Big Coal’s War on Its Workers

helmets_wide-b8e68ac63c226846ea9705fcf6fc13535c1b2b2e-s800-c85Fossil-fuel apologists have accused the Obama Administration of waging a war on coal in its effort to cut power plant greenhouse gas emissions. Yet the main source of the industry’s distress is the energy market, and the real war is the one coal companies have for years carried out against the health and safety of its workforce.

There’s no doubt that Big Coal is in trouble. One of the industry’s largest players, Alpha Natural Resources, recently filed for Chapter 11 bankruptcy protection, following the path taken by competitors such as James River Coal, Walter Energy and Patriot Coal. Financial weakness prompted the delisting of Alpha and Walter Energy from the New York Stock Exchange. Industry leader Peabody Energy has seen its share price tumble even before the current market tumult. It is now trading at around $2 a share, compared to $70 in 2011.

Given the outsize role played by coal in the climate crisis, it is difficult to work up much sympathy for the industry in its time of trouble. While it is tempting to simply let the dirty industry shrink towards disappearance, there needs to be a just transition for those who have risked their lives extracting the fossilized carbon from the ground.

The magnitude of that risk has been made clear to me recently in the preparatory work I’ve been doing for the Violation Tracker database my colleagues and I at Good Jobs First will release this fall. The initial version will cover penalties imposed by agencies such as the Environmental Protection Agency, the Occupational Safety & Health Administration and, most relevant to the current discussion, the Mine Safety & Health Administration.

Based on preliminary results, it now appears that coal mining companies will turn out to be among the corporations with the largest aggregate federal environmental, health and safety penalties during the past five years. The largest mining offender is Alpha Natural Resources, whose penalty tally will top $100 million.

That reflects the fact that Alpha is now home to two of the most controversial firms in U.S. mining history: Pittston Coal and Massey Energy. Pittston had a long record of environmental and safety violations before its operations were used in the creation of Alpha in 2002, but even more notorious was Massey, which was responsible, among other things, for the 2010 Upper Big Branch mining disaster in West Virginia that took the lives of 29 workers, the most fatalities in a U.S. coal accident in 40 years. In the wake of that disaster, which an independent report attributed to management failures, Alpha agreed to purchase Massey. We thus attribute Massey’s violations to it.

At least 20 other coal mining companies will show up in Violation Tracker with $1 million or more in total penalties. The largest amounts, in excess of $30 million each, will be linked to Murray Energy, whose head Robert Murray has vowed his firm will be the “last man standing” in the coal industry, and Patriot Coal.

Patriot, a spinoff from Peabody Energy, is a prime example of the vindictiveness of the coal industry toward miners. Its Chapter 11 filing earlier this year was its second in three years. In both cases the company has tried to use the bankruptcy court as a way to undermine its contractual commitments to United Mine Workers members and retirees, especially with regard to pension and health plan contributions. Its current move against worker benefits comes as the company, which is trying to sell off its assets, is awarding more than $6 million in executive bonuses.

A repeated health and safety violator and a raider of worker benefits. It’s hard to imagine anyone will be sad to see Patriot disappear.

Replacing Pinstripes with Prison Jumpsuits

Goodwin-1-e1440025102463-225x300We’ve just been treated to the rare sight of a corporate executive pleading guilty to criminal charges stemming from actions that harmed the public. This outcome was particularly satisfying given that the case was one that symbolized much of what is wrong with U.S. business and regulatory practices.

The culprit is Gary Southern, who was at the center of an incident last year in West Virginia whose details, I wrote at the time, sounded a parody: the company responsible for a toxic chemical leak into the Elk River that contaminated the water supply of hundreds of thousands of people and sickened many turned out to be named Freedom Industries and had been cofounded by a two-time convicted felon.

That felon was Carl Lemley Kennedy II, who was apparently no longer active in the company by the time the spill occurred. The man who had taken over was Southern, who is now a felon as well thanks to his plea on charges of violating the federal Clean Water Act. Five other Freedom executives had earlier admitted guilt and negligence in connection with an accident that U.S. Attorney Booth Goodwin (photo) called “completely preventable.” Southern faces up to three years in prison.

Goodwin had rejected calls to focus on restitution to the community and insisted on seeking prison time for Southern et al. “Executives are used to writing checks,” he said. “It sends a stronger message if they have to trade their three-piece suits for a prison jumpsuit.”

A similar get-tough-on-business-crime attitude was recently displayed by Manhattan District Attorney Cyrus Vance, who brought manslaughter charges against two construction managers (and the companies they worked for) in connection with the death of a worker earlier this year in an accident that occurred after the managers had, Vance alleged, ignored repeated warnings from inspectors about unsafe conditions on the site.

Let’s hope Goodwin’s message also gets through to prosecutors bringing cases against companies with a much bigger footprint than that of Freedom Industries and the New York construction firms. For a long time, large corporations and their top executives seemed to be immune from criminal prosecutions, no matter how serious the offense.

The Justice Department has started to give in to the pressure and get some big companies to plead guilty to criminal offenses, as occurred in May in a case involving allegations against Citicorp, JPMorgan Chase and other large banks in connection with the manipulation of foreign exchange markets.

Now it’s time for prosecutors to take the next step and bring individual criminal charges against Fortune 500 top executives involved in serious misconduct.

There’s no guarantee that a criminal conviction will completely reform a wayward businessperson. The Wall Street Journal has a piece about an accounting executive who, after being convicted of embezzlement and banned for life from the accounting profession, altered his name slightly (changing Stephen to Steven and adopting a different middle name) and went on providing accounting services with bogus credentials. The SEC eventually caught on and is going after him in court.

Yet we need to see whether individual prosecutions of top executives works. One way or another, we’ve got a find a way to bring an end to the corporate crime wave.

Business Crime Simple and Complex

thumbonscaleMuch of the corporate misconduct of the past decade has involved complicated schemes involving the likes of mortgage-backed securities and credit default swaps. A recent announcement by the Consumer Financial Protection Bureau is a reminder that old-fashioned business thievery is still very much with us.

Citizens Bank will pay $18.5 million to settle CFPB allegations that it routinely pocketed the difference when customers mistakenly filled out deposit slips for amounts lower than the sums actually transferred. Taking advantage of the carelessness of others added up for the bank: $11 million of the payment by Citizens will consist of refunds, with the rest representing penalties imposed by the CFPB under its powers granted by the industry-vilified Dodd-Frank Act.

The under-crediting attributed to Citizens is the flip side of the overcharging that is surprisingly common among large retailers. Whole Foods is facing a shareholder lawsuit and sinking sales in the wake of allegations by the New York City Department of Consumer Affairs that its local stores were systematically and egregiously overcharging customers for pre-packaged foods. The agency found that: “89 percent of the packages tested did not meet the federal standard for the maximum amount that an individual package can deviate from the actual weight, which is set by the U.S. Department of Commerce. The overcharges ranged from $0.80 for a package of pecan panko to $14.84 for a package of coconut shrimp.” The company admitted it had made “mistakes.”

In February, Target paid $3.9 million to settle allegations by half a dozen district attorneys in California that prices charged at the register were higher than those posted in the aisles.

In April, Wal-Mart was hit with a proposed class action lawsuit alleging that the company overcharged customers at its vision centers by inflating insurance co-pay amounts.

Earlier this month, Genuine Parts agreed to pay $338,000 to settle allegations by the San Diego District Attorney that its several of its NAPA Auto Parts stores were overcharging customers.

Cases such as these belie the notion that “thumb on the scale” types of simple cheating are mainly to be found among small businesses. Large companies are apparently inclined to engage in both simple and complex misdeeds.

Citizens Bank symbolizes the link between the different types of misconduct. The company is a subsidiary of the Royal Bank of Scotland, which has been deeply involved in a variety of complex financial scandals.

Earlier this year, it pleaded guilty to criminal charges of conspiring to fix foreign currency rates, along with three other major banks. RBS was fined $395 million (and another $274 million by the Federal Reserve) and put on probation for three years. The SEC gave it a waiver from a rule that would have barred it from remaining in the securities business.

In 2013 RBS had to pay $153 million to settle charges that it misled investors in a 2007 offering of subprime residential mortgage-back securities. That same year, it paid $612 million to settle civil and criminal charges that it was involved in the manipulation of the LIBOR interest rate index.

Whether simple or complex, corporate wrongdoing needs to be prosecuted aggressively.

The Limits of the Koch Charm Offensive

koch_charlesCharles and David Koch and their Koch Industries conglomerate, long known for an unapologetic defense of unfettered capitalism and hard-right politics, are said to be going soft. The brothers are taking pains to associate themselves with more progressive policies such as criminal justice reform, while their corporation has been running feel-good ads highlighting its purported commitment to enlightened principles such as sustainability.

At the same time, the Kochs are depicting themselves as backers of supposedly responsible Republican presidential candidates and shunning iconoclastic front-runner Donald Trump.

The Koch charm offensive does have its limits. A slew of groups funded by the billionaires are at the forefront of the campaign against the Obama Administration’s Clean Power Plan and are doing their best to defend fossil fuels. When it comes to environmental policy, the Kochs are still in the stone age.

That position is not merely a matter of ideology. Their opposition to environmental and other safety regulations amounts to a defense of the way the Kochs do business.

This was made clear to me in some work I’ve been doing on a new research tool called Violation Tracker that my colleagues and I at Good Jobs First are preparing. Patterned on our Subsidy Tracker, the new resource will take company-specific data on regulatory violations and link the individual entries to the parent corporations of the culprits. This will allow us to present violation totals for large firms and show which of them are the most frequent offenders.

The initial version of Violation Tracker, which will be released this fall, will cover data from the Environmental Protection Agency, the Occupational Safety & Health Administration and a few other federal health and safety agencies. Coverage on wage and hour violations, financial sector transgressions and other forms of corporate misconduct will come later.

A preliminary tally of EPA and OSHA data from the past five years indicates that units of Koch Industries have been hit with more than $3.5 million in penalties. The biggest amount comes from Flint Hills Resources, the conglomerate’s oil refining arm. For example, in 2014 the company had to pay $350,000 and sign a consent decree to resolve EPA allegations that it was violating the Clean Air Act through flaring and leaking equipment.

Georgia-Pacific, the Koch Industries forest products company, received more than $600,000 in penalties during the five-year period. These included $60,000 in penalties proposed in January by OSHA in connection with worker exposure to formaldehyde and other dangerous substances.

In 2013 the fertilizer company Koch Nitrogen had to pay $380,000 to settle allegations that its facilities in Iowa and Kansas violated the Clean Air Act.

Regulatory violations by Koch businesses began before the five-year period that will be initially covered in Violation Tracker.

For instance, in 2000 the Justice Department and the EPA announced that Koch Industries would pay what was then a record civil environmental fine of $30 million to settle charges relating to more than 300 oil spills. 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 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.

In 2002 Koch Petroleum Group, the Koch entity involved in most of these environment problems, was renamed Flint Hills Resources. That name change was as cosmetic as the current charm offensive.

If the Kochs really want to improve their reputation, they should go beyond public relations and make fundamental alterations in their business practices.