Introducing Violation Tracker

Violation TrackerViolationTracker_Logo_Development_R3, the first national database on corporate crime, has arrived. For me it is the culmination of nine months of work collecting enforcement data, matching some 25,000 companies in the agency records to their corporate parents and designing the site, all of this done with the help of Rich Puchalsky of Grassroots Connection.

My involvement in this kind of project actually goes back 35 years. While a young researcher for Fortune magazine, I was assigned to a story whose dubious premise was that lawbreaking was a lot more common among small businesses than large corporations. I had serious doubts about that notion and set out to collect as much information as I could about wrongdoing by the Fortune 500.

Even with a narrow definition of misconduct, I found that 117 of the companies that had appeared on the 500 list during the previous decade–including Fortune’s parent company Time Inc.–had been convicted (or signed a consent decree) for bribery, criminal fraud, illegal political contributions, tax evasion or criminal antitrust violations. My editors were not happy, but to their credit they published the full list (as part of an article written by Irwin Ross) in the December 1, 1980 issue of the magazine.

The urge to document and tabulate corporate crime has been with me ever since. I’ve given in to that urge numerous times, most notably in 2012, when I began producing Corporate Rap Sheets on many of the worst violators under the auspices of the Corporate Research Project of Good Jobs First.

Now I’m able to take it to the next step with Violation Tracker, a database that in its initial form covers all environmental, health and safety cases with penalties of $5,000 or more brought since the beginning of 2010 by 13 federal regulatory agencies, including those they referred to the Justice Department. Additional violation categories (bribery, price-fixing, financial offenses, wage & hour infractions, etc.) will be added in the future.

Violation Tracker uses the same parent-subsidiary matching system my colleagues and I at Good Jobs First created for our Subsidy Tracker database. In Violation Tracker the companies named in the individual violations are linked to more than 1,600 parent companies. The site has summary pages for each of the parents (along with the individual entries) as well as overviews by industry, agency and parent headquarters location.

Along with the database the Corporate Research Project is releasing a report entitled BP and Its Brethren summarizing what the information in Violation Tracker shows about the biggest violators (using a broad definition of penalties that includes both fines and other mandatory outlays such as supplementary environmental projects that are often part of settlements). Here are some highlights from the report:

  • The corporations with the most penalties are: BP ($25.4 billion), Anadarko Petroleum ($5.2 billion), GlaxoSmithKline ($3.8 billion), Johnson & Johnson ($2.4 billion), Abbott Laboratories ($1.5 billion), Transocean ($1.4 billion), Toyota ($1.3 billion) and Alliant Energy ($1.0 billion). The penalty total of all entries in Violation Tracker is about $60 billion.
  • BP’s $25 billion puts oil and gas at the top of the ranking of industries by total penalties. The pharmaceutical industry is second, due to a series of major cases involving the promotion of medications for uses not approved as safe by the Food and Drug Administration. Utilities rank third, due to cases involving power plant emissions. In fourth place is the auto industry, thanks mainly to a $1.2 billion penalty paid by Toyota and a $900 million fine against General Motors, both for safety issues. The chemical industry, with a wide range of violations, is fifth.
  • Large corporations are responsible for the vast majority of the penalties. Companies on the Fortune 500 and the non-U.S. portion of the Fortune Global 500 together account for 81 percent of Violation Tracker’s total penalty universe.
  • Foreign companies operating in the United States represent a large share of the violations. In fact, given that BP is one of those foreign parents, the penalty total for that group is larger than for U.S.-based firms: $34 billion vs. $21 billion. Even without BP, foreign parents account for $9 billion in penalties. Companies that have reincorporated abroad for tax reasons are excluded from this breakdown.
  • There are substantial overlaps between the companies penalized by the different agencies, especially between EPA and OSHA. Some companies show up on more than one of the lists of top-ten penalized firms by agency. BP shows up on four: EPA, OSHA, the Pipeline & Hazardous Materials Safety Administration, and multi-agency cases handled by the Justice Department.
  • A comparison of the 100 parents with the most penalties in Violation Tracker to the 100 most-subsidized in Subsidy Tracker finds 16 overlaps, mainly automakers such as Toyota and General Motors.
  • Along with actual foreign companies, the most penalized parents include some companies that have “inverted” (reincorporated or merged abroad) and thus claim to be foreign to dodge U.S. taxes. The tax runaway with the largest penalty total is Transocean, which leased the ill-fated Deepwater Horizon drilling rig to BP and which was fined a total of $1.4 billion in connection with the accident. “Inverted” firms have $2.9 billion in penalties.
  • Leading federal contractors are among the most-penalized companies. Of the 100 largest contractors in FY2014, ten are also among the biggest penalty parents in Violation Tracker, including: four pharmaceutical producers (GlaxoSmithKline, Merck, Pfizer and Sanofi); two oil giants (Royal Dutch Shell and Exxon Mobil) and three military contractors (Honeywell, General Electric and Boeing). Conglomerate Berkshire Hathaway is also on the list.

We’re living in an age of widespread corporate misconduct, illustrated most recently by the Volkswagen scandal. Violation Tracker is designed not only to help people keep track of which company was involved in which wrongdoing but also to serve as a tool for a wide range of campaigns promoting corporate accountability.

Reining in the Beltway Bandits

moneybagsontherunA New York Times op-ed by lawyer Eric Havian argues that the best way to punish corporate fraudsters is to bar them from government contracts. Debarment of companies is an established practice, but it’s usually been employed in a half-hearted way such as the temporary exclusion of BP in the wake of the Deepwater Horizon disaster.

Havian, however, highlights the little known power of federal agencies to exclude individual executives from working in regulated industries, sometimes for life, if they are shown to have engaged in unsavory practices. He argues that bringing about such exclusions is much easier than prosecuting executives on criminal charges, as the Justice Department says it plans to do more often.

This is an intriguing idea but the problem is always the uncertainty as to whether getting tough with executives, even high-level ones, will succeed in changing corporate behavior. Ultimately, all individuals are expendable in large corporations, so the desire to boost profits by breaking the rules is likely to trump any inclination to behave properly to protect those in the executive suite.

The need to do something to prevent rogue companies from getting or keeping government contracts is highlighted in some of the data my colleagues and I at the Corporate Research Project of Good Jobs First have collected for our Violation Tracker database, which will be released next week.

Following the path blazed by the Project On Government Oversight’s Federal Contractor Misconduct Database, we found that ten of the 100 largest federal contractors are also among the 100 companies accounting for the most environmental, health and safety violations since 2010 (the scope of the initial version of Violation Tracker).

Four of the group are pharmaceutical manufacturers (GlaxoSmithKline, Merck, Pfizer and Sanofi); two are oil and gas giants (Royal Dutch Shell and Exxon Mobil) and three are big military contractors (Honeywell, General Electric and Boeing). Conglomerate Berkshire Hathaway is also on the list.

The drug company penalties stem mainly from cases in which they had to pay big settlements to resolve cases in which they were accused of marketing medications for uses not approved as safe by the Food and Drug Administration. GlaxoSmithKline, for instance, pled guilty to three criminal counts in 2012 and had to pay $3 billion to resolve allegations concerning the unlawful promotion of Paxil and Wellbutrin, failure to report certain safety data to the FDA, and false price reporting. That marketing allegedly included kickbacks paid to doctors and other health professionals to get them to prescribe and promote the drugs for those unauthorized uses.

In FY2014 GSK was awarded federal contracts worth more than $780 million, mostly from the Department of Health and Human Services and the Pentagon. Those agencies apparently had no problems dealing with a corporate criminal.

The penalty amounts attributable to federal contractors are likely to be much greater when we expand Violation Tracker to include other offenses such as false claims against government agencies. Such fraud is pretty much the basic business model of many of the large military contractors, for example.

Federal agencies need to use Havian’s exclusion idea, criminal prosecutions and all other tools at their disposal to rein in the Beltway Bandits.

Breaking Up Is Hard to Do

Alcoa is doing it. So is Hewlett-Packard.

They’re following the lead of corporations such as General Electric, Time Warner, Gannett and W.R. Grace. The “it” is splitting up the company into two independent firms.

The reasons for these break-ups are not always clear. In announcing the plan for Alcoa, Klaus Kleinfeld declared: “In the last few years, we have successfully transformed Alcoa to create two strong value engines that are now ready to pursue their own distinctive strategic directions.” Why those “engines” cannot remain under the same corporate roof was not explained. Kleinfeld described the split as “the next step” for two businesses ready to “seize the future.”

What are really being seized are the giant fees charged by investment banks to cook up these schemes, often for companies that previously retained their services to arrange marriages they are now seeking to undo. Like much of what passes for corporate strategies, “demergers” as well as mergers are expensive guesses as to what will result in maximum profits. They need not be taken too seriously.

Yet sometimes breakups are a lot less benign. Take the case of chemical giant DuPont, which a few months ago split itself up with the creation of a spinoff called Chemours. Sounding like the Alcoa guy, then-DuPont CEO Ellen Kullman announced the plan late last year by saying that the parts of the company being divided from one another had “distinct value creation strategies.”

Yet it turned out that the businesses to be transferred to Chemours included those with the most serious environmental, health and safety problems. There was immediate concern expressed by groups such as Keep Your Promises DuPont that the ownership change would impair the commitments DuPont had made to deal with toxic waste sites and other contaminated areas.

One of those areas was Parkersburg, West Virginia, where DuPont had produced Teflon. In 2004 the Environmental Protection Agency charged that for two decades DuPont failed to report signs of health and environmental problems linked to perfluorooctanoic acid (or PFOA), which is used in making Teflon. Residents living near the plant sued the company, which agreed to pay out about $100 million to settle the case and spend up to $235 million on medical monitoring of residents, which is ongoing. That obligation has presumably transferred to Chemours, but there are concerns that the new firm may not be able to handle the costs.

DuPont’s initial SEC filing about Chemours disclosed that the new company would begin life with some $298 million in environmental liabilities but acknowledged that the total could rise to 3.5 times that amount.

If DuPont thinks that it has washed its hands completely of these liabilities as a result of the Chemours spinoff, a case involving Anadarko Petroleum suggests that it may be mistaken. A decade ago, Anadarko acquired Kerr-McGee, on oil and nuclear fuel company made infamous in the scandal involving Karen Silkwood. In preparation for the takeover, Kerr-McGee had broken itself up, dumping its major liabilities into a new firm called Tronox, which later when bankrupt.

A legal battle over Tronox’s environmental obligations was finally resolved earlier this year with Anadarko having to pay more than $5 billion to cover cleanup costs. DuPont and Chemours, like Anadarko and Kerr-McGee and Tronox, may learn that breaking up can indeed be hard to do.

Note: The Anadarko settlement turns out to be the second largest entry in the Violation Tracker database my colleagues and I at the Corporate Research Project of Good Jobs First will release on October 27.

Tracking and Trouncing Corporate Crime

If there were any question as to which corporation has racked up the largest quantity of business penalties, the issue has been resolved with the announcement that BP will pay more than $20 billion to resolve the outstanding federal and state civil claims connected to the 2010 Deepwater Horizon disaster in the Gulf of Mexico.

While the true cost to the company is lessened by the fact that it will be able to deduct about three-quarters of the total, the after-tax bite will still be in the billions. This is on top of the $4 billion BP had to pay in 2012 to resolve related criminal charges plus billions more in fines and settlements relating to the company’s other environmental and workplace safety sins.

All these amounts will be tallied in the Violation Tracker database my colleagues and I at the Corporate Research Project of Good Jobs First will release later this month.

BP’s reign as the penalty “leader” will soon face a new challenge from Volkswagen, which is looking at massive payouts in connection with its scheme to circumvent federal emissions regulations. VW’s new chief executive Matthias Muller just admitted that the $7 billion the company has set aside to deal with the problem “will not be enough.”

Although it is difficult to avoid a feeling of schadenfreude in light of the German company’s apparently unscrupulous behavior, Muller’s statement that employment cuts may be necessary is troubling. Those who lose their jobs at VW’s operations, perhaps including the plant in Chattanooga, Tennessee, will undoubtedly be workers who had nothing to do with the emissions cheating.

A broader question raised by Muller’s comment is that of what will be enough to get big business to stop behaving badly. At one time, the notion of extracting billions of dollars in payments from a large corporation was seen as a radical idea, something akin to appropriation. Now it is commonplace.

Yet has this done more than allow prosecutors to give the impression they are tough on corporate crime? I’m as fond as the next corporate critic of seeing corporate miscreants pay heavily for their misdeeds — after all, I’ve been spending months preparing a database on that very subject — but the ultimate goal is to prevent the wicked behavior.

That is going to require aggressive new measures, though it is difficult to say exactly what those should be. Those angry French workers who stormed a boardroom and ripped the clothes off executives had an intriguing approach.

The first step is to acknowledge the extent of the corporate crime problem and focus more public attention on the issue. That won’t be easy, given that all too many policymakers in this country are adherents of the Reaganite notion that government is always the problem.

But I’d like to believe that at some point the accumulation of corporate mayhem and harm it causes will change enough minds that strong action is inevitable. Then all unethical executives will have to hold on tightly to their shirts.

Volkswagen Deserves Its Day in Criminal Court

Volkswagen’s scheme to circumvent federal emissions regulations for millions of its cars cries out for tough prosecution. Yet it turns out that a little known loophole in the Clean Air Act exempts the automobile industry from criminal penalties.

EPA and Justice Department prosecutors are apparently considering whether criminal charges can be brought under other statutes, but it remains to be seen whether they will be successful. An inability to do so would be a major embarrassment for DOJ, which recently proclaimed its intention to move away from deferred prosecution agreements and get tougher with corporate culprits.

In case anyone questions the appropriateness of criminal charges in environmental cases, it is worth recalling that this approach has ample precedents. While it is true that many of the cases in the EPA’s criminal docket involve individuals at fly-by-night firms, that’s not always the case.

In fact, as part of the preparation for the Violation Tracker database my colleagues and I at Good Jobs First will release later this month, I’ve been going through the records. Here are some of the highlights:

The granddaddy of criminal environmental cases was the prosecution of BP for its role in the 2010 Deepwater Horizon disaster that killed 11 people and did untold damage to the Gulf of Mexico. In November 2012 BP pled guilty to environmental crimes (involving the Clean Water and Migratory Bird Treaty Acts) as well as felony manslaughter and obstruction of Congress. It was required to pay criminal fines and penalties of $4 billion.

In February 2013 Transocean, the company from which BP leased the ill-fated drilling rig, pleaded guilty to charges of violating the Clean Water Act in the period leading up to the accident and was sentenced to pay $400 million in criminal fines and penalties. Halliburton, which was responsible for cement work at the site, pleaded guilty to a charge of destroying evidence.

Oil companies are not the only defendants. In 2013 Wal-Mart Stores pleaded guilty to six counts of violating the Clean Water Act by illegally handling and disposing of hazardous materials at its retail outlets across the country. It had to pay $81 million in penalties.

This year, Duke Energy pleaded guilty to nine criminal violations of the Clean Water Act at several of its facilities in North Carolina and paid a $68 million criminal fine and was required to spend $34 million on environmental projects.

Volkswagen certainly belongs on this dishonor roll of environmental culprits. In fact, it probably deserves harsher punishment than even BP, given the brazen and intentional aspects of its behavior.

In reporting on the auto industry loophole, the Wall Street Journal quoted former Michigan Rep. John Dingell as justifying the provision by saying that civil penalties were “easier, speedier quicker” than criminal sanctions and warning regarding the latter: “The risk of them going out of business is very real.”

In cases such as this one, the convenience of prosecutors should not be a priority, and there are many people who may think that VW’s disappearance would not be a bad thing.