September 2019 Archives

Sweet Deals for Corporate Wrongdoers

We have been hearing plenty this year about the unwillingness of the Justice Department to bring criminal charges against Donald Trump, but a new report from Public Citizen shows there is an even bigger non-prosecution scandal when it comes to lawbreaking by large corporations.

Soft on Corporate Crime is a detailed analysis of the long-standing yet still disturbing practice by which big companies found to be involved in serious misconduct are given a sweet deal not typically available to individual criminals. These deals, known as non-prosecution and deferred prosecution agreements, allow the company to avoid criminal charges if it admits to the wrongdoing, pays a penalty, and signs an agreement that leaves open the prospect of future prosecution if the bad behavior continues.

Using data from the Corporate Prosecution Registry, Public Citizen examined the 535 NPAs and DPAs the Justice Department has entered into since 1992. The report finds that the practice originated in the Clinton Administration and has been used widely during both Democratic and Republican presidencies. The Trump Administration’s DOJ has continued the trend amid its overall reduction in corporate prosecutions.

NPAs and DPAs are part of a fundamental unwillingness of the U.S. justice system to get really tough with corporate miscreants, no matter how egregious their behavior. The argument for using these agreements is that conventional prosecutions of large corporations could result in their demise—as happened in the Arthur Andersen case of the early 2000s—and thereby cause great harm to employees and shareholders.

The theory is that having companies admit responsibility for the misconduct and pay substantial monetary penalties would be enough to deter future wrongdoing. Yet Public Citizen’s research makes it clear that the deterrent effect of NPAs and DPAs is quite weak.

The report finds 38 examples in which companies that had signed those agreements were later the subject of a new criminal enforcement action by DOJ. The problem is that DOJ rarely punishes repeat offenders for violating NPAs and DPAs. Public Citizen found only seven examples, and of these only three corporations—UBS, Barclays and Aibel Group—faced full prosecution for their recidivism. In other cases, the penalty, if you can call it that, was simply to extend the terms of the NPA or DPA and sometimes an additional monetary penalty.

Public Citizen highlights seven egregious examples of corporate repeat offenders that have received multiple DPAs and/or NPAs. These include four banks (HSBC, Deutsche Bank, JPMorgan Chase and Societe Generale) along with Bristol-Myers Squibb, Zimmer Biomet and Las Vegas Sands.

Although the report focuses on corporate criminal recidivism, it is worth pointing out that many of these companies were embroiled in civil misconduct cases in the period during which they were supposed to be on their best behavior to comply with the NPA or DPA.

For example, as shown in Violation Tracker, in the period since JPMorgan entered into its first NPA in 2011 it has paid more than $26 billion in civil penalties (including settlements). A substantial portion of that total comes from actions that date back to the 2000s, but there is still a strong indication that the NPA did not do much to change the bank’s overall behavior.

The bank’s civil and criminal wrongdoing seemed to have little effect on DOJ’s treatment of the company either. It’s true that JPMorgan had to plead guilty in 2015 to conspiring with other banks to manipulate global currency exchange rates, yet the following year it was offered an NPA in another case.

Public Citizen concludes that the Justice Department’s NPA/DPA system has been a failure, finding that instead of deterring future misconduct the agreements have “enabled further wrongdoing.” At the very least, the report concludes, DOJ should stop offering the agreements to repeat offenders but the ultimate fix would be to end the practice completely and prosecute corporations to the fullest.

Note: Violation Tracker has 360 NPA or DPA entries dating back to 2000. A list can be found here.

Bipartisan Corporate Crime Fighting by the States

A new report from the Corporate Research Project of Good Jobs First on lawsuits filed by state attorneys general shows that the current cases against the drug companies and the tech sector are part of a long-standing practice of bipartisan cooperation in fighting corporate misconduct.

The report focuses on 644 cases in which AGs from multiple states took on companies over issues ranging from mortgage abuses to illicit marketing of prescription drugs and collected more than $100 billion in settlements over the past two decades.

These multistate cases are a subset of more than 7,000 state AG actions compiled for the latest expansion of Violation Tracker and now available for searching on the database.

In at least 260 multistate cases, a majority of the states signed on as plaintiffs. In 172 of the cases, 40 or more states participated. State AGs are split almost evenly between Democrats and Republicans, meaning that the cases with large numbers of state participants are necessarily bipartisan.

In 362 of the cases, the defendants were giant companies included in the Fortune 500 or the Fortune Global 500. The parent company with the most cumulative multistate AG penalties is, by far, Bank of America, with more than $26 billion in settlements over issues such as mortgage abuses and the sale of toxic securities. It is followed by the Swiss bank UBS ($11 billion), Citigroup ($8 billion), JPMorgan Chase ($6 billion) and BP ($4.9 billion).

The most frequent defendant has been CVS Health, which has paid out more than $215 million in 14 settlements, most of them involving the alleged submission of false claims to state Medicaid programs and the payment of illicit kickbacks to healthcare providers. Another 47 parent companies have been involved in three or more multistate AG cases.

In 118 multistate AG cases, corporations have paid penalties of $100 million or more; in 19 of these the amount exceeded $1 billion. The biggest individual settlement was an agreement by UBS to repurchase $11 billion in investments known as auction-rate securities whose safety it allegedly misrepresented to investors. The second largest was an $8.7 billion agreement by Bank of America to resolve claims relating to predatory home mortgage practices by its Countrywide Financial subsidiary. (The recently announced multistate settlement with Purdue Pharma is not included because it is still tentative.)

Banks and other financial services companies account for far and away the largest monetary share of penalties paid in multistate AG cases — $70 billion from 122 settlements involving 65 different parent companies. In second place is the pharmaceutical industry with $10.4 billion in penalties from 137 settlements.

Consumer protection and price-fixing cases are the most numerous kinds of multistate AG lawsuits, but investor protection and mortgage abuse lawsuits against the big banks have generated the greatest monetary penalties.

In 243 of the multistate cases, the U.S. Department of Justice or another federal agency was also involved in the settlement and often led the negotiations. These actions, which accounted for $31 billion of the $105 billion in total penalties, include cases in which the federal entity, usually DOJ, initiated the investigation and brought in the states — as well as ones in which federal and state prosecutors were involved from the start.

Multistate AG lawsuits originated in the 1980s, when state prosecutors grew concerned at rollbacks in federal enforcement by the Reagan Administration and decided they needed to fill the gap. They scored a big win with the master tobacco settlement of the late 1990s and continued their actions through both Republican and Democratic presidential administrations.

There is every reason to believe that the number of multistate AG settlements will continue to grow. The pending cases against opioid and generic drug producers, as well as emerging antitrust investigations of the tech sector, could add billions more to the penalty totals.

Crossing Party Lines to Fight Corporate Crime

The state attorneys general seem to be divided on how big a settlement they should extract from the Sackler family and Purdue Pharma to resolve a lawsuit concerning their involvement in the opioid crisis. According to one report, the split is largely on party lines, with Democratic AGs calling for a bigger payout and Republican prosecutors settling for less.

More on the diverging negotiating positions will probably come to light in the days ahead. This disagreement should not, however, obscure the bigger story: states with very different partisan orientations have been cooperating for years on cases involving corporate misconduct.

On policy issues, state AGs exhibit strong ideological tendencies. Democratic AGs have been suing the Trump Administration repeatedly over issues such as the travel ban and migrant family separation. In the same way, Republican AGs went to court to try to undermine Obama Administration initiatives such as the Affordable Care Act.

Yet in the area of corporate crime-fighting, bipartisanship is the norm.

My colleagues and I at the Corporate Research Project of Good Jobs First have been documenting this fact in the course of collecting data for the latest expansion of our Violation Tracker database. We’ve compiled more than 600 cases in which two or more state AGs successfully sued a corporation and collected monetary penalties, usually in the form of a settlement in which the company did not admit guilt.

Next week we will post the data on Violation Tracker and publish a report that analyzes the multistate AG cases. I can’t give away the main findings until then, but I can say that the new entries will make a major addition to penalty totals in the database.

Currently, there are 61 parent companies with $1 billion or more in cumulative penalties (our entries go back to the beginning of 2000). With the AG cases, that number increases to 84.

The penalty totals for many of the individual corporations, especially the big banks, will rise dramatically. The combined state and federal penalty total for Bank of America, for instance, will be in excess of $80 billion.

Although the report will focus mainly on the multistate AG cases, we also collected data on 7,000 single-state AG cases from across the country that will be added to Violation Tracker. These include lots of relatively minor consumer protection cases (crooked used car dealers and the like), but there are also plenty of major settlements, including 70 cases with corporate payouts of $100 million or more.

There have been a few state AGs who have shown less enthusiasm about pursuing corporate miscreants. One example was Scott Pruitt, when he held that post in Oklahoma before being chosen as the Trump Administration’s first administrator of the EPA.

As state AG, Pruitt brought few actions against companies on his own and did not sign on to many of the multistate cases. Fortunately, he was far from typical, even among the reddest states.

Exorcising Evil at Google

For the past two decades, Google’s Code of Conduct has included the phrase Don’t Be Evil. It used to be at the beginning of that document but now it is relegated to the end, appearing almost as an afterthought.

That turns out to be appropriate, given that Google can no longer pretend to be a paragon of virtue. The latest example of this move to the dark side is the announcement by the Federal Trade Commission and the New York State Attorney General that Google is paying $170 million to settle allegations that its subsidiary YouTube committed serious violations of the Children’s Online Privacy Protection Act. It was said to have done this by collecting personal information from under-age viewers of online videos without their parents’ consent.

Google and its parent company Alphabet Inc. will be facing more headaches. There have been recent reports that a large group of state attorneys general are getting ready to announce a major antitrust investigation of Google, whose search engine is essentially a monopoly and which has dominant positions in other areas as well.

The company has already been targeted in Europe. Last year the EU hit Google with a $5 billion fine for abusing its control over cellphone operating systems, and earlier this year the Europeans imposed a $1.6 billion penalty for abusing its control over web searches.

Google’s misconduct is not all of recent vintage. In 2012 it paid a $22 million fine to the FTC to settle allegations that it misrepresented to users of Apple’s Safari Internet browser that it would not place tracking cookies or serve targeted ads to them, violating an earlier privacy settlement between the company and the agency. The following year it had to pay $17 million to a group of three dozen state AGs to settle allegations of unauthorized placement of cookies on web browsers. Around the same time it paid $7 million to another set of AGs for the unauthorized collection of data from unsecured wireless networks across the country.

In 2014 it paid to $19 million the FTC to resolve allegations that it unfairly billed consumers for in-app charges incurred by children without their parents’ consent.

For a long time, Google promoted itself as an outstanding place to work. Yet that image has eroded as well. In 2015 it and three other tech giants had to pay $415 million to settle a lawsuit alleging that they conspired to suppress salary levels by secretly agreeing not to hire one another’s employees.

Last year Google faced an unprecedented walkout by thousands of its employees around the world who were protesting what they saw as the company’s lax treatment of sexual harassment claims.

The positive side of this is that it inspired a new form of activism among tech workers previously thought to be too individualistic to act collectively. Google employees have also been outspoken on other issues such as providing services to the repressive Chinese government.

If the evil is ever to be exorcised at Google, it will be done not by a corporate motto but by pressures brought to bear by federal regulators, state prosecutors and the company’s own workforce.