JPMorgan Chase in the Sewer

dimonThe business news has been full of speculation on whether JPMorgan Chase Jamie Dimon will go on serving as both CEO and chairman of the big bank, in light of a shareholder campaign to strip him of the latter post. The effort to bring Dimon down a notch—and to oust three members of the board—is hardly the work of a “lynch mob,” as Jeffrey Sonnenfeld of Yale suggested in a New York Times op-ed.

That’s not to say that a corporate lynching is not in order. JPMorgan’s behavior has been outrageous in many respects. The latest evidence has just come to light in a lawsuit filed by California Attorney General Kamala Harris, who accuses the bank of engaging in “fraudulent and unlawful debt-collection practices” against tens of thousands of residents of her state.

In charges reminiscent of the scandals involving improper foreclosures by the likes of JPMorgan, the complaint describes gross violations of proper legal procedures in the course of filing vast numbers of lawsuits against borrowers, including:

  • Robo-signing of court filings without proper review of relevant files and bank records;
  • Failing to properly serve notice on customers—a practice known as “sewer service”; and
  • Failing to redact personal information from court filings, potentially exposing customers to identity theft.

JPMorgan got so carried away with what the complaint calls its “debt collection mill,” that on a single day in 2010 it filed 469 lawsuits.

The accusations come amid reports of ongoing screw-ups in the process of providing compensation to victims of the foreclosure abuses. For JPMorgan, the California charges also bring to mind its own dismal record when it comes to respecting the rights of credit card customers.

In January 2001, just before it was taken over by what was then J.P. Morgan, Chase Manhattan had to pay at least $22 million to settle lawsuits asserting that its credit card customers were charged illegitimate late fees.

In July 2012 JPMorgan Chase agreed to pay $100 million to settle a class action lawsuit charging it with improperly increasing the minimum monthly payments charged to credit card customers.

The credit card abuses are only part of a broad pattern of misconduct by JPMorgan. In the past year alone, its track record includes the following:

In October 2012 New York State Attorney General Eric Schneiderman, acting on behalf of the U.S. Justice Department’s federal mortgage task force, sued JPMorgan, alleging that its Bear Stearns unit had fraudulently misled investors in the sale of residential mortgage-backed securities.  The following month, the SEC announced that JPMorgan would pay $296.9 million to settle similar charges.

In January 2013 JPMorgan was one of ten major lenders that agreed to pay a total of $8.5 billion to resolve charges relating to foreclosure abuses. That same month, bank regulators ordered JPMorgan to take corrective action to address risk management shortcomings that caused massive trading losses in the London Whale scandal. It was also ordered to strengthen its efforts to prevent money laundering. In a move that was interpreted as a signal to regulators, JPMorgan’s board of directors cut the compensation of Dimon by 50 percent.

JPMorgan’s image was further tarnished by an internal probe of the big trading losses that found widespread failures in the bank’s risk management system. Investigations of the losses by the FBI and other federal agencies continue.

In February 2013 documents came to light indicating JPMorgan had altered the results of an outside analysis showing deficiencies in thousands of home mortgages that the bank had bundled into securities that turned out to be toxic.

In March 2013 the Senate Permanent Committee on Investigation released a 300-page report that charged the bank with ignoring internal controls and misleading regulators and shareholders about the scope of losses associated with the London Whale fiasco.

In an article in late March, the New York Times reported that the bank was facing investigations by at least eight federal agencies. Last week, the newspaper revealed a new investigation of JPMorgan by the Federal Energy Regulatory Commission, which was said to have assembled evidence that the bank used “manipulative schemes” to transform money-losing power plants into “powerful profit centers.”

You know a bank is in big trouble when the coverage of its activities includes phrases like “lynch mob,” “sewer service” and “manipulative schemes.“

The Wrong Kind of Magnetism

In his State of Union address President Obama declared: “Our first priority is making America a magnet for new jobs and manufacturing.” Obama just repeated those words while nominating as Commerce Secretary a billionaire whose family business has pursued a very different goal: accumulating vast wealth on the backs of underpaid and mistreated workers.

Obama praised Penny Pritzker as “one of our country’s most distinguished business leaders,” adding: “She’s built companies from the ground up.  She knows from experience that no government program alone can take the place of a great entrepreneur.  She knows that what we can do is to give every business and every worker the best possible chance to succeed by making America a magnet for good jobs.”

What he didn’t say is that Pritzker, whose personal net worth is estimated by Forbes at $1.9 billion, sits on the board of Hyatt Hotels, which is the best known part of a business empire founded by her grandfather and his sons. Much less did Obama mention that Hyatt has been denounced by the union UNITE HERE as “the worst hotel employer in America,” because it has “abused workers, replacing career housekeepers with minimum wage temporary workers and imposing dangerous workloads on those who remain.” The union also criticizes the company for resisting worker organizing efforts and for taking a hard line in bargaining at those hotels where a collective bargaining relationship exists. UNITE HERE’s corporate campaign against the company is called Hyatt Hurts.

UNITE HERE has also targeted other parts of the Pritzker empire, including a manufacturing conglomerate called the Marmon Group, controlling ownership of which is now held by Berkshire Hathaway. The union blamed the Pritzkers for the decision by Marmon to shut down its Union Tank Car production facility in East Chicago and shift the jobs to Louisiana, where it had been offered some $63 million in tax abatements and infrastructure assistance. The union produced a film about the issue entitled “Show Us the Tax Breaks.”

The sad truth is that the behavior of Hyatt Hotels and the Pritzkers is far from unusual. Large corporations have no hesitation about eliminating or undermining well-paid jobs while shifting investment to areas where workers are weak and where public officials dish out lavish subsidy packages. Take Caterpillar. The company is currently taking a hard line in its contract talks with the Steelworkers union at a mining-equipment plant in Milwaukee it took over as part of its acquisition of Bucyrus International. Last year, Cat got a $77 million subsidy package to open a plant in Georgia that it undoubtedly assumes will operate non-union. Boeing, which built a new Dreamliner assembly line in South Carolina to get away from union workers in Seattle, this year announced a $1 billion expansion of that operation, for which it’s getting another $120 million in subsidies.

Foreign corporations are employing the same southern strategy. Japan’s Yokohama Rubber just announced plans for a $300 million truck tire plant in Mississippi for which the state legislature just approved some $130 million in subsidies. Toyota is getting a $146 million in subsidies for an expansion of its assembly operations in Kentucky.

If there is a manufacturing revival in the United States, it consists mainly of companies taking advantage of cheap, non-union labor and large giveaways of taxpayer money. And whatever growth is occurring in the service sector includes too many substandard jobs like those offered by Hyatt. If this is what Obama means when talking about making the U.S. a magnet for new jobs and manufacturing, that’s not the kind of magnetism the country needs. And we don’t need someone in the Cabinet who symbolizes that destructive process.

Amazon Gets Its Way

amazonWhen companies get subsidies from state and local governments, it usually means that they have to pay less in taxes. Internet retailing behemoth Amazon.com built its business on making sure it could avoid collecting sales taxes from many of its customers, thus allowing it to undercut its brick and mortar rivals.

It now looks like that indirect subsidy is finally coming to an end. Congress seems poised to pass legislation that would require all online merchants with $1 million or more in revenue (Amazon’s annual sales are 60,000 times larger at $61 billion) to collect state and municipal sales taxes from customers anywhere in the country. This will be a godsend to struggling governments that need the revenue to pay for education, healthcare and other vital services.

Amazon has already come to terms with this policy change and in fact has been taking steps to exploit it. As has been widely reported, Amazon recognizes that the next stage in internet retailing is same-day delivery, at least in selected areas. To make that service possible, Amazon needs to greatly expand its network of huge distribution centers from which all those Kindles and toys and kitchen gadgets can be quickly transported to impatient customers. The company just reported a 37 percent drop in its first quarter profits that has been attributed in part to the cost of expanding that distribution network.

Don’t shed any tears for Amazon. That drop is probably just a blip. The company has already taken steps to radically reduce the cost of building those new facilities.

It has done this by using its sales tax collection practices as leverage in negotiating with state governments. For several years, the company negotiated special exemptions from the requirement to collect taxes in those states where it had a physical presence such as a warehouse. In some states, such as South Carolina in 2011, it used the promise of job creation linked to new distribution centers as bait to get the exemptions.

When necessary, the company also tried to use those promises to evade obligations to make good on judgments concerning uncollected past taxes. For example, last year the company reached a deal with Texas that allowed it to skate on a $269 million assessment for uncollected taxes. In exchange, the company agreed to invest $200 million on facilities it would have had to build anyway.

The company is also shifting its demands to traditional economic development subsidies such as income tax credits, property tax abatements and cash grants. For example, the company got a $7.5 million state grant and a $1 million local abatement for a distribution center it agreed to build in Delaware, and it agreed to build two such facilities in New Jersey on the condition that it receive a subsidy package, the value of which has not yet been announced

Amazon has also received a $2 million tax credit and up to $300,000 in training grants from the Indiana Economic Development Corporation for a fulfillment center it agreed to build in Jeffersonville. That agency — whose website lures companies with the pitch “Looking for a right-to-work state with all the right resources, business incentives, low corporate tax rates and AAA credit rating in place to reach your full potential?  – is in tune with Amazon’s sensibilities. For in addition to seeking financial assistance, Amazon takes advantage of the implicit subsidy created by weak labor laws.

The fact that its U.S. operations have remained entirely non-union has made it easier for the company to impose inhuman working conditions in its facilities, which have been the target of criticism by groups such as Working Washington. The controversy has also emerged at Amazon’s operations in Germany, where the company was accused of using neo-Nazi thugs to intimidate immigrant workers at the facilities.

Amazon, it appears, will stop at nothing in its quest to dominate online commerce.

The Other Form of Violence

west-texas-fertilizer-plant-explosion-2Newscasts these days often seem to be less a form of journalism than a kind of bizarre game show for paranoids: what horrible possibility should one worry about the most?

Most of the time, the main choice is between terrorism and gun violence, especially in recent days as the Boston Marathon bombings have shared the airwaves with the gun control debate in the Senate.

Now the horrific events in a small town in Texas provide a reminder of another danger, which for most of the population is actually a more significant threat: industrial accidents. As of this writing, the explosion at a fertilizer plant near Waco is reported to have killed up to 15 people and injured more than 180 others.

If the past is any guide, the attention paid to this incident on a national level will fade much faster than the anxiety about the carnage in Boston or the massacre at Sandy Hook Elementary in Connecticut. The response of most people to terrorism and to gun deaths is to demand that government do something to curb the violence. When people die or are seriously injured in workplace incidents, there is a tendency not to see that as violence at all but rather as an unfortunate side effect of doing certain kinds of business. While labor unions and other advocates push for stronger enforcement of safety laws, corporations and their front groups usually succeed in keeping such regulation as weak as possible.

The truth is that corporations often show a brazen disregard for the safety of their employees—and nearby residents. Probably the biggest workplace assailant in recent years has been BP, which even before the 2010 explosion at its oil rig in the Gulf of Mexico that killed 11 workers had been cited for atrocious safety violations at its refinery in Texas City, Texas, where 15 workers were killed and about 180 injured in a 2005 explosion.

BP initially agreed to pay a then-record $21.4 million in fines for nearly 300 “egregious” violations at the refinery, but in 2009 OSHA announced that the company was not living up to its obligations under the settlement and proposed an even larger fine–$87.4 million–against the company for allowing unsafe conditions to persist. BP challenged the fine and later agreed to pay $50.6 million. Apparently deciding it could not run the refinery safely, BP announced in 2012 that it was selling the facility.

In the list of the all-time largest fines in OSHA’s history, BP is at the top of the list. It’s interesting that the next largest fine involved another fertilizer company—IMC Fertilizer, which along with Angus Chemical was initially fined $11.6 million (negotiated down to about $10 million) for violations linked to a 1991 explosion at a plant in Louisiana in which eight workers were killed and 120 injured.

The new incident at the fertilizer plant in Texas shows that risky business behavior is not limited to corporate giants. While many press accounts refer to the plant as West Fertilizer Co., the corporate entity is actually Adair Grain Inc., which according to Dun & Bradstreet has only eight employees and annual revenues of only a few million dollars.

Although the facility’s listing in the EPA’s ECHO enforcement database shows no violations and no inspections during the past five years (the period covered by ECHO), there have been press reports of an earlier citation for failing to have a risk management plan. The facility did not get an air pollution permit until 2007, after there were complaints about foul odors from the site. Last year, the company was fined all of $10,100 by the Pipeline and Hazardous Materials Safety Administration for violations in the transportation of anhydrous ammonia. There is no indication in the OSHA database that the facility has ever been inspected.

It’s the same old story: a dangerous industrial facility with limited regulatory oversight finally creates death and destruction.

Footnote: Until the accident, the only time Adair Grain rose out of obscurity was in 2007, when under the name of its affiliate Texas Grain Storage it filed a federal lawsuit against Monsanto, charging it with anticompetitive practices in its sale of Roundup herbicides (U.S. District Court for the Western District of Texas civil case SA-07-CA-673-OG). The case, which was brought with the involvement of ten mostly out-of-state law firms and sought class action status, appears to be dormant.

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The latest addition to CORPORATE RAP SHEETS is dossier on agribusiness giant Cargill, whose record includes some of the largest meat recalls in U.S. history and repeated workplace safety violations, including several at fertilizer plants it used to own. Read the Rap Sheet here.

The Keystone Kop of Tar Sands Oil

KeystoneKopsEven if the Obama Administration decides against the Keystone XL pipeline, the rejection of that project would not put much of a dent in the output of environmentally destructive Alberta tar sands oil.  One reason is that tar sands producers are hedging their bets. They are also hoping to ship their product westward through another pipeline that will extend to the Pacific port of Kitimat in British Columbia.

What is particularly dismaying is that the company behind this Northern Gateway project is Canadian pipeline giant Enbridge, which has what is probably the worst safety record of any oil transportation company in the world. Among other things, it was responsible for the worst inland oil spill in U.S. history—the July 2010 accident that spewed more than 800,000 gallons of oil into Michigan’s Kalamazoo River, a major state waterway that flows into Lake Michigan.

The incident occurred only months after the company was warned that it was not properly monitoring corrosion on the pipeline.

The U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) later imposed a record civil penalty of $3.7 million against Enbridge, which it said exhibited a “lack of a safety culture.”  This was echoed in the findings of the National Transportation Safety Board, which determined that it was not until 17 hours after the spill started that Enbridge began to take steps to address the problem. The safety board chair was quoted in an agency press release as saying: “This investigation identified a complete breakdown of safety at Enbridge. Their employees performed like Keystone Kops and failed to recognize their pipeline had ruptured and continued to pump crude into the environment.”

Enbridge’s lack of attention to safety can be seen in its record both before and after the Michigan spill.

For example, in 2001 a seam failure on a pipeline near Enbridge’s Hardisty Terminal in Alberta spilled more than 1 million gallons of oil. The following year, a 34-inch-diameter pipeline owned by its affiliate Enbridge Energy Partners ruptured in northern Minnesota, contaminating five acres of wetland with about 250,000 gallons of crude oil.

In 2003 about 189,000 gallons of crude oil spilled into the Nemadji River from the Enbridge Energy Terminal in Superior, Wisconsin. Fortunately, the river was frozen at the time, so damage to the waterway was limited.

In 2004 the U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) proposed a fine of $11,500 against Enbridge for safety violations found during inspections of pipelines in Illinois, Indiana and Michigan. The penalty was later reduced to $5,000. In a parallel case involving Enbridge operations in Minnesota, an initial penalty of $30,000 was revised to $25,000.

In 2007 an Enbridge pipeline in Wisconsin spilled more than 50,000 gallons of crude oil onto a farmer’s field in Clark County. The following month another Enbridge spill in Wisconsin released 176,000 gallons of crude in Rusk County. That same year, two workers were killed in an explosion that occurred at an Enbridge pipeline in Clearbrook, Minnesota. The PHMSA later fined the company $2.4 million for safety violations connected to the incident.

In 2008 the Wisconsin Department of Natural Resources charged Enbridge with more than 100 environmental violations relating to the construction of a 320-mile pipeline across much of the state. The agency said that Enbridge workers illegally cleared and disrupted wooded wetlands and were responsible for other actions that resulted in discharging sediment into waterways. In January 2009 the company settled the charges by agreeing to pay $1.1 million in penalties.

In 2009 the PHMSA fined Enbridge $105,000 for a 2007 accident that released more than 9,000 gallons of crude oil. The following year, PHMSA proposed a fine of $28,800 against Enbridge for safety violations in Oklahoma.

Shortly after the Michigan accident, Enbridge experienced another spill at one of its pipelines in Romeoville, Illinois, a suburb of Chicago.

And in In July 2012, less than a month after the publication of the damning National Transportation Safety Board report on the Michigan accident, an Enbridge pipeline in Wisconsin ruptured and spilled some 50,000 gallons of oil. One member of the U.S. Congress responded by saying: “Enbridge is fast becoming to the Midwest what BP was to the Gulf of Mexico.”

These incidents are only the ones big enough to gain press attention and significant regulatory response. A profile of the company by the Polaris Institute put the number even higher—more than 800 spills between 1999 and 2010 in which some 6.8 million gallons of oil were spilled in the U.S. and Canada.

While Keystone XL and its sponsor TransCanada get the attention, Enbridge may be an even bigger threat.

Note: This piece draws from my new Corporate Rap Sheet on Enbridge, which can be found here.

Canada’s Other Tar Sands Villain

suncor_oil_sandsAs the Obama Administration nears its final decision on the Keystone XL pipeline, the oil industry should be on its best behavior. Yet the purveyors of petroleum can’t seem to help themselves. They keep having accidents that demonstrate the perils of Keystone.

Those perils are not limited to the disastrous contribution the pipeline would make to the climate crisis. Recent events show what a dangerous business it is to transport oil across vast distances, especially when that oil is of the exceedingly dirty variety produced in the tar sands of Canada.

Exxon Mobil has been the center of attention in recent days as the result of a leak of some 10,000 barrels of heavy Canadian crude in a residential area near Little Rock, Arkansas. The incident came only days after the federal Pipeline and Hazardous Materials Safety Administration proposed that the company be fined $1.7 million in connection with a 2011 pipeline rupture that spewed a large quantity of oil into the Yellowstone River in Montana.

The Arkansas spill came shortly after a Canadian Pacific freight train derailed, spilling some 30,000 barrels of tar sands oil in western Minnesota.

The U.S. press has paid less attention to yet another spill. This one took place right where tar sands oil is produced in Alberta, and the responsible party was Canadian oil giant Suncor Energy. And it turned out that the site of its toxic wastewater spill into the Athabasca River was the same place where a previously unreported spill occurred two years earlier.

Suncor, which is the subject of my latest Corporate Rap Sheet, tends to get less attention from U.S. tar sands activists than Transcanada, which is the company behind Keystone XL. Yet Suncor is one of a handful of operators that produce the tar sands oil that would flow through the pipeline.

It was Suncor, in its previous incarnation as a subsidiary of Sunoco, that pioneered tar sands production in the 1950s and went on to invest billions of dollars to develop the dirty business. Suncor has thus been a target of anti-tar sands protests by groups such as Greenpeace Canada.

The recent spill in Alberta and the belatedly reported 2011 incident are far from the only blemishes on the company’s safety and environmental record.

In 2008 there was a scandal over reports that a leak of nearly 1 million liters of waste water from a Suncor containment pond into the Athabasca River went unreported for up to eight months. Alberta Environment later charged the company with being out of compliance with its Water Act license but fined it only C$275,000.

In 2009 there was a bigger scandal over reports that a Suncor contractor, Compass Group Canada, had failed to properly treat human waste from a company work camp before dumping sewage into the same river. Suncor was fined C$175,000 for failing to properly supervise Compass, which was fined C$225,000 for failing to report the problem.

At the same time, Suncor was fined C$675,000 for failing to install pollution control equipment at its Firebag oil sands facility. In July 2009 Suncor was fined C$625,000 for excessive discharges of sulfur dioxide at its Sarnia oil refinery in Ontario.

In 2010 Environment Canada ordered Suncor to pay C$200,000 after it pleaded guilty to two violations of the Canadian Fisheries Act in connection with a 2008 incident in which wastewater overflowed from a containment pond into the Steepbank River in Alberta.

In December 2011 an accident at Suncor’s refinery in Commerce City, Colorado resulted in the seepage of hazardous waste into Sand Creek and the South Platte River. Tests by the U.S. Environmental Protection Agency found that the contamination included the carcinogenic substance benzene. The drinking water at the refinery was also found to contain high levels of benzene. Meanwhile, the refinery continued to spread contamination into surrounding groundwater sources. Six months after the spill, Colorado officials were saying that a complete clean-up could take years.

In April 2012 the Colorado Department of Public Health and Environment announced that Suncor would pay $2.2 million in negotiated fines in connection with airborne benzene releases at the Commerce City refinery unrelated to the accident.

In October 2012, the Canada-Newfoundland and Labrador Offshore Petroleum Board announced that Suncor had admitted to regulatory violations in connection with a spill of lubricating fluid at its drilling platform in the Jeanne d’Arc basin the year before; the company was ordered to pay C$130,000 in penalties.

Transcanada deserves all the criticism it gets for its Keystone plan, but companies like Suncor that actually produce the dirty oil that will travel through that system also need to feel the heat.

Read the full Corporate Rap Sheet on Suncor Energy here.

The Banking Dirty Dozen: A Cheat Sheet

JPM-banksterWith the posting of a dossier on Barclays, the inventory of Corporate Rap Sheets on the banking industry now stands at twelve. Looked at together, the track records of these major financial institutions since the mid-2000s amounts to one of the most brazen corporate crime waves in the entire history of capitalism.

The dirty dozen includes six banks based in the United States (Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo); three in the United Kingdom (Barclays, HSBC and the Royal Bank of Scotland); two in Switzerland (Credit Suisse and UBS); and one in Germany (Deutsche Bank).

Although the prosecution of their crimes has been far from adequate, quite a few cases have been brought by a variety of agencies and plaintiffs. The charges have also been wide-ranging: from investor deception and mortgage abuses to violation of economic sanctions and the facilitation of tax evasion and money laundering.

Even if we limit the universe to those cases in which there was a penalty or settlement worth $100 million or more, the list presented below comes to more than three dozen. The recoveries in these megacases add up to an astounding $82 billion (including mandated repurchases of securities and mortgage modifications). And this figure does not include many large cases that remain unresolved—not to mention the cases that have yet to be brought.

Beyond the numbers, it is difficult to say what all this amounts to. The penalties, while substantial in comparison to those imposed in the past, do not seem to be serving as much of a deterrent against the reckless and unscrupulous business practices that gave rise to the financial meltdown just a few years ago.

The answer may be that the penalties need to be much larger, so that they force crooked banks to taken more drastic actions such as selling off major assets. Or it may be that changes are necessary to those tax code provisions that allow banks (and other corporations) to deduct many of these penalties. Another possibility is that only more aggressive criminal prosecutions of both banks and their executives will get them to clean up their act. Other remedies such as charter revocations also need to be given new consideration.

One way or another, the banking crime wave needs to be brought to an end.


MEGACASES INVOLVING THE BANKING DIRTY DOZEN DISCUSSED IN THEIR CORPORATE RAP SHEETS

Deceiving investors

  • Bank of America (SEC cases re Merrill Lynch): $183 million (2009 and 2010)
  • Bank of America (class actions re Merrill Lynch): $2.7 billion (2011 and 2012)
  • Bank of America (re securities sold to Fannie Mae): $10.3 billion (2013)
  • Citigroup: $285 million (2011)
  • Citigroup: $590 million (2012)
  • Citigroup (class action): $730 million (2013)
  • Credit Suisse: $120 million (2012)
  • Goldman Sachs: $550 million (2010)
  • JPMorgan Chase: $153 million (2011)
  • Wells Fargo: $125 million (2011)


Disputes with purchasers of auction rate securities

  • Deutsche Bank: $1.3 billion (2009)
  • UBS: $18.2 billion (2008 and 2010)
  • Wells Fargo: $1.4 billion (2009)


Mortgage and foreclosure abuses

  • Bank of America (re Countrywide Financial): $463 million (2010 and 2011)
  • Bank of America, Citigroup, JPMorgan Chase, Wells Fargo (and Ally Financial): $25 billion (2012)
  • Bank of America, Citigroup, JPMorgan Chase, Wells Fargo and six others): $8.5 billion (2013)
  • Goldman Sachs: $330 million (2013)
  • HSBC: $249 million (2013)
  • Morgan Stanley (re Saxon Mortgage Services): $227 million (2013)
  • Wells Fargo (racial discrimination): $175 million (2012)
  • Wells Fargo: $2 billion (2010)


Defrauding of federal government regarding mortgage insurance

  • Citigroup: $158 million (2012)
  • Deutsche Bank: $202 million (2012)


Municipal bond bid rigging and illegal payments

  • Bank of America: $137 million (2010)
  • JPMorgan Chase: $747 million (2009)
  • JPMorgan Chase: $228 million (2011)
  • UBS: $160 million (2011)
  • Wells Fargo: $148 million (2011)


Manipulation of the LIBOR interest rate index

  • Barclays:  $450 million (2012)
  • Royal Bank of Scotland: $612 million (2013)
  • UBS: $1.5 billion (2012)


Facilitation of tax evasion and money laundering by customers

  • Deutsche Bank: $553 million (2010)
  • HSBC: $1.3 billion (2012)
  • UBS: $780 million (2009)


Violations of economic sanctions regarding countries such as Iran

  • Barclays: $298 million (2010)
  • Credit Suisse: $536 million (2009)
  • Royal Bank of Scotland (re ABN AMRO): $500 million (2010)


Improper increases in credit card minimum monthly payments

  • JPMorgan Chase: $100 million (2012)


Manipulation of electricity markets

  • Barclays: $470 million (2012)

A Tale of Two States and Subsidy Transparency

florida sunshineFlorida and Mississippi may come close to sharing a border, but they are worlds apart in their current approach to the disclosure of economic development subsidies.

Florida has just launched an Economic Development Incentives Portal that makes it easy to discover which companies have benefited from programs such as the Quick Action Closing Fund, the Qualified Target Industry Tax Refund and the High Impact Performance Incentive.

Online subsidy disclosure is not completely new to Florida. An agency called the Governor’s Office of Tourism, Trade and Economic Development used to post a PDF list of recipients for various programs. After Rick Scott took office as governor in 2011, that agency was put under the auspices of the new Department of Economic Opportunity, and the old disclosure site disappeared. DEO promised to restore transparency and has now made good on that promise.

The new portal, produced by DEO in partnership with Enterprise Florida, covers a dozen programs with a total of about 1,250 entries, including “every non-confidential incentive project with an executed contract since 1996 that received or is on schedule to receive payments from the state of Florida.” DEO promises to add listings for confidential projects as their exemptions from disclosure requirements expire.

Searches can be targeted according to business name, county or date range. The results show company name, industry, subsidy value, county, approval date and project status. They also include both committed and actual numbers for jobs and investment, though in many cases the performance figures are listed as not available. The portal also includes projects that are inactive or have been terminated.

Florida’s portal is an important advance for subsidy transparency. The site would be even more useful if it included street addresses for the subsidized facilities (to facilitate mapping) and allowed downloading of search results in spreadsheet form.  At my request, DEO sent such a spreadsheet for the entire database, which I used both to prepare this piece and to upload the information to Subsidy Tracker.

Mississippi, on the other hand, is resisting online disclosure. The state legislature recently killed a bill that would have required the Mississippi Development Authority to publish an annual report on the tax credits, loans and grants it provides to companies in the name of economic development.

It turns out that the agency produced such a report for internal purposes but did not make it public. A group called the Bigger Pie Forum learned about the document—the 2012 Mississippi Incentives Report—and filed a successful freedom of information act request. Bigger Pie was only able to get a hard copy, but it scanned the report and has posted it online here. The info in that report has also been added to Subsidy Tracker.

Despite the reluctance of state legislators, online subsidy disclosure has come to Mississippi. Perhaps the Magnolia State will realize the futility of resisting official transparency and join the Sunshine State, among about 45 others, in making subsidy information directly available to the public via the web.

Note: The latest addition to CORPORATE RAP SHEETS is a dossier on the Royal Bank of Scotland, including its nine-figure settlements of charges relating to violations of U.S. economic sanctions and manipulation of the LIBOR interest rate index.  Speaking of subsidies, the rap sheet mentions that a U.S. subsidiary of RBS extracted a $100 million subsidy from the state of Connecticut to move its offices from New York to Stamford. Read the rap sheet here.

Ending the Corporate Crime Wave

Stop Corporate CrimeThe top executives of giant corporations may still effectively be immune from criminal prosecution for their misdeeds, but the financial penalties imposed on their companies by regulators are beginning to be felt in the bottom line. The question is whether plunging profits are enough to get corporate malefactors to clean up their act.

In February, the Swiss bank UBS posted a quarterly loss of $2.1 billion (and an annual loss of more than $2.7 billion), largely reflecting the $1.5 billion it paid to resolve charges brought by U.S., Swiss and British prosecutors in connection with the bank’s role in manipulating the LIBOR interest rate index.

Recently, the British bank HSBC reported a 17 percent decline in profits brought about to a great extent by the $1.9 billion in penalties it had to pay to resolve allegations by U.S. regulators that its lax internal controls against money laundering aided customers with links to drug trafficking and terrorism.

Oil giant BP noted that its 2012 results were affected by a “net adverse impact” of more than $5 billion relating to the Gulf of Mexico oil spill, for which the company had to pay $4 billion to resolve charges brought by U.S. prosecutors.

GlaxoSmithKline’s announcement of 2012 results noted that its net cash flow was depressed by the cost of legal settlements, including the $3 billion it had to pay the federal government to resolve allegations of illegal marketing of prescription drugs, withholding of crucial safety data and other abuses.  GSK went so far as to include a figure for cash flow “before legal settlements” similar to the way companies like to show results before interest, taxes and depreciation to make their performance look better.

It will be interesting to see how institutional investors regard these material financial impacts. Corporations have been breaking the law for a long time, and the penalties they incur have come to be seen as a routine cost of doing business. Many corporate critics thus tend to downplay their significance and instead press for more criminal prosecutions. That chorus has just intensified with a statement by U.S. Attorney General Eric Holder that some banks have grown so large that it is difficult to prosecute them.

It is worth noting, however, that all of the cases cited above contained criminal elements. A Japanese subsidiary of UBS pleaded guilty to a felony wire fraud charge. HSBC, the Justice Department said, “accepted responsibility for its criminal conduct and that of its employees” and was offered a deferred prosecution agreement. A BP unit pleaded guilty to felony manslaughter, environmental crimes and obstruction of Congress. GSK pleaded guilty to a three-count criminal information and consented to enter into a corporate integrity agreement with the federal government.

What was missing, of course, were criminal prosecutions of high-level executives in the firms, who presumably had ultimate responsibility for the misdeeds.

I agree that chief executives should be made to pay a stiff personal price for the anti-social practices of their organizations, but I’m not entirely convinced that putting some of them behind bars would be a foolproof deterrent against corporate misconduct. After all, plenty of businesspeople have gone to prison for insider trading, yet the practice never seems to end.

Financial sanctions may be more effective if the trend toward larger penalties is escalated even further. The wave of billion-dollar settlements may be causing some pain, but the companies—especially huge and highly profitable ones like BP—will easily recover. Penalties for serious offenses need to be raised to the point that they force the company to take drastic action, such as selling off major assets. Or the government could directly seize those assets, as some were urging in the wake of the BP disaster in the gulf.

There would undoubtedly be a major backlash from business interests to a policy of imposing penalties that threaten the survival of companies. Yet the alternative is to go on living amid a perpetual corporate crime wave.

Note:  My latest Corporate Rap Sheet is on HSBC, covering both the big penalty cited above and the other scandals surrounding the bank. It can be found here.

Violating the Norm at Deutsche Bank

Layout 1Corporate annual meetings and the publication of company annual reports usually come off like clockwork. Deutsche Bank, however, has found itself in the awkward position of having to call an extraordinary general meeting and delay the issuance of its annual financial documents until after that event.

These unusual measures are symptoms of the disarray of the giant German financial institution as it copes with a series of legal complications stemming from its own ethical shortcomings.

The special meeting was necessitated by a court ruling that invalidated votes that had been taken at last year’s scheduled shareholder gathering. That ruling came as the result of a legal challenge brought by the heirs of German media tycoon Leo Kirch, who blame the bank for forcing his company into bankruptcy.

There’s a silver lining in this for Deutsche Bank management, since the delay in the publication of the annual report (and the 20-F filing with the U.S. Securities and Exchange Commission) means that it will have more time before it needs to give more details about the various legal messes it is in.

It’s not easy keeping track of them all. Deutsche Bank’s reputation has been tarnished in a variety of ways. This is not to say that the bank’s image started off spotless. It did, after all, actively collaborate with the Nazi regime, helping appropriate the assets of financial institutions in conquered countries.

The sins were not all in the distant past. In 1999 Deutsche Bank acquired New York-based Bankers Trust, which was embroiled in a scandal over its diversion of unclaimed customer assets into its own accounts; it had to pay a $60 million fine and plead guilty to criminal charges.

Deutsche Bank itself was then the subject of wide-ranging investigations of its role in helping wealthy customers, especially those from the U.S., engage in tax evasion. The bank was featured in an investigative report on offshore tax abuses issued by a U.S. Senate committee and was eventually charged by federal prosecutors. In 2010 it had to pay $553 million and admit to criminal wrongdoing to resolve allegations that it participated in transactions that promoted fraudulent tax shelters and generated billions of dollars in U.S. tax losses.

That did not put an end to Deutsche Bank’s tax evasion woes. It is currently reported to be the subject of an investigation by German prosecutors of tax dodging through the use of carbon credits. In December, the bank’s German offices were raided by some 500 police officers seeking evidence for the probe.

Deutsche Bank is also widely reported to be under investigation for its role in the manipulation of the LIBOR interest rate index. There has been speculation that the bank’s co-chief executive, Anshu Jain, might lose his job over the issue. Lower-level employees of the bank have already been disciplined.

There’s more. Deutsche Bank is one of the firms that were sued by the U.S. Federal Housing Finance Agency for abuses in the sale of mortgage-backed securities to Fannie Mae and Freddie Mac (the case is pending). Last year, the U.S. Attorney for the Southern District of New York announced that Deutsche Bank would pay $202 million to settle charges that its MortgageIT unit had repeatedly made false certifications to the U.S. Federal Housing Administration about the quality of mortgages to qualify them for FHA insurance coverage.

In January Deutsche Bank agreed to pay a $1.5 million fine to the U.S. Federal Energy Regulatory Commission to settle charges that it had manipulated energy markets in California in 2010.

Deutsche Bank’s misconduct goes beyond the realm of finance. The bank is being targeted by labor activists in Las Vegas, where it owns two casinos. Members of UNITE HERE have been picketing the bank’s Cosmopolitan casino over management’s insistence on weakening standard industry work rules during negotiations on the union’s first contract at the site. As part of its organizing drive, UNITE HERE created a website called Deutsche Bank Risk Alert to highlight the negative issues surrounding the casino’s parent. It has not lacked for content.

Note: This piece draws from my new Corporate Rap Sheet on Deutsche Bank, which can be found here.