Month: October 2020

Downplaying Corporate Misconduct

Despite all the effort it has put into eliminating business regulations, the Trump Administration insists that it diligently enforces those rules that are still in effect. Moreover, Trump likes to depict himself as some sort of crusader against corporate misconduct.

A new indication of the absurdity of these claims comes from the U.S. Labor Department, which recently decided it would no longer issue press releases when citing companies for violations of rules governing workplace safety, employment discrimination and labor standards. According to an internal memo obtained by the New York Times, the excuse for the change was that such releases tend to linger prominently in search results and would be misleading if an enforcement action was ultimately found to have been unjustified.

Rarely does an alleged violation turn out to have no basis, and in those very few instances the problem could be resolved by the issuance of a new press release that would presumably circulate as easily as the original one. The real motivation for the change is to reduce the ability of agencies to pressure corporate transgressors and could be a stepping-stone toward the elimination of all announcements of violations.

Some parts of the Trump Administration already seem to have moved in that direction. In the course of collecting data for Violation Tracker, I check the websites of more than 50 federal regulatory agencies every three months to find new cases to add to the database. By the way, only finalized cases are included.

Agencies report on different schedules. Some issue a press release on each case when it is resolved or add each penalty to an ongoing database. Others disclose the data periodically, whether monthly, quarterly or annually.

What I have found is that some agencies seemed to have given up on new reporting even while leaving their historical data in place. Here are some examples:

The Bureau of Safety and Environmental Enforcement, which regulates offshore oil drilling, has no data on its civil penalties page more recent than fiscal year 2018.

The Federal Maritime Commission’s Bureau of Enforcement has not updated its penalty announcements since May 2019.

The most recent item on the Consumer Product Safety Commission’s list of press releases relating to an enforcement penalty is dated November 26, 2018.

It is difficult to determine whether these agencies are not announcing enforcement actions or have stopped bringing them. Either would be troubling.

Publicizing violations and penalties is just as important as the enforcement actions themselves. For many companies, the fines they are required to pay are trivial. The disclosure of their conduct means much more in terms of the impact on the firm’s reputation among customers and investors. Those revelations, called “regulation by shaming” in the academic literature, can have a bigger deterrent effect.

Violation Tracker is meant to enhance the deterrence by collecting a wide variety of disclosures about corporate misconduct and showing the degree of recidivism, especially among large companies. Keeping the database current is a lot easier when agencies are not hiding their data.

The $8 Billion Slap on the Wrist

In the normal course of events, an $8 billion penalty and a guilty plea would represent a landmark event in the history of corporate crime enforcement. The newly announced resolution of charges against Purdue Pharma is, however, a disappointment and a missed opportunity to mete out appropriate punishment to one of the most egregious rogue companies this country has ever seen.

Let’s start with the monetary penalty. The $8 billion amount ranks 11th among all the fines and settlements collected in Violation Tracker. It is surpassed by penalties paid by companies such as BP, Volkswagen, Bank of America and JPMorgan Chase.

As bad as the environmental and financial conduct of those corporations may have been, it is likely that Purdue Pharma has caused much greater harm. It bears a significant amount of responsibility for the hundreds of thousands of people who have died from overdoses after becoming addicted to opioids the company recklessly promoted.

There is also the issue of the economic costs to society. The Society of Actuaries has estimated those costs to be as high as $214 billion a year. Looked at in comparison to the human and economic costs, the $8 billion penalty seems woefully inadequate—all the more so because it is unclear how much of that amount the bankrupt company will actually pay.

It is good that the Justice Department extracted a guilty plea from Purdue rather than its frequent practice of allowing large companies to sign deferred prosecution or non-prosecution agreements. Yet this is a case which called out for individual as well as corporate criminal charges. DOJ got the Sackler Family, which controls Purdue, to pay out $225 million—yet that is a pittance in relation to the billions the family has taken from the company.

One unusual feature of the case resolution is the provision that will require Purdue to emerge from bankruptcy as a benefit company supposedly dedicated to serving the public rather than maximizing profits. It remains to be seen how that would work, but it is already troubling that the creation of the trust would allow Purdue to reduce its criminal penalty substantially.

The good news is that the DOJ settlement is not the end of the story. The statement that the Sackler family has not been released from potential federal criminal liability is not expected to mean much, especially under a Trump Administration.

The possibility of more aggressive action can be found at the state level. Numerous state attorneys general have sharply criticized the deal and have vowed to pursue their own cases. “I am not done with Purdue and the Sacklers,” warned Massachusetts AG Maura Healey.

Let’s hope that state prosecutors do their job, because their federal counterparts have failed to adequately crack down on the worst corporate violators and the individuals behind them.

Trump’s Environmental Charade

When challenged about their climate denialism, President Trump and Vice President Pence tend to respond with a claim that the United States has the world’s cleanest air and water, thereby implying that their administration is doing a good job enforcing environmental regulations. Aside from being a separate issue from climate change, the claim is false in two ways: our air quality and water quality are far from the best, and enforcement has been on the decline.

The latter should come as no surprise, since regulation-bashing has been one of the hallmarks of the Trump Administration. It is one of the few areas in which traditional Republican values have been preserved.

Much of the administration’s focus has been on reversing the environmental initiatives of the Obama Administration, yet there has also been an erosion in the enforcement of longer-standing laws such as the Clean Air Act and the Clean Water Act.

The latest evidence of this comes in a new study by David Uhlmann of the Environmental Crimes Project at the University of Michigan Law School. The analysis, which has received prominent coverage in the New York Times, finds that during the first two years of the Trump Administration the number of criminal prosecutions under the Clean Water Act fell 70 percent and those under the Clean Air Act declined by more than 50 percent.

It should be noted that criminal prosecutions represent a small subset of environmental cases, the large majority of which are brought as civil matters. Criminal charges are often brought against individuals rather than corporate polluters, and they often involve specific offenses such as ocean dumping of hazardous wastes.

Uhlmann’s analysis is based on the number of cases and the number of defendants, which will differ given that some cases have multiple defendants. His findings are consistent with the data in Violation Tracker, where we focus more on the penalties paid by offenders, and we include civil as well as criminal cases.  

Our data shows that the total penalties (both fines and settlements) collected by the EPA and the Justice Department have been trending downward during the Trump years. In the period from 2009 to 2016, environmental penalties averaged over $7 billion a year, an amount boosted by major cases against corporations such as BP for the Deepwater Horizon disaster and Volkswagen for emissions cheating.

Penalties during the Trump Administration have averaged $974 million per year. The average would be much lower if not for the $1.5 billion settlement announced in September with Daimler for its emissions cheating. It is encouraging that this case was resolved during the current administration, but it is one of only a small number of mega-settlements reached over the past few years, and most of these represented the culmination of enforcement initiatives begun under the previous administration.

Thanks to career public servants in the EPA and the Justice Department, environmental enforcement has not disappeared during the Trump Administration. Yet the downward trend in penalties suggests that political appointees are probably thwarting more aggressive action against polluters.

The Many Sins of the Tech Giants

The 400-page report just published by the Democratic leadership of the House Judiciary Committee is a damning review of the anti-competitive practices of the big tech companies—Amazon, Apple, Facebook and Google’s parent Alphabet.

The report finds that in various portions of the digital world these companies have amassed what amounts to monopoly control and have not hesitated to use it crush or absorb competitors. Comparing the tech giants to the oil barons and railroad tycoons of the late 19th century, the report calls for aggressive measures such as breaking up the companies and doing more rigorous reviews of proposed mergers and acquisitions in the future.

Among the broader consequences of the rising power of the tech giants are, the report argues: a weakening of innovation and entrepreneurship, a decline in the number of trustworthy sources of news, and an erosion of safeguards for the privacy of personal information.

One aspect of the report that has not received much coverage is the brief discussion of the power of the tech giants in the labor market. This is especially relevant for Amazon, which as the report notes has become one of the largest employers in the country and is exercising monopsony power in sectors such as warehousing and “has wage-setting power through its ability to set route fees and other fixed costs for independent contractors in localities in which it dominates the delivery labor market. These entities are dependent on Amazon for a large majority—or even 100%—of their delivery business.”

Amazon has moved into the position previously held by Walmart—a shamelessly exploitative employer that depresses wages and worsens working conditions not only for its own workers but also for the entire sector in which it operates—and to some extent for the economy as a whole.

The report’s wide-ranging recommendations do not include any remedies for these labor issues, perhaps because they are outside the scope of the Judiciary Committee.

It is worth noting that there are already efforts underway to address the labor practices of the tech giants. Several unions as well as other groups are working with Amazon employees to agitate for better conditions, a process made more difficult by Amazon’s brazen anti-union practices and its widespread use of staffing services to evade its employer responsibilities.

There are also class-action lawsuits challenging unfair employment practices by Amazon and other tech giants. For example, Facebook recently agreed to pay $1.65 million to resolve litigation alleging that it misclassified workers to deprive them of overtime pay.  A few years ago, Apple, Google, Intel and Adobe Systems together agreed to pay $415 million to resolve allegations that they conspired not to hire each other’s employees, thus suppressing salary levels.

Taking on the tech giants will require many lines of attack to address the harms they cause to users and employees alike.

The Legacy of Financial Services Racism

At a time when numerous large corporations have been expressing support for the Black Lives Matter movement, it is important not to forget that big business has played a role in perpetuating systemic racism and widening the racial wealth gap.

This reality became clearer for me while I was collecting a new category of data for Violation Tracker: class-action lawsuits brought against financial services corporations engaging in discriminatory practices against their customers.

I was able to identify a total of 30 cases in which banks, insurance carriers and consumer finance companies paid a total of $400 million in settlements over the past two decades to resolve allegations that they charged higher premiums or interest rates to minority customers.

These private lawsuits are in addition to dozens of similar cases already in Violation Tracker that were brought by the Justice Department and state attorneys general during the same time period.

A wave of this litigation came in the early 2000s, when all the major automobile financing companies—including subsidiaries of carmakers such as Ford, General Motors, Toyota, and Honda—agreed to settle allegations that they allowed dealers to charge inflated interest rates on loans to African-American customers.

Subsequent years saw settlements with major insurance companies such as John Hancock, which in 2009 agreed to pay $24 million to resolve allegations that for decades it sold only inferior policies to Black customers. As recently as 2018, Travelers Indemnity settled a suit alleging it engaged in racial discrimination by refusing to write commercial policies for landlords who rented to tenants using Section 8 vouchers.

Over the past decade, major banks have faced private discrimination lawsuits concerning their mortgage lending practices. The defendant in four of these cases was Wells Fargo, which has paid more than $28 million in settlements. These include a case resolved just last year in which the City of Philadelphia had sued the bank on behalf of minority residents it allegedly steered to mortgages that were riskier and more expensive than those offered to similarly situated white homebuyers.

Discriminatory practices such as redlining began many decades ago. What the consumer civil rights lawsuits now documented in Violation Tracker show is that these injustices are not entirely a phenomenon of the distant past. The financial services sector has more work to do to ensure that their customers of color are treated equitably.

Note: with the addition of these lawsuits and other recent cases, Violation Tracker now contains a total of 438,000 entries involving $633 billion in fines and settlements.