Category: Violation Tracker

Derailing a Strike

The Biden Administration and Congressional Democrats purport to be pro-union, but in their desperation to prevent a rail strike they fail to understand something fundamental about collective bargaining: Sometimes workers have to inconvenience the public in order to achieve their legitimate goals.

A strike is a form of disruption. It is designed to put direct economic pressure on an employer by curtailing operations. Yet it also uses indirect means. The hope is that customers, suppliers, creditors and other stakeholders will press management to settle its differences with the union, resulting in better terms for workers. The louder the public uproar, the more likely there will be concessions by employers.

By trying to prohibit a strike by rail workers dissatisfied with the agreement previously negotiated with the help of the Biden Administration, Congress is eliminating both the direct and indirect pressures management might feel to improve on those contract provisions. It is trying to impose a clean solution in a conflict that is inherently messy.

At the insistence of progressives, Speaker Nancy Pelosi agreed to an add-on bill that would compel the railroads to provide additional paid sick days—a key point of contention—but as of this writing it seems unlikely that measure will pass the Senate.but that measure failed in the Senate.

Passage of a measure imposing the previous agreement and banning a strike would amount to one of the most egregious cases of strike-breaking by the federal government since Ronald Reagan busted the air traffic controllers union in 1981. It would also constitute an outrageous giveaway to a group of employers with a dismal track record on working conditions and safety.

As documented in Violation Tracker, the five U.S.-owned Class I railroads — BNSF, CSX, Kansas City Southern, Norfolk Southern and Union Pacific—have been fined more than 9,000 times by the Federal Railroad Administration and the Occupational Safety and Health Administration over the past two decades. They have paid over $100 million in penalties. The biggest offender is Union Pacific, with over 3,400 citations and $42 million in fines over safety issues.

The hazards indicated by these repeated violations—along with the grueling schedules imposed on rail workers—make the demand for ample paid sick leave all the more urgent.

That urgency applies not only to railroad employees but to the public. The safety lapses cited by the Federal Railroad Administration can lead to accidents such as collisions with cars and trucks at grade crossings or derailments in which hazardous materials spill out and endanger nearby communities.

Railroads have a history of trying to suppress information about dangerous working conditions. For example, in 2019 and 2020 BNSF, which is part of Warren Buffett’s Berkshire Hathaway conglomerate, was ordered to pay more than $1.7 million in damages and compensation to an employee who faced retaliation after reporting track defects.

CSX has been fined several times for whistleblower retaliation. For example, in 2021 OSHA found that the company violated the Federal Railroad Safety Act and demonstrated a pattern of retaliation after firing a worker in December 2019 for reporting safety concerns. The agency ordered the company to pay $71,976 in back wages, interest, and damages, and $150,000 in punitive damages.

In 2020 Norfolk Southern was ordered to pay $85,000 and reinstate an employee who was fired for reporting an on-the-job injury. Union Pacific has paid over $700,00 in five retaliation cases.

The rap sheets of the Class I railroads also include multiple environmental penalties. For example, in 2009 Union Pacific had to pay more than $31 million to settle alleged violations of the Clean Water Act in Nevada. In 2019 it paid $2.3 million to four California counties to resolve allegations relating to the mishandling of hazardous wastes.

In 2010 Norfolk Southern paid over $8 million to the Environmental Protection Agency in connection with a derailment and spill of hazardous chemicals in South Carolina. Three years earlier, it paid over $7 million to Pennsylvania to help pay for the restoration of waterways and wetlands affected by a lye spill.

In 2018 CSX paid $2.7 million to federal and state agencies to resolve liabilities related to water pollution caused by a 2015 derailment and oil spill in West Virginia. In 2004 BNSF paid North Dakota $29 million to resolve litigation relating to a massive underground leak of diesel oil.

The Biden Administration and Congressional Democrats may not have intended it, but their approach to the rail conflict ended up providing an extraordinary benefit to one of the least deserving industries.

Reducing Exploitation in the Gig Economy

On October 10 the San Diego City Attorney announced that the grocery delivery service Instacart had agreed to pay $46.5 million to settle a lawsuit alleging that it violated California’s labor code by misclassifying some 308,000 of its workers over a five-year period.

The following day, the U.S. Department of Labor announced a proposed new rule for determining when gig workers should be classified as employees rather than independent contractors.

These events represent two fronts in the widening war between regulators seeking to bring traditional workplace protections to the gig economy and companies such as Instacart that have come to rely on low-cost flexible labor.

In the middle are the workers themselves, who do not line up neatly on either side. Some of those doing gig work value flexibility over things such as overtime pay and may view the DOL proposal and the stricter rules adopted by states such as California as threats to their livelihood.

Yet there are also large numbers of people toiling for the likes of Instacart and Uber who struggle to make a decent living and feel exploited. Many of them would welcome the benefits that come with employee status, even if it means more rigidity in their working arrangement.

The proposed DOL rule seeks to better identify who belongs in which category by replacing the narrow criteria adopted during the Trump Administration with a multi-factor test that it takes the department 184 pages to detail. For example, the DOL would look at whether the worker had the ability to set prices for the services provided.

These additional tests would likely make it more difficult for companies to classify workers as independent contractors. Yet even if the new rule is implemented in some form, the gig giants will resist changing their ways. In all likelihood, they will go on treating workers as independent contractors and wait to be challenged. That’s the approach they have taken under current law

As shown in Violation Tracker, four of the largest ride-sharing and delivery services have together paid over $88 million in class-action wage and hour lawsuits. Uber leads the pack with $49 million in such settlements, followed by Lyft with $28 million. Instacart and DoorDash have each paid about $5 million.

That is on top of what they have paid to state and local agencies in misclassification cases such as the one brought in San Diego. Uber, for example, recently paid $100 million to New Jersey.

If the rules are changed, these settlements will become even larger and more frequent. The gig companies will go on paying them in the hope of staving off something they see as much worse.

Once gig workers become employees, it will be a lot easier for them to seek the additional protections that come with collective bargaining. Employee status is an important stepping stone to unionization, which would mean an end to the worst forms of exploitation.

It is possible to imagine an economy that combines labor flexibility with strong worker protections, but it would require the gig employers to cede some of the one-sided control they now exercise.

Non-Profit Hospitals Need to Heal Themselves

Providence, a gigantic non-profit health system with more than 50 hospitals in five Western states, describes itself as “steadfast in serving all, especially those who are poor and vulnerable.” According to a recent New York Times investigation, Providence has also preyed on those populations by using aggressive techniques to get payments from patients who should have been given free care. Those techniques, dubbed Rev-Up, were developed with the help of the consulting firm McKinsey, which the Times said was paid more than $45 million for its advice.

Now Providence is trying to repair the damage to its image. The Times reports that the health system is providing refunds to more than 700 low-income patients who were hounded into making payments for their care. Providence is not disclosing how much its is refunding, but the amount is likely to be a small fraction of what ruthless efforts such as Rev-Up brought in. A lawsuit filed by the Washington State Attorney General accuses Providence of improperly siccing debt collectors on more than 50,000 patients.

Failing to live up to its obligation to provide free care is just one of the ways in which Providence has acted as something less than a model non-profit institution. As documented in Violation Tracker, the health system has paid out more than $380 million in regulatory fines and class action settlements. These include cases involving issues such as wage theft, workplace safety and privacy. It has paid out over $28 million in False Claims Act cases, which involve submitting fraudulent bills to federal programs such as Medicare. Providence’s biggest payouts have involved cases in which it was accused of mismanaging employee retirement plans.

Providence is just one of dozens of large non-profit health systems that show up in Violation Tracker with large penalty totals from multiple cases. The system that tops the list is California-based Sutter Health, which has racked up $749 million in penalties from 46 cases. The largest of these was a $575 million settlement with the California Attorney General and other parties, which accused Sutter of engaging in anti-competitive practices that drove up healthcare costs. Sutter has also paid $170 million in False Claims Act cases.

Apart from Providence and Sutter, about 20 other non-profit health systems have paid out at least $50 million in penalties. These include Trinity Health ($328 million), RWJBarnabas Health ($277 million) and Northwell Health ($208 million). About 120 others have paid at least $1 million.

Many of these penalties result from a preoccupation with the bottom line, which leads the health systems to cut corners on compliance, shortchange their employees and cheat the government. The non-profit hospital systems may not have shareholders, but they seek to generate ever-larger surpluses that can be used for building new facilities and buying up competitors. Expansion seems to be the ultimate goal.

Their behavior makes them increasingly indistinguishable from the giant for-profit health chains HCA and Tenet, each of which has well over $1 billion in penalties. The difference, of course, is that the public is subsidizing the non-profits by relieving them of the obligation to pay taxes. The time has come to force the giant hospital systems such as Providence to focus less on empire-building and more on their social obligations.

The Price of Not Heeding the WARN Act

In 2020 a furniture company called Flexsteel Industries laid off about 300 workers at its plants in Dubuque, Iowa and Starkville, Mississippi. According to a class action lawsuit filed on behalf of the employees, Flexsteel violated federal law by failing to provide either severance pay or 60 days’ notice.

The law in question is the Worker Adjustment and Retraining Notification Act of 1988, better known as the WARN Act. Oddly, the law does not provide for enforcement by the U.S. Department of Labor. Instead, workers must usually take a non-compliant employer to court. They have done so many times and have often won substantial settlements.

WARN Act class action lawsuits are the latest category of private litigation to be added to Violation Tracker. The newly posted update to the database includes more than 100 WARN settlements totaling over $225 million over the past two decades. About half of the settlements were for $1 million or more. That includes the $1.3 million won by the Flexsteel workers.

Overall, the settlements range from $100,000 to $35 million, with the highest amount coming in a 2011 case involving the now-defunct semiconductor company Qimonda. The second largest was $15 million, in a case involving Taylor, Bean & Whitaker Mortgage Corp.

These settlements, like about three-quarters of the cases collected, came while the company was in bankruptcy proceedings. Many employers mistakenly thought that a bankruptcy filing exempted them from complying with the provisions of the WARN Act.

Although bankruptcy cases can drag on for years, victims of WARN Act non-compliance are often able to receive more timely relief by filing what are known as adversary proceedings. These are the equivalent of civil lawsuits brought in federal district courts and can get resolved much sooner than other bankruptcy matters.

While most WARN Act cases are brought against direct employers, some of the settlements involve private equity firms that controlled the company. For example, in 2019 Apollo Global Management and a human resources service paid $3 million to resolve a case brought by about 1,000 workers laid off from Apollo’s portfolio company Classic Party Rentals.

Additional WARN Act cases are making their way through the courts. Tesla is the target of one of those suits, filed earlier this year on behalf of those terminated as part of the company’s practice of periodically weeding out workers considered to have performance issues. Tesla is arguing that the workers should not be able to bring a class action, given that they signed employment agreements providing for the use of arbitration to resolve disputes.

Some employers have tried to argue that layoffs that took place during the pandemic should not be covered by the WARN Act, given that the law has an exception for natural disasters. A federal appeals court, however, ruled in June that Covid should not be lumped together with events such as earthquakes and floods mentioned in the legislation.

If the U.S. economy continues to move in the direction of a downturn, layoffs will become more common and the protections of the WARN Act—and WARN class actions—will help workers deal with the slump

Note: The Violation Tracker update also includes the addition of 10,000 wage and hour cases brought by the California Labor Commissioner’s Office over the past two decades.

The Pill Mills of the Fortune 500

The downfall of Purdue Pharma illustrated the role played by drugmakers in the opioid crisis. Large settlements paid by the likes of McKesson and AmerisourceBergen highlighted the culpability of the major drug wholesalers. Now more attention is being paid to the other players in the corrupt supply chain: pharmacies.

The assumption used to be that the main retail culprits were small pharmacies in places such as West Virginia that readily filled far more oxycontin prescriptions than would be expected to arise from legitimate use in their communities. Those businesses, like the unscrupulous clinics that wrote the prescriptions, are often called pill mills.

A decision just handed down by a federal court in San Francisco indicates that our understanding of that phrase needs to be revised. Following a bench trial, U.S. District Judge Charles Breyer ruled that the giant pharmacy chain Walgreens improperly dispensed hundreds of thousands of suspicious prescriptions for narcotic painkillers in the Bay Area over more than a decade.

“In exchange for the privilege of distributing and dispensing prescription opioids,” Judge Breyer wrote, “Walgreens has regulatory obligations to take reasonable steps to prevent the drugs from being diverted and harming the public. The evidence at trial established that Walgreens breached these obligations.”

Those regulatory obligations come from the Controlled Substances Act (CSA), a federal law which regulates the distribution of drugs ranging from Xanax to fentanyl. As shown in Violation Tracker, the U.S. Justice Department and the Drug Enforcement Administration have brought about two dozen successful CSA actions against large pharmacy chains, including those operated by the big supermarket companies.

In 2013 Walgreens had to pay $80 million to resolve a DEA case involving what the agency called “an unprecedented number of record-keeping and dispensing violations.” CVS, another pharmacy goliath, has paid out over $130 million in a dozen CSA cases.

These amounts are likely to be dwarfed by the damages against Walgreens in the San Francisco case, which have yet to be determined. Walgreens and CVS, along with Walmart, are also embroiled in an opioid test case brought by two counties in Ohio. The plaintiffs are seeking a payout of several billion dollars to help pay for addiction services.

If those Ohio counties are successful, it would give a green light to several thousand other cases that have been filed around the country and are being treated as a multidistrict action. On top of that, Walgreens, CVS and Walmart are facing a slew of opioid cases brought by the Cherokee Nation and other tribes.

It is unlikely that Walgreens or CVS will suffer the same fate as Purdue Pharma, which had to file for bankruptcy and agree to turn itself into a public benefit company while its owners, the Sackler Family, had to promise to pay out billions. CVS, which generated nearly $8 billion in profits last year, is particularly well positioned to handle the massive settlements to come.

The real question is whether it and Walgreens will own up to their misconduct and get serious about complying with their obligations to prevent opioid abuse.

Another Crooked Bank

When one large corporation is found to be breaking the law in a particular way, there is a good chance that its competitors are doing the same thing. The latest evidence of this comes in an announcement by the Consumer Financial Protection Bureau concerning U.S. Bank.

The CFPB fined the bank $37.5 million for illegally accessing credit reports and opening checking and savings accounts, credit cards, and lines of credit without customers’ permission. U.S. Bank employees were said to have done this in response to management pressure to sell more financial products and thus generate more fee revenue.

If this sounds familiar, it is exactly what came to light in 2016 regarding Wells Fargo, which was initially fined $100 million by the CFPB for the fraudulent practice and subsequently faced a wave of other legal entanglements, including a case brought by the U.S. Justice Department in which Wells had to pay $3 billion to resolve civil and criminal charges.

The U.S. Bank case has not yet generated the tsunami of outrage that accompanied the revelations about the phony accounts at Wells. Perhaps that is because it is the middle of the summer. Yet chances are that the CFPB’s enforcement action will not be the only punishment the bank will face.

U.S. Bank’s practices were no less egregious than those of Wells. According to the CFPB, the management of the bank, which currently has more than half a trillion dollars in assets, was aware for more than a decade that its employees were creating fictitious accounts.

And like Wells, U.S. Bancorp has a long history of questionable behavior. Violation Tracker documents more than $1.2 billion in penalties from 40 cases dating back to 2000. Half of the total comes from offenses involving serious deficiencies in anti-money-laundering practices, including a 2018 case in which the bank had to pay $453 million to settle criminal charges brought by the U.S. Justice Department plus another $75 million to the Office of the Comptroller of the Currency to resolve civil allegations.

In 2014 U.S. Bank had to pay $200 million to settle allegations that it violated the False Claims Act by knowingly originating and underwriting mortgage loans insured by the Federal Housing Administration that did not meet applicable requirements. The bank also had a previous run-in with the CFPB, which penalized it $53 million in 2014 for unfairly charging customers for credit identity protection and credit monitoring services they did not receive.

It is likely that U.S. Bank’s penalty total will rise substantially through additional cases prompted by the CFPB’s latest allegations, which include accusations the bank violated not only the Consumer Financial Protection Act but also the Fair Credit Reporting Act, the Truth in Lending Act, and the Truth in Savings Act.

Apart from monetary penalties, U.S. Bank may face an additional form of punishment applied to Wells: in 2018 the Federal Reserve restricted the growth of the firm until it cleaned up its practices and improved its governance. Since fines have proven to be a weak deterrent against corrupt practices at major financial institutions, more aggressive measures provide the only hope of bringing the big banks under control.

Parent Company Makeovers?

The addition of historical parent data to Violation Tracker, including a list of the most penalized corporations based on that data, may have led some p.r. executives to hope that their employer would look better on the new tally. Many of them will end up disappointed.

In last week’s Dirt Diggers, I compared the 100 most penalized current parents to the 100 most penalized historical parents and found limited differences. This week I expand the focus to the top 1,000.  

Among that larger group, nearly half have penalty totals based on historical parent-subsidy linkages that are lower than their totals based on current ownership relationships.

Yet the median difference for those with lower historical totals is just $14 million. Only 34 of the 1,000 companies ended up with zero penalties using the historical basis; another 33 ended up with totals below $1 million. The biggest beneficiary of the different approach is Viatris, almost all of whose $1 billion in penalties based on current linkages were incurred by Mylan and Upjohn before they merged in 2020 to form the new company.

Other parents that look good when switching from current to historical linkages include: Equitable Holdings, whose big penalties occurred when it was owned by AXA, and Daimler Truck, just about all of whose penalties date from the period when it was still part of Daimler AG, now known as Mercedes-Benz Group.

Among the 1,000 most penalized current parents there are more than 400 whose historical total is exactly the same, reflecting the fact that they neither acquired nor spun off penalized subsidiaries. Those in this group with the largest penalty amounts are Deutsche Bank, Purdue Pharma, GlaxoSmithKline, Toyota, Allianz, PG&E, and Barclays. The median penalty total for all the zero-difference parents in the top 1000 list is $59 million.

Sixty-seven of the top 1,000 parents look worse when switching from the current to the historical basis. That is because they divested a heavily penalized subsidiary. Those with the biggest penalty differences include: Abbott Laboratories, which spun off AbbVie with its $1.5 billion in penalties; AXA, which spun off Equitable and its $651 million in penalties; and Daiichi Sankyo, which sold Ranbaxy USA, which had accumulated more than $500 million in penalties.

Another 11 companies—such as BP, which sold its heavily penalized operations in Texas City, Texas to Marathon Petroleum, and General Electric, which has been downsizing in numerous sectors—have historical penalty totals at least $100 million lower than their current totals. Yet all of those still end up with historical totals of more than $300 million, and in four cases—BP, Johnson & Johnson, GE and Boehringer Ingelheim—the amount is above $1 billion.

The upshot of all this is that switching the focus from current to historical parent linkages does not show a dramatic difference in the misconduct track record of most large companies. While the new data may not help much for company makeovers, I hope it will prove useful for those taking a critical look at corporate behavior.

Note: the historical parent data now in Violation Tracker is accessible only to those who purchase a subscription. Searching and displaying the other data remain free of charge.

Violation Tracker’s New Track

Since Violation Tracker was introduced in 2015, my colleagues and I at the Corporate Research Project have put a lot of effort into identifying the ultimate parent companies of the firms named in the many thousands of individual enforcement records we collect. This has allowed us to show which of those parents have the highest penalty totals linked to their current line-up of divisions and subsidiaries. That dubious distinction has been achieved by the likes of Bank of America, BP and Volkswagen.

Some of the corporations on this list have complained it is unfair to link them to penalties incurred by subsidiaries before they were acquired. We have taken the position that when a company is purchased, the acquirer is in effect buying that entity’s track record. We have thus felt comfortable attributing those past bad acts to the current owners.

Nonetheless, we recognize that Violation Tracker users may want to distinguish between penalties received while the entity has been linked to the current owner and those that occurred before. We thus undertook the task of reconstructing the ownership history of the entities named in the 106,000 entries in Violation Tracker that are linked to one of the more than 3,000 parents for which we aggregate data.

That project is now complete, and the historical data has been incorporated in a newly redesigned Violation Tracker—both in the individual entries and in a list showing the 100 parents with the largest penalty totals based on ownership linkages at the time each penalty was announced.

Before I reveal more about that list, I must report that the cost of this project and the ongoing expenses associated with a very labor-intensive resource compelled us to begin requiring users to purchase a subscription in order to access certain features of the site. Those features include the parent history data and the ability to download search results. Searching and displaying search results (without the historical data) remain free of charge. More details of the subscription system can be found here.

The expanded entries visible to subscribers show the parent at the time of the penalty and the current parent. If the two are different, there is a field summarizing the ownership changes that occurred. For example, an entry on a penalty paid in 2002 by the trucking company Overnite Transportation now notes that its parent at the time was Union Pacific. A new history recap field states: “In 2003 Union Pacific spun off Overnite. In 2005 the company was acquired by United Parcel Service, which sold it to TFI International [the current parent] in 2021.” In addition to accessing such information in individual entries, subscribers can search by historical parent name in the Advanced Search section.

Returning to the list of most penalized parents based on historical ownership linkages, the first finding is that it contains many of the same corporations as the list based on current linkages. In fact, the same name is at the top of both lists: Bank of America. The only difference is that BofA’s historical penalty total–$79 billion—is lower than its total on the current list: $83 billion. That mainly reflects the subtraction of the penalties incurred by Merrill Lynch and Countrywide before they were acquired by BofA amid the financial crisis of 2008.

JPMorgan Chase, number two on the current list, drops to third place on the historical list because of the elimination of penalties related to its big 2008 acquisitions: Washington Mutual and Bear, Stearns. BP rises from third to second. Otherwise, the corporations in the top ten and their rankings are identical in the two lists. The others in that group are: Volkswagen, Citigroup, Wells Fargo, Deutsche Bank, UBS, Goldman Sachs, and Johnson & Johnson. Their penalty totals range from $14 billion to $25 billion on both lists.

Expanding the focus to the full list of the top 100 yields similar results. Eighty-four of the 100 most penalized current parents are also on the list of the 100 most penalized historical parents. Of the remaining 16, four fall slightly above 100 in the historical ranking. The other dozen are parents which, like Bank of America and JPMorgan Chase, bought or merged with other companies with substantial penalty histories.

For example, when Occidental Petroleum bought Anadarko Petroleum in 2019, it took on a business that had earlier been involved in a $5 billion settlement with the Justice Department. Apart from Anadarko, Occidental has accumulated $218 million in penalties.

Among the 16 companies on the historical top 100, but not the current list, is Abbott Laboratories. It gets eliminated from the current list because of its 2013 spinoff of AbbVie, which included businesses with more than $1.5 billion in previous penalties. Without AbbVie, Abbott still has penalties of $785 million.

Any parent company with ownership changes involving businesses with substantial penalty records is going to rank differently on the current and historical lists. Yet these differences do not change the fact that most large corporations have abysmal compliance records no matter how we add up their penalties.

The Regulation Bashers

Uber Technologies, a company which already had a less than sterling reputation, now has to contend with more blemishes on its record, thanks to a massive leak of internal documents to the International Consortium of Investigative Journalists.

Using what has been dubbed the Uber Files, ICIJ and partner media outlets such as The Guardian and The Washington Post have published a flurry of articles describing how the company, during a period when cofounder Travis Kalanick was still CEO, used a variety of aggressive techniques to fight regulators as it sought to conquer the tax industry around the world. At the same time, the company ingratiated itself with numerous world leaders to help in its expansion. Some Uber executives liked to refer to themselves as “pirates.”

While many of the details are fascinating, the main revelations in the Uber Files are far from surprising. The company was already known for ruthless tactics. In the United States alone, Uber has racked up more than $300 million in fines and penalties. About half of that total comes from a single settlement with a group of states which alleged that it tried to cover up a data breach affecting over 50 million customers.

Uber paid $20 million to resolve Federal Trade Commission allegations that it misled prospective drivers with exaggerated claims about earnings potential and about the availability of vehicle financing. It paid $10 million to Los Angeles and San Francisco counties (another $15 million was suspended) in settlement of allegations it misled customers about the background checks it carried out on its drivers. It was fined numerous times by state regulators for operating without proper authority or for failing to comply with reporting requirements.

It is clear that Uber, especially during the Kalanick era, has regarded regulation with contempt. One cannot help but suspect that the company’s name is meant to portray it not only as being above its competitors but also above the oversight of governments.

While Uber has been quite brazen in its hostility toward regulation, that opposition is hardly unusual. The Uber Files are appearing not long after the rightwingers of the U.S. Supreme Court handed down a ruling that not only blocked the Biden Administration’s effort to limit greenhouse gas emissions but may also lead to the dismantling of many other forms of government oversight of business.

There is now growing concern that the Court could revive rulings such as the 1905 Lochner decision which struck down a New York law that prohibited employers from imposing excessive working hours. Lochner held sway for several decades until giving way to the labor protections adopted during the New Deal era.

It is not hyperbole to suggest that the Court wants to bring back an economy that resembles the laissez-faire system of the 19th Century. That is, after all, an implication of the originalism the rightwing Justices claim to espouse. If Roe has to be overturned because the Constitution says nothing about abortion, then don’t laws about fair labor standards or product safety also have to fall because the founders did not address those issues either?

It may be that the bigger threat comes not from business executives pretending to be pirates but from extremists in black robes laying waste to essential government safeguards.

Corrupt Watchdogs

At first glance it seemed to be a satirical piece from The Onion. The Securities and Exchange Commission issued a press release announcing that Big Four accounting firm Ernst & Young was being fined $100 million for failing to prevent its audit professionals from cheating on ethics exams required to obtain and maintain their CPA licenses.

Not only did EY exercise poor oversight over its employees—it also tried to withhold evidence of the misconduct from agency investigators. This prompted the SEC to impose the largest fine ever against an audit firm.

The SEC’s release quoted Enforcement Division Director Gurbir Grewal as saying “it’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams, of all things,” adding: “And it’s equally shocking that Ernst & Young hindered our investigation of this misconduct.”

Yes, it’s shocking, shocking in a Casablanca sort of way to learn that EY management is apparently as corrupt as its auditors. The SEC failed to mention that EY has a long track record of misconduct. Even before this latest case, it has racked up more than $350 million in fines and settlements since 2000, as documented in Violation Tracker.

In 2013, for instance, EY paid $123 million to resolve allegations that it promoted a tax shelter scheme to clients that was so dodgy that the IRS asked the Justice Department to bring criminal charges against the firm. In 2009 EY paid $109 million to the Michigan Attorney General to settle allegations that it failed to expose accounting fraud in its audits of HealthSouth Corporation.

The SEC itself fined EY eight previous times in the past two decades, including a case last year in which the firm paid $10 million to settle allegations it violated auditor independence rules.

EY is not the only member of the Big Four with a checkered record—they are all tainted. As shown in Violation Tracker, PricewaterhouseCoopers has accumulated $114 million in penalties, Deloitte has $260 million and KPMG a whopping $560 million.

A big portion of the KPMG total came from a 2005 case in which it paid $456 million to resolve criminal charges that it designed and marketed fraudulent tax shelters. It has paid penalties to the SEC nine times since 2000—including a $50 million fine involving the same kind of cheating found at EY.

Given the ineffective deterrent effects of monetary penalties and criminal charges resolved through non-prosecution and deferred prosecution agreements, one might ask whether there is any way to eliminate corruption among the big auditing firms.

The 2002 Sarbanes-Oxley Act created a federal entity called the Public Company Accounting Oversight Board, which is supposed to keep auditing firms on the straight and narrow. It has brought more than 100 cases against the Big Four and smaller firms, yet auditing scandals continue to happen.

There is a need to find ways to end the stranglehold the Big Four have on providing auditing services for large corporations. This could include reforms such as stricter requirements for companies to rotate the firms they use. New reforms adopted in the UK will require large corporations to use smaller firms for at least a portion of their auditing.

A bolder approach could involve the creation of non-profit auditing agencies with more rigorous independence rules to prevent them from being influenced by unscrupulous clients. These and other reforms are urgently needed to end a system in which auditors who are supposed to ferret out corruption instead end up facilitating it.

Note: Just before the EY case was announced, Violation Tracker posted its latest quarterly update with about 10,000 new federal, state and local regulatory enforcement actions and class action lawsuits. This brought the total number of entries to 522,000 and total penalties to $804 billion. The EY case will be added soon.