The Kochs’ Stake in Pollution

Accountability_LATimesPuppets_300x250_FINALREVISED050813_2Koch Industries and the billionaire brothers who run it are best known for their involvement in rightwing causes. The latest controversy is over the Kochs’ reported interest in purchasing the Los Angeles Times and other major newspapers owned by the Tribune Co. A campaign centered in L.A. is mobilizing opposition to such a deal among newspaper subscribers and Tribune shareholders, warning that a Koch takeover would create a new Fox News.

What often gets forgotten is that Koch Industries is not just part of the Koch ideological machine. It is a huge privately-held conglomerate with annual revenues of more than $100 billion and operations ranging from oil pipelines and refining to paper products (it owns Georgia-Pacific), synthetic fibers (it bought Lyrca and Stainmaster producer Invista from DuPont), chemicals, mining and cattle ranching.

I’ve just completed one of my Corporate Rap Sheets on Koch Industries, and it’s clear that the sins of the company go far beyond the political realm. The following is some of what I found.

In November 2011 the magazine Bloomberg Markets published a lengthy article entitled “The Secret Sins of Koch Industries” that made some explosive accusations against the company: “For six decades around the world, Koch Industries has blazed a path to riches—in part, by making illicit payments to win contracts, trading with a terrorist state, fixing prices, neglecting safety and ignoring environmental regulations. At the same time, Charles and David Koch have promoted a form of government that interferes less with company actions.”

What Bloomberg revealed for the first time were the allegations involving bribery and dealing with Iran. The article reported that the company’s subsidiary Koch-Glitsch paid bribes to secure contracts in six countries (Algeria, Egypt, India, Morocco, Nigeria and Saudi Arabia) and that it violated U.S. sanctions by doing business with Iran, including the sale of materials that helped the country build the world’s largest plant to convert natural gas to methanol used in plastics, paints and chemicals.

The environmental cases alluded to by Bloomberg had been previously reported and included the following.

In 1995 the U.S Justice Department, the Environmental Protection Agency and the United Stated Coast Guard filed a civil suit against Koch Industries and several of its affiliates for unlawfully discharging millions of gallons of oil into the waters of six states. In one of the largest Clean Water Act cased ever brought up to that time, the agencies accused Koch of being responsible for more than 300 separate spills in Alabama, Kansas, Louisiana, Missouri, Oklahoma and Texas.

In 1997 Tosco Corporation (now part of ConocoPhillips) sued Koch in a dispute over costs related to the clean-up of toxic waste at an oil refinery in Duncan, Oklahoma that used to be owned and operated by Koch. In 1998 a federal judge ordered Koch to contribute to those costs, and that ruling was upheld by an appeals court in 2000. The companies later settled the matter out of court.

In 1998 Koch agreed to pay $6.9 million to settle charges brought by state environmental regulators relating to large oil spills at the company’s Rosemount refinery in Minnesota. The following year it agreed to plead guilty to related federal criminal charges and pay $8 million in fines.

Also in 1998, the National Transportation Safety Board found that the failure of a Koch subsidiary to protect a liquid butane pipeline from corrosion was responsible for a 1996 rupture that released a butane vapor. When a pickup truck drove into the vapor it ignited an explosion that killed the driver and a passenger. In a wrongful death lawsuit a Texas jury awarded the father of one of the victims $296 million in damages.

In 2000 the U.S. Justice Department and the EPA announced that Koch Industries would pay what was then a record civil environmental fine of $30 million to settle the 1995 charges relating to more than 300 oil spills plus additional charges filed in 1997. Along with the penalty, Koch agreed to spend $5 million on environmental projects in Texas, Kansas and Oklahoma, the states where most of its spills had occurred. In announcing the settlement, EPA head Carol Browner said that Koch had quit inspecting its pipelines and instead found flaws by waiting for ruptures to happen.

Later in 2000, DOJ and the EPA announced that Koch Industries would pay a penalty of $4.5 million in connection with Clean Air Act violations at its refineries in Minnesota and Texas. The company also agreed to spend up to $80 million to install improved pollution-control equipment at the facilities.

In a third major environmental case against Koch that year, a federal grand jury in Texas returned a 97-count indictment against the company and four of its employees for violating federal air pollution and hazardous waste laws in connection with benzene emissions at the Koch refinery near Corpus Christi.

The Bloomberg Markets article reported that a former Koch employee said she was told to falsify data in a report to the state on the emissions.  The company was reportedly facing potential penalties of some $350 million, but in early 2001 the newly installed Bush Administration’s Justice Department negotiated a settlement in which many of the charges were dropped and the company pled guilty to concealing violations of air quality laws and paid just $10 million in criminal fines and $10 million for environmental projects in the Corpus Christi area.

With the purchase of Georgia-Pacific in 2005, Koch acquired a company with its own environmental and safety problems. For example, in 1984 a G-P plant in Columbus, Ohio had spilled 2,000 pounds of phenol and formaldehyde that reached a nearby community. Residents complained of health problems from that incident and from a huge industrial waste pond that the company continued to maintain at the plant.

In 2009 the U.S. Justice Department and the EPA announced that G-P would spend $13 million to perform clean-up activities at a Michigan Superfund site where it previously had a paper mill. In 2010 G-P was one of ten companies sued by the Justice Department over PCB contamination of the Fox River in Wisconsin. Unlike the other defendants, G-P had already settled with DOJ by agreeing to a $7 million penalty and to pay for the costs of a portion of the clean-up. One of the other defendants, Appleton Papers, called the settlement a “sweetheart deal.”

More recently, Koch Industries has been caught up in the controversy over the Keystone XL pipeline. In 2011 Inside Climate News reported that Koch already responsible for 25 percent of the tar sands oil being imported from Canada into the United States and stood to benefit greatly from the new pipeline. Koch denied its involvement, but Inside Climate News found documents filed with Canada’s Energy Board contradicting that statement.

An August 2012 report by the Political Economy Research Institute at the University of Massachusetts-Amherst identified Koch as being among the top five corporate air polluters in the United States.

The reason the Kochs rail against regulation is clear: they’ve got a big stake in pollution.

Note:  The full rap sheet on Koch Industries can be found here.

Apologies and Apple

bad-appleIn 2010 Texas Rep. Joe Barton took the bizarre step of apologizing to BP for the Obama Administration’s effort to get the oil giant to compensate those affected by its massive spill in the Gulf of Mexico. Barton faced a firestorm of criticism and had to retract his statement.

It will be interesting to see if Sen. Rand Paul has to do the same with his outrageous statement the other day arguing that the Senate should apologize to Apple for the report of its investigations subcommittee documenting brazen tax dodging by the company. “I would say what we really need to do is to apologize to Apple, compliment them for the job creation they are doing, and get about doing our job,” Paul declared at a hearing to discuss the report.

I don’t know how Apple CEO Tim Cook restrained himself from jumping up and giving Paul a big wet kiss on the lips. Cook instead offered testimony that was part p.r. spiel about the wonderfulness of Apple and part outright dishonesty about its tax practices. Among his claims: “Apple does not use tax gimmicks.”

The problem is that the investigations subcommittee’s 40-page report described an array of loopholes and tricks by which Apple has shielded tens of billions of dollars from federal taxation.  At the center of the scheme is the artificial designation of vast amounts of cash as being held offshore to keep it outside the reach of the IRS. That hoard, which now totals more than $100 billion, is actually, the New York Times reports, held in bank accounts in New York in the name of Apple subsidiaries based in Ireland.

For tax purposes, Apple claims that its key Irish entity has no legal residency (nor a physical presence or employees), meaning that it is not effectively taxed anywhere. A recent analysis by Citizens for Tax Justice concluded that Apple has paid “almost no income taxes to any country” on its offshore stash. This undermines the arguments made by Apple and other corporations for a new repatriation tax holiday or a shift to a territorial tax system.

“Apple has a very strong moral compass, and we believe in really good corporate citizenship,” Cook recently told the Washington Post. That claim was already preposterous, given past revelations about abysmal working conditions at the company’s supplier plants in China.

Tax dodging, unfortunately, is not widely regarded as being on a par with sweatshops as an indicator of corporate social irresponsibility. Apple, for instance, feels compelled to publish material asserting that it and its suppliers support labor and human rights and that they operate in an environmentally sound manner. There is no such statement on its website about compliance with tax laws.

Apple, like just about every other large corporation, not only manipulates the federal tax code but does the same at the state and local level, both through accounting schemes and by negotiating economic development subsidy deals, which frequently include corporate income tax credits, business property tax abatements and the like.

Last year, for example, Apple took an $89 million subsidy package to build a data center in Reno, Nevada that was expected to create only 35 permanent Apple employees. Three years earlier, Apple got a state subsidy package in North Carolina worth over $46 million (plus more at the local level) for a similar facility that was projected to produce only 50 permanent jobs.

Apple and other companies justify the taking of subsidies because it is legal and because it is usually linked to job creation, though in the case of Apple the number of jobs, at the data centers at least, is minute compared to the lost tax revenue.

What demands by rich companies for subsidies they don’t need really shows is that tax minimization is not, as corporate apologists would have us believe, just a response to the complexity of the federal tax code. It is a compulsion to increase net income, regardless of the consequences for the public. That is part of the definition of corporate irresponsibility.

Companies like Apple will continue to get away with fiscal murder until tax dodging and excessive subsidy taking are as stigmatized as the use of sweatshop labor and toxic dumping. At that point, even politicians of Rand Paul’s ilk might have to think twice about challenging the right of Congress to investigate unscrupulous tax accounting practices.

Wal-Mart and Disney: Two Varieties of Corporate Irresponsibility

toysfromhellIt’s difficult to decide which company is acting in the more irresponsible fashion in the wake of the terrible Rana Plaza industrial accident in Bangladesh: Wal-Mart, which continues to source goods from the country but refuses to join a group of other companies in signing a binding agreement to improve factory conditions; or Disney, which simply decided to end its use of suppliers in Bangladesh and several other countries.

Both companies have a dismal record when it comes to sourcing from poor countries. Wal-Mart has been embroiled in controversies regarding labor practices by its foreign suppliers since at least 1992, when media outlets such as NBC’s Dateline reported that some of the company’s Asian suppliers were making use of illegal child labor.

In 2005 the International Labor Rights Fund filed suit against Wal-Mart in federal court in Los Angeles, charging that employees of the company’s suppliers in China, Bangladesh, Indonesia, Swaziland and Nicaragua were forced to work overtime without pay and in some cases were fired for supporting union organizing efforts. Unfortunately, the case was thrown out on legal technicalities.

After a November 2012 fire at a Bangladeshi garment factory supplying Wal-Mart and other Western companies killed more than 100 workers, the Wall Street Journal found that the factory managed to continue working for Wal-Mart despite third-part inspections that had raised concerns about fire safety.

Disney has been targeted over conditions in its foreign supplier factories since 1996, when a report published by the National Labor Committee (now the Institute for Global Labour and Human Rights) alleged that clothing contractors in Haiti producing “Mickey Mouse” and “Pocahontas” pajamas for U.S. companies under license with Disney were in some cases paying as little as 12 cents an hour, below the minimum wage in that country.

In a follow-up report, the group found that the contractors had raised wages to the legal minimum of about 28 cents an hour but said this still left workers living “on the edge of misery,” especially since they were often short-changed by employers.

Over the following two decades, groups such as China Labor Watch and Hong Kong-based Students and Scholars Against Corporate Misconduct (SACOM) have produced a steady stream of reports documenting abuses in Disney supplier factories, especially in China, concerning wages, working conditions and safety. The company has generally brushed off the criticism, saying it could not possibly monitor all of the facilities. It even refused to release a list of its supplier factories.

It thus comes as no surprise that neither Disney nor Wal-Mart is playing a constructive role in helping prevent a repetition of disasters like Rana Plaza. In the case of Wal-Mart, it is likely that the key reasons for its refusal to join with companies such as H&M and Carrefour are that the agreement they signed is legally binding and that international labor federations such as IndustriALL and UNI were involved in making the accord happen. Bangladeshi unions are also signatories to the agreement.

Wal-Mart, of course, is notorious for its aversion to any form of cooperation with unions (except the subservient ones in China). In its dealings with community groups and other non-profits, the company is equally infamous for avoiding binding agreements—preferring to give itself the ability to wiggle out of any commitments it may pretend to make. The National Retail Federation, which shares Wal-Mart’s attitude toward unions, defiantly rejected the accord, while The Gap justified its refusal to sign by warning of the possibility of lawsuits. In other words, like Wal-Mart, it apparently wants an agreement that will do little more than burnish its corporate image.

Disney is acting as if it can simply wash its hands of the problems in Bangladesh by cutting off its suppliers in that country. That does nothing to help the workers who had grown dependent on the jobs its licensees had created, as bad as they were. Liana Foxvog of Sweatfree Communities and Judy Gearhart of the International Labor Rights Forum got it right when they published a column on the New York Times website calling the move “shameful.”

The accord is an important step forward in addressing both the immediate problem of industrial safety in Bangladesh and in starting to make large corporations truly responsible for ameliorating the brutal working conditions they all too often help create in countries with large numbers of desperate workers.

Note: This piece draws from my new Corporate Rap Sheet on Disney, which can be found here.

JPMorgan Chase in the Sewer

dimonThe business news has been full of speculation on whether JPMorgan Chase Jamie Dimon will go on serving as both CEO and chairman of the big bank, in light of a shareholder campaign to strip him of the latter post. The effort to bring Dimon down a notch—and to oust three members of the board—is hardly the work of a “lynch mob,” as Jeffrey Sonnenfeld of Yale suggested in a New York Times op-ed.

That’s not to say that a corporate lynching is not in order. JPMorgan’s behavior has been outrageous in many respects. The latest evidence has just come to light in a lawsuit filed by California Attorney General Kamala Harris, who accuses the bank of engaging in “fraudulent and unlawful debt-collection practices” against tens of thousands of residents of her state.

In charges reminiscent of the scandals involving improper foreclosures by the likes of JPMorgan, the complaint describes gross violations of proper legal procedures in the course of filing vast numbers of lawsuits against borrowers, including:

  • Robo-signing of court filings without proper review of relevant files and bank records;
  • Failing to properly serve notice on customers—a practice known as “sewer service”; and
  • Failing to redact personal information from court filings, potentially exposing customers to identity theft.

JPMorgan got so carried away with what the complaint calls its “debt collection mill,” that on a single day in 2010 it filed 469 lawsuits.

The accusations come amid reports of ongoing screw-ups in the process of providing compensation to victims of the foreclosure abuses. For JPMorgan, the California charges also bring to mind its own dismal record when it comes to respecting the rights of credit card customers.

In January 2001, just before it was taken over by what was then J.P. Morgan, Chase Manhattan had to pay at least $22 million to settle lawsuits asserting that its credit card customers were charged illegitimate late fees.

In July 2012 JPMorgan Chase agreed to pay $100 million to settle a class action lawsuit charging it with improperly increasing the minimum monthly payments charged to credit card customers.

The credit card abuses are only part of a broad pattern of misconduct by JPMorgan. In the past year alone, its track record includes the following:

In October 2012 New York State Attorney General Eric Schneiderman, acting on behalf of the U.S. Justice Department’s federal mortgage task force, sued JPMorgan, alleging that its Bear Stearns unit had fraudulently misled investors in the sale of residential mortgage-backed securities.  The following month, the SEC announced that JPMorgan would pay $296.9 million to settle similar charges.

In January 2013 JPMorgan was one of ten major lenders that agreed to pay a total of $8.5 billion to resolve charges relating to foreclosure abuses. That same month, bank regulators ordered JPMorgan to take corrective action to address risk management shortcomings that caused massive trading losses in the London Whale scandal. It was also ordered to strengthen its efforts to prevent money laundering. In a move that was interpreted as a signal to regulators, JPMorgan’s board of directors cut the compensation of Dimon by 50 percent.

JPMorgan’s image was further tarnished by an internal probe of the big trading losses that found widespread failures in the bank’s risk management system. Investigations of the losses by the FBI and other federal agencies continue.

In February 2013 documents came to light indicating JPMorgan had altered the results of an outside analysis showing deficiencies in thousands of home mortgages that the bank had bundled into securities that turned out to be toxic.

In March 2013 the Senate Permanent Committee on Investigation released a 300-page report that charged the bank with ignoring internal controls and misleading regulators and shareholders about the scope of losses associated with the London Whale fiasco.

In an article in late March, the New York Times reported that the bank was facing investigations by at least eight federal agencies. Last week, the newspaper revealed a new investigation of JPMorgan by the Federal Energy Regulatory Commission, which was said to have assembled evidence that the bank used “manipulative schemes” to transform money-losing power plants into “powerful profit centers.”

You know a bank is in big trouble when the coverage of its activities includes phrases like “lynch mob,” “sewer service” and “manipulative schemes.“

The Wrong Kind of Magnetism

In his State of Union address President Obama declared: “Our first priority is making America a magnet for new jobs and manufacturing.” Obama just repeated those words while nominating as Commerce Secretary a billionaire whose family business has pursued a very different goal: accumulating vast wealth on the backs of underpaid and mistreated workers.

Obama praised Penny Pritzker as “one of our country’s most distinguished business leaders,” adding: “She’s built companies from the ground up.  She knows from experience that no government program alone can take the place of a great entrepreneur.  She knows that what we can do is to give every business and every worker the best possible chance to succeed by making America a magnet for good jobs.”

What he didn’t say is that Pritzker, whose personal net worth is estimated by Forbes at $1.9 billion, sits on the board of Hyatt Hotels, which is the best known part of a business empire founded by her grandfather and his sons. Much less did Obama mention that Hyatt has been denounced by the union UNITE HERE as “the worst hotel employer in America,” because it has “abused workers, replacing career housekeepers with minimum wage temporary workers and imposing dangerous workloads on those who remain.” The union also criticizes the company for resisting worker organizing efforts and for taking a hard line in bargaining at those hotels where a collective bargaining relationship exists. UNITE HERE’s corporate campaign against the company is called Hyatt Hurts.

UNITE HERE has also targeted other parts of the Pritzker empire, including a manufacturing conglomerate called the Marmon Group, controlling ownership of which is now held by Berkshire Hathaway. The union blamed the Pritzkers for the decision by Marmon to shut down its Union Tank Car production facility in East Chicago and shift the jobs to Louisiana, where it had been offered some $63 million in tax abatements and infrastructure assistance. The union produced a film about the issue entitled “Show Us the Tax Breaks.”

The sad truth is that the behavior of Hyatt Hotels and the Pritzkers is far from unusual. Large corporations have no hesitation about eliminating or undermining well-paid jobs while shifting investment to areas where workers are weak and where public officials dish out lavish subsidy packages. Take Caterpillar. The company is currently taking a hard line in its contract talks with the Steelworkers union at a mining-equipment plant in Milwaukee it took over as part of its acquisition of Bucyrus International. Last year, Cat got a $77 million subsidy package to open a plant in Georgia that it undoubtedly assumes will operate non-union. Boeing, which built a new Dreamliner assembly line in South Carolina to get away from union workers in Seattle, this year announced a $1 billion expansion of that operation, for which it’s getting another $120 million in subsidies.

Foreign corporations are employing the same southern strategy. Japan’s Yokohama Rubber just announced plans for a $300 million truck tire plant in Mississippi for which the state legislature just approved some $130 million in subsidies. Toyota is getting a $146 million in subsidies for an expansion of its assembly operations in Kentucky.

If there is a manufacturing revival in the United States, it consists mainly of companies taking advantage of cheap, non-union labor and large giveaways of taxpayer money. And whatever growth is occurring in the service sector includes too many substandard jobs like those offered by Hyatt. If this is what Obama means when talking about making the U.S. a magnet for new jobs and manufacturing, that’s not the kind of magnetism the country needs. And we don’t need someone in the Cabinet who symbolizes that destructive process.