October 2024 Archives

Brazil Extracts Billions from Mining Giants

When multinational mining companies are implicated in disasters in the Global South they often get away with paying minimal amounts in compensation to the communities or workers involved. Brazil recently broke that pattern by negotiating a settlement worth over US$30 billion.

That amount will be paid out by mining giants BHP and Vale in connection with the 2015 Mariana disaster in which a tailings dam at the iron ore mine operated by their joint venture Samarco collapsed and unleashed a torrent of waste that killed 19 people and contaminated 400 miles of the Doce River.

Under the agreement, BHP and Vale, which have already been compelled to pay out about US$8 billion, will provide another US$23 billion over the next 20 years to affected communities and public authorities. The amounts cover water clean-up costs, health programs infrastructure repairs and improvements, and a flood response fund. Also included are funds for education, the needs of women, fishing, food security, and income support for vulnerable populations. The companies are, in effect, being compelled to finance a parallel social welfare system.

BHP and Vale both have histories of harmful impacts that extend well beyond the Mariana disaster. BHP, headquartered in Australia, took its current form as a result of the 2001 merger of the company previously known as Broken Hill Proprietary and Billiton, originally a Dutch company. It has been at the center of environmental controversies concerning its operations in countries such as Chile, Guatemala, India, and the United States. For example, in 2022 it was fined the equivalent of US$8 million by environmental authorities in Chile for damage caused by excessive water extraction in the Salar de Atacama salt flat.

Vale, headquartered in Brazil, was implicated in another even worse mining disaster in its home country. Three years after the Mariana incident, a tailings dam near Brumadinho in the state of Minas Gerais collapsed, releasing a mudflow that engulfed houses, farms and roads and killed more than 250 people, most of whom were company employees. The toxic deluge also destroyed 300 acres of native forest and polluted 200 miles of the Paraopeba River.

In 2021 Vale agreed to pay US$7 billion in compensation to the state government. It probably got off easy, given that evidence emerged suggesting that Vale executives had been warned about safety risks with the dam. In the wake of those revelations, Brazilian authorities brought homicide charges against the chief executive of the company, Fabio Schvartsman. Those charges were dismissed earlier this year, but relatives of the victims are seeking to have them reinstated.

Apart from the environmental penalties, Vale got in trouble with the U.S. Securities and Exchange Commission for making false and misleading statements to investors about the safety of its dams. In 2023 the company had to pay US$55 million to settle the matter.

The substantial penalties being paid in Brazil by BHP and Vale will provide needed relief to the affected communities, yet it is unclear whether the amounts are enough to get corporations with annual revenues in the $40-50 billion range to fundamentally change their ways.

Military Contractors Return to Their Old Ways

In the 1980s and 1990s the big military contractors developed a reputation as some of the most corrupt major corporations in the United States. They were at the center of numerous scandals involving brazen overcharging in their dealings with the Pentagon, and they were often accused of providing defective equipment. Because the Defense Department was so dependent on them, these companies continued to be awarded lucrative contracts.

By the 2000s, the weapons makers were no longer in the spotlight as other industries such as the giant banks, Big Pharma, and the oil majors came to be viewed as the main corporate villains. After the arms companies got involved in arming the Ukrainian government to resist the 2022 Russian invasion, some ESG investors began to argue that the likes of Raytheon and Northrop Grumman should no longer be excluded from ethical portfolios.

A recent announcement by the Justice Department suggests that the military contractors have not changed their old ways. DOJ reported that Raytheon Company, now a subsidiary of a parent company known as RTX, is paying $950 million to resolve allegations in several categories.

First, it was accused of cheating the federal government by providing “false and fraudulent information to the DOD during contract negotiations concerning two contracts with the United States for the benefit of a foreign partner — one to purchase PATRIOT missile systems and the other to operate and maintain a radar system.” The deception caused the government to pay Raytheon $111 million more than it should have received. To settle this case, which is one of very few contract matters handled as a criminal offense, Raytheon paid a penalty of $147 million.

The second allegation involved additional instances in which the company provided “untruthful certified cost or pricing data when negotiating prices with the DOD for numerous government contracts and double billed on a weapons maintenance contract.” Raytheon paid a whopping $428 million to settle this civil action.

The third allegation involved bribes paid to a high-level official of the Qatari Air Force to obtain contracts. To resolve charges under the Foreign Corrupt Practices Act, paid a criminal fine of $230 million and other penalties. This and the other criminal charge were resolved through two deferred prosecution agreements, meaning that the company did not have to enter a guilty plea.

DOJ’s actions came less than two months after RTX paid $200 million to the State Department’s Directorate of Defense Trade Controls to resolve allegations of violating the International Traffic in Arms Regulations (ITAR) in connection with unauthorized defense exports.

Raytheon is not the only military contractor that has been slipping back into corrupt practices. Earlier this year, Sikorsky Services, a subsidiary of Lockheed Martin, agreed to pay $70 million to resolve allegations it was involved in a scheme to overcharge the Navy for spare parts and materials needed to repair and maintain the primary aircraft used to train naval aviators. Also this year, Boeing was fined $51 million for violating export control laws in its dealings with countries such as China. Last year, a subsidiary of L3Harris Technologies agreed to pay $21.8 million to resolve allegations that it violated the False Claims Act by knowingly submitting contract proposals in which the cost of certain parts was included twice.

Perhaps it is time to return the weapons companies to a prominent place in the corporate hall of shame.

Big Banks and Dirty Money

Toronto-Dominion has joined the dubious club of large companies that have paid a penalty of $1 billion or more in a single case of misconduct. It achieved that distinction with the recent slew of announcements by the U.S. Justice Department and several financial regulators that the book was being thrown at the Canadian bank’s U.S. subsidiary TD Bank for widespread failures in meeting its obligations to prevent the use of its operations for money laundering by criminals and tax evaders.

TD Bank was hit with $1.9 billion in criminal fines by the DOJ and more than a billion from the Federal Reserve, the Office of the Comptroller of the Currency, and the Treasury Department’s Financial Crimes Enforcement Network. It all came to $3.09 billion in penalties. Adding these to Toronto-Dominion’s previous cases documented in Violation Tracker raises the bank’s aggregate penalties in the U.S. to nearly $4 billion, far and away the highest total for any parent company headquartered in Canada.

Looking specifically at penalties for anti-money-laundering (AML) deficiencies, Toronto-Dominion is now at the top of the list in that category, overtaking Denmark’s Danske Bank, which has hit with $2 billion in criminal fines by the DOJ in 2022.

Other banks with the highest penalties for AML and related Bank Secrecy Act violations include: JPMorgan Chase ($811 million), HSBC ($665 million), U.S. Bancorp ($528 million), Deutsche Bank ($491 million), and Capital One ($390 million). The non-bank with the largest total is Western Union at $740 million.

AML violations are not limited to the United States. In the new Violation Tracker Global, which covers cases against large corporations in 45 countries (including the U.S.), AML is one of the most frequent offenses, with total penalties equal to more than $20 billion imposed by regulators and courts in three dozen countries.

The U.S. by far contributes the most ($15 billion) to that total. Other countries with the most AML penalties against large corporations include Australia, the Netherlands, and the United Kingdom, each with between $1 billion and $2 billion. Next are Denmark and Sweden with totals between $500 million and $700 million.

Outside the United States, the largest individual AML cases include: a $916 million penalty in Australia against Westpac Banking Corporation; a $900 million penalty in the Netherlands against ING Bank; a $675 million penalty in Denmark against Danske Bank; a $575 million penalty in the Netherlands against ABN AMRO; a $529 million penalty in Australia against Commonwealth Bank; a $397 million penalty in Sweden against Swedbank; and a $350 million penalty against NatWest in the United Kingdom.

Toronto-Dominion had one AML penalty outside the U.S.—a penalty equal to less than $7 million in its home country of Canada.

These figures suggest that large banks everywhere have a problem complying with AML restrictions. That is probably because doing business with clients flush with dubious cash is simply too lucrative for them to resist. Large penalties imposed in the U.S. and a few other countries may have some deterrent effect, but regulators and prosecutors need to find more effective forms of punishment.

Note: The new TD Bank cases will be added to Violation Tracker and Violation Tracker Global as part of updates that are being prepared.

Violation Tracker Goes Global

Violation Tracker Global has arrived. The new database, covering corporate crime and misconduct in 45 countries, is free to search at violationtrackerglobal.org.

VT Global is structured much like the U.S. and UK versions of Violation Tracker, but with an important difference: it focuses exclusively on cases linked to a universe of 1,600 large multinational corporations and their subsidiaries in the period since 2010. The database contains more than 50,000 penalties imposed on those companies by 700 regulatory agencies and other government bodies, including subsets of the data from the U.S. and the UK Trackers. Other countries covered are from both the Global North (such as Canada, Australia, Japan, South Korea, and 17 members of the European Union) and the Global South (such as Brazil, Mexico, South Africa, and India). More countries will be added in the future.

The cases in Violation Tracker Global are divided into eight broad offense groups: Competition/Antitrust, Consumer Protection, Employment, Environment, Financial, Government Contracting, Healthcare, and Safety. Each entry is also tagged with one of about 100 more specific offense categories, such as privacy/data protection violations, bribery, money laundering, and workplace safety. Penalties are shown both in the original currency and the U.S. dollar equivalent at the time of the penalty announcement.

Because of agency disclosure limitations, Violation Tracker Global does not have data in every category for all 45 countries. Particularly frustrating is the fact that regulators in numerous countries, including most of those in the European Union, do not make detailed enforcement information available in two categories: environmental and labor standards. Many of these same countries post extensive data on cases in categories such as banking, securities, and competition/antitrust. Where major cases have become public despite their absence from agency websites, we have created entries using reliable secondary sources.

This unevenness in disclosure practices is part of the reason financial institutions appear so prominently in Violation Tracker Global. The nearly 300 banks, insurance companies, and asset managers included in the database account for more than 40 percent of the total penalties, far more than any other sector. Seven of the 10 parent companies with the largest penalty totals are banks, including Bank of America, JPMorgan Chase, Wells Fargo, UBS, Citigroup, Goldman Sachs, and Deutsche Bank.

Banks are also the biggest repeat offenders. Looking only at penalties of $1 million or more, the parents with the most cases of that size are UBS (114), Bank of America (111), JPMorgan Chase (101), and Citigroup (98). Two banks, HSBC and Citigroup, have been penalized in more countries than any other parent companies.

Plenty of corporations other than banks have substantial penalty totals. These include Volkswagen ($30 billion), BP ($26 billion), and Apple ($19 billion). Overall, 95 parent companies have received $1 billion or more in cumulative penalties since 2010.

Violation Tracker Global is a work in progress. Going forward, my colleagues and I will add information from more countries and seek to fill gaps in the online data through methods such as open records requests. In some countries, however, strict privacy rules will prevent us from obtaining full data. The data we have assembled so far makes it clear that illegality on the part of giant corporations is a worldwide phenomenon.

We hope Violation Tracker Global will be a useful tool for those promoting corporate accountability everywhere.

The Corporate Lawbreakers Involved in the Port Labor Dispute

The decision by the International Longshoremen’s Association to strike ports on the East and Gulf Coasts has prompted numerous media outlets to produce unflattering stories about union president Harold Daggett and what is depicted as his lavish lifestyle.

I have not seen much reporting on the ILA’s adversaries—the corporate members of the employer group known as the United States Maritime Alliance. The group’s website lists about 40 members, among which are some of the largest multinational shipping corporations and terminal operators in the world.

These companies have become more familiar to me as I have been gathering data for the new Violation Tracker Global database, which my colleagues and I will release soon. USMA members show up frequently in data from regulatory agencies in various countries. Here is a preview of what Violation Tracker Global will reveal about these shippers.

One of the USMA members is an American subsidiary of Norway’s Wallenius Wilhelmsen Group. Since 2010, units of the shipping company have racked up regulatory penalties equal to more than US$440 million. Most of these were for anti-competitive practices. The biggest case was a $256 million penalty imposed by the European Commission in 2018 for participating in an illegal cartel controlling the market for vehicle shipping. Wallenius Wilhelmsen has also been fined in Australia, Brazil, China, Japan, Mexico, South Africa, South Korea and the United States.

Another USMA member is a unit of Japan’s Kawasaki Kisen Kaisha, known as K Line. Since 2010, K Line has been penalized more than $240 million for similar anti-competitive practices. The largest case was a $67 million criminal fine imposed by the U.S. Justice Department for participation in a conspiracy to fix prices, allocate customers, and rig bids for shipping services for roll-on, roll-off cargo, such as cars and trucks. K Line has also been fined in Australia, Canada, Chile, China, India, Italy, Japan, Mexico, Singapore, South Africa, and South Korea.

One of the biggest USMA members is Denmark’s Maersk, which participates directly and through its subsidiaries APM Terminals and Hamburg Sud. Since 2010, Maersk and all its subsidiaries have racked up about $45 million in penalties. The largest portion of that was a 2012 U.S. case in which Maersk Line Limited had to pay the federal government $31.9 million to resolve allegations that it submitted false claims in connection with contracts to transport cargo in shipping containers to support U.S. troops in Afghanistan and Iraq. Among other things, Maersk units were fined by Russian authorities for anti-competitive practices and by British authorities for an offshore oil spill.

Also on the membership list is CSAV, a Chilean shipping company whose fines in Violation Tracker Global amount to $25 million. Those include competition cases brought by the European Commission and in China, Italy, Mexico, South Africa, South Korea, and the United States. France’s CMA CGA has total fines of just under $25 million. It was also fined by the European Commission and in Brazil, France, Italy, the United Kingdom, and the United States.

Opponents of the ILA are arguing that the union’s fight against automation will impede efficiency and lead to higher shipping costs. Yet, as the information in Violation Tracker Global will show, the shippers themselves have already been boosting costs through price-fixing and other anti-competitive practices across their global operations.

Violation Tracker Global will be available starting on October 8 at:
https://violationtrackerglobal.goodjobsfirst.org/