Corporate Crime

Crime Without Real Punishment

The absurdity of the corporate system of justice was on full view this week when the chief executive of Pacific Gas & Electric stood in a California courtroom and pled guilty to 84 counts of manslaughter in connection with a 2018 forest fire blamed on the utility’s faulty maintenance of transmission lines.

The CEO, Bill Johnson, was not personally pleading guilty to the crimes. He was appearing as a representative of the corporation, which was charged with the offenses and which agreed to pay the statutory maximum monetary penalty of $3.48 million—or around $40,000 per victim.

Since no executive of the company was charged and since a corporation cannot be put behind bars, no one is paying a real penalty in this case. That, unfortunately, is the norm for almost all matters of corporate misconduct.

Usually, however, a hefty monetary penalty takes the place of imprisonment. PG&E is not even facing that limited form of punishment to a meaningful degree in the immediate case, though it was separately pressured to create a $13 billion fund to compensate victims of the Camp Fire.

It is difficult to see the PG&E case as anything more than a symbolic gesture. It leaves open the question of what would be an appropriate way to deal with egregious corporate misconduct.

For a while it appeared that the utility might face serious consequences after Gov. Gavin Newsom raised the possibility of a state takeover. It now appears Newsom was simply using that threat as leverage to get PG&E to make some changes to its operations. Those changes are unlikely to be adequate for a company with such a poor track record.

Converting PG&E from an investor-owned utility into a customer-owned cooperative, as some California officials suggested, would accomplish much more. Skimping on maintenance to bolster quarterly profits would likely become a thing of the past under such an arrangement.

Such a conversion would in effect be a “death penalty” sentence for the existing PG&E. But instead of putting the company out of business, it would resurrect it in a new, more accountable form.

This is actually not a very radical idea. There are already many community-owned utilities across the United States. They even have their own trade association, the American Public Power Association. There are also many cooperative utilities. Even the federal government is involved through entities such as the Tennessee Valley Authority.

Yet these forms of public power have never represented more than a slice of the industry, which instead has been dominated by large investor-owned utilities whose clout was supposed to be kept in check by strict regulatory oversight, especially at the state level.

PG&E is a prime example of the failure of that oversight. Perhaps it is now time to return to the idea of regarding access to energy, like healthcare, as a right rather than a product.

The Real Law and Order Problem

Donald Trump’s bombastic campaign to restore law and order is focusing on minor crimes like vandalism while allowing much more serious corporate offenses to go unaddressed. Federal agencies such as OSHA are failing to fulfill their regulatory responsibilities, putting lives at risk.

Not only is the government failing to crack down on business miscreants — in some cases it is using tax dollars to give them grants and loans to weather the pandemic-generated economic crisis.

These are not just companies involved in civil infractions but also some that have faced actual criminal charges, which are rarely used against corporations.

So far, the limited information released by the Administration on the recipients of CARES Act assistance has involved two main groups: hospitals and other healthcare providers, and airlines and air cargo companies. Even within this limited universe we can find firms that have been embroiled in criminal cases.

One example is National Air Cargo Group, which recently received a grant of more than $15 million through the Payroll Support Program. In 2008 the company had to pay $28 million to resolve criminal and civil allegations that it defrauded the Defense Department when billing for air freight services. As part of the resolution, National Air Cargo pled guilty to one count of making a material misstatement to the federal government and paid more than $16 million in criminal fines and restitution (the rest of the penalty total involved the civil portion of the case).

Among the healthcare providers there is the case of WakeMed Health & Hospitals, which is receiving more than $22 million from the CARES Act Provider Relief Fund. In 2012 it had to pay $8 million to settle criminal and civil allegations that it used more costly in-patient rates when billing Medicare for services that were actually performed on an out-patient basis. The non-profit health system was offered a deferred prosecution agreement but it had to admit to the wrongdoing.

Criminal cases can also be found among the larger corporations receiving covid-related aid. Take the case of the for-profit hospital chain Tenet Healthcare, which is getting more than $300 million from the Provider Relief Fund. In 2016 Tenet and two of its subsidiaries had to pay more than half a billion dollars to resolve criminal charges and civil claims relating to a scheme to defraud the federal government and to pay kickbacks in exchange for patient referrals. Tenet got a non-prosecution agreement while the subsidiaries pled guilty to conspiracy to defraud the United States and paying health care kickbacks and bribes in violation of the Anti-Kickback Statute.

In other words, the federal government is currently paying out hundreds of millions of dollars in aid to companies that have been implicated in criminal schemes to cheat that very same government.

The most odious abuses in the American justice system involve disparate treatment based on race, but there are also serious flaws in the way corporate offenders can so easily buy their way out of serious legal jeopardy. Allowing those offenders to receive federal aid is compounding the abuse.

Justice Deferred at Wells Fargo

In finally resolving its investigation of Wells Fargo for a brazen scheme to bilk customers through the creation of millions of sham fee-generating accounts, the Trump/Barr Justice Department employed some tough language but administered what amounted to a slap on the wrist.

DOJ issued a press release quoting Deputy Assistant Attorney General Michael Granston as saying that the settlement “holds Wells Fargo accountable for tolerating fraudulent conduct that is remarkable both for its duration and scope.” The release was accompanied by a 16-page summary of the bank’s abuses, including the adoption of “onerous sales goals and accompanying management pressure [that] led thousands of its employees to engage in: (1) unlawful conduct to attain sales through fraud, identity theft, and the falsification of bank records, and (2) unethical practices to sell products of no or low value to the customer, while believing that the customer did not actually need the account and was not going to use the account.”

The document states that senior Wells executives were well aware of the unlawful behavior yet continued to ratchet up the sales pressure on employees.

This recitation echoes the content of a 100-page notice issued earlier by Wells’ primary regulator, the Office of the Comptroller of the Currency. While the OCC imposed substantial financial penalties against several former executives of the bank, DOJ has not charged any individuals.

Justice imposed a $3 billion monetary penalty on Wells, which resolves criminal issues such as false bank records and identity theft as well as civil issues under the Financial Institutions Reform, Recovery and Enforcement Act and securities violations that may be brought by the SEC. That penalty is not insignificant but it will not be too much of a burden for a bank whose profits last year exceeded $19 billion.

Moreover, the impact of the criminal portion of the case was diminished by the inclusion of a deferred prosecution agreement rather than the filing of any actual charges. This overused gimmick (like its evil twin, the non-prosecution agreement) allows DOJ to give the impression it is being tough with corporate bad actors while actually failing to do so.

In its press release on the Wells case, DOJ tries to justify the use of the DPA by noting factors such as the bank’s cooperation with the investigation. Yet it also cites “prior settlements in a series of regulatory and civil actions.”

How are the bank’s prior bad acts, which according to Violation Tracker have resulted in more than $17 billion in penalties, an argument for leniency? If anything, they militate against the use of DPA, which was originally meant to provide an incentive for a company caught up in a single case of misconduct to return to the straight and narrow.

Wells Fargo, in fact, was the recipient, via its acquisition Wachovia, of a previous DPA in 2010 for anti-money-laundering deficiencies as well as a 2011 non-prosecution agreement in connection with municipal bond bid-rigging. Those deals do not appear to have much of a beneficial effect on the ethical climate at the bank.

Allowing Wells to once again evade true criminal responsibility is sending the wrong signal to a corporation whose conduct was so pernicious, both in cheating its customers and in coercing lower-level employees to participate in the massive fraud.

Behavior like this calls out for tougher penalties. In 2018 the Federal Reserve took a step in that direction by barring Wells from growing any larger until it cleaned up its business practices. The agency also announced that the bank had been pressured to replace four members of its board of directors.

Meanwhile, the Justice Department continues to rely on prosecutorial approaches that have done little to stem the ongoing wave of corporate criminality.

The Belated Crackdown on Wells Fargo

It took three years but a leading federal bank regulator has finally gotten tough with probably the most lawless large financial institution in the country.

The Office of the Comptroller of the Currency, an arm of the Treasury Department, recently took action against the former chief executive of Wells Fargo in connection with the scandal in which the bank pressured employees to create bogus accounts that extracted millions of dollars in fees from unsuspecting customers.

Many observers were surprised that the OCC, not known for aggressive action, fined John Stumpf $17.5 million – the largest penalty it has ever imposed on an individual – and banned him for life from the banking industry. The agency also penalized two other former senior officials at Wells Fargo and charged five others. Among those five is Carrie Tolstedt, the former head of retail banking at Wells, against whom the OCC is seeking a penalty of $25 million, substantially more than what Stumpf agreed to pay.

OCC’s belated severity may have something to do with the fact that the agency’s posture toward Wells is the subject of a pending investigation by the Treasury inspector general. That inquiry will likely address the failure of the agency to pursue complaints it had received about abusive practices at Wells long before the sham-account scandal erupted in 2016. The agency admitted this lapse in an unflattering report about its conduct released in 2017.

Along with the announcement of its charges against Tolstedt and the others, the OCC released a 100-page Notice which reads like an indictment. It argues that for more than a decade the bank maintained a business model that pressured employees to engage in “serious misconduct” by imposing “intentionally unreasonable sales goals” and “fostered an atmosphere that perpetuated improper and illegal conduct.”

The document relates in detail how that pressure worked to the detriment both of the customers who were being defrauded and the bank’s lower level employees. Those employees were turned into accomplices in a corrupt scheme described by the document as “immense” in magnitude.

Also contained in the document are indications that Wells managers were seeking to cover up the wrongdoing. They pretended to monitor improper conduct by lower-level employees but were far from aggressive in that effort. The document notes that the bank’s Head of Corporate Investigations testified before the OCC that there was nearly a 100% chance an employee’s boss would know if she failed to meet her sales goals, but the chances were very small that an employee would be caught for issuing an unauthorized product or service. Those employees clearly got the message that if they wanted to keep their jobs they had to go along with the scheme.

Unfortunately, the document is part of a civil proceeding when it should really be part of a criminal case against Wells and those who were running it. The shocking misconduct outlined by the OCC belongs in an indictment brought under the Racketeer Influenced and Corrupt Organizations Act.

There are reports that the Justice Department is pursuing a criminal investigation of Wells, but it is hard to be confident that Bill Barr’s DOJ will do the right thing.

Getting Tough on Corporate Killing

The lead story on the front page of a recent edition of the Wall Street Journal was about the former chief executive of a Brazilian mining company not widely known in the United States. The Journal’s editors probably realized their readers would be shaken by the news that Fabio Schvartsman has been charged with homicide in the deaths of 270 people in a mining dam collapse last year.

The decision by prosecutors in the state of Minas Gerais to bring such charges against Schvartsman as well as other former executives at Vale SA shows the depth of anger in Brazil at the giant iron ore company over the accident in which a torrent of waste swept away people, submerged houses and created a large toxic wasteland (photo).

Vale and a German consulting company, five of whose officials were also hit with homicide charges, are alleged to have long known about a critical safety flaw in the tailings dam but failed to act.

Although Brazil does not have a death penalty or life sentences for civilian offenses, the filing of homicide charges against corporate executives is an aggressive measure that has rarely been applied in that country or anywhere else.

There are more precedents when it comes to corporate manslaughter, which is the idea that a business entity can be prosecuted for causing the death of employees or other persons. For example, in 2007 the United Kingdom enacted the Corporate Manslaughter and Corporate Homicide Act, though that law has not been enforced as rigorously as many advocates had hoped.

In the United States there is no such federal statute, though the principle of corporate criminal liability is well-established, and numerous companies have faced criminal charges, though they frequently end with deferred prosecution or non-prosecution agreements.

The Violation Tracker database has more than 1,600 criminal cases (compared to 395,000 civil matters). Many of these are financial in nature or involve violations of environmental laws such as the Clean Water Act that are deemed negligent or deliberate but usually don’t involve loss of life.

A much smaller number involve corporate killing, including notorious cases such as BP’s role in the Deepwater Horizon disaster or the Upper Big Branch disaster at a coal mine owned by Massey Energy.

In these matters, however, the corporations, as in civil cases, mainly paid financial penalties and their executives faced no personal liability. One exception was former Massey CEO Don Blankenship, who was convicted of conspiring to violate federal mine safety standards and was sentenced to a year in prison. Otherwise, the Justice Department has shown little interest in prosecuting corporate executives for environmental or workplace fatalities.

There has been a bit more of such activity at the local level, especially on the part of the Manhattan District Attorney’s Office. It has brought criminal charges against both companies and individuals in connection with workplace and other accidents. For example, in November 2019 a building owner, a plumber and a contractor were convicted of manslaughter by causing a 2015 explosion resulting from unauthorized natural-gas connections installed in a rental building.

Three years earlier, the Manhattan DA won a conviction against a construction supervisor accused of ignoring warnings about unsafe conditions on a building site that resulted in a fatal accident.

The approach of the Manhattan DA and the prosecutors in Brazil points to a promising way forward in the handling of corporate misconduct that results in serious harm or death. If they know they may end up behind bars for a long time, corporate executives and managers may become more serious about their responsibility to abide by health and safety laws.

A Boom Decade for Corporate Misconduct

Business journalists are looking back with amazement at the stock market’s track record over the past decade. Yet the 2010s were also a boom period for corporate crime and misconduct.

In Violation Tracker my colleagues and I have documented more than 240,000 cases for that period representing $442 billion in fines and settlements—more than twice the $161 billion total for the previous decade. (The numbers are not adjusted for inflation.)

The cases from the 2010s include 574 with a penalty of $100 million or more, 147 with a penalty of $500 million or more, and 67 with a penalty of $1 billion or more.

The top tier of these mega-cases is dominated by four corporations. BP is linked to the largest single case on the list—the $20.8 billion settlement with the federal government and five states to resolve civil claims stemming from the massive 2010 Deepwater Horizon oil spill in the Gulf of Mexico. BP paid out numerous other mega-penalties and smaller ones to put its total for the decade at nearly $28 billion.

The second biggest single penalty during the decade was Bank of America’s $16.65 billion settlement with the Justice Department in 2014 to resolve claims relating to fraud in the period leading up to the financial crisis, including such behavior on the part of Merrill Lynch and Countrywide Financial, which BofA acquired during that crisis. BofA also had plenty of other penalties during the decade—including two in excess of $10 billion—bringing its total for that period to an eye-popping $62 billion.

The third of the penalty leaders is Volkswagen, which in 2016 reached a $14.7 billion settlement with the federal government and the state of California to resolve allegations relating to systematic cheating on diesel pollution emission testing through the use of defeat devices. VW paid out several other multi-billion penalties related to the cheating and racked up a penalty total of more than $23 billion for the decade.

Rounding out the list of companies with individual penalties in excess of $10 billion is JPMorgan Chase, which in 2013 reached a $13 billion settlement to resolve federal and state claims relating to the sale of toxic mortgage-backed securities by the bank itself and by its acquisitions Bear Stearns and Washington Mutual. JPMorgan also had several other penalties of $1 billion or more, along with smaller ones, that pushed its penalty total for the decade to more than $29 billion.

Other big domestic banks had a substantial share of mega-penalties. These include Citigroup, with a $7 billion toxic securities settlement in 2014 (and a penalty total of $16 billion for the decade) and Wells Fargo, with a similar $5.3 billion settlement in 2012 (and a penalty total of $15 billion stemming from issues such as the creation of bogus accounts to generate illicit fees).

The decade also saw a slew of mega-cases involving foreign banks such as BNP Paribas, Deutsche Bank, Royal Bank of Scotland and Credit Suisse for offense such as violations of economic sanctions and their own toxic securities abuses.

Financial services companies of all kinds dominated the mega-penalty list, accounting for 41 of the 67 billion-dollar cases. Also worthy of mention are the pharmaceutical companies, including settlements by GlaxoSmithKline for $3 billion and Johnson & Johnson for $2.2 billion, both for marketing drugs for purposes not approved as safe by the Food and Drug Administration. That industry will end up paying much more when the pending multistate opioid litigation is resolved.

The list could continue. Suffice it to say that the decade’s major cases made it clear that corporate misconduct perseveres through good times and bad.

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.

Corporate Law & Order

Some of the best episodes of the old Law & Order television series were the ones in which the prosecutors investigated corporate misconduct. In 1992, for example, one episode titled “The Corporate Veil” featured a plot involving a medical equipment manufacturer’s sale of faulty pacemakers.

In real life, district attorneys focus mostly on homicides and other street crimes, but the business culprits depicted on Law & Order were not entirely imaginary. Local prosecutors do sometimes target rogue corporations, especially in certain parts of the country.

The latest expansion of Violation Tracker documents this fact. My colleagues and I at the Corporate Research Project of Good Jobs First looked at the records of district attorneys in the country’s 50 largest counties and 50 largest cities (some of which use other titles for their prosecutors, such as state attorney and prosecuting attorney).

In the period since the beginning of 2000, we found a total of 565 instances in which local prosecutors brought cases against corporations for offenses such as fraud against consumers and hazardous waste violations that resulted in a company’s paying a monetary fine or settlement. The aggregate penalties came to $5.9 billion.

These cases are far from evenly distributed among the large localities. California’s counties and cities, with 441 successful actions against corporations, account for more than three quarters of the nation’s cases.

California is also unusual in that its localities frequently band together to bring cases against large companies. We found 191 of these group lawsuits that together resulted in more than $1.8 billion in fines and settlements. These include a $1 billion settlement reached this year by 18 California counties and other public entities with Pacific Gas & Electric to resolve claims relating to the company’s role in major fires.

These multi-jurisdictional lawsuits are similar to those more often brought by groups of state attorneys general. In September, the Corporate Research Project published a report on these multistate cases, based on a compilation of more than 600 such actions.

The ability of California counties and large cities to pursue cases against corporations is strengthened by the state’s Unfair Competition Law and False Advertising Law, which prohibit many forms of predatory business conduct. Local prosecutor activism has caused tension with the state attorney general’s office, which views itself as the appropriate protector of the public against corporate abuses.

Although California’s local prosecutors have a commanding lead in the number of corporate cases, New York’s have collected the most penalty dollars. The Empire State’s $3.5 billion total (compared to $2.3 billion in California) is due mostly to a dozen very large cases brought against major foreign banks by the Manhattan District Attorney’s Office. The banks, such as BNP Paribas and UniCredit, were accused of doing business with parties subject to international economic sanctions.

New York local prosecutors have brought a total of 88 business misconduct cases that resulted in fines or settlements. The only other state in double digits was Texas, with 12 cases generating $12 million in penalties. Large localities in nine more states had one to six cases each: Arizona, Colorado, Florida, Illinois, Louisiana, Minnesota, Ohio, Oklahoma and Utah.

The local prosecutors’ cases, along with an update of the existing categories, brings the number of entries in Violation Tracker to 397,000 with aggregate penalties of $604 billion.

Note: In addition to the local prosecutors’ cases, the new Violation Tracker update includes cases from eight state and local consumer protection agencies as well as more than 200 cases from the New York Department of Financial Services with total penalties of more than $10 billion. The latter is the first portion of what will be complete coverage of state financial regulatory agencies throughout the country.

Immunity Disorders

Immunity was once a term used mainly in discussing medical conditions, but Donald Trump and his defenders have seized on it as an all-purpose defense in dealing with the Mueller investigation and now the Ukraine probe. Trump’s lawyers just made preposterous claims about the scope of Presidential immunity in appellate court arguments seeking to block a subpoena for Trump Organization business records.

The claim is based on the dubious argument that having to respond to a criminal case would unduly distract the president from his duties. Given that Trump seems to relish doing battle with those who dare to investigate him, it is unlikely that an indictment would change his behavior much. If Trump is successful in his immunity claims, that would go a long way in putting the presidency above the law.

At least the debate on presidential immunity is being conducted in the open. There is another form of effective immunity that is rarely described as such but is also dangerous to our society.

That is the de facto immunity that chief executives of large companies enjoy in cases of egregious corporate misconduct. Consider some of the issues that dominate the business news these days.

Large pharmaceutical manufacturers and distributors stand accused of fostering an opioid epidemic that has resulted in tens of thousands of overdose deaths.

Johnson & Johnson is involved in a series of controversies about asbestos in baby powder, dangerous pelvic mesh and improper marketing of an anti-psychotic drug.

Boeing is facing allegations that it covered up serious safety hazards in a new jetliner that was involved in two fatal crashes before being taken out of service.

Exxon Mobil is facing lawsuits accusing it of suppressing for many years internal evidence of the costs and consequences of climate change exacerbated by its own operations.

PG&E is alleged to be responsible for wildfires in California that took scores and lives and destroyed thousands of homes.

What all these situations have in common is that the defendants are the corporations themselves rather than the individual executives ultimately responsible for the actions or policies that created the harms. We have come to take it for granted that corporations can shield their officers and board members from liability and use the company’s coffers to buy their way out of legal jeopardy.

This is, of course, nothing new. Top executives of the big banks escaped individual prosecution for their role in the financial meltdown, as did CEOs in many other scandals.

There have been a few exceptions. Enron CEO Jeffrey Skilling was sentenced to 24 years in prison for his role in that company’s giant fraud, but he used his resources to fight the sentence and ended up spending only half that amount of time behind bars.

In Violation Tracker we have 380,000 cases of corporate misconduct, including 84 in which a company paid a penalty of $1 billion or more. If we had chosen to compile data on convictions of corporate executives rather than companies, the list would fit on a single page.

If we are lucky, the courts will strike down the spurious claims of presidential immunity. Yet we must also find ways to make sure that rogue chief executives also remain within the reach of the law.

Capital Punishment

Some corporate critics have argued that the only way to deter egregious misconduct by companies may be to give prosecutors the option to seek the “death penalty”—revocation of the firm’s charter and the closing of the business.

Ever since the dismantling of Arthur Andersen after its conviction on criminal charges relating to its auditing of Enron, prosecutors at the federal level have avoided seeking that harsh remedy. In fact, they moved sharply in the other direction by adopting dubious arrangements known as deferred prosecution and non-prosecution agreements that allow companies essentially to buy their way out of criminal jeopardy. A recent report from Public Citizen found that these arrangements have been a failure in deterring corporate wrongdoing.

Yet what has received less attention is the fact that the corporate death penalty is alive and well at the state level. Numerous state AGs have been using this method to deal with those firms considered unredeemable bad actors.

For example, the Delaware AG Kathy Jennings recently announced that she had filed actions in the state Court of Chancery to dissolve 15 Delaware business entities for involvement in criminal activities. Her press release stated: “State law allows the Attorney General to petition for cancellation of an entity’s Delaware formation document when its powers, privileges, or existence have been abused or misused.”

Among the firms she moved to dissolve were LOAV Ltd., Davis Manafort International LLC, DMP International LLC, BADE LLC, Jupiter Holdings Management, LLC, and Davis, Manafort & Stone, Inc. The principals of these companies, the AG noted, were Paul Manafort and Richard Gates, who pleaded guilty in 2018 to charges involving money laundering, failing to register as a foreign agent, failure to report bank transactions, and making false statements. Manafort was also convicted in 2018 by a jury of tax and bank fraud charges. The charges against the two men included allegations that they used the named businesses to illegally conceal from the United States government millions of dollars in income received from the Ukrainian government as well as evading roughly $1.4 million in personal income taxes owed to the IRS while funding lavish personal expenditures.

The AG also proposed to dissolve Essential Consultants LLC, which was used by former Trump fixer Michael Cohen to facilitate a hush-money payment of $130,000 to Stormy Daniels.

Previously, the Delaware AG was successful in forcing four LLCs linked to the now defunct website Backpage.com to relinquish their state certificates of formation in the wake of allegations that the site promoted prostitution and human trafficking.

Not all the companies forced to dissolve are quite so well known. In the course of collecting data for our recent report on state AGs, my colleagues and I came across numerous cases in which obscure firms such as home contractors or used-car dealers were forced out of business.

For example, in July 2011 the Oregon AG announced that a company called S&S Drywall Assemblies was ordered dissolved as part of the resolution of criminal racketeering and antitrust charges brought against the company and its owner.

In some cases a state AG would carry out what amounted to a partial death sentence by banning an out-of-state company from continuing to operate in the AG’s state while it may continue to function elsewhere. We found numerous cases of this in North Dakota, which rarely penalized in-state companies but did not hesitate to ban misbehaving out-of-state ones. One of these targets was a traveling asphalt paving company.

We did not include these cases in our report or the state AG data we added to Violation Tracker because the dissolutions or state bans usually did not include monetary penalties, the common denominator among the varied cases contained in our database.

Clearly, it’s much easier for state AGs to dissolve smaller firms than it would be for federal prosecutors to do the same to large corporations with thousands of employees and shareholders. States also have the advantage that corporate chartering is a function that they, not the feds, control.

There is a feeling of satisfaction that comes from seeing a rogue company shut down that does not go along with a deferred prosecution agreement and a far-from-confiscatory monetary penalty. There has to be some way to bridge the gap.