December 2022 Archives

The 2022 Corporate Rap Sheet

The prognosis for the U.S. economy remains uncertain, but it is clear that 2022 has been a bumper year for corporate penalties. Including an update that will be posted soon, Violation Tracker will end up documenting more than $56 billion in fines and settlements. Among them are a dozen individual penalties in excess of $1 billion.

Many of the largest cases were brought by state attorneys general against large drug companies and pharmacy chains for their role in fueling the opiate crisis. Teva Pharmaceuticals entered into a settlement worth up to $4.25 billion to resolve allegations it deceptively marketed opioid products. Allergan paid $2.37 billion in a similar case.

Settlements were even higher in cases involving the failure of large pharmacy chains to question extraordinarily high volumes of suspicious opioid prescriptions. Walgreens paid $5.7 billion, CVS $5 billion and Walmart $3.1 billion.

The biggest Justice Department penalties were imposed on foreign companies in criminal cases. Allianz, the German insurance company and asset manager, paid $5.8 billion to resolve allegations that it misled public pension funds into investing in complex and risky financial products, causing them to suffer heavy losses. Denmark’s Danske Bank A/S paid $2 billion to settle charges that it lied to U.S. banks about its anti-money-laundering controls in order to help high-risk customers in countries such as Russia transfer assets.

Glencore, a commodity trading and mining company headquartered in Switzerland, paid $1.2 billion in a case involving international bribery. In another case brought under the Foreign Corrupt Practices Act, ABB Ltd, also based in Switzerland, paid DOJ a penalty of $315 million. It was also offered a leniency agreement called a deferred prosecution agreement, even though it was not the first time the company had been caught up in a bribery case.

In another case in which DOJ targeted a foreign company for actions abroad, the French building materials company Lafarge (part of the Holcim Group) paid $777 million to resolve allegations that it gave material support to terrorist groups such as ISIS when it made payments in exchange for permission to operate a cement plant in Syria.

Coming in just under a billion was the $900 million settlement DOJ reached with the drug company Biogen to resolve allegations that it paid illegal kickbacks to physicians to induce them to prescribe its products. This was the largest penalty among some 200 resolutions of cases brought under the False Claims Act during the year.

The biggest environmental fine of 2022 was the $299 million paid by automaker FCA US LLC (formerly the Chrysler Group and now part of Stellantis) to resolve criminal charges that it defrauded regulators and customers by making false and misleading representations about the design, calibration, and function of the emissions control systems on more than 100,000 of its vehicles. The allegations were similar to those faced by Volkswagen in its emissions cheating scandal, for which it paid around $20 billion in fines and settlements in previous years.

This year also saw an environmental settlement of $537 million paid by Monsanto (owned by Bayer) in a case involving the contamination of water supplies with polychlorinated biphenyls, or PCBs.

Privacy was the focus of numerous large cases, especially ones involving the tech giants. Google paid $391 million in a settlement with 40 state attorneys general of allegations the company misled consumers about the collection and use of their personal location data. Twitter had to pay $150 million to resolve allegations by DOJ and the Federal Trade Commission that it misrepresented how it employed users’ nonpublic contact information.

Employment-related cases tend to have lower regulatory penalty amounts, but private class action cases can result in sizeable settlements. This year saw Sterling Jewelers pay $175 million to settle a lawsuit alleging that for years it had discriminated against tens of thousands of women in its pay and promotion practices. Business services company ABM Industries agreed to pay $140 million to settle litigation alleging it failed to keep accurate records of time worked by its janitor employees, causing them to be underpaid.

There were also cases that overlapped employment issues and antitrust. Cargill, Sanderson Farms and Wayne Farms agreed to pay a total of more than $84 million to settle allegations that they violated antitrust laws by sharing poultry workers wage and benefit information, thereby depressing compensation levels.

In 2022 large corporations once again paid vast sums of money in connection with a wide range of misconduct. At the same time, they are spending more than ever to tout their supposed social responsibility credentials. The country would be a lot better off if big business focused less on ESG PR and more on compliance.

Update: After this blog was posted, several other major penalties were announced. The Consumer Financial Protection Bureau announced the largest penalty in its history against Wells Fargo, which was ordered to pay a fine of $1.7 billion and provide $2 billion in customer restitution to resolve allegations that the bank imposed illegal fees and interest charges on borrowers for automobile and home loans. The Federal Trade Commission fined software company Epic Games $520 million for violating online privacy protections for children. And a subsidiary of Honeywell was fined more than $160 million for paying bribes in Brazil.

Corporate Crime Groundhog Day

ABB Ltd, an industrial equipment giant based in Switzerland, seems to have a problem doing business honestly. The company has a tendency to get caught paying bribes to government officials around the world to obtain contracts to supply its goods and services.

The latest example of this came last week, when the U.S. Justice Department announced that ABB would pay a criminal penalty of $315 million to resolve allegations relating to the bribery of a high-ranking official at South Africa’s state-owned energy company. DOJ brought its action under a U.S. law, the Foreign Corrupt Practices Act, but in coordination with prosecutors in Switzerland and South Africa.

At first glance, one might think DOJ is throwing the book at ABB. Yet a closer reading of the announcement reveals that the company is the recipient of a kind of leniency agreement known as a deferred prosecution agreement. Under this arrangement, ABB Ltd pays a penalty but avoids having a criminal conviction.

DOJ did compel two of ABB’s foreign subsidiaries to enter guilty pleas, but freeing the parent of that consequence was a significant concession that allows the company to continue doing business as usual.

In its press release, DOJ congratulates itself on the handling of the case, stating: “This resolution demonstrates the Criminal Division’s thoughtful approach to appropriately balancing ABB’s extensive remediation, timely and full cooperation, and demonstrated intent to bring the misconduct to the department’s attention promptly upon discovering it, while also accounting for ABB’s historical misconduct.”

The last phrase is alluding to the fact that this is not the first time ABB has been charged with bribery by DOJ. In 2010 the company and two subsidiaries were charged in connection with bribes paid to a Mexican state-owned utility company and to officials in Iraq. The outcome was amazingly similar to this year’s case. The parent was offered a deferred prosecution agreement, while two subsidiaries pled guilty. The parties paid criminal penalties totaling $19 million.

There was also a Groundhog Day quality to the announcement last week by the SEC, which handled the parallel civil case against ABB and fined the company $75 million. After mentioning that it relieved ABB of having to pay an additional $72 million in disgorgement because of reimbursements it made to the South African government, the SEC casually noted that “ABB was the subject of two prior FCPA cases by the SEC in 2004 and 2010.” The 2010 case was related to the DOJ action cited above, while the 2004 SEC matter concerned illicit payments in Nigeria, Angola and Kazakhstan.

There is something almost comical about this history. ABB keeps getting caught breaking the rules and keeps promising to mend its ways. DOJ and the SEC keep giving special consideration to a company whose business model seems to depend on the use of improper payments.

Leniency deals such as deferred prosecution agreements are supposed to act as a deterrent against future misconduct, but the arrangement loses all meaning if the company continues to offend and is then offered another agreement. The financial penalties rise, but they are still insignificant for a company with annual revenues of about $30 billion and assets of about $40 billion.

Finding the most effective way to handle corporate crime is no easy task, yet DOJ should at least deny leniency deals to repeat offenders.

Derailing a Strike

The Biden Administration and Congressional Democrats purport to be pro-union, but in their desperation to prevent a rail strike they fail to understand something fundamental about collective bargaining: Sometimes workers have to inconvenience the public in order to achieve their legitimate goals.

A strike is a form of disruption. It is designed to put direct economic pressure on an employer by curtailing operations. Yet it also uses indirect means. The hope is that customers, suppliers, creditors and other stakeholders will press management to settle its differences with the union, resulting in better terms for workers. The louder the public uproar, the more likely there will be concessions by employers.

By trying to prohibit a strike by rail workers dissatisfied with the agreement previously negotiated with the help of the Biden Administration, Congress is eliminating both the direct and indirect pressures management might feel to improve on those contract provisions. It is trying to impose a clean solution in a conflict that is inherently messy.

At the insistence of progressives, Speaker Nancy Pelosi agreed to an add-on bill that would compel the railroads to provide additional paid sick days—a key point of contention—~~but as of this writing it seems unlikely that measure will pass the Senate.~~but that measure failed in the Senate.

Passage of a measure imposing the previous agreement and banning a strike would amount to one of the most egregious cases of strike-breaking by the federal government since Ronald Reagan busted the air traffic controllers union in 1981. It would also constitute an outrageous giveaway to a group of employers with a dismal track record on working conditions and safety.

As documented in Violation Tracker, the five U.S.-owned Class I railroads — BNSF, CSX, Kansas City Southern, Norfolk Southern and Union Pacific—have been fined more than 9,000 times by the Federal Railroad Administration and the Occupational Safety and Health Administration over the past two decades. They have paid over $100 million in penalties. The biggest offender is Union Pacific, with over 3,400 citations and $42 million in fines over safety issues.

The hazards indicated by these repeated violations—along with the grueling schedules imposed on rail workers—make the demand for ample paid sick leave all the more urgent.

That urgency applies not only to railroad employees but to the public. The safety lapses cited by the Federal Railroad Administration can lead to accidents such as collisions with cars and trucks at grade crossings or derailments in which hazardous materials spill out and endanger nearby communities.

Railroads have a history of trying to suppress information about dangerous working conditions. For example, in 2019 and 2020 BNSF, which is part of Warren Buffett’s Berkshire Hathaway conglomerate, was ordered to pay more than $1.7 million in damages and compensation to an employee who faced retaliation after reporting track defects.

CSX has been fined several times for whistleblower retaliation. For example, in 2021 OSHA found that the company violated the Federal Railroad Safety Act and demonstrated a pattern of retaliation after firing a worker in December 2019 for reporting safety concerns. The agency ordered the company to pay $71,976 in back wages, interest, and damages, and $150,000 in punitive damages.

In 2020 Norfolk Southern was ordered to pay $85,000 and reinstate an employee who was fired for reporting an on-the-job injury. Union Pacific has paid over $700,00 in five retaliation cases.

The rap sheets of the Class I railroads also include multiple environmental penalties. For example, in 2009 Union Pacific had to pay more than $31 million to settle alleged violations of the Clean Water Act in Nevada. In 2019 it paid $2.3 million to four California counties to resolve allegations relating to the mishandling of hazardous wastes.

In 2010 Norfolk Southern paid over $8 million to the Environmental Protection Agency in connection with a derailment and spill of hazardous chemicals in South Carolina. Three years earlier, it paid over $7 million to Pennsylvania to help pay for the restoration of waterways and wetlands affected by a lye spill.

In 2018 CSX paid $2.7 million to federal and state agencies to resolve liabilities related to water pollution caused by a 2015 derailment and oil spill in West Virginia. In 2004 BNSF paid North Dakota $29 million to resolve litigation relating to a massive underground leak of diesel oil.

The Biden Administration and Congressional Democrats may not have intended it, but their approach to the rail conflict ended up providing an extraordinary benefit to one of the least deserving industries.