Archive for the ‘Litigation’ Category

Suing Employers for Retirement Plan Abuses

Wednesday, April 3rd, 2019

In late March the Swiss company ABB agreed to pay $55 million to resolve a lawsuit brought by its U.S. employees alleging that the company charged excessive fees to administer their 401(k) plan. This was just the latest in a long series of class actions brought under the Employee Retirement Income Security Act of 1974, or ERISA, which protects the rights of retirement plan participants.

As part of the latest expansion of Violation Tracker, the Corporate Research Project has identified 201 such cases in which the defendant was a corporation included in the Fortune 1000, the Fortune Global 500 or the Forbes list of America’s Largest Private Companies.

Our compilation finds that in these cases, which date back to the beginning of 2000, corporations had paid out a total of $6.2 billion in settlements and verdicts. The largest settlement, $480 million, was reached in 2014 in a retiree health benefits suit brought against Daimler AG on behalf of workers at the German company’s U.S. truck manufacturing plants.

The 201 lawsuits (details here) alleged various types of misconduct by employers, including:

  • Charging excessive fees or offering overly risky investment options in 401(k) plans;
  • Improper investment of pension plan assets in company stock, especially during times of instability;
  • Inadequate or misleading disclosure of financial information to plan participants; and
  • Mishandling conversions of pensions to cash-balance plans.

Some suits were brought against investment managers or plan trustees rather than the employer. For example, in 2015 Bank of New York Mellon agreed to a $335 million settlement to resolve allegations by multiple pension funds that it deceptively overcharged them on currency exchange rates relating to the purchase of foreign securities.

Apart from Daimler and Bank of New York Mellon, 13 other large corporations have had total ERISA payouts of $100 million or more.  Among them are IBM, Foot Locker, Xerox, Bank of America, AK Steel, AT&T and JPMorgan Chase. The industry with the most ERISA payouts is banking, with a total of more than $1.3 billion.

In addition to large for-profit corporations, some major nonprofits, especially healthcare systems, have had to pay out large sums. Most involve lawsuits alleging that religious institutions improperly claimed that their plans were exempt from ERISA. The biggest settlements have involved Providence St. Joseph Health ($351 million) and Bon Secours Mercy Health ($161 million from two suits).

In many cases the settlement costs are covered in part or wholly by an insurance policy, but Violation Tracker attributes the amount to the corporation or non-profit named in the lawsuit.

With the addition of the ERISA cases and the updating of other categories, Violation Tracker now contains more than 368,000 civil and criminal entries with total penalties of $464 billion. The new ERISA entries—like our earlier compilations of wage theft and employment discrimination lawsuits—include details on each case and links to key court documents.

The fastest way to get a list of the ERISA cases from Violation Tracker is to choose the Option 2 offense type “pension ERISA violation.” You’ll get the 201 large-company cases discussed above plus 51 more brought against non-profits and companies not on the Fortune and Forbes lists.

Regulation via Litigation

Thursday, March 28th, 2019

For all the talk of populism, the Trump Administration is preoccupied with easing federal oversight of big business. It’s done this through attempts to undo regulations and by weakening enforcement of the rules that remain. Sure, there are areas in which it is politically expedient to pretend to be tough on corporate misconduct. That’s what we see with drug prices or the current Boeing scandal, but for the most part companies are getting what they want.

It’s a different story in the courts. In recent days there has been a slew of major settlements and verdicts in which large corporations will be paying out substantial sums to resolve various allegations of wrongdoing.

Purdue Pharma and the Sackler Family agreed to pay $270 million to the state of Oklahoma to resolve a lawsuit relating to the company’s role in the opioid crisis that has taken the lives of more than 200,000 people in the United States. Many more such lawsuits involving other states are expected to follow.

Johnson & Johnson and Bayer agreed to pay $775 million to settle about 25,000 lawsuits involving the blood thinner Xarelto, which they jointly sell. The suits allege that the companies failed to warn patients that the drug could trigger potentially fatal massive bleeding.

A federal jury in California ordered Monsanto to pay $80 million to a man who alleged that he developed cancer as a result of using the company’s controversial weedkiller Roundup. The jury found that Monsanto was liable because it failed to include a warning label about the cancer risk. Monsanto’s parent, the German chemical company Bayer, said it will appeal the verdict. Also under appeal is another Roundup verdict from last year in which the plaintiff was awarded $289 million (lowered by the judge to $80 million).

Many more lawsuits are in the works, in some cases threatening the survival of companies. Pacific Gas & Electric had to file for bankruptcy protection in the face of tens of billions of dollars in potential liability in connection with California wildfires believed to have been caused by its aging transmission lines. A ruling by the Connecticut Supreme Court allowing wrongful marketing claims cases against gun makers may lead to billions in settlements by the industry.

Such litigation is nothing new, but the cases are taking on increasing importance in the fight against corporate misconduct at a time when federal regulation is faltering. The danger is that lawmakers and the courts themselves may curtail the ability to bring these lawsuits. There is not much they can do when the suits are brought by state attorneys general, but class actions may be more vulnerable.

This is already happening in the area of employment law. In 2011 the U.S. Supreme Court dismissed a nationwide gender discrimination suit against Walmart and made it more difficult to get such classes of plaintiffs certified. Last year, in the Epic Systems case, the high court made it easier for employers to use arbitration agreements to block lawsuits over issues such as wage theft.

If litigation goes the way of regulation and there are no effective controls on corporate behavior, we will be in big trouble.

Resisting the Trump Organization Business Model

Thursday, March 7th, 2019

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

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

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

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

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

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

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

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

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

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

Exxon Mobil Called to Account

Thursday, October 25th, 2018

Climate crisis denial has become an article of faith for rightwing politicians, including the current occupation of the Oval Office, but the primary culprits are the fossil fuel corporations that for decades covered up and obfuscated the truth about greenhouse gases. Now one of those corporations may finally pay a steep penalty for its decades of deception.

After a three-year investigation, the Office of the Attorney General of New York State has filed a sweeping lawsuit against Exxon Mobil for defrauding investors about its accounting practices relating to the risks of climate change.

There’s an irony about the terms of the lawsuit. Exxon is not being sued for its contribution to global warming nor its attempts to downplay the severity of the problem. Instead, its alleged offense was to mislead investors into thinking that it was factoring in the likelihood of increasingly stringent regulation of emissions for its business planning and investment decisions. Instead, as AG Barbara Underwood (photo) stated, “Exxon built a facade to deceive investors into believing that the company was managing the risks of climate change regulation to its business when, in fact, it was intentionally and systematically underestimating or ignoring them, contrary to its public representations.”

In other words, the lawsuit is accusing the company of failing to account for potential liabilities such as exactly the kind of litigation being brought. Shareholders probably benefited from Exxon’s past deception, but the suit is arguing that the company did not prepare them for the emerging new reality.

Underwood alleges that Exxon essentially kept two sets of books when accounting for the impact of climate change – one for public consumption that included a proxy cost for carbon and another for internal purposes that greatly reduced that expected cost or eliminated it entirely.

Exxon is still engaged in duplicity. On the one hand, it has been trying to present itself in recent times as a corporate champion of climate responsibility through steps such as funding a carbon tax initiative. Yet its response to the Underwood lawsuit was classic Exxon. A spokesperson said the lawsuit contained “baseless allegations” that are “a product of closed-door lobbying by special interests, political opportunism and the attorney general’s inability to admit that a three-year investigation has uncovered no wrongdoing.”

What Exxon is conveniently ignoring is that the lawsuit was the culmination not only of the AG’s investigation but also detailed research into Exxon’s history of climate denial by the Exxpose Exxon Campaign, Inside Climate News and Harvard University researchers Naomi Oreskes and Geoffrey Supran. The latter included a close analysis of nearly 200 company statements dating back to 1977.

Exxon’s track record of downplaying hazards matches that of Big Tobacco and the asbestos industry. Legal liabilities pushed most of the asbestos industry into bankruptcy and disintegration, while the cigarette giants remained prosperous even after paying out billions in settlements. It remains to be seen which fate awaits Exxon and the rest of the fossil fuel industry.

Unfettered Corporate Power

Thursday, October 26th, 2017

Once upon a time, there was a debate on how best to check the power of giant corporations. Starting in the Progressive Era and resuming in the 1970s with the arrival of agencies such as the EPA and OSHA, some emphasized the role of government through regulation. Others focused on the role of the courts, especially through the kind of class action lawsuits pioneered by lawyers such as Harold Kohn in the 1960s.

When regulators were seen as too aggressive, business apologists pushed back by arguing that corporate misconduct should be addressed through litigation. When class actions grew more effective, those apologists started lobbying for tort reform and arguing that regulatory agencies (especially those dominated by industry) were the better forum.

This year, amid a supposed populist upsurge, that debate is dying out. The Republican-controlled Congress and the White House are undermining both regulation and litigation. Virtually all legislative “accomplishments” since Inauguration Day have consisted of Congressional Review Act maneuvers to roll back business regulations. Now, with the Senate’s move to kill the Consumer Financial Protection Bureau’s restriction on forced arbitration, Congress has used the same device to reduce the ability of consumers to seek redress through the courts — what Sen. Elizabeth Warren aptly described as “a giant wet kiss to Wall Street.”

The result of these moves is that big business is increasingly being allowed to operate with no effective controls at all. This unilateral disarmament is taking place when corporate misconduct is rampant. Among the companies that will benefit from the arbitration move are the likes of Wells Fargo and Equifax, whose willingness to mistreat customers has been truly astounding.

We should be careful, however, not to overstate the effectiveness of damage awards in class action lawsuits in changing corporate behavior. It’s unfortunately true that large corporations have come to regard substantial monetary settlements as an acceptable cost of doing business.

That’s true both of private litigation and cases brought by regulatory agencies and the Justice Department. As shown in Violation Tracker, 40 corporations have paid $1 billion or more in fines and settlements. Seven of those have paid $10 billion or more, including all the giant national banks: Bank of America ($57 billion), JPMorgan Chase ($29 billion), Citigroup ($16 billion) and Wells Fargo ($11 billion).

These amounts have involved scores of different cases dating back to 2000. In other words, the banks are repeat violators that are willing to pay out large sums in order to continue doing business more or less as usual. More class action lawsuits are unlikely to change this dynamic.

I believe that banks and other large corporations should continue to face heavy financial penalties for their misconduct, but it has become clear that these penalties alone are not going to put an end to the corporate crime wave. It’s time to go beyond damages in addressing the damage caused by these companies.

The 2012 Corporate Rap Sheet

Thursday, December 20th, 2012

Monopoly_Go_Directly_To_Jail-T-linkCorporate crime has been with us for a long time, but 2012 may be remembered as the year in which billion-dollar fines and settlements related to those offenses started to become commonplace. Over the past 12 months, more than half a dozen companies have had to accede to ten-figure penalties (along with plenty of nine-figure cases) to resolve allegations ranging from money laundering and interest-rate manipulation to environmental crimes and illegal marketing of prescription drugs.

The still-unresolved question is whether even these heftier penalties are punitive enough, given that corporate misconduct shows no sign of abating. To help in the consideration of that issue, here is an overview of the year’s corporate misconduct.

BRIBERY. The most notorious corporate bribery scandal of the year involves Wal-Mart, which apart from its unabashed union-busting has tried to cultivate a squeaky clean image. A major investigation by the New York Times in April showed that top executives at the giant retailer thwarted and ultimately shelved an internal probe of extensive bribes paid by lower-level company officials as part of an effort to increase Wal-Mart’s market share in Mexico. A recent follow-up report by the Times provides amazing new details.

Wal-Mart is not alone in its behavior. This year, drug giant Pfizer had to pay $60 million to resolve federal charges related to bribing of doctors, hospital administrators and government regulators in Europe and Asia. Tyco International paid $27 million to resolve bribery charges against several of its subsidiaries. Avon Products is reported to be in discussions with the U.S. Justice Department and the Securities and Exchange Commission to resolve a bribery probe.

MONEY LAUNDERING AND ECONOMIC SANCTIONS. In June the U.S. Justice Department announced that Dutch bank ING would pay $619 million to resolve allegations that it had violated U.S. economic sanctions against countries such as Iran and Cuba. The following month, a U.S. Senate report charged that banking giant HSBC had for years looked the other way as its far-flung operations were being used for money laundering by drug traffickers and potential terrorist financiers. In August, the British bank Standard Chartered agreed to pay $340 million to settle New York State charges that it laundered hundreds of billions of dollars in tainted money for Iran and lied to regulators about its actions; this month it agreed to pay another $327 million to settle related federal charges. Recently, HSBC reached a $1.9 billion money-laundering settlement with federal authorities.

INTEREST-RATE MANIPULATION.  This was the year in which it became clear that giant banks have routinely manipulated the key LIBOR interest rate index to their advantage. In June, Barclays agreed to pay about $450 million to settle charges brought over this issue by U.S. and UK regulators. UBS just agreed to pay $1.5 billion to U.S., UK and Swiss authorities and have one of its subsidiaries plead guilty to a criminal fraud charge in connection with LIBOR manipulation.

DISCRIMINATORY LENDING. In July, it was announced that Wells Fargo would pay $175 million to settle allegations that the bank discriminated against black and Latino borrowers in making home mortgage loans.

DECEIVING INVESTORS. In August, Citigroup agreed to pay $590 million to settle a class-action lawsuit alleging that it failed to disclose its full exposure to toxic subprime mortgage debt in the run-up to the 2008 financial crisis. The following month, Bank of America said it would pay $2.4 billion to settle an investor class-action suit charging that it made false and misleading statements during its acquisition of Merrill Lynch during the crisis. In November, JPMorgan Chase and Credit Suisse agreed to pay a total of $417 million to settle SEC charges of deception in the sale of mortgage securities to investors.

DEBT-COLLECTION ABUSES. In October, American Express agreed to pay $112 million to settle charges of abusive debt-collection practices, improper late fees and deceptive marketing of its credit cards.

DEFRAUDING GOVERNMENT. In March, the Justice Department announced that Lockheed Martin would pay $15.9 million to settle allegations that it overcharged the federal government for tools used in military aircraft programs. In October, Bank of America was charged by federal prosecutors with defrauding government-backed mortgage agencies by cranking out faulty loans in the period leading to the financial crisis.

PRICE-FIXING. European antitrust regulators recently imposed the equivalent of nearly $2 billion in fines on electronics companies such as Panasonic, LG, Samsung and Philips for conspiring to fix the prices of television and computer displays. Earlier in the year, the Taiwanese company AU Optronics was fined $500 million by a U.S. court for similar behavior.

ENVIRONMENTAL CRIMES. This year saw a legal milestone in the prosecution of BP for its role in the 2010 Deepwater Horizon drilling accident that killed 11 workers and spilled a vast quantity of crude oil into the Gulf of Mexico. The company pleaded guilty to 14 criminal charges and was hit with $4.5 billion in criminal fines and other penalties. BP was also temporarily barred from getting new federal contracts.

ILLEGAL MARKETING. In July the U.S. Justice Department announced that British pharmaceutical giant GlaxoSmithKline would pay a total of $3 billion to settle criminal and civil charges such as the allegation that it illegally marketed its antidepressants Paxil and Wellbutrin for unapproved and possibly unsafe purposes. The marketing included kickbacks to doctors and other health professionals. The settlement also covered charges relating to the failure to report safety data and overcharging federal healthcare programs. In May, Abbott Laboratories agreed to pay $1.6 billion to settle illegal marketing charges.

COVERING UP SAFETY PROBLEMS. In April, Johnson & Johnson was ordered by a federal judge to pay $1.2 billion after a jury found that the company had concealed safety problems associated with its anti-psychotic drug Risperdal. Toyota was recently fined $17 million by the U.S. Transportation Department for failing to notify regulators about a spate of cases in which floor mats in Lexus SUVs were sliding out of position and interfering with gas pedals.

EXAGGERATING FUEL EFFICIENCY. In November, the U.S. Environmental Protection Agency announced that Hyundai and Kia had overstated the fuel economy ratings of many of the vehicles they had sold over the past two years.

UNSANITARY PRODUCTION. An outbreak of meningitis earlier this year was tied to tainted steroid syringes produced by specialty pharmacies New England Compounding Center and Ameridose that had a history of operating in an unsanitary manner.

FATAL WORKFORCE ACCIDENTS. The Bangladeshi garment factory where a November fire killed more than 100 workers (who had been locked in by their bosses) turned out to be a supplier for Western companies such as Wal-Mart, which is notorious for squeezing contractors to such an extent that they have no choice but to make impossible demands on their employees and force them to work under dangerous conditions.

UNFAIR LABOR PRACTICES. Wal-Mart also creates harsh conditions for its domestic workforce. When a new campaign called OUR Walmart announced plans for peaceful job actions on the big shopping day after Thanksgiving, the company ignored the issues they were raising and tried to get the National Labor Relations Board to block the protests. Other companies that employed anti-union tactics such as lockouts and excessive concessionary demands during the year included Lockheed Martin and Caterpillar.

TAX DODGING. While it is often not technically criminal, tax dodging by large companies frequently bends the law almost beyond recognition. For example, in April an exposé in the New York Times showed how Apple avoids billions of dollars in tax liabilities through elaborate accounting gimmicks such as the “Double Irish with a Dutch Sandwich,” which involves artificially routing profits through various tax haven countries.

FORCED LABOR. In November, global retailer IKEA was revealed to have made use of prison labor in East Germany in the 1980s.

Note: For fuller dossiers on a number of the companies listed here, see my Corporate Rap Sheets. The latest additions to the rap sheet inventory are drug giants AstraZeneca and Eli Lilly.

Who Pays for Extreme Weather?

Thursday, November 1st, 2012

As the northeast begins to recover from the ravages of Sandy, there are estimates that the giant storm caused some $20 billion in property damage and up to $30 billion more in lost economic activity.

The question now is who will pay that tab—as well as the cost of future disasters that climate change will inevitably bring about.

It’s already clear that the private insurance industry, as usual, will do everything in its power to minimize its share of the burden. Insurers take advantage of the fact that their policies often do not cover damages from flooding, passing that cost onto policyholders. Most of them are unaware of the fact and fail to purchase federal flood insurance until it is too late.

Insurers also exploit clauses in their policies that impose much higher deductibles for non-flood damages during hurricanes. Fortunately, governors in New York, New Jersey and Connecticut are blocking that maneuver by giving Sandy a different official designation (which is consistent with the National Weather Service’s use of the term “post tropical storm”).  It remains to be seen, nonetheless, to what extent the insurance industry manages to create new obstacles for its customers.

The challenges for homeowners are just one part of the problem. Sandy also did tremendous damage to public infrastructure—roads, bridges, subway stations, etc. Although these are government assets, should the public sector bear the cost of rebuilding?

Many people are arguing, in the words of a New York Times editorial, that “a big storm requires big government.” That’s certainly true when it comes to initial disaster response.  Many more people would have died and much more damage would have occurred but for the efforts of public-sector first responders and even the Federal Emergency Management Agency, which has been remade since its debacle during the aftermath of Hurricane Katrina.

But the challenges associated with extreme weather go far beyond those relief functions. There’s now discussion of the need for New York City to build a huge flood-prevention system along the lines of that in the Netherlands.

Taxpayers, especially those of the 99 percent, should not be forced to assume the entire cost of such a massive undertaking. Extreme weather is clearly linked to climate change, which in turn has been largely caused by the growth in greenhouse gas emissions caused by large corporations, especially those in the fossil fuel industry.

Holding corporations responsible for the consequences of climate change is not a new idea. Yet it is one that all too frequently gets drowned out amid the bloviating of the climate deniers, much of whose funding comes from the very corporate interests they are working to get off the hook.

Back in 2006 BusinessWeek wrote that lawsuits targeting corporations for global warming were “the next wave of litigation,” following in the footsteps of the lawsuits that forced the tobacco industry to cough up hundreds of billions of dollars in compensation. Such cases did materialize. For example, in 2008 lawyers representing the Alaska Native coastal village of Kivalina, which was being forced to relocate because of flooding caused by the changing Arctic climate, filed suit against Exxon Mobil, BP, Chevron, Duke Energy and other oil and utility companies, arguing that they conspired to mislead the public about the science of global warming and this contributed to the problem that was threatening the village.

Such suits have not had an easy time in the courts. The Kivalina case was dismissed by a federal district judge, and that dismissal was recently upheld by the federal court of appeals. A suit brought by the state of California against major automakers for contributing to global warming was also dismissed.

It is far from certain that corporations will continue to get off scot free. In fact, groups such as the Investor Network on Climate Risks argue that the potential liability is quite real and that this should be a matter of concern for institutional shareholders. The Network, a project of CERES, pursues its goals through initiatives such as appeals to the SEC to require better disclosure of climate risks and through friendly engagement with large corporations.

Yet it may be that a more confrontational approach is necessary to build popular support for the idea that big business needs to be held accountable for its big contribution to the climate crisis.

Unfortunately, we are already seeing steps in the opposite direction. The Bloomberg Administration in New York has already announced new storm-related subsidies that will apply not only to struggling mom-and-pop business but also to giant corporations. Unless there is a popular outcry, the city will repeat its mistakes in the wake of the 9-11 attacks of giving huge amounts of taxpayer-funded reconstruction assistance to the likes of Goldman Sachs (see the website of Good Jobs New York for the dismaying details).

The fact that the large New York banks that stand to benefit from Bloomberg’s new giveaways helped finance fossil-fuel projects that contribute to climate change shows just how self-defeating this approach is.

Rather than using public money to help wealthy corporations pay for storm damage on their premises, we should be forcing those companies to pay the costs of addressing the climate crisis they did so much to create.

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New in CORPORATE RAP SHEETS: a dossier on the many environmental and labor relations sins of chemicals giant DuPont.

Wal-Mart and Watergate

Thursday, April 26th, 2012

Wal-Mart has been probably been accused of more types of misconduct than any other large corporation. The latest additions to the list are bribery and obstruction of justice. In an 8,000-word exposé published recently in the New York Times, top executives at the giant retailer are reported to have thwarted and ultimately shelved an internal investigation of extensive bribes paid by lower-level company officials to expand Wal-Mart’s market share in Mexico.

While Wal-Mart’s outrageous behavior is often in a class by itself, the bribery aspects of the allegations are far from unique. In fact, Wal-Mart is actually a late arrival to a sizeable group of major corporations that have found themselves in legal jeopardy because of what in corporate circles are politely called questionable foreign payments.

That jeopardy has grown more significant in recent years as the Securities and Exchange Commission and the Department of Justice have stepped up enforcement of the Foreign Corrupt Practices Act, or FCPA, which prohibits overseas bribery by U.S.-based corporations and foreign companies with a substantial presence in the United States.

It is often forgotten that the Watergate scandal of the 1970s was not only about the misdeeds of the Nixon Administration. Investigations by the Senate and the Watergate Special Prosecutor forced companies such as 3M, American Airlines and Goodyear Tire & Rubber to admit that they or their executives had made illegal contributions to the infamous Committee to Re-Elect the President.

Subsequent inquiries into illegal payments of all kinds led to revelations that companies such as Lockheed, Northrop and Gulf Oil had engaged in widespread foreign bribery. Under pressure from the SEC, more than 150 publicly traded companies admitted that they had been involved in questionable overseas payments or outright bribes to obtain contracts from foreign governments. A 1976 tally by the Council on Economic Priorities found that more than $300 million in such payments had been disclosed in what some were calling “the Business Watergate.”

While some observers insisted that a certain amount of baksheesh was necessary to making deals in many parts of the world, Congress responded to the revelations by enacting the FCPA in late 1977. For the first time, bribery of foreign government officials was a criminal offense under U.S. law, with fines up to $1 million and prison sentences of up to five years.

The ink was barely dry on the FCPA when U.S. corporations began to complain that it was putting them at a competitive disadvantage. The Carter Administration’s Justice Department responded by signaling that it would not be enforcing the FCPA too vigorously. That was one Carter policy that the Reagan Administration was willing to adopt. In fact, Reagan’s trade representative Bill Brock led an effort to get Congress to weaken the law, but the initiative failed.

The Clinton Administration took a different approach—trying to get other countries to adopt rules similar to the FCPA. In 1997 the industrial countries belonging to the Organization for Economic Cooperation and Development reached agreement on an anti-bribery convention. In subsequent years, the number of FCPA cases remained at a miniscule level—only a handful a year. Optimists were claiming this was because the law was having a remarkable deterrent effect. Skeptics said that companies were being more careful to conceal their bribes, and prosecutors were focused elsewhere.

Any illusion that commercial bribery was a rarity was dispelled in 2005, when former Federal Reserve Chairman Paul Volcker released the final results of the investigation he had been asked to conduct of the Oil-for-Food Program in Iraq. Volcker’s group found that more than half of the 4,500 companies participating in the program—which was supposed to ease the impact of Western sanctions on Iraq—had paid illegal surcharges and kickbacks to the government of Saddam Hussein. Among those companies were Siemens, DaimlerChrysler and the French bank BNP Paribas.

The Volcker investigation, the OECD convention, and the Sarbanes-Oxley law (whose mandates about financial controls made it more difficult to conceal improper payments) breathed new life into FCPA enforcement during the final years of the Bush Administration and after President Obama took office.

The turning point came in November 2007, when Chevron agreed to pay $30 million to settle charges about its role in Oil-for-Food corruption. Then, in late 2008, Siemens agreed to pay the Justice Department, the SEC and European authorities a record $1.6 billion in fines to settle charges that it had routinely paid bribes to secure large public works projects around the world. This was a huge payout in relation to previous FCPA penalties, yet it was a bargain in that the big German company avoided a guilty plea or conviction that would have disqualified it from continuing to receive hundreds of millions of dollars in federal contracts.

In February 2009 Halliburton and its former subsidiary Kellogg Brown and Root agreed to pay a total of $579 million to resolve allegations that they bribed government officials in Nigeria over a ten-year period. A year later, the giant British military contractor BAE Systems reached settlements totaling more than $400 million with the Justice Department and the UK Serious Fraud Office to resolve longstanding multi-country bribery allegations. In April 2010 Daimler and three of its subsidiaries paid $93 million to resolve FCPA charges. Other well-known companies that have settled similar bribery cases since the beginning of 2011 include Tyson Foods, IBM, and Johnson & Johnson. In most cases companies have followed the lead of Siemens in negotiating non-prosecution or deferred prosecution deals that avoided criminal convictions.

A quarter century after the Watergate investigation revealed a culture of corruption in the foreign dealings of major corporations, the new wave of FCPA prosecutions suggests that little has changed. There is one difference, however. Whereas the bribery revelations of the 1970s elicited a public outcry, the cases of the past few years have generated relatively little comment in the United States—except for the complaints of corporate apologists that the FCPA is too severe. Among those apologists are board members of the Institute for Legal Reform (a division of the U.S. Chamber of Commerce), whose ranks have included the top ethics officer of Wal-Mart.

The Wal-Mart case could turn out to be a much bigger deal than previous FCPA cases—for the simple reason that the mega-retailer appears to have forgotten Watergate’s central lesson that the cover-up is often punished more severely than the crime. A company that has often avoided serious consequences for its past misconduct may finally pay a high price.

Toxic Legacies

Thursday, June 16th, 2011

Bunker Hill smelter circa 1984

In his novel Bleak House, Charles Dickens invented the interminable lawsuit Jarndyce and Jarndyce to satirize the dysfunctional British court system. A real-life Jarndyce case just settled in U.S. federal court illustrates the glacial pace at which hazardous waste cleanup disputes get resolved and undermines the arguments of those who want to weaken environmental enforcement.

Hecla Mining Company has agreed to pay $263 million plus interest to resolve a lawsuit dating back 20 years. In 1991 Hecla and other mining companies were sued by the Coeur d’Alene Tribe over damages to natural resources in Idaho’s Silver Valley caused by some 100 million tons of toxic mining waste released into local waterways over the decades.  A smelter used by the companies caused massive lead emissions that contaminated soil and showed up at high levels in the bloodstream of local children. The federal government joined the case in 1996.

The lawsuit was filed after years of efforts by the mining companies to evade responsibility for cleaning up one of the country’s most polluted areas, which was designed the Bunker Hill Superfund site in 1983. The federal government began spending several hundred million dollars on the cleanup—costs that the lawsuit was meant to recoup. (The eventual cost would surpass $2 billion.)

The corporate defendants made that recovery process as difficult and time-consuming as possible. One company, Gulf Resources and Chemical, went bankrupt in the 1990s, leaving little in the way of assets. Another, Asarco, also filed for bankruptcy in 2005 in an apparent attempt to sidestep huge environmental liabilities around the country, but the U.S. Justice Department was later able to get the company that took it over, Grupo Mexico, to pay $1.8 billion for cleanup costs at more than 80 toxic sites in 19 states, including $436 million for the Bunker Hill site.

The new Hecla settlement is welcome news, but the fact that it has taken nearly three decades from designation of the Bunker Hill site to this financial resolution indicates there is something seriously wrong with the Superfund system (and the courts).

Ironically, the Bunker Hill story is in many ways a best-case scenario in that the federal government was able—eventually—to recover a substantial portion of its cleanup costs.  In numerous cases, responsible corporate parties no longer exist or don’t have adequate assets.

Congress anticipated this problem when it established the Superfund program in 1980. It created a trust fund for the program that received revenues generated by excise taxes on two highly polluting industries—petroleum and chemicals—as well as a corporate environmental income tax. The sources boosted the trust fund balance to nearly $4 billion by end of 1996.

The authority for these “polluter pays” taxes expired in 1995, and the balance began to dwindle, reaching zero in 2004. In recent years, Congress has kept the fund alive through modest appropriations, but these are subject to political whims.

Last year the Obama Administration called for reinstatement of the Superfund tax, giving a boost to the lonely efforts of Oregon Rep. Earl Blumenauer and New Jersey Senator Frank Lautenberg. However, given the current composition of Congress, that proposal seems to be going nowhere.

Unfortunately, the choice is not simply between a Superfund program financed by polluting industries and one funded by the general public. If some conservative groups had their way, the Superfund program would be eliminated outright or weakened by transferring responsibility to the states.

Think how that would have played out in Idaho, where state officials kept their distance from the Bunker Hill case until the last minute, when they signed on to get a cut of the money from Hecla. For years, those officials (along with members of the state’s Congressional delegation) vilified the Environmental Protection Agency for aggressively pursuing the Bunker Hill cleanup while they said little about the companies that caused the mess.

That anti-EPA attitude is, alas, all too common today among corporate apologists both in Washington and in many states. The Superfund program, for all its limitations, remains one of our main tools for dealing with the legacy of corporate environmental irresponsibility. It needs to be on as firm a footing as possible.

A Business Backlash?

Friday, June 25th, 2010

By all rights, the laissez-faire crowd should be silent these days. Recent months have been marked by one example after another of the perils of deregulation and the folly of trusting large corporations to do the right thing. From Toyota to Goldman Sachs to Massey Energy to BP, 2010 has been the year of big business irresponsibility.

As in 2002 (after the accounting scandals involving Enron, WorldCom et al.) and 2008 (the meltdown of Wall Street), we’re now at one of those moments, following an outbreak of corporate misconduct, in which public sentiment about business is up for grabs, as is public policy.

The business camp is already working hard to regain support, in ways ranging from BP’s seemingly benign vow to “make things right” to Rep. Joe Barton’s shameless “shakedown” outburst designed to turn the Obama Administration into the villain. Here are some other signs that corporations and their defenders are already going back on the offensive:

  • A federal judge with personal investments in the petroleum industry struck down the Obama Administration’s moratorium on deepwater drilling, despite evidence brought to light by Congressional investigators that the practice is much more dangerous than we had been led to believe and none of the oil giants have adequate accident response plans. The challenge to the moratorium had been brought by smaller oil service firms, but the judge’s decision was hailed by majors such as Chevron and Royal Dutch Shell.
  • Massey Energy, apparently hoping for a like-minded judge, has filed suit against the federal Mine Safety and Health Administration in a brazen effort to pin the blame on regulators for the April explosion at the Upper Big Branch mine in West Virginia that killed 29 workers.
  • Verizon Communications CEO Ivan Seidenberg, the current head of the Business Roundtable, recently gave a speech in which he challenged regulatory initiatives in the telecom and financial sectors, criticized efforts to limit tax avoidance by multinational companies, and declared: “It’s time for us all to raise our game and embrace the power of the private sector that will create real value and real growth for our country.”

If business advocates are emboldened to speak out so soon, that suggests that corporations have not been reprimanded adequately for their misconduct. The criticism expressed by the Obama Administration and Congressional Democrats has had a ritualistic quality about it—a Kabuki dance of disapproval that may not result in any real change.

Even the $20 billion BP escrow fund feels inadequate, given the fact that there is no end in sight to the disaster. Although BP’s shareholders are agonizing over the suspension of the dividend payment, the company itself does not seem very put out by the creation of the fund, especially since it is being allowed to spread out the cost over several years.

The ability of BP to buy its way out of the crisis contributes to the sense that large corporations can do the most outrageous things and emerge relatively unscathed. It is unlikely that the forthcoming criminal case against the company will cause much more discomfort. The company has already been through that process with previous disasters involving oil spills in Alaska and a deadly refinery explosion in Texas. It paid the resulting penalties with no problem, and the fact that it was put on probation has had little practical effect.

What’s needed is a more dramatic response to corporate negligence. It might be the arrest of a top executive or an announcement that the federal government will no longer do business with companies with serious regulatory violations or an antitrust initiative to try to break up large firms which think that their size somehow makes them above the law. Only then might corporations think twice about lashing back and returning to business as usual.