Archive for the ‘Regulation’ Category

Oligopolies and Regulatory Compliance

Thursday, January 10th, 2019

There is growing awareness of the dangers posed by Amazon’s ever-increasing market clout, but the concentration of economic power is not limited to that online retailer. More and more U.S. industries have become oligopolies, and in some sectors the top two companies now have a market share in excess of 50 percent.

This concentration is made clear to me each time I revise the parent-subsidiary data in Violation Tracker. In the just-completed quarterly update, which will be posted next week, I had to make adjustments to reflect about three dozen instances in which one of the companies in our universe of some 3,000 parent companies completed the acquisition of another.

Among these deals: the purchase of Aetna by CVS Health, the acquisition of Express Scripts by Cigna, and the purchase of industrial gas giant Praxair by its competitor Linde.

But the one that stood out to me was the acquisition of oil refiner Andeavor by Marathon Petroleum. Andeavor is the name adopted last year by Tesoro, one of the largest petroleum refiners in the country. Over the last two decades it has bought refineries from large corporations such as Shell and BP, and in 2016 it purchased all of Western Refining.

Marathon Petroleum, which was spun off from Marathon Oil in 2011, has grown through previous deals such as the takeover of the infamous BP refinery in Texas City, Texas, the site of a 2005 explosion in which 15 workers were killed.

The marriage of Marathon and Andeavor will create the largest oil refiner in the United States, but at the same time it will join together two companies with very checkered environmental, safety and labor records.

Marathon’s operations, including those previously owned by BP in Texas City, have amassed more than $920 million in penalties, according to Violation Tracker. This total includes a $334 million settlement with the EPA and the Justice Department covering air pollution at refineries in five states, along with two dozen OSHA penalties.

Andeavor has accumulated $467 million in penalties, most of which comes from a single giant settlement with the EPA in 2016. It also has had about two dozen significant OSHA fines.

The combined company’s page in the updated Violation Tracker, which will include other new data, will show a total of nearly $1.4 billion in penalties. This will put Marathon in the dubious club of only a few dozen mega-corporations that have racked up ten-figure totals in Violation Tracker. It will put the company higher on that list than the long-time environmental miscreant Exxon Mobil.

Aside from the economic consequences, growing concentration may also be weakening regulatory compliance. As industries become increasingly dominated by large corporations with a history of breaking the rules, it is likely that those violations will become even more common. That’s another reason to get tough on oligopolies.

The 2018 Corporate Rap Sheet

Thursday, December 13th, 2018

The Trump Administration has been taking steps to weaken its enforcement activities against corporate criminals and regulatory violators, but diligent prosecutors and career agency administrators are still trying to do their job. Over the course of 2018 there has been a steady stream of announcements of substantial penalties imposed on major corporations for a wide range of offenses. The following is a selection of significant cases resolved during the year:

Sale of Toxic Securities: In cases left over from the financial crisis of the 2000s, three major banks agreed to pay ten-figure settlements to the Justice Department to resolve allegations of misleading investors in residential mortgage-backed securities: $2 billion by Barclays, $2.1 billion by Wells Fargo and $4.9 billion by The Royal Bank of Scotland.

Interest Rate Benchmark Manipulation: The French bank Societe Generale agreed to pay $475 million to settle allegations by the Commodity Futures Trading Commission that it manipulated or attempted to manipulate LIBOR and other interest rate benchmarks.

Foreign Exchange Market Manipulation: The French bank BNP Paribas pleaded guilty to participating in a price-fixing scheme in the foreign exchange market and paid the U.S. Justice Department a criminal fine of $90 million.

Anti-Money Laundering Deficiencies: U.S. Bancorp agreed to a $453 million civil forfeiture to resolve a case brought by the U.S. Attorney for the Southern District of New York alleging that it violated the Bank Secrecy Act by failing to file required suspicious activity reports.

Foreign Corrupt Practices Act: The Securities and Exchange Commission required Panasonic Corporation to pay $143 million to resolve allegations of making improper payments and committing accounting fraud in connection with its global avionics business. It paid an additional $137.4 million to settle related criminal charges brought by the Justice Department.

Consumer Financial Protection Violation: Wells Fargo agreed to pay a total of $1 billion to the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency in connection with abuses relating to a mandatory insurance program tied to auto loans, mortgage interest-rate-lock extensions and other practices.

Product Safety Violation: Polaris Industries agreed to pay a $27.25 million civil penalty to settle Consumer Product Safety Commission allegations that it failed to immediately report to the agency that some of its recreational off-road vehicles contained defects that could create a substantial product hazard or that they created an unreasonable risk of serious injury or death.

Controlled Substances Act Violations: Rite Aid agreed to pay $4 million and CVS agreed to pay a total of $2.5 million in two cases, all to resolve allegations of improper distribution of controlled substances.

Sexual Harassment: Poultry processor Koch Foods agreed to pay $3.75 million to settle allegations made by the Equal Employment Opportunity Commission involving sexual harassment, national origin and race discrimination and retaliation at a plant in Mississippi.

Clean Air Act Violations: The Justice Department, the Environmental Protection Agency and the Louisiana Department of Environmental Quality announced that Shell Chemical would pay penalties of $350,000 and spend $10 million to install pollution control equipment to reduce harmful emissions at its plant in Norco, Louisiana.

False Claims Act Violations: Toyobo Co. of Japan and its American subsidiary agreed to pay $66 million to resolve claims under the False Claims Act that they sold defective Zylon fiber used in bulletproof vests that the United States purchased for federal, state, local, and tribal law enforcement agencies.

Bid-Rigging: South Korea-based companies SK Energy, GS Caltex, and Hanjin Transportation agreed to plead guilty to criminal charges and pay a total of approximately $82 million in criminal fines for their involvement in a decade-long bid-rigging conspiracy that targeted contracts to supply fuel to United States Army, Navy, Marine Corps, and Air Force bases in South Korea

Investor Protection Violations: AEGON USA Investment Management and three other Transamerica affiliates agreed to pay $97 million to the Securities and Exchange Commission to resolve allegations that they misled investors through the use of faulty financial models.

Hiring of Undocumented Workers: Waste Management Texas agreed to forfeit $5.5 million and entered into a non-prosecution agreement with the U.S. Attorney’s Office for the Southern District of Texas to resolve allegations that it hired numerous undocumented workers at its Houston operation.

Tax Evasion: The Swiss bank Zurcher Kantonalbank agreed to pay $98.5 million and entered into a deferred prosecution agreement to resolve charges that it conspired to help U.S. taxpayer-clients file false federal tax returns and hide hundreds of millions of dollars in offshore bank accounts.

Data Breach: Uber agreed to pay $148 million to settle allegations that emerged from a nationwide investigation of a 2016 incident in which a hacker gained access to personal information on 57 million riders and drivers.

Note: Additional details on most of these cases can be found in Violation Tracker, which now contains 327,000 entries with total penalties of $440 billion, or in the next update of the database, scheduled to appear in mid-January.

Is There Still A Corporate Ulterior Motive Behind Criminal Justice Reform?

Thursday, November 15th, 2018

Is it just a coincidence that Donald Trump has decided to embrace criminal justice reform just at the time he is more likely to become a defendant himself? He’s not the only party that may have mixed motives in supporting the legislation that is being hyped as an outstanding expression of bipartisanship.

One of the prime movers behind the initiative has been Koch Industries, whose owners Charles and David Koch are the epitome of partisanship. Their role on this issue was initially puzzling, given that the Kochs were not known for supporting anything that was remotely progressive.

Three years ago, the full story began to emerge.  The New York Times reported that one part of the reform being pushed by the Kochs and other business interests would require prosecutors to meet a more stringent standard in proving illicit intent, or “mens rea.” The Times stated that the Obama Justice Department was concerned that the change “would make it significantly harder to prosecute corporate polluters, producers of tainted food and other white-collar criminals.” PR Watch provided more detail on what the Kochs were up to.

In other words, what was made to look like a high-minded civic effort was also, at least in part, a move by corporations to shield themselves from prosecution. In the case of Koch Industries, the issue is far from a theoretical one. In Violation Tracker we document 275 cases in which the company has paid a total of $736 million for environmental, safety, employment and other offenses. One of these was a criminal case: In 2001 one of its subsidiaries pled guilty and paid $20 million to resolve allegations that it covered up Clean Air Act violations at an oil refinery in Corpus Christi, Texas.

Mens rea “reform” is not part of the current criminal justice package, but the issue is far from dead. Arkansas Sen. Tom Cotton just published an op-ed in USA Today calling for it to be added to the bill. Since Cotton’s support may be essential to passage, he may get his wish – and presumably the Kochs would be happy with that outcome.

Cotton is not the only one who has been beating this drum. Utah Sen. Orrin Hatch and Iowa Sen. Chuck Grassley have introduced mens rea legislation that would apply not only to criminal actions but also to “regulatory offenses.”

During the confirmation hearings on Brett Kavanaugh, Sen. Hatch brought up the issue of mens rea. He and the nominee both spoke enthusiastically on the need for “reform.” Here, as in much of the conservative discussion of the matter, proponents like to give the impression their concern is primarily with the rights of bank robbers and the like.

Yet it seems clear that the real intended beneficiaries are corporations and their executives supposedly being victimized by unjust regulations.

The issues surrounding criminal justice reform are complicated, but one thing is clear: it should not be used as a means of undermining the prosecution of corporate crime and misconduct.

Have Voters Killed the Crappy Coverage Comeback?

Thursday, November 8th, 2018

Democrats seized the House while Republicans increased their majority in the Senate, but the unambiguous and across-the-board winner in the election was regulation – specifically, regulation of the health insurance industry.

Rarely has the public sent such a clear message that it wanted government to rein in corporations and market forces in favor of consumer and public interest protections. The desire to retain provisions of the Affordable Care Act protecting those with pre-existing conditions was key to Democratic gains. Republicans responded by pretending they agreed with that principle, but few were fooled by this deception.

At the same time, voters in three deep red states – Idaho, Nebraska and Utah – approved ballot initiatives in favor of ACA Medicaid expansion. This amounted to an embrace not just of regulation but of out-and-out government-controlled health coverage.

All these results should put an end to the longstanding Republican crusade to repeal the ACA, but it remains to be seen whether there is also a termination of the Trump Administration’s effort to undermine the law through steps such as allowing wider sale of substandard policies.

One encouraging sign came even before the votes were counted. On November 2 a federal judge in Miami, acting at the request of the Federal Trade Commission, issued an order temporarily shutting down a Florida company called Simple Health Plans LLC, which along with related firms was selling policies the FTC called “predatory” and “worthless.”

The FTC complaint against the companies spells out a variety of deceptive practices meant to make customers think they were buying real coverage when in fact they were getting medical discount memberships of limited value.

It’s telling that one of the websites used by the firms is called Trumpcarequotes.com. Trumpcare is actually an appropriate term for the crappy coverage—both because Trump has been touting such plans and because the Trump name has been involved in previous scams such as Trump University. Let’s not forget that after his election Trump had to pay $25 million to settle litigation related to that venture, a step that the New York State Attorney General called “a major victory for the over 6,000 victims of his fraudulent university.”

The ACA’s provisions relating to protection for pre-existing conditions are inseparable from those setting minimum standards for coverage. Ensuring the right of patients to buy insurance is meaningless if they end up with plans that pay for next to nothing.

The proliferation of junk insurance through the efforts of companies such as Aetna was one of the dismal realities of the U.S. health insurance market that gave rise to the ACA. Republicans have been promoting similar low-cost plans as their solution to the supposed crisis of Obamacare. This is a cynical ploy to use a perverse form of consumerism to restore the old days of limited regulation. Let’s hope the election results have taught them a lesson about the consequences of messing with healthcare.

The Other Rogue Banks

Thursday, November 1st, 2018

The slow but steady weakening of bank regulation is continuing. Responding to legislation passed by Congress earlier this year, the Federal Reserve just voted to propose new rules for a group of banks that are large but not gigantic. Congress had called for a review of banks with assets between $100 billion and $250 billion but the Fed proposals would affect some larger ones as well. In all, 16 banks would enjoy loosened restraints.

Much of the commentary on banks focuses on mega-institutions such as Bank of America, JPMorgan Chase, Citigroup and Wells Fargo. These corporations have certainly done the most harm to the economy and whose demise would have the most dire consequences.

Yet the next tier of banks have their own track record of misconduct that argues against relaxed oversight. Some of these offenses relate directly to financial risk while others do not, but they all point to the need for more regulation rather than less. Here are examples taken from Violation Tracker.

U.S. Bancorp (total penalties in Violation Tracker: $1.2 billion): paid $453 million this year to settle Justice Department allegations that it had insufficient protections against money laundering and failed to file suspicious activity reports.

PNC Financial (total penalties: $472 million): in 2003 one of its subsidiaries paid $115 million to settle criminal charges of conspiring to violate securities laws (the deal included a deferred prosecution agreement).

Capital One (total penalties: $228 million): in 2012 one of its subsidiaries paid $165 million to settle  Consumer Financial Protection Bureau (CFPB) allegations that it deployed deceptive marketing tactics in its credit card business.

Charles Schwab (total penalties: $125 million): in 2011 it paid $118 million to settle SEC allegations that it made misleading statements to clients about one of its funds.

BB&T (total penalties: $93 million): in 2016 it paid $83 million to settle Justice Department allegations it knowingly originated mortgage loans insured by the Federal Housing Administration that did not meet applicable requirements.

SunTrust (total penalties: $1.5 billion): in 2014 it settled a case brought by the CFPB, the Department of Justice, the Department of Housing and Urban Development, and attorneys general in 49 states and the District of Columbia alleging that it engaged in systemic mortgage servicing misconduct, including robo-signing and illegal foreclosure practices. The settlement required SunTrust to provide $500 million in loss-mitigation relief to underwater borrowers and pay $40 million to approximately 48,000 consumers who lost their homes to foreclosure.

American Express (total penalties: $350 million): in 2017 it paid $96 million to settle CFPB allegations of having discriminated against customers in Puerto Rico and other U.S. territories by charging higher credit card rates than in the 50 states.

Ally Financial (total penalties: $668 million): in 2012 it paid $207 million to settle Federal Reserve allegations of mortgage servicing violations.

The list goes on for the remainder of the 16 banks: Citizens Financial (total penalties: $137 million), Fifth Third Bancorp ($121 million), KeyCorp ($19 million), Regions Financial ($170 million), M&T Bank ($119 million), Huntington Bancshares ($14 million) and Discover Financial Services ($232 million).

It’s interesting that the only institution on the list with a small penalty total ($203,000) is Northern Trust, which caters to corporations and wealthy individuals rather than the general public. If all the banks similar records, then perhaps some measure of deregulation might be warranted.

Yet as long as the large banks are as ethically challenged as the giant ones, they should continue to face strict oversight.

Trump’s Law and Order Campaign Skips the Workplace

Thursday, August 23rd, 2018

The Trump Administration has left little doubt that one of its main missions is to roll back the regulatory initiatives of the Obama years, especially the Clean Power Plan and the Consumer Financial Protection Bureau. Although Trump has been less overt about it, his corporate-friendly approach also includes weakening rules that have been around for decades.

An important case in point concerns the Fair Labor Standards Act, the key federal wage and hour law that was signed into law 80 years ago by President Franklin Roosevelt. The culmination of decades of struggle over excessive workweeks, inadequate pay levels and child labor, the FLSA put the federal government in the business of combatting wage theft and other forms of workplace exploitation.

It accomplished that through a system of workplace investigations and the imposition of financial penalties on employers large and small. In a move that has received limited attention, the Trump Labor Department is seeking to replace rigorous enforcement with a system called Payroll Audit Independent Determination (or PAID) that puts employers on the honor system. Beginning with the dubious premise that wage and hour violations mainly derive from inadvertent mistakes made by managers, PAID will encourage employers to report irregularities on their own. When they do they will still have to pay back wages but will not be assessed damages or penalties.

Such a system makes a mockery of real enforcement. What makes matters worse is that PAID, which is being billed as a pilot program for now, is being pursued right after the U.S. Supreme Court’s disastrous Epic Systems ruling. That decision affirms the right of employers to compel workers to sign mandatory arbitration agreements that would severely curtail their ability to bring collective action lawsuits. As my colleagues and I at the Corporate Research Project and Jobs With Justice Education Fund showed in a recent report, these lawsuits have allowed workers to recover billions of dollars from large corporations.

PAID was featured in a recent NBC News feature on how the Trump Administration is relaxing regulatory enforcement in numerous areas. This prompted a group of Democratic Senators to express concern about PAID to the DOL, whose spokesperson responded that it was “premature to comment” on the program.

The controversy over PAID comes amid growing concern about the prevalence of wage theft. Some of those abuses apparently exist right inside the federal government. The Labor Department, which has not yet left the investigation business, is reported to be examining the practices of a company called Seven Hills, which manages the food court at the Pentagon.

Faced with the prospect of diminished DOL enforcement and restrictions on lawsuits, activists are looking to other solutions. Some of the most encouraging work is happening at the local and state levels. For example, Centro de Trabajadores Unidos en la Lucha (Center for Workers United in Struggle) is pressing Minneapolis Mayor Jacob Frey and the City Council to pass an ordinance dealing with wage theft.

In some parts of the country, law enforcement officials are taking the term wage theft literally and treating it as a criminal offense. For example, after a joint investigation by the Washington State Attorney General’s Office and the Department of Labor & Industries, a construction company and its owner pled guilty last month to a criminal charge of first-degree theft. Earlier this month, the New York Attorney General and the Inspector General of the Port Authority announced the arrest of a contractor for failing to pay prevailing wages at a publicly-funded construction project at LaGuardia Airport.

While it would be terrible to see DOL’s wage and hour enforcement system dismantled, there are other ways rogue employers can be brought to justice.

Fake Environmental Regulation?

Thursday, August 9th, 2018

The Trump Administration likes to play with fire. Now it may be playing with a fire-resistant material that is also a deadly carcinogen. After years of receding as a public health threat, asbestos could make a comeback.

When Donald Trump joined his father in the New York real estate business in the late 1960s, the use of asbestos in high-rise construction was widespread. Yet within a few years it was revealed that the substance was highly dangerous for those who mined it, those who processed it and those who applied it. The hazard had actually been known for decades but had been kept secret by companies such as Johns-Manville in one of the most egregious corporate deceptions of the 20th Century. Paul Brodeur’s 1985 book on the subject was called Outrageous Misconduct.

Asbestos producers and users were hit with tens of thousands of lawsuits, which forced Manville and other companies into bankruptcy. Use of the material was largely eliminated and vast sums were spent to remove existing asbestos from countless buildings.

Donald Trump appears to be ignorant of this history. In 2012 he tweeted his support for asbestos, claiming that if it had been more widely used in the old World Trade Center the Twin Towers would have survived the 9/11 attack. He did not mention that asbestos fibers were present in the dust clouds generated by the disaster and are believed to be among the causes of the high rate of cancer among first responders and Ground Zero workers.

In recent days there have been reports suggesting that Trump’s Environmental Protection Agency might be putting the president’s pro-asbestos sentiments into action.  In early July the EPA issued what is known as a significant new use rule (or SNUR), inviting manufacturers to petition the agency to seek approval for asbestos products. An article in Fast Company sounded the alarm, stating that the EPA “has made it easier for companies to begin using asbestos again.”

The EPA is vehemently denying that is the case, insisting that it is actually strengthening asbestos regulation. An agency scientist told CNN that “the SNUR is really a good news story for public health protection.” The argument is that the rule would allow the EPA on a case-by-case basis to impose restrictions that may not currently exist. Unfortunately, it’s true that the United States, unlike many other countries, never fully banned the use of asbestos.

It is difficult to believe that the EPA, which has engaged in a deregulatory frenzy since Trump took office, will suddenly abandon its industry friends and embrace public health considerations in responding to new asbestos proposals.

One industry player, the Russian asbestos producer Uralasbest, apparently does not think so. The company, encouraged by the EPA’s reluctance to push for a total ban on the material, is decorating its shipments with a seal of approval containing Trump’s face and the statement “Approved by Donald Trump, the 45th President of the United States.”

Corporate Impunity

Wednesday, July 25th, 2018

In the early days of the Trump era, there was speculation that the new administration would be tough on corporate crime. Attorney General Jeff Sessions gave a speech in April 2017 in which he vowed that his Justice Department “will continue to investigate and prosecute corporate fraud and misconduct; bribery; public corruption; organized crime; trade-secret theft; money laundering; securities fraud; government fraud; health care fraud; and Internet fraud, among others.’ He added that DOJ has “a responsibility to protect American consumers.”

A new report from Public Citizen and the Corporate Research Project of Good Jobs First called Corporate Impunity shows just how hollow that promise was. Based on data from Violation Tracker, it shows that during the first year of the Trump Administration there was a substantial drop in regulatory enforcement and prosecution of corporate criminal offenses. In contrast to the zero-tolerance attitude toward migrants and refugees, the administration is showing considerable indulgence when it comes to corporate offenders.

In making a comparison to the previous administration, it is worth recalling the mixed record of the Obama years. That administration had a poor record with regard to holding top corporate executives personally responsible for serious offenses such as the abuses leading to the financial meltdown and the Deepwater Horizon oil spill disaster in the Gulf of Mexico. It continued the misguided policy of offering corporate miscreants deferred-prosecution and non-prosecution agreements.

Yet at least the Obama Administration took steps to increase the financial penalties levied on corporations for their misdeeds. For the first time, billion-dollar fines and settlements became a common occurrence.

Corporate Impunity judges the Trump Administration by that same measure—the level of monetary penalties imposed on companies. It finds, for example, that such penalties imposed by the Trump DOJ in its first year were less than one-tenth the level in each of the last two years of Obama.

The report limits its analysis of regulatory agencies to those which were headed by a Trump appointee for most of 2017. Of the 12 agencies examined, ten showed a decline in the number of enforcement actions. In some cases, those drops were steep. The Federal Trade Commission and the Securities and Exchange Commission had decreases of more than 40 percent, and five others dropped more than 25 percent.

For some agencies, the decline in the number of cases was much less severe than the drop in penalty amounts. At the Environmental Protection Agency, for example, the caseload in Trump’s first year was down 12 percent while the penalty total plunged more than 90 percent.

The results for Trump’s second year are likely to be even more dismal once results are tabulated for agencies such as the Consumer Financial Protection Bureau, which racked up an impressive record during the Obama years and attempted to do the same under Trump until the agency was captured in late 2017 by the White House and subsequently neutered.

Trump’s enforcement record shows that he really is a populist—a corporate populist creating a society in which large companies reign supreme and in many ways are above the law.

Deep Corporate Conspiracy

Thursday, May 31st, 2018

Donald Trump and the rightwing fringe never tire of talking about supposed deep state plots. Yet if there is any conspiracy going on, it is the seeming attempt to remove any checks on the power of large corporations.

The latest evidence of this effort can be seen at the banking regulatory agencies and the Supreme Court. Only a decade after a financial crisis brought on by the excesses of the financial sector, the agencies are moving to eliminate the Dodd-Frank restriction on speculative trading practices by the large banks. The attack on the Volcker Rule ignores not only the role such practices played in the meltdown but the fact that the banks have been doing quite well despite the limitation. Last year JPMorgan Chase, for example, posted a profit of more than $24 billion.

Yet even more infuriating is seeing the Supreme Court justice nominated by a purported populist president cast the deciding vote and write the opinion in a ruling that will cripple the ability of workers to use the courts to address abusive employment practices.

The opinion by Justice Gorsuch in the Epic Systems case turns the clock back to a time of near total employer tyranny in the workplace by allowing corporations to mandate that disputes be resolved through the secretive and one-sided process of arbitration rather than class action lawsuits.

The ruling had a special significance for me, given that I have spent the past year doing extensive research about such lawsuits; specifically, wage and hour collective actions designed to combat off-the-clock work, denial of overtime compensation and other forms of wage theft. My colleagues and I will publish a report on the research next week, so I cannot provide the details now. Suffice it to say that the report is going to show that wage theft is a lot more pervasive in big business than is commonly understood.

When I began the research I thought I was documenting legal actions that would continue to be a key tool for addressing employment abuses. Now it may turn out that the report will be mainly of historical interest, describing the way large corporations used to be compelled to pay out substantial sums to compensate workers cheated out of their proper pay.

To make matters worse, the Supreme Court is expected to land another blow against the collective power of workers in its forthcoming ruling in the Janus case concerning public employee unions.

The weakening of regulation, class action litigation and unions provides an unprecedented boost in the ability of big business to call the shots in the workplace and in communities. The massive increase in profitability generated by the Republican tax bill makes large corporations even more mighty.

While this power grab is taking place, many corporations are trying to present themselves as part of the more enlightened sector of society. Walt Disney and Starbucks, for instance, want us to believe they are the anti-racist vanguard. This doesn’t always work: Wells Fargo, Volkswagen and Facebook face an uphill battle. Yet all too many firms have succeeded in projecting a benign image while engaging in corrupt behavior.

There is no easy way to remedy this situation, but we should not let the distractions emanating from the White House make us forget the larger problems.

Profits Before Safety

Thursday, April 19th, 2018

The passengers who survived Southwest Flight 1380’s engine explosion are feeling lucky to be alive and grateful for the skilled landing executed by pilot Tammie Jo Shults. Another group feeling relief are the top executives of Allegiant Air. If the accident had happened to one of their planes, the carrier’s survival might be in question.

That’s because of the revelations contained in a remarkable 60 Minutes investigative report on Allegiant that aired on April 15th. Correspondent Steve Kroft described the culture of the budget carrier as one that puts profits before safety and that discourages pilots from reporting mechanical problems with their aircraft. The piece documented an alarming pattern of aborted takeoffs, cabin pressure loss, emergency descents and unscheduled landings during Allegiant flights.

In one incident Allegiant, whose executives refused to be interviewed by 60 Minutes, fired a pilot who made an emergency landing when smoke appeared in the cabin and then ordered passengers to exit rapidly through escape chutes once the plane was on the ground.

To its credit, 60 Minutes did not focus only on Allegiant. It also investigated why a carrier with such a checkered track record was still allowed to fly. The answer turned out to be that the Federal Aviation Administration has during the past few years adopted a less confrontational enforcement approach.

Kroft grilled John Duncan, the FAA’s head of flight standards, who went through extraordinary verbal contortions to avoid saying anything negative about Allegiant’s record. Duncan insisted that each incident was addressed separately and refused to acknowledge there was any pattern of misconduct. Duncan is a living embodiment of that new FAA approach, which involves quietly cooperating with carriers to fix problems rather than pressuring them with large fines and other public sanctions.

The FAA has not abandoned monetary penalties entirely. In Violation Tracker, Allegiant has eight entries from the agency, the largest being a $175,000 fine from 2015 for drug testing deficiencies. Penalties like that are fine for routine infractions, but something a lot more punitive is needed when a company has the kind of dismal record attributed to Allegiant.

Higher fines are just part of what is needed at the FAA. The agency should return to an adversarial posture and compel rogue carriers such as Allegiant to take safety issues seriously.

It won’t be easy for the FAA to change its course, since the Trump Administration and Congressional Republicans are on a crusade against just about every kind of regulation. The latest maneuver is the use of the Congressional Review Act, an obscure law employed last year to undo rules adopted by the Obama Administration during the prior 12 months, to eliminate a longer-standing one: the 2013 Consumer Financial Protection Bureau regulation barring auto lenders from charging minority customers higher interest rates.

This obsession with dismantling the so-called administrative state has gone beyond all justification and is putting the population more and more at the mercy of unscrupulous companies.