price and its reputation. That was especially true with regard to the $368 billion settlement the tobacco industry reached with state governments. That deal merited a banner headline stretching across the entire front page of the Times in 1997.

A great deal of attention was also paid to the multi-billion settlements reached in 2012 with BP with regard to the Deepwater Horizon disaster and in 2016 with Volkswagen in connection with its emissions cheating scandal.

These days, major settlements receive less notice despite a spate of what might be called mega-settlements—those with a price tag of $5 billion or more. Last year, Johnson & Johnson agreed to pay around $9 billion to settle lawsuits alleging that its talcum powder causes ovarian cancer. 3M agreed to pay $6 billion to settle litigation over hearing loss said to be caused by defective combat earplugs supplied to members of the military.

This year 3M agreed to pay $12.5 billion to settle litigation alleging it was responsible for contaminating thousands of public water systems with dangerous PFAS chemicals. Visa and Mastercard agreed to a $30 billion settlement of antitrust litigation concerning the fees they charge to merchants.

A mega-settlement has also appeared in Brazil, where joint venture partners Vale and BHP have agreed to provide an estimated $25 billion to communities ravaged by the 2015 collapse of a tailings dam.

These examples are limited to private litigation. Companies are also paying billions in cases brought by government agencies, especially with regard to the opioid crisis.

There are positive and negative aspects to these settlements. On the plus side, it is good that giant corporations are being compelled to pay sizeable compensation packages to groups of people harmed by their misconduct. It is true that a big chunk of these payouts goes to plaintiffs’ lawyers, though the hope it that they will use the proceeds at least in part to fund future class actions.

The problematic part is that corporations can view the settlements—whose size often falls short of the estimated harm caused by the company—as a tolerable cost of doing business. They may then feel little pressure to change their practices in a fundamental way.

Major litigation is not just a way to punish corporations financially for wrongdoing. It is supposed to serve as a deterrent against future bad acts. That fact seems to be getting forgotten as companies regard settlements as mere transactions, and the public pays less attention. Normalization of corporate misconduct will result in more of it.

Declining Prosecution

Three attorneys at Covington & Burling recently received a letter that could be seen as the ultimate achievement of a corporate lawyer. The U.S. Justice Department wrote to inform them that, although fraud was committed by employees of their client, Proterial Cable America, no charges would be filed against the firm.

Proterial, formerly known as Hitachi Cable America, is the latest recipient of a DOJ leniency practice known as declination. The Department has frequently been criticized for its extensive use of deferred prosecution and non-prosecution agreements. These arrangements allow companies involved in criminal misconduct to avoid having to enter a plea, though they must pay a penalty. DOJ holds open the possibility of an actual prosecution at a later date if the company does not change its behavior.

In a declination, prosecution is in effect taken off the table entirely. The only real consequence for the company is having to disgorge the profits it earned as a result of the fraudulent behavior. In the case of Proterial, that amount is about $15 million. This is a far cry from the amounts companies pay in deferred and non-prosecution agreements, which for firms such as Wells Fargo and Boeing have been several billion dollars.

Proterial’s fraud consisted of misrepresenting to customers that the motorcycle brake hose assemblies it sold met federal safety performance standards. The problem was not that the company failed to test the assemblies. It did the tests but lied to customers about the results, claiming that the assemblies had passed when in fact they had failed.

The Justice Department justified its declination in various ways. It said Proterial self-reported the misconduct; it cooperated with the investigation; it terminated the employees; and it agreed to the disgorgement. DOJ’s declination letter does not, however, explain how the misconduct came about—specifically, the issue of whether the employees who lied about the test results were acting at the direction of supervisors or managers.

It is difficult to believe that low-level employees would decide on their own to engage in the deception. It may very well be that they were pressured, whether explicitly or implicitly, by their bosses to do so. This is what happened, for example, at Wells Fargo, where employees facing impossible demands from managers to increase revenue resorted to the creation of bogus accounts, unbeknownst to customers.

Proterial’s parent, Hitachi Metals Ltd., does not have a spotless record. In 2014 it pled guilty and paid a $1.25 million criminal fine to the DOJ for its role in a conspiracy to fix prices and rig bids for automotive brake hoses installed in cars sold in the United States and elsewhere. This prior offense should have made the company ineligible for the declination.

Since the Biden Administration took office, the DOJ has carried out half a dozen declinations, according to a list published on the Department’s website. It is unclear how many other leniency agreements contain the additional benefit of remaining anonymous.

The DOJ seems wedded to the idea that leniency provides an effective incentive for companies to self-report misconduct, but it may also be a way for rogue companies to take themselves off the hook.