Price-fixing

The Corporate Lawbreakers Involved in the Port Labor Dispute

The decision by the International Longshoremen’s Association to strike ports on the East and Gulf Coasts has prompted numerous media outlets to produce unflattering stories about union president Harold Daggett and what is depicted as his lavish lifestyle.

I have not seen much reporting on the ILA’s adversaries—the corporate members of the employer group known as the United States Maritime Alliance. The group’s website lists about 40 members, among which are some of the largest multinational shipping corporations and terminal operators in the world.

These companies have become more familiar to me as I have been gathering data for the new Violation Tracker Global database, which my colleagues and I will release soon. USMA members show up frequently in data from regulatory agencies in various countries. Here is a preview of what Violation Tracker Global will reveal about these shippers.

One of the USMA members is an American subsidiary of Norway’s Wallenius Wilhelmsen Group. Since 2010, units of the shipping company have racked up regulatory penalties equal to more than US$440 million. Most of these were for anti-competitive practices. The biggest case was a $256 million penalty imposed by the European Commission in 2018 for participating in an illegal cartel controlling the market for vehicle shipping. Wallenius Wilhelmsen has also been fined in Australia, Brazil, China, Japan, Mexico, South Africa, South Korea and the United States.

Another USMA member is a unit of Japan’s Kawasaki Kisen Kaisha, known as K Line. Since 2010, K Line has been penalized more than $240 million for similar anti-competitive practices. The largest case was a $67 million criminal fine imposed by the U.S. Justice Department for participation in a conspiracy to fix prices, allocate customers, and rig bids for shipping services for roll-on, roll-off cargo, such as cars and trucks. K Line has also been fined in Australia, Canada, Chile, China, India, Italy, Japan, Mexico, Singapore, South Africa, and South Korea.

One of the biggest USMA members is Denmark’s Maersk, which participates directly and through its subsidiaries APM Terminals and Hamburg Sud. Since 2010, Maersk and all its subsidiaries have racked up about $45 million in penalties. The largest portion of that was a 2012 U.S. case in which Maersk Line Limited had to pay the federal government $31.9 million to resolve allegations that it submitted false claims in connection with contracts to transport cargo in shipping containers to support U.S. troops in Afghanistan and Iraq. Among other things, Maersk units were fined by Russian authorities for anti-competitive practices and by British authorities for an offshore oil spill.

Also on the membership list is CSAV, a Chilean shipping company whose fines in Violation Tracker Global amount to $25 million. Those include competition cases brought by the European Commission and in China, Italy, Mexico, South Africa, South Korea, and the United States. France’s CMA CGA has total fines of just under $25 million. It was also fined by the European Commission and in Brazil, France, Italy, the United Kingdom, and the United States.

Opponents of the ILA are arguing that the union’s fight against automation will impede efficiency and lead to higher shipping costs. Yet, as the information in Violation Tracker Global will show, the shippers themselves have already been boosting costs through price-fixing and other anti-competitive practices across their global operations.

Violation Tracker Global will be available starting on October 8 at:
https://violationtrackerglobal.goodjobsfirst.org/

Attacking Price Manipulation

Throughout Joe Biden’s time in office, critics have complained he has not done enough to address high grocery prices. Now that his replacement as the Democratic presidential nominee has come forth with a plan to deal with the problem, many of those same critics are accusing Kamala Harris of going too far.

A wide range of pundits are particularly scandalized at Harris’s critique of price-gouging. It is perfectly valid to question whether her policies would be effective, but many commentators are trotting out simplistic and outdated economic principles to claim that corporate price manipulation is non-existent.

These believers in the supremacy of market forces are apparently unaware that the food sector is a hotbed of anti-competitive practices. This is especially true in the meat industry, where a small number of dominant corporations have had to pay out hundreds of millions of dollars in fines and settlements to resolve allegations that they collude to keep prices high.

Take the case of JBS, the giant Brazilian corporation that owns U.S. companies such as the poultry producer Pilgrim’s Pride and the beef producer Swift. As shown in Violation Tracker, JBS and its subsidiaries have paid out over $200 million in class action antitrust lawsuits since 2021. Pilgrim’s Pride was also sentenced to pay $107 million in criminal penalties after pleading guilty to federal charges of participating in a conspiracy to fix prices and rig bids for broiler chicken products.

Tyson Foods, another poultry goliath, has paid out over $120 million in class action settlements over the past three years, including one case in which it had to hand over $99 million. In the pork industry, Smithfield Foods, owned by the Chinese corporation WH Group, has paid around $200 million in price-fixing settlements.

Price-fixing conspiracies have also been alleged in the tuna industry, in which StarKist paid a criminal penalty of $100 million, as well as in milk processing, peanut processing and other food sectors. In 2020 the National Milk Producers Federation agreed to pay $220 million to settle litigation alleging it sought to boost prices through a program to reduce the number of dairy cows. There was even a $28 million settlement involving a mushroom marketing cooperative.

Aside from their illegal collusion on prices, food companies have been accused of entering into illegal agreements designed to suppress wages. A federal court in Oklahoma recently gave preliminary approval to a settlement in which Pilgrim’s Pride will pay $100 million. Other poultry processors such as Tyson and Perdue previously agreed to pay a total of tens of millions of dollars more.

Price-fixing is not exactly the same thing as price-gouging. The first involves illegal agreements among purported competitors, while the other may be committed by a powerful company acting on its own. Price-gouging can be illegal in certain circumstances under state law, especially if it happens during an emergency. Yet it is not, alas, illegal for companies to jack up prices in most circumstances.

That’s why all chief executives of food companies are not being led away in handcuffs. Yet it is all the more reason for the federal government to devise innovative ways to get corporations to bring down prices that escalated through market manipulation of one form or another.

Targeting the Poultry Conspirators

High food prices have been one of the most contentious issues of the past few years, causing many people to remain negative about the U.S. economy even as other indicators have improved. Grocery inflation has several cases, but one that does not receive enough attention is the ability of large corporations to set prices at will.

Price escalation is possible because of the enormous amount of concentration in the food sector. Not only can major producers hike up prices on their own, they conspire with their few competitors to do so in tandem. This is known as price-fixing, and since the passage of the Sherman Act of 1890 the practice has been illegal under federal law. States bring prosecutions as well.

One state that has been particularly aggressive in this arena is Washington. Its Attorney General, Bob Ferguson, has targeted the poultry industry, which is believed to be a hotbed of anti-competitive practices. In 2021 Ferguson’s office sued 19 companies said to account for 95 percent of the broiler chickens sold in the entire country, alleging they conspired to restrain production, manipulate price indices, rig bids and exchange proprietary information with one another. The defendants included familiar names such as Tyson Foods, Pilgrim’s Pride and Perdue Farms.

Over the past two years, Ferguson has racked up an impressive record. Last April, 14 of the corporate defendants agreed to pay settlements totaling $35 million. The largest shares came from Pilgrim’s Pride ($11 million), Tyson ($10.5 million) and Perdue ($6.5 million).

Since then, Ferguson has kept up the pressure on the other defendants. Most recently, House of Raeford Farms agreed to a $460,000 settlement. The two remaining holdouts, Foster Farms and Wayne-Sanderson Farms, are scheduled to go on trial later this year.

They may change their minds about going to court. All of the settling defendants have agreed to cooperate with Ferguson’s office in producing evidence that can be used in that trial. Those defendants have also signed consent decrees under which they commit to changing their practices and acknowledge that the AG can seek additional fines if they fail to do so.

Ferguson wants to have even stronger tools at his disposal. Recently, he joined with several state legislators to propose legislation that would increase the maximum penalty for price-fixing and other anti-competitive practices.

At the same time the big poultry companies work to keep prices high, they have been accused of conspiring to keep pay low. The U.S. Justice Department has been targeting the industry for the improper exchange of compensation date, a practice that amounts to wage-fixing. One company, George’s Inc. agreed last year to pay $5.8 million to DOJ. The feds are seeking other settlements.

There has also been private litigation on this issue, resulting in large settlements such as a $29 million payout by Pilgrim’s Pride and $12 million by Simmons Foods.

It remains to be seen whether the federal and state prosecutors, together with plaintiffs’ lawyers, can get the poultry industry to stop colluding on prices and wages. Yet these cases should serve as a reminder of the extent to which food inflation is the result of corporate power and greed.

Targeting the Price Fixers

The Justice Department and the Federal Trade Commission have been promoting the adoption of new guidelines that would give them a greater ability to block anti-competitive mergers. Now DOJ may also be taking a tougher stance with regard to the other main branch of antitrust enforcement: prosecuting price-fixing conspiracies that harm consumers.

DOJ’s Antitrust Division has just announced the resolution of a case brought against generic drug giant Teva Pharmaceuticals and a smaller Indian producer called Glenmark Pharmaceuticals for conspiring to fix the price of pravastatin, a cholesterol medication. Teva was also charged with anti-competitive behavior with regard to two other drugs. Teva was compelled to pay a criminal penalty of $225 million and to donate drugs worth $50 million to humanitarian organizations. Glenmark was penalized $30 million.

Along with the fines, which in Teva’s case is well above the norm in DOJ Antitrust Division actions, the agency imposed a novel penalty: requiring the two companies to divest their pravastatin business line. And although the criminal charges were softened by allowing Teva and Glenmark to enter into deferred prosecution agreements, the DOJ included a blunt warning that “both companies will face prosecution if they violate the terms of the agreements, and if convicted, would likely face mandatory debarment from federal health care programs.”

Forcing a company to leave a business in which it has engaged in misconduct can be a more effective punishment than monetary penalties, which large corporations can usually absorb with little difficulty. This is an especially appropriate approach in prosecuting companies that have shown themselves to be repeat offenders.

Among the more than 240 companies shown in Violation Tracker to have faced criminal charges brought by the Antitrust Division since 2000, there are about half a dozen which have been penalized more than once. One of those is the Swiss bank UBS, which in 2011 paid $160 million to resolve allegations of engaging in anti-competitive practices in the municipal bond market but was offered a non-prosecution agreement. The following year, UBS was accused of manipulating the LIBOR interest rate benchmark and paid penalties totaling $500 million. While a subsidiary had to plead guilty, the parent company was offered another non-prosecution agreement.

Antitrust enforcers should leave the use of financial penalties to private litigation. As I showed in a report called Conspiring Against Competition published earlier this year, class action lawsuits brought by the victims of price fixing have yielded $55 billion since 2000, more than twice as much as the penalties collected by federal regulators.

Among the most frequently sued companies were Teva and its subsidiaries, which paid out a total of $1.4 billion in 19 different class actions. Most of these involved an indirect form of price fixing in which companies collude to delay the introduction of lower-cost generic alternatives to expensive brand-name drugs.

Government regulators should use their power not just to put a dent in an egregious price-fixer’s bottom line but to force the company out of a market in which it failed to follow the rules.

Targeting the Infant Formula Giants

The Agriculture Department’s Women, Infants and Children (WIC) program is one of the many forms of social assistance that could be seriously affected by Republican efforts to cut supposedly wasteful federal spending as a condition of approving an increase in the debt ceiling.

If there is waste in WIC, it’s not being caused by the low-income women receiving nutritional aid. A more likely culprit are the corporations providing the infant formula distributed through the program.

The Federal Trade Commission has revealed that it is investigating whether suppliers have been colluding in their bids for contracts awarded by the state agencies that administer WIC. Any such collusion would be made easier by the fact that the infant formula market in general and the WIC portion of it are dominated by three large companies.

Two of the three—Abbott Laboratories, which produces the Similac brand, and Nestlé, which sells the Gerber brand—have acknowledged that they are involved in the investigation, while Reckitt Benckiser has declined to comment.

This is not the first time these companies have come under regulatory scrutiny. Back in 2003 Abbott and a subsidiary paid a total of $600 million in civil and criminal penalties to resolve charges that the company made illegal payments to institutional purchasers of its tube-feeding products and then encouraged the customers to overbill government health programs.

Over the past two decades, Abbott and various subsidiaries have paid another $98 million in various False Claims Act cases brought by federal and state prosecutors. This does not include hundreds of millions more paid in false claims and antitrust penalties by the portions of Abbott that were spun off as AbbVie in 2013.

Nestlé’s infant formula business has a history of controversy for another reason. During the mid-1970s Nestlé was made the target of a campaign protesting the marketing of infant formula in poor countries. Activists from organizations such as INFACT and progressive religious groups charged that the aggressive marketing of formula by companies like Nestlé was causing health problems, in that poor mothers often had to combine the powder with unclean water and frequently diluted the expensive formula so much that babies remained malnourished.

Nestlé initially responded to the boycott of its products with a counter-campaign, seeking to discredit its critics. The company later changed its posture, agreeing to comply with a marketing code issued by the World Health Organization. In the years that followed, Nestlé was frequently criticized for failing to comply with the code and for engaging in various questionable practices.

In 2019 Reckitt Benckiser, based in the United Kingdom, paid over $1.3 billion in penalties in connection with the improper marketing of the opioid Suboxone. It paid another $50 million to the FTC to resolve allegations of engaging in a deceptive scheme to thwart the introduction of a low-cost generic alternative to that drug.

Reckitt entered the infant formula business through the 2017 acquisition of Mead Johnson, producer of Enfamil. In 2012 Mead Johnson had paid $12 million to settle allegations by the SEC that the company violated the Foreign Corrupt Practices Act through improper payments to healthcare professionals at government-run hospitals in China.

Given these rap sheets, along with controversies over recalls and shortages, it will not come as a surprise if the FTC finds that these companies engaged in bid-rigging. The remedy should involve an effort to attract more suppliers to the WIC infant formula market, especially honest ones.

Conspiring Against Competition

A federal judge in Minnesota recently granted final approval to a $75 million settlement between Smithfield Foods and plaintiffs alleging that the company was part of a conspiracy to fix the prices of pork products. This came a week after the Washington State Attorney General announced $35 million in settlements with a group of poultry processors.

A couple of weeks ago, a federal judge in New York approved a $56 million settlement of a class action lawsuit in which two drug companies were accused of conspiring to delay the introduction of a lower-cost generic version of an expensive drug for treating Alzheimer’s Disease.

All these court actions are part of an ongoing wave of illegal price-fixing conspiracies by large companies throughout most of the U.S. business world. The scope of the antitrust violations is revealed in a report I just published with my colleagues at the Corporate Research Project of Good Jobs First. The report, entitled Conspiring Against Competition, draws on data collected from government agency announcements and court records for inclusion in the Violation Tracker database.

We looked at over 2,000 cases resolved over the past two decades, including 600 brought by federal and state prosecutors as well as 1,400 class action and multidistrict private lawsuits. The corporations named in these cases paid a total of $96 billion in fines and settlements.

Over one-third of that total was paid by banks and investment firms, mainly to resolve claims that they schemed to rig interest-rate benchmarks such as LIBOR. The second most penalized industry, at $11 billion, is pharmaceuticals, due largely to owners of brand-name drugs accused of illegally conspiring to block the introduction of lower-cost generic alternatives.

Price-fixing happens most frequently in business-to-business transactions, though the higher costs are often passed on to consumers. Apart from finance and pharmaceuticals, the industries high on the penalty list include: electronic components ($8.6 billion in penalties), automotive parts ($5.3 billion), power generation ($5 billion), chemicals ($3.9 billion), healthcare services ($3.5 billion) and freight services ($3.4 billion).

Nineteen companies (or their subsidiaries) paid $1 billion or more each in price-fixing penalties. At the top of this list are: Visa Inc. ($6.2 billion), Deutsche Bank ($3.8 billion), Barclays ($3.2 billion), MasterCard ($3.2 billion) and Citigroup ($2.7 billion).

The most heavily penalized non-financial company is Teva Pharmaceutical Industries, which with its subsidiaries has shelled out $2.6 billion in multiple generic-delay cases.

Many of the defendants in price-fixing cases are subsidiaries of foreign-based corporations. They account for 57% of the cases we documented and 49% of the penalty dollars. The country with the largest share of those penalties is the United Kingdom, largely because of big banks such as Barclays (in the interest-rate benchmark cases) and pharmaceutical companies such as GlaxoSmithKline (in generic-delay cases).

Along with alleged conspiracies to raise the prices of goods and services, the report reviews litigation involving schemes to depress wages or salaries. These include cases in which employers such as poultry processors were accused of colluding to fix wage rates as well as ones in which companies entered into agreements not to hire people who were working for each other. These no-poach agreements inhibit worker mobility and tend to depress pay levels—similar to the effect of non-compete agreements employers often compel workers to sign.

Despite the billions of dollars corporations have paid in fines and settlements, price-fixing scandals continue to emerge on a regular basis, and numerous large corporations have been named in repeated cases.

Higher penalties could help reduce recidivism, but putting a real dent in price-fixing will probably require aggressive steps to deal with the underlying structural reality that makes it more likely to occur: excessive market concentration.

Pay for Delay

Forty years ago, federal policymakers thought they had found a solution to the problem of escalating prescription drug prices. The Hatch-Waxman Act of 1984 made it easier for generic manufacturers to bring to market lower-cost alternatives to brand-name medicines whose patent protection was expiring.

Fast forward to 2023. Recently, a federal judge in New York approved a $54 million class action settlement between plaintiffs led by a police union health plan and two drug companies accused of participating in an improper agreement to delay the introduction of a generic version of the Alzheimer’s drug Namenda. In 2020 another group of plaintiffs in a related case received a settlement of $750 million.

Once hailed as heroes that would restore consumer-friendly competition to the pharmaceutical industry, many generic producers instead became conspirators in what are known as “pay for delay” schemes to extend the market domination of costly brand-name products.

The extent of this degeneration is documented in data I have been collecting for an expansion of Violation Tracker and that will be analyzed in a report to be published next week. That expansion covers class action lawsuits designed to combat illegal price-fixing by large companies in a wide range of industries. This private litigation often follows actions brought by federal and state prosecutors.

Cases involving pay for delay, which amounts to an indirect form of price-fixing, make up a substantial portion of the litigation challenging anti-competitive practices. I was able to identify more than 100 settlements over the past two decades in which generic and brand-name producers paid out nearly $8 billion. Cases brought by federal agencies or state attorneys general resulted in another $2 billion in fines and settlements.

The company that has paid out the most is generics giant Teva Pharmaceuticals, whose 19 settlements (including those involving subsidiaries) total $2.5 billion. AbbVie’s total is $1.5 billion in 21 cases. Five other companies—GlaxoSmithKline, Sun Pharmaceuticals, Pfizer, Novartis and Bristol-Myers Squibb each have totals between $500 million and $800 million.

The largest single penalty came in 2015 in an action brought by the Federal Trade Commission accusing Cephalon Inc. of illegally blocking generic competition to its blockbuster sleep-disorder drug Provigil. The settlement required Teva Pharmaceuticals, which had acquired Cephalon in 2012, to make a total of $1.2 billion available to compensate purchasers, including drug wholesalers, pharmacies, and insurers, which overpaid because of Cephalon’s illegal conduct.

High drug costs are one of the factors contributing to inflation in the United States. Unlike energy prices, which are highly susceptible to swings in international markets, drug prices are largely under the control of manufacturers, due to patents and the unwillingness (until recently) of the federal government to allow Medicare to negotiate with the industry.

Big Pharma, not satisfied with those benefits, has frequently crossed the line into illegality through these pay-for-delay schemes. The $10 billion in penalties paid by the industry is in all likelihood far less than the economic gains it has reaped by artificially prolonging the market life of overpriced medications. It’s something to keep in mind during the next expensive visit to the pharmacy.

The report, Conspiring Against Competition, will be published on April 18.

A Legacy of Corruption

According to conventional economic thinking, commodity prices are governed by impersonal market forces. That’s how oil companies, for instance, are able to claim they are not to blame for soaring petroleum prices even as they rake in record profits.

What these corporations conveniently leave out of their narrative is the fact that markets can be manipulated. This reality is made abundantly clear in a multinational criminal case involving the Swiss commodity trading and mining company Glencore.

Law enforcement officials in the United States, the United Kingdom and Brazil have just announced that Glencore will plead guilty and pay more than $1 billion in penalties for a case that involves, among other things, manipulation of fuel oil prices in the United States over a period of eight years. According to the U.S. Justice Department, Glencore created phony transactions in order to effect changes in benchmark rates that benefitted the company’s trading positions. As punishment for this behavior, Glencore will pay a criminal fine of $341 million and criminal forfeiture of $144 million.

The charges against Glencore also include allegations of widespread bribery. The DOJ stated that over a decade the company violated the Foreign Corrupt Practices Act by making more than $100 million in improper payments to government officials in Nigeria, Cameroon, Ivory Coast, Equatorial Guinea, Brazil, Venezuela, and the Democratic Republic of the Congo (DRC).

After using these bribes to gain improper business advantages, Glencore was said to have concealed the payments by entering into sham consulting agreements and paying inflated invoices. In other words, it falsified its own records in an effort to cover up its corruption. For these offenses, Glencore was hit with a criminal fine of $428 million and disgorgement in the amount of $272 million.

It is unclear to what extent Glencore’s market manipulation behavior affected overall fuel oil prices in the United States and what harm its bribes may have caused in those African and South American countries.

What is undeniable is that Glencore has now joined the list of large corporations whose ethics policies have turned out to be a sham. As of this writing, the company’s website still touts its code of conduct, which is spelled out in a 59-page document. It includes statements such as: “We act honestly and with integrity and are accountable for everything we do.” And: “We do not engage in corruption and we never pay bribes regardless of who we’re dealing with or what the local custom or practice is.”

It actually should come as no surprise that Glencore would fail to live up to those high-minded ideals. After all, the company was originally created by the notorious Marc Rich, who in 1983 was indicted in the United States on dozens of criminal counts relating to racketeering, income tax evasion, wire fraud, and violation of economic sanctions against Iran.

Facing the possibility of many years in prison, Rich fled the country and spent years eluding a team of U.S. marshals tasked with bringing him back to face trial. While he was a fugitive, his companies paid millions in civil penalties. Not only did Rich avoid being extradited but he received a highly controversial pardon from Bill Clinton on his last day in office.

Glencore’s dubious behavior could even be seen in its press release announcing the resolution of the criminal cases. In it, the company stated that Glencore cooperated with the investigations, whereas the DOJ release emphasized “the company’s failure to voluntarily and timely disclose the conduct to the department.” In other words, Glencore is trying to take credit for having cooperated only after it was caught. It is appropriate that the resolution of the case includes a requirement that the company retain an independent compliance monitor for three years.

The Glencore case comes on the heels of DOJ’s multi-billion-dollar resolution of a case involving the financial services company Allianz, which was accused of engaging in a massive scheme to lure pension funds into complex investments that ended up generating massive losses.

These two resolutions have not attracted a lot of attention in the U.S., where neither Allianz nor Glencore is a household name. Yet the cases are indications that the Biden DOJ may very well be making good on its promise to get tougher on corporate crime after the lax enforcement during the Trump years. I look forward to seeing the book thrown at some large domestic companies as well.

The European Banking Blacklist

The European Union has shaken up the financial world by excluding a group of large banks from participating in the marketing of bonds being floated to help in the economic recovery of member states. According to reports in various business publications, the ten banks are being singled out because of their involvement in cases in which they were accused of manipulating bond and currency markets. In other words, they are being punished for misconduct.

While these moves may not have a major bottom-line impact on the banks—which include U.S. giants JPMorgan Chase, Citigroup and Bank of America—the EU is sending an important message about corporate wrongdoing.

Large companies have come to assume they can essentially buy their way out of legal jeopardy by paying fines and settlements that have grown larger but are still far from seriously punitive. As Violation Tracker documents, the big banks are Exhibit A for this phenomenon.

The database shows that the financial sector overall has paid more than $300 billion in U.S. penalties over the past two decades, far and away more than any other part of the economy. Bank of America is at the top of the list of penalty payers, with a total of $82 billion. JPMorgan is second with $35 billion, and Citigroup is fourth with $25 billion.

Non-U.S. banks being singled out by the EU have also accumulated substantial U.S. penalties, apart from what they have paid elsewhere. For example, Deutsche Bank has paid out $18 billion and NatWest (formerly the Royal Bank of Scotland) $13 billion.

The EU’s move is focused on a particular set of scandals in which these banks were alleged to have colluded to rig markets. Among these are cases involving the manipulation of currency markets. In 2015, Citigroup, JPMorgan, Barclays and Royal Bank of Scotland each paid hundreds of millions of dollars in settlements to resolve criminal charges brought by the U.S. Justice Department.

Unlike many other situations in which large corporations are offered deferred prosecution or non-prosecution agreements, the banks in this case had to plead guilty to the felony charges. Yet there was little in the way of consequences beyond the penalty payments. The banks were put on probation, on the assumption this would cause them to cease their bad behavior. Yet all the banks continued to rack up regulatory violations in subsequent years.

Reuters estimates that the blacklisted banks will lose out on about 86 million euros in syndication fees. This is a lot less than what the banks have paid in penalties. Yet, if banks begin to see that misconduct will cause them to be excluded from business opportunities, that may be more of an inducement to avoid corrupt behavior.

The dilemma for policymakers is that misconduct is so widespread in the financial sector that it is difficult to find service providers with clean hands. While excluding the ten banks, the EU turned to a group of others to handle the debt issue. Those included the likes of HSBC and BNP Paribas, which have their own substantial corporate rap sheets. Perhaps a larger blacklist is needed.

Foreign-Owned Regulatory Violators Found Among PPP Recipients

The massive Paycheck Protection Program was depicted as a necessary measure to save American small businesses, yet the list of recipients of the forgivable loans released by the Treasury Department contains numerous companies that are neither small nor American.

These include firms such as Jindal Saw USA LLC and JSW Steel (US) Inc., two affiliates of the Jindal Group, a multi-billion-dollar conglomerate owned by one of India’s wealthiest families. JSW Steel’s investments in the United States have been touted by Donald Trump, though the company later sued the U.S. Commerce Department when it was denied permission to import steel from India without paying a steep tariff.

Continental Carbon Company, owned by Taiwan’s International CSRC Investment Holdings Company (formerly China Synthetic Rubber Corporation), received a PPP loan worth between $5 million and $10 million.

These are two examples that have emerged from an examination of the PPP recipient list my colleagues and I have been doing as part of the integration of the data into our Covid Stimulus Watch website. Here are some others:

Giti Tire Manufacturing (USA) Ltd and Giti Tire (USA) Ltd, subsidiaries of Singapore’s Giti Tire.

Sekisui Voltek, LLC, a subsidiary of Japan’s Sekisui Chemical.

The U.S. subsidiary of Korean Air Lines (owned by the Hanjin Group).

Asahi Forge of America Corporation, a subsidiary of Japan’s Asahi Forge.

It does not come as a complete surprise that foreign-owned companies appeared on the PPP list. There was discussion of this possibility at the time the program was debated and enacted.

The issue then was whether such entities would be eligible for the loans if they were part of foreign companies with a workforce that surpassed the PPP employee limits. The muddled guidance provided by the Trump Administration has apparently allowed funds to go to firms linked to foreign corporations that are far from small businesses.

Another concern has come to light as we match PPP recipients to the data my colleagues and I have assembled for our other database, Violation Tracker: some of these foreign companies getting PPP loans have a history of misconduct.

The U.S. operations of Jindal Group have paid more than $1.4 million in penalties, mostly resulting from workplace safety and health violations.

Continental Carbon has paid over $2 million in penalties, nearly all of which involved Clean Air Act violations. Giti Tire, Sekisui, and Asahi Forge have also paid penalties to OSHA and/or the EPA.

In 2007 Korean Air Lines had to pay a $300 million criminal fine to the U.S. Justice Department after pleading guilty to conspiring to fix the prices of passenger and cargo flights. In 2018 Hanjin Transportation Co. Ltd., also part of the Hanjin Group, paid more than $6 million to the Justice Department to resolve allegations relating to a bid-rigging conspiracy that targeted contracts to supply fuel to United States Army, Navy, Marine Corps, and Air Force bases in South Korea.

In creating the Paycheck Protection Program, Congress probably did not intend to provide assistance to entities that are owned by large foreign companies and that had a track record of repeated regulatory violations and other serious misconduct.

Now that there is consideration of extending and expanding PPP, the question is whether such companies will continue to benefit from the largesse of American taxpayers.